HSBC 2015 Annual Report Download - page 443

HSBC HOLDINGS PLC
441
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
37 Contingent liabilities, contractual commitments and guarantees
Accounting policy
Contingent liabilities
Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security and contingent liabilities related to
legal proceedings or regulatory matters (see Note 40), are possible obligations that arise from past events whose existence will be confirmed
only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the control of HSBC; or are present
obligations that have arisen from past events but are not recognised because it is not probable that settlement will require the outflow of
economic benefits, or because the amount of the obligations cannot be reliably measured. Contingent liabilities are not recognised in the
financial statements but are disclosed unless the probability of settlement is remote.
Financial guarantee contracts
Financial guarantee contracts are contracts that require HSBC to make specified payments to reimburse the holder for a loss incurred
because a specified debtor fails to make payment when due. Liabilities under financial guarantee contracts which are not classified as
insurance contracts are recorded initially at their fair value, which is generally the fee received or present value of the fee receivable.
Subsequently, financial guarantee liabilities are measured at the higher of the initial fair value, less cumulative amortisation, and the best
estimate of the expenditure required to settle the obligations.
HSBC Holdings has issued financial guarantees and similar contracts to other Group entities. HSBC elects to account for certain guarantees as
insurance contracts in HSBC Holdings’ financial statements, in which case they are measured and recognised as insurance liabilities. This
election is made on a contract by contract basis, and is irrevocable.
Contingent liabilities, contractual commitments and guarantees
HSBC HSBC Holdings
2015 2014 2015 2014
$m $m $m $m
Guarantees and contingent liabilities
Guarantees 85,855 86,385 68,333 52,023
Other contingent liabilities 490 346
–
–
At 31 December 86,345 86,731 68,333 52,023
Commitments
Documentary credits and short-term trade-related transactions 10,168 12,082
–
–
Forward asset purchases and forward forward deposits placed 981 823
–
–
Undrawn formal standby facilities, credit lines and other commitments to lend 655,281 638,475
–
16
At 31 December 666,430 651,380
–
16
The above table discloses the nominal principal amounts of commitments, guarantees and other contingent liabilities.
Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are disclosed in
Notes 29 and 40. Nominal principal amounts represent the amounts at risk should the contracts be fully drawn upon and
clients default. As a significant portion of guarantees and commitments is expected to expire without being drawn upon, the
total of the nominal principal amounts is not indicative of future liquidity requirements.
Guarantees
2015 2014
Guarantees
in favour of
third parties
Guarantees by
HSBC Holdings
in favour of other
Group entities
Guarantees
in favour of
third parties
Guarantees by
HSBC Holdings
in favour of other
Group entities
$m $m $m $m
Guarantee type
Financial guarantees 27,643 55,000 30,406 36,800
Credit-related guarantees1 18,473 13,333 16,672 15,223
Other guarantees 39,739
–
39,307
–
At 31 December 85,855 68,333 86,385 52,023
1 Credit-related guarantees are contracts that have similar features to financial guarantee contracts but fail to meet the definition of a financial
guarantee contract under IAS 39.
The amounts disclosed in the above table are nominal principal amounts and reflect HSBC’s maximum exposure under a large
number of individual guarantee undertakings. The risks and exposures arising from guarantees are captured and managed in
accordance with HSBC’s overall credit risk management policies and procedures. Approximately half the above guarantees
have a term of less than one year. Guarantees with terms of more than one year are subject to HSBC’s annual credit review
process.