HSBC 2012 Annual Report Download - page 227

225
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Foreign exchange risk
Total foreign exchange VAR arising within HSBC
Holdings in 2012 was as follows:
HSBC Holdings – foreign exchange VAR
(Audited)
2012
US$m
2011
US$m
At 31 December .............................. 69.9 47.7
Average ........................................... 51.4 43.3
Minimum ........................................ 39.2 38.2
Maximum ........................................ 69.9 48.3
The foreign exchange risk largely arises from
loans to subsidiaries of a capital nature that are not
denominated in the functional currency of either the
provider or the recipient and which are accounted
for as financial assets. Changes in the carrying
amount of these loans due to foreign exchange rate
differences are taken directly to HSBC Holdings’
income statement. These loans, and most of the
associated foreign exchange exposures, are
eliminated on a Group consolidated basis.
Sensitivity of net interest income
(Audited)
HSBC Holdings monitors net interest income
sensitivity over a 5-year time horizon reflecting
the longer-term perspective on interest rate risk
management appropriate to a financial services
holding company. The table below sets out the effect
on HSBC Holdings’ future net interest income over
a 5-year time horizon of incremental 25 basis point
parallel falls or rises in all yield curves worldwide at
the beginning of each quarter during the 12 months
from 1 January 2013.
Assuming no management actions, a sequence
of such rises would increase planned net interest
income for the next five years by US$532m (2011:
decrease of US$269m), while a sequence of such
falls would decrease planned net interest income
by US$329m (2011: increase of US$248m). These
figures incorporate the effect of any option features
in the underlying exposures.
Sensitivity of HSBC Holdings’ net interest income to interest rate movements55
(Audited)
US dollar
bloc
Sterling
bloc
Euro
bloc Total
US$m US$m US$m US$m
Change in projected net interest income as at 31 December
arising from a shift in yield curves
2012
of + 25 basis points at the beginning of each quarter
0-1 year ................................................................................. 83 (23) 4 64
2-3 years ............................................................................... 303 (108) 37 232
4-5 years ............................................................................... 319 (120) 37 236
of – 25 basis points at the beginning of each quarter
0-1 year ................................................................................. (34) 21 (2) (15)
2-3 years ............................................................................... (139) 65 (17) (91)
4-5 years ............................................................................... (306) 118 (35) (223)
Change in projected net interest income as at 31 December
arising from a shift in yield curves
2011
of + 25 basis points at the beginning of each quarter
0-1 year ................................................................................. (13) 11 4 2
2-3 years ............................................................................... (161) 33 33 (95)
4-5 years ............................................................................... (244) 21 47 (176)
of – 25 basis points at the beginning of each quarter
0-1 year ................................................................................. 14 (11) (4) (1)
2-3 years ............................................................................... 127 (27) (27) 73
4-5 years ............................................................................... 244 (21) (47) 176
For footnote, see page 249.
The interest rate sensitivities tabulated above
are illustrative only and are based on simplified
scenarios. The figures represent hypothetical
movements in net interest income based on our
projected yield curve scenarios, HSBC Holdings’
current interest rate risk profile and assumed changes
to that profile during the next five years. The main
driver of the change in the US dollar projected net
interest income sensitivity was a change in the
assumptions for projected capital funding. The change
to the GBP projected net interest income sensitivity
was caused by changes in the composition of HSBC
Holdings’ investments. Changes to assumptions
concerning the risk profile over the next five years
can have a significant impact on the net interest income
sensitivity for that period. However, the figures do not