HSBC 2015 Annual Report Download - page 490

Shareholder information (continued)
Glossary
HSBC HOLDINGS PLC
488
Term Definition
Market risk The risk that movements in market risk factors, including foreign exchange rates and commodity prices, interest
rates, credit spreads and equity prices will reduce income or portfolio values.
Medium term notes (‘MTN’s) Issued by corporates across a range of maturities. Under MTN Programmes notes are offered on a regular and
continuous basis to investors.
Mortgage-backed securities
(‘MBS’s)
Securities that represent interests in groups of mortgages, which may be on residential or commercial properties.
Investors in these securities have the right to cash received from future mortgage payments (interest and/or
principal). When the MBS references mortgages with different risk profiles, the MBS is classified according to the
highest risk class.
Mortgage-related assets Referenced to underlying mortgages.
Mortgage vintage The year a mortgage was originated.
N
Negative equity mortgages Equity is the value of the asset less the outstanding balance on the loan. Negative equity arises when the value of the
property purchased is below the balance outstanding on the loan.
Net asset value per share Total shareholders’ equity, less non-cumulative preference shares and capital securities, divided by the number of
ordinary shares in issue.
Net interest income The amount of interest received or receivable on assets net of interest paid or payable on liabilities.
Net interest income sensitivity Considers all pricing mismatches in the current balance sheet, with suitable assumptions for balance sheet growth in
the future, and calculates the change in net interest income that would result from a set of defined interest rate
shocks.
Net principal exposure The gross principal amount of a financial asset after taking account of credit protection purchased but excluding the
effect of any counterparty credit valuation adjustment to that protection. It includes assets that benefit from
monoline protection, except where this protection is purchased with a CDS.
Net stable funding ratio
(‘NSFR’)
The ratio of available stable funding to required stable funding over a one year time horizon, assuming a stressed
scenario. Available stable funding would include items such as equity capital, preferred stock with a maturity of
over one year and liabilities with an assessed maturity of over one year. The Basel III rules require this ratio to be
over 100% with effect from 2018. The NSFR is still subject to an observation period and review to address any
unintended consequences.
Non-conforming mortgages US mortgages that do not meet normal lending criteria. Examples include mortgages where the expected level of
documentation is not provided (such as with income self-certification), or where poor credit history increases the
risk and results in pricing at a higher than normal lending rate.
Non-trading portfolios Portfolios that comprise positions that primarily arise from the interest rate management of our retail and
commercial banking assets and liabilities, financial investments designated as available for sale and held to
maturity, and exposures arising from our insurance operations.
Non-trading risk The market risk arising from non-trading portfolios.
O
Offset mortgages A flexible type of mortgage where a borrower’s savings balance(s) held at the same institution can be used to offset
the mortgage balance outstanding. The borrower pays interest on the net balance which is calculated by
subtracting the credit balance(s) from the debit balance. As part of the offset mortgage a total facility limit is
agreed and the borrower may redraw up to a pre-agreed limit.
Overnight Index Swap
discounting
A method of valuing collateralised interest rate derivatives which uses a discount curve that reflects the overnight
interest rate typically earned or paid in respect of collateral received.
Operational risk The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events,
including legal risk.
Over-the-counter (‘OTC’) A bilateral transaction (e.g. derivatives) that is not exchange traded and that is valued using valuation models.
P
Pension risk The risk that contributions from Group companies and members fail to generate sufficient funds to meet the cost of
accruing benefits for the future service of active members, and the risk that the performance of assets held in
pension funds is insufficient to cover existing pension liabilities.
Performance shares Awards of HSBC Holdings ordinary shares under employee share plans that are subject to the achievement of
corporate performance conditions.
Personal lending See ‘Retail loans’.
PRA standard rules The method prescribed by the PRA for calculating market risk capital requirements in the absence of VaR model
approval.
Prime A US description for mortgages granted to the most creditworthy category of borrowers.
Private equity investments Equity securities in operating companies not quoted on a public exchange, often involving the investment of capital
in private companies or the acquisition of a public company that results in its delisting.
Probability of default (‘PD’) The probability that an obligor will default within one year.
Profit participation contribution
(‘PIS’)
A federal tax which is imposed monthly on gross revenue earned by legal entities in Brazil. It is a mandatory
employer contribution to an employee savings initiative.
Prudential Regulation Authority
(‘PRA’)
The Prudential Regulation Authority in the UK is responsible for prudential regulation and supervision of banks,
building societies, credit unions, insurers and major investment firms.