HSBC 2015 Annual Report Download - page 158

Report of the Directors: Risk (continued)
Liquidity and funding
HSBC HOLDINGS PLC
156
The liquidity position of the Group can also be represented
by the stand-alone ratios of each of our principal operating
entities. The table below displays the individual LCR levels
for the principal HSBC operating entities on an EC LCR
Delegated Regulation basis. The ratios shown for operating
entities in non-EU jurisdictions can vary from their local LCR
measures due to differences in the way non-EU regulators
have implemented the Basel III recommendations.
Operating entities’ LCRs
At
31 December
2015
%
HSBC UK liquidity group19 107
The Hongkong and Shanghai Banking Corporation –
Hong Kong Branch20
150
The Hongkong and Shanghai Banking Corporation –
Singapore Branch20 189
HSBC Bank USA21 116
HSBC France22 127
Hang Seng Bank 199
HSBC Canada22 142
HSBC Bank China 183
For footnotes, see page 191.
At 31 December 2015, all the Group’s operating entities
were individually within the risk tolerance level established
by the Board and applicable under the new internal
framework which took effect from 1 January 2016.
Management of liquidity and funding risk
Forward-looking framework
From 1 January 2016, the Group implemented a new
internal LFRF, using the external LCR and NSFR regulatory
framework as a foundation, but adding extra metrics/limits
and overlays to address the risks that we consider are not
adequately reflected by the external regulatory framework.
The key aspects of the new internal LFRF are:
i. stand-alone management of liquidity and funding by
operating entity;
ii. operating entity classification by inherent liquidity risk
(‘ILR’) categorisation;
iii. minimum operating entity EC LCR requirement
depending on ILR categorisation (EC LCR Delegated
Regulation basis);
iv. minimum operating entity NSFR requirement
depending on ILR categorisation (on the basis of the
Basel 295 publication, pending finalisation of the EC
NSFR delegated regulation);
v. legal entity depositor concentration limit;
vi. operating entity three-month and twelve-month
cumulative rolling term contractual maturity limits
covering deposits from banks, deposits from non-bank
financials and securities issued;
vii. annual individual liquidity adequacy assessment
(‘ILAA’) by operating entity; and
viii. during 2016, we will also introduce a minimum
operating entity LCR requirement by currency.
The new internal LFRF and the risk tolerance (limits) were
approved by the RMM and the Board on the basis of
recommendations made by the Group Risk Committee.
Our ILAA process has been designed to identify risks that
are not reflected in the Group framework and where
additional limits are assessed to be required locally, and to
validate the risk tolerance at the operating entity level.
The decision to create an internal framework modelled
around the external regulatory framework was driven by
the need to ensure that the external and internal
frameworks are directionally aligned and that the Group’s
internal funds transfer pricing framework incentivises the
global businesses within each operating entity to
collectively comply with both the external (regulatory) and
the internal risk tolerance.
Current framework
The 2015, LFRF employed two key measures to define,
monitor and control the liquidity and funding risk of each
of our operating entities. The ACF ratio was used to
monitor the structural long-term funding position, and the
stressed coverage ratio, incorporating Group-defined stress
scenarios, was used to monitor the resilience to severe
liquidity stresses. Although in place before and during
2015, this framework and its accompanying metrics will
be demised as the new framework outlined above is
implemented.
The three principal entities listed in the tables below
represented 65% (2014: 66%) of the Group’s customer
accounts. Including the other principal entities, the
percentage was 88% (2014: 88%).
Advances to core funding ratio
The table overleaf shows the extent to which loans and
advances to customers in our principal banking entities
were financed by reliable and stable sources of funding.
ACF limits set for principal operating entities at
31 December 2015 ranged between 80% and 120%.
Core funding represents the core component of customer
deposits and any term professional funding with a residual
contractual maturity beyond one year. Capital is excluded
from our definition of core funding.