HSBC 2012 Annual Report Download - page 533

531
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Term Definition
Credit risk mitigation A technique to reduce the credit risk associated with an exposure by application of credit risk mitigants
such as collateral, guarantee and credit protection.
Credit risk spread The premium over the benchmark or risk-free rate required by the market to accept a lower credit quality.
The yield spread between securities with the same coupon rate and maturity structure but with different
associated credit risks. The yield spread rises as the credit rating worsens.
Credit spread risk The risk that movements in credit spreads will affect the value of financial instruments.
Customer deposits Money deposited by account holders. Such funds are recorded as liabilities.
Customer remediation Customer remediation refers to activities carried out by HSBC to compensate customers for losses or
damages associated with a failure to comply with regulations. Customer remediation is initiated by
HSBC in response to customer complaints, and not specifically initiated by regulatory action.
Customer risk rating (‘CRR’) A scale of 23 grades measuring internal obligor probability of default.
D
Debit valuation adjustment
(‘DVA’)
An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value
the entity’s own credit risk.
Debt restructuring A restructuring by which the terms and provisions of outstanding debt agreements are changed. This is
often done in order to improve cash flow and the ability of the borrower to repay the debt. It can
involve altering the repayment schedule as well as debt or interest charge reduction.
Debt securities Assets on the Group’s balance sheet representing certificates of indebtedness of credit institutions, public
bodies or other undertakings, excluding those issued by Central Banks.
Debt securities in issue Transferable certificates of indebtedness of the Group to the bearer of the certificates. These are liabilities
of the Group and include certificates of deposits.
Deed-in-lieu An arrangement in which a borrower surrenders the deed for a property to the lender without going
through foreclosure proceedings and is subsequently released from any further obligations on the loan.
Defined benefit obligation The present value of expected future payments required to settle the obligations of a defined benefit plan
resulting from employee service.
Delinquency See ‘Arrears’.
Deposits by banks All deposits received from domestic and foreign banks, excluding deposits or liabilities in the form of
debt securities or for which transferable certificates have been issued.
E
Economic capital The internally calculated capital requirement which is deemed necessary by HSBC to support the risks to
which it is exposed.
Economic profit The difference between the return on financial capital invested by shareholders and the cost of that
capital. Economic profit may be expressed as a whole number or as a percentage.
Economic value of equity
(‘EVE’) sensitivity
Considers all re-pricing mismatches in the current balance sheet and calculates the change in market value
that would result from a set of defined interest rate shocks.
Encumbered assets Assets on our balance sheet which have been pledged as collateral against an existing liability.
Equity risk The risk arising from positions, either long or short, in equities or equity-based instruments, which create
exposure to a change in the market price of the equities or equity instruments.
Eurozone Represents the 17 European Union countries that have adopted the euro as their common currency. The
17 countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.
Expected loss (‘EL’) A regulatory calculation of the amount expected to be lost on an exposure using a 12 month time horizon
and downturn loss estimates. EL is calculated by multiplying the Probability of Default (a percentage)
by the Exposure at Default (an amount) and Loss Given Default (a percentage).
Exposure A claim, contingent claim or position which carries a risk of financial loss.
Exposure at default (‘EAD’) The amount expected to be outstanding after any credit risk mitigation, if and when the counterparty
defaults. EAD reflects drawn balances as well as allowance for undrawn amounts of commitments and
contingent exposures.
F
Fair value adjustment An adjustment to the fair value of a financial instrument which is determined using a valuation technique
(level 2 and level 3) to include additional factors that would be considered by a market participant that
are not incorporated within the valuation model.
Fiduciary risk The risk to the Group of breaching its fiduciary duties where it acts in a fiduciary capacity as trustee,
investment manager or as mandated by law or regulation.
Financial Reporting
(‘FINREP’)
Harmonised European financial reporting framework, proposed by the European Union, which will be
used to obtain a comprehensive view of a firm’s risk profile.
First lien A security interest granted over an item of property to secure the repayment of a debt that places its
holder first in line to collect repayment from the sale of the underlying collateral in the event of a
default on the debt.