Annual Financial Report - 31 of 56

RNS Number : 6313S

HSBC Holdings PLC

18 March 2016

 

Liquidity and funding

Liquidity and funding	155		204
Primary sources of funding			204
Liquidity and funding in 2015	155
Wholesale senior funding markets	155
Liquidity regulation	155
Liquidity coverage ratio - EC LCR Delegated Regulation	155				Operating entities' LCRs	156
Management of liquidity and funding risk	156		204
Forward-looking framework	156
2015 framework	156
Inherent liquidity risk categorisation			204
Core deposits			205
Advances to core funding ratio	156		205		Advances to core funding ratios	157
Stressed coverage ratios	157		205		Stressed one-month and three-month coverage ratios	157
Stressed scenario analysis			205
Liquid assets of HSBC's principal operating entities	157		206		Liquid assets of HSBC's principal entities	158
Net contractual cash flows	158		206		Net cash inflows/(outflows) for interbank loans and intra-Group deposits and reverse repo, repo and short positions	159
Wholesale debt monitoring			207
Liquidity behaviouralisation			207
Funds transfer pricing			207
Contingent liquidity risk arising from committed lending facilities	159				The Group's contractual undrawn exposures monitored under the contingent liquidity risk limit structure	159
Sources of funding	159
Repos and stock lending			208		Funding sources and uses	160
Cross-border intra-Group and cross-currency liquidity and funding risk	160				Advances to core funding ratios by material currency	160
Wholesale term debt maturity profile	162				Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities	161
Analysis of on-balance sheet encumbered and unencumbered assets and off-balance sheet collateral	162		209
On-balance sheet encumbered and unencumbered assets	162
Off-balance sheet collateral	162				Analysis of on-balance sheet encumbered and unencumbered assets	163
Additional contractual obligations	164
Contractual maturity of financial liabilities	164				Cash flows payable by HSBC under financial liabilities by remaining contractual maturities	164
Management of cross-currency liquidity and funding risk			210
HSBC Holdings	165		210		Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities	165
1.. Appendix to Risk - risk policies and practices.

Liquidity and funding

Liquidity risk is the risk that the Group will not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive cost. The risk arises from mismatches in the timing of cash flows.

The risk arises when the funding needed for illiquid asset positions cannot be obtained at the expected terms and when required.

A summary of our current policies and practices regarding liquidity and funding is provided in the Appendix to Risk on page 204.

Liquidity and funding risk management framework

The objective of our liquidity framework is to allow us to withstand very severe liquidity stresses. It is designed to be adaptable to changing business models, markets and regulations.

Our Liquidity and Funding Risk Management Framework ('LFRF') requires:

·   liquidity to be managed by operating entities on a stand-alone basis with no implicit reliance on the Group or central banks;

·   all operating entities to comply with their limits for the advances to core funding ratio; and

·   all operating entities to maintain a positive stressed cash flow position out to three months under prescribed Group stress scenarios.

Liquidity and funding in 2015

The liquidity position of the Group remained strong in 2015. Our ratio of customer advances to customer deposits was 72% (2014: 72%). Both customer loans and customer accounts fell on a reported basis with these movements including:

·   the transfer to 'Assets held for sale' and 'Liabilities of disposal groups held for sale' of balances relating to the planned disposal of our operations in Brazil;

·   a reduction in corporate overdraft and current account balances relating to a small number of clients in our Payments and Cash Management business in the UK who settled their overdraft and deposit balances on a net basis, with customers increasing the frequency with which they settled their positions; and

·   movements in currency markets, which changed the value of our customer loans and customer accounts when translated from their local currency into US dollars.

The HSBC UK liquidity group recorded an increase in its advances to core funding ('ACF') ratio to 101% at 31 December 2015 (2014: 97%), mainly because of higher wholesale lending while core funding remained unchanged.

The Hongkong and Shanghai Banking Corporation recorded a decrease in its ACF ratio to 69% at 31 December 2015 (2014: 75%), mainly because of an increase in core deposits coupled with a decrease in corporate loans.

HSBC USA recorded a decrease in its ACF ratio to 89% at 31 December 2015 (2014: 100%), mainly because of growth in core funding, which was partially offset by higher loans to customers.

The HSBC UK liquidity group, The Hongkong and Shanghai Banking Corporation and HSBC USA are defined in footnotes 19 to 21 on page 191. The ACF ratio is discussed on page 205.

Wholesale senior funding markets

Conditions in the bank wholesale debt markets were generally positive in 2015. Periods of volatility remained, however, particularly during the latter months of the year when concerns over the decline in oil prices and economic growth in Europe and mainland China combined with a variety of other factors to leave the outlook uncertain, affecting market confidence.

In 2015, a number of Group entities issued the equivalent of $22bn (2014: $20bn) of long-term debt securities in the public capital markets in a range of currencies and maturities.

Liquidity regulation

Under European Commission ('EC') Delegated Regulation 2015/61, the consolidated liquidity coverage ratio ('LCR') became a minimum regulatory standard from 1 October 2015.

The European calibration of the net stable funding ratio ('NSFR') is still pending following the Basel Committee's final recommendation in October 2014, and therefore external disclosure of this metric is currently on hold.

Non-EU regulators are expected to apply the LCR and NSFR reporting requirement locally and there is the potential for local requirements to diverge from the rules applicable to the Group.

Liquidity coverage ratio - EC LCR Delegated Regulation

The calculation of the EC LCR metric involves two key assumptions: the definition of operational deposits and the ability to transfer liquidity from non-EU legal entities.

·   We define operational deposits as transactional (current) accounts arising from the provision of custody services by HSBC Security Services or Payments and Cash Management services, where the operational component is assessed to be the lower of the current balance and the separate notional values of debits and credits across the account in the previous calculation period.

·   No transferability of liquidity from non-EU entities is assumed other than to the extent currently permitted. This results in $94bn of high-quality liquid assets ('HQLA') being excluded from the Group's LCR.

On the basis of these assumptions, we reported to the PRA a Group EC LCR at 31 December 2015 (on the basis of the Delegated Regulation) of 116%.

The ratio of total consolidated HQLAs to the EC LCR denominator at 31 December 2015 was 142%, reflecting the additional $94bn of HQLAs excluded from the Group LCR.

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.

Advances to core funding ratios²³

		At 31 December
		2015		2014
		%		%
HSBC UK liquidity group19
Year-end		101		97
Maximum		101		102
Minimum		96		97
Average		98		100
The Hongkong and Shanghai Banking Corporation20
Year-end		69		75
Maximum		75		75
Minimum		69		72
Average		72		74
HSBC USA21
Year-end		89		100
Maximum		100		100
Minimum		89		85
Average		94		95
Total of HSBC's other principal entities24
Year-end		91		92
Maximum		95		94
Minimum		91		92
Average		93		93

For footnotes, see page 191.

Stressed coverage ratios

The ratios tabulated below express stressed cash inflows as a percentage of stressed cash outflows over both one-month and three-month time horizons. Operating entities are required to maintain a ratio of 100% or more out to three months.

Inflows included in the numerator of the stressed coverage ratio are generated from liquid assets (net of assumed haircuts) and cash inflows relating to assets contractually maturing within the time period.

In general, customer loans and advances are assumed to be renewed on maturity and as a result do not generate a cash inflow.

The stressed coverage ratios for The Hongkong and Shanghai Banking Corporation increased due to higher deposits and lower advances year-on-year. The ratios for HSBC USA increased due to a growth in core funding.

The stressed coverage ratios for the other entities remained broadly unchanged.

Stressed one-month and three-month coverage ratios²³

			Stressed one-month coverage ratios at 31 December				Stressed three-month coverage ratios at 31 December
			2015		2014		2015		2014
			%		%		%		%
HSBC UK liquidity group19
Year-end			113		117		105		109
Maximum			127		117		114		109
Minimum			112		102		105		103
Average			117		107		108		104
The Hongkong and Shanghai Banking Corporation20
Year-end			129		117		120		112
Maximum			129		119		120		114
Minimum			113		114		111		111
Average			119		116		115		112
HSBC USA21
Year-end			126		111		116		104
Maximum			126		122		116		111
Minimum			109		108		101		104
Average			117		115		108		107
Total of HSBC's other principal entities24
Year-end			126		122		111		108
Maximum			126		126		111		120
Minimum			110		114		105		108
Average			116		118		108		111

For footnotes, see page 191.

Liquid assets of HSBC's principal operating entities

The table below shows the estimated liquidity value (before assumed haircuts) of assets categorised as liquid and used for the purposes of calculating the three-month stressed coverage ratios, as defined under the LFRF.

The level of liquid assets reported reflects the stock of unencumbered liquid assets at the reporting date adjusted for the effect of reverse repo, repo and collateral swaps maturing within three months as the liquidity value of these transactions is reflected as a contractual cash flow reported in the net contractual cash flow table. Repos are sale and repurchase transactions while reverse repos are transactions under which securities are purchased under commitments to sell.

Like reverse repo transactions with residual contractual maturities within three months, unsecured interbank loans maturing within three months are not included in liquid assets, but are treated as contractual cash inflows.

Liquid assets are held and managed on a stand-alone operating entity basis. Most of the liquid assets shown are held directly by each operating entity's Balance Sheet Management ('BSM') department, primarily for the purpose of managing liquidity risk, in line with the LFRF.

The liquid asset buffer may also include securities held in held-to-maturity portfolios. In order to qualify as part of the liquid asset buffer, all held-to-maturity portfolios must have a deep and liquid repo market in the underlying security.

Liquid assets also include any unencumbered liquid assets held outside BSM for any other purpose. The LFRF gives ultimate control of all unencumbered assets and sources of liquidity to BSM.

For a summary of our liquid asset policy and definitions of the classifications shown in the table below, see the Appendix to Risk on page 206.

Liquid assets of HSBC's principal entities

		Estimated liquidity value25
		31 December                         2015		31 December                          2014
		$m		$m
HSBC UK liquidity group19
Level 1		118,193		131,756
Level 2		4,722		4,688
Level 3		59,378		66,011
		182,293		202,455
The Hongkong and Shanghai Banking Corporation20
Level 1		132,870		109,683
Level 2		6,029		4,854
Level 3		7,346		7,043
		146,245		121,580
HSBC USA21
Level 1		42,596		51,969
Level 2		11,798		15,184
Level 3		9		197
Other		5,557		9,492
		59,960		76,842
Total of HSBC's other principal entities24
Level 1		108,789		115,770
Level 2		10,764		7,940
Level 3		5,486		9,360
		125,039		133,070

For footnotes, see page 191.

All assets held within the liquid asset portfolio are unencumbered.

·   The quantum of liquid assets held by the HSBC UK liquidity group on a constant currency basis was broadly unchanged.

·   Liquid assets held by The Hongkong and Shanghai Banking Corporation increased due to added holdings of government securities and higher regulatory reserves. This was driven by the investment of surplus deposits.

·   Liquid assets held by HSBC USA decreased, mainly due to a switch from regulatory reserves to reverse repo placements. A corresponding improvement can be seen in HSBC USA's net repo cash flow shown in the net contractual cash flow table.

Net contractual cash flows

The following table quantifies the contractual cash flows from interbank and intra-Group loans and deposits, and reverse repo, repo (including intra-Group transactions) and short positions for the principal entities shown. These contractual cash inflows and outflows are reflected gross in the numerator and denominator, respectively, of the one and three-month stressed coverage ratios and should be considered alongside the level of liquid assets.

Outflows included in the denominator of the stressed coverage ratios include the principal outflows associated with the contractual maturity of wholesale debt securities reported in the table headed 'Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities' on page 161.

For a summary of our policy and definitions of the classifications shown in the table on page 159, see the Appendix to Risk on page 206.

Net cash inflows/(outflows) for interbank and intra-Group loans and deposits and reverse repo, repo and short positions

		At 31 December 2015				At 31 December 2014
		Cash flows       within 1 month		Cash flows from         1 to 3 months		Cash flows       within 1 month		Cash flows from         1 to 3 months
		$m		$m		$m		$m
Interbank and intra-Group loans and deposits
HSBC UK liquidity group19		(18,534)		(3,712)		(14,110)		(2,846)
The Hongkong and Shanghai Banking Corporation20		3,702		6,027		(1,277)		6,862
HSBC USA21		(12,432)		937		(18,353)		1,648
Total of HSBC's other principal entities24		2,875		6,123		(1,522)		7,310
Reverse repo, repo, stock borrowing, stock lending and outright short positions (including intra-Group)
HSBC UK liquidity group19		(16,861)		1,313		(16,070)		11,551
The Hongkong and Shanghai Banking Corporation20		15,068		12,326		8,139		8,189
HSBC USA21		19,431		-		(4,928)		-
Total of HSBC's other principal entities24		(22,571)		5,240		(33,235)		(11,528)

For footnotes, see page 191.

Contingent liquidity risk arising from committed lending facilities

The Group's operating entities provide commitments to various counterparties. The most significant liquidity risk relates to committed lending facilities which, whilst undrawn, give rise to contingent liquidity risk as they could be drawn during a period of liquidity stress. Commitments are given to customers and committed lending facilities are provided to consolidated multi-seller conduits established to enable clients to access flexible market-based sources of finance (see page 442), consolidated securities investment conduits and third-party sponsored conduits.

The consolidated securities investment conduits include Solitaire Funding Limited ('Solitaire') and Mazarin Funding Limited ('Mazarin'). They issue asset-backed commercial paper secured against the portfolio of securities held by them. At 31 December 2015, the HSBC UK liquidity group had undrawn committed lending facilities to these conduits of $8.2bn (2014: $11bn), of which Solitaire represented $7.7bn (2014: $9.5bn) and the remaining $0.5bn (2014: $1.6bn) pertained to Mazarin. Although the HSBC UK liquidity group provides a liquidity facility, Solitaire and Mazarin have no need to draw on it so long as HSBC purchases the commercial paper issued, which it intends to do for the foreseeable future. At 31 December 2015, the commercial paper issued by Solitaire and Mazarin was entirely held by the HSBC UK liquidity group. Since HSBC controls the size of the portfolio of securities held by these conduits, no contingent liquidity risk exposure arises as a result of these undrawn committed lending facilities.

The table below shows the level of undrawn commitments to customers outstanding for the five largest single facilities and the largest market sector, and the extent to which they are undrawn.

The Group's contractual undrawn exposures at 31 December monitored under the contingent liquidity risk limit structure

(Audited)

		HSBC UK liquidity group19				HSBC USA21				HSBC Canada22				The Hongkong and Shanghai Banking Corporation20
		2015		2014		2015		2014		2015		2014		2015		2014
		$bn		$bn		$bn		$bn		$bn		$bn		$bn		$bn
Commitments to conduits
Consolidated multi-seller conduits
- total lines		13.4		9.8		3.3		2.3		0.2		0.2		-		-
- largest individual lines		0.4		0.9		0.5		0.5		0.1		0.2		-		-
Consolidated securities investment conduits  - total lines		8.2		11.1		-		-		-		-		-		-
Third-party conduits - total lines		-		-		0.1		0.1		-		-		-		-
Commitments to customers
- five largest26		4.9		2.6		6.4		7.1		1.4		1.7		1.7		1.5
- largest market sector27		17.9		16.6		9.7		10.0		3.4		3.5		3.4		3.2

For footnotes, see page 191.

Sources of funding

(Audited)

Our primary sources of funding are customer current accounts and customer savings deposits payable on demand or at short notice. We issue wholesale securities (secured and unsecured) to supplement our customer deposits and change the currency mix, maturity profile or location of our liabilities.

The 'Funding sources and uses' table below, which provides a consolidated view of how our balance sheet is funded, should be read in light of the LFRF, which requires operating entities to manage liquidity and funding risk on a stand-alone basis.

The table analyses our consolidated balance sheet according to the assets that primarily arise from operating activities and the sources of funding primarily supporting these activities. The assets and liabilities that do not arise from operating activities are presented as a net balancing source or deployment of funds.

The level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed in liquid assets (cash and balances with central banks and financial investments) as required by the LFRF.

Loans and other receivables due from banks continued to exceed deposits taken from banks. The Group remained a net unsecured lender to the banking sector.

For a summary of sources and utilisation of repos and stock lending, see the Appendix to Risk on page 208.

Funding sources and uses²⁸

		2015		2014
		$m		$m
Sources
Customer accounts		1,289,586		1,350,642
Deposits by banks		54,371		77,426
Repurchase agreements - non-trading		80,400		107,432
Debt securities issued		88,949		95,947
Liabilities of disposal groups held for sale		36,840		6,934
Subordinated liabilities		22,702		26,664
Financial liabilities designated
at fair value		66,408		76,153
Liabilities under insurance contracts		69,938		73,861
Trading liabilities		141,614		190,572
- repos		442		3,798
- stock lending		8,859		12,032
- settlement accounts		10,530		17,454
- other trading liabilities		121,783		157,288
Total equity		197,518		199,978
At 31 December		2,048,326		2,205,609
Uses
Loans and advances to customers		924,454		974,660
Loans and advances to banks		90,401		112,149
Repurchase agreements - non-trading		146,255		161,713
Assets held for sale		43,900		7,647
Trading assets		224,837		304,193
- reverse repos		438		1,297
- stock borrowing		7,118		7,969
- settlement accounts		12,127		21,327
- other trading assets		205,154		273,600
Financial investments		428,955		415,467
Cash and balances with central banks		98,934		129,957
Net deployment in other balance sheet assets and liabilities		90,590		99,823
At 31 December		2,048,326		2,205,609

For footnote, see page 191.

Cross-border, intra-Group and cross-currency liquidity and funding risk

The stand-alone operating entity approach to liquidity and funding mandated by the LFRF restricts the exposure of our operating entities to the risks that can arise from extensive reliance on cross-border funding. Operating entities manage their funding sources locally, focusing predominantly on the local customer deposit base. The RBWM, CMB and GPB customer relationships that give rise to core deposits within an operating entity generally reflect a local customer
relationship with that operating entity. Access to public debt markets is coordinated globally by the Global Head of Balance Sheet Management and the Group Treasurer with Group ALCO monitoring all planned public debt issuance on a monthly basis. As a general principle, operating entities are only permitted to issue in their local currency and are encouraged to focus on local private placements. The public issuance of debt instruments in foreign currency is tightly controlled and generally restricted to HSBC Holdings plc and HSBC Bank plc.

A central principle of our stand-alone approach to LFRF is that operating entities place no future reliance on other Group entities. However, operating entities may, at their discretion, utilise their respective committed facilities from other Group entities if necessary. In addition, intra-Group large exposure limits are applied by national regulators to individual legal entities locally, which restrict the unsecured exposures of legal entities to the rest of the Group to a percentage of the lender's regulatory capital.

Our LFRF also considers the ability of each entity to continue to access foreign exchange markets under stress when a surplus in one currency is used to meet a deficit in another currency, for example, by using the foreign currency swap markets. Where appropriate, operating entities are required to monitor stressed coverage ratios and ACF ratios for non-local currencies and set limits for them. Foreign currency swap markets in currency pairs settled through the Continuous Link Settlement Bank are considered to be extremely deep and liquid and it is assumed that capacity to access these markets is not exposed to idiosyncratic risks. The table below shows the ACF ratios by material currencies for the year ended 31 December 2015.

Advances to core funding ratios by material currency²³

		At     31 December
		2015
		%
HSBC UK liquidity group19
Local currency (sterling)		98
US dollars		128
Euros		111
Consolidated		101
The Hongkong and Shanghai Banking Corporation20
Local currency (Hong Kong dollars)		76
US dollars		60
Consolidated		69
HSBC USA21
Local currency (US dollars)		89
Consolidated		89
Total of HSBC's other principal entities24
Local currency		96
US dollars		89
Consolidated		91

For footnotes, see page 191.

For all HSBC's operating entities, the only material currencies (those that exceed 5% of Group balance sheet liabilities) are the Hong Kong dollar, euro, sterling and US dollar.

Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities

		Due not               more than                    1 month		Due over                    1 month                      but not               more than                  3 months		Due over                  3 months                      but not               more than                  6 months		Due over                  6 months                      but not               more than                  9 months		Due over                  9 months                      but not               more than                       1 year		Due over                       1 year                      but not               more than                     2 years		Due over                     2 years                      but not               more than                     5 years		Due over                     5 years		Total
		$m		$m		$m		$m		$m		$m		$m		$m		$m
Debt securities issued		19,447		11,803		20,565		6,712		5,274		20,150		43,463		27,398		154,812
- unsecured CDs and CP		5,830		8,426		11,250		2,944		1,224		955		108		10		30,747
- unsecured senior MTNs		4,229		2,240		7,130		2,687		1,711		10,850		27,239		18,407		74,493
- unsecured senior structured notes		883		964		1,544		875		2,166		4,158		9,741		5,262		25,593
- secured covered bonds		-		-		-		-		-		2,074		1,619		2,577		6,270
- secured asset-backed commercial paper		8,414		-		-		-		-		-		-		-		8,414
- secured ABS		20		173		195		206		173		313		1,554		114		2,748
- others		71		-		446		-		-		1,800		3,202		1,028		6,547
Subordinated liabilities		-		816		-		-		34		648		6,826		34,423		42,747
- subordinated debt securities		-		-		-		-		34		648		6,338		32,494		39,514
- preferred securities		-		816		-		-		-		-		488		1,929		3,233
At 31 December 2015		19,447		12,619		20,565		6,712		5,308		20,798		50,289		61,821		197,559
Debt securities issued		17,336		17,161		19,030		9,352		9,055		27,312		40,855		31,928		172,029
- unsecured CDs and CP		5,637		9,337		9,237		4,793		3,010		3,506		4,158		185		39,863
- unsecured senior MTNs		1,300		5,679		7,684		2,922		4,794		17,676		23,523		20,715		84,293
- unsecured senior structured notes		1,363		1,082		2,049		1,149		979		4,757		8,444		6,789		26,612
- secured covered bonds		-		-		-		205		-		-		2,765		2,942		5,912
- secured asset-backed commercial paper		8,602		-		-		-		-		-		-		-		8,602
- secured ABS		212		1,063		60		283		272		915		1,562		-		4,367
- others		222		-		-		-		-		458		403		1,297		2,380
Subordinated liabilities		-		150		-		3		185		113		5,556		40,487		46,494
- subordinated debt securities		-		150		-		3		185		113		5,556		34,750		40,757
- preferred securities		-		-		-		-		-		-		-		5,737		5,737
At 31 December 2014		17,336		17,311		19,030		9,355		9,240		27,425		46,411		72,415		218,523

Wholesale term debt maturity profile

The maturity profile of our wholesale term debt obligations is set out in the table on page 161, 'Wholesale funding principal cash flows payable by HSBC under financial liabilities by remaining contractual maturities'.

The balances in the table do not agree directly with those in the consolidated balance sheet as the table presents gross cash flows relating to principal payments and not the balance sheet carrying value, which includes debt securities and subordinated liabilities measured at fair value.

Analysis of on-balance sheet encumbered and unencumbered assets and off-balance sheet collateral

On-balance sheet encumbered and unencumbered assets

The table on page 163, 'Analysis of on-balance sheet encumbered and unencumbered assets', summarises the total on-balance sheet assets that are capable of supporting future funding and collateral needs and shows the extent to which these assets are currently pledged for this purpose. The objective of this disclosure is to facilitate an understanding of available and unrestricted assets that could be used to support potential future funding and collateral needs.

Under 'Off-balance sheet collateral' below we discuss the off-balance sheet collateral received and re-pledged, and the level of available unencumbered off-balance sheet collateral.

The disclosure is not designed to identify assets which would be available to meet the claims of creditors or to predict assets that would be available to creditors in the event of a resolution or bankruptcy.

The table has been significantly updated since 2014 following the issuance of a 'Dear CFO' letter by the PRA, and acknowledgement by the Enhanced Disclosure Task Force that its Recommendation 19 and Figure 5 could be met without providing disclosure that has the potential to reveal the use or non-use of emergency liquidity assistance provided by central banks on a confidential basis. There are two key changes. The first is to segregate out any assets
positioned with central banks for the specific purpose of emergency liquidity provision irrespective of whether any liquidity has actually been drawn and assets encumbered. The second is to include an analysis of the source of encumbrance for those assets reported as encumbered.

An asset is defined as encumbered if it has been pledged as collateral against an existing liability and, as a result, is no longer available to the Group to secure funding, satisfy collateral needs or be sold to reduce our funding requirement. An asset is therefore categorised as unencumbered if it has not been pledged against an existing liability. Unencumbered assets are further analysed into four separate sub-categories: 'Readily realisable assets', 'Other realisable assets', 'Reverse repo/stock borrowing receivables and derivative assets' and 'Cannot be pledged as collateral'.

For a summary of our policy on collateral management and definition of encumbrance, see the Appendix to Risk on page 209.

Off-balance sheet collateral

Off-balance sheet collateral received and pledged for reverse repo, stock borrowing and derivative transactions

The fair value of assets accepted as collateral that we are permitted to sell or repledge in the absence of default was $228bn at 31 December 2015 (2014: $257bn). The fair value of any such collateral actually sold or repledged was $150bn (2014: $176bn). We are obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard reverse repo, stock borrowing and derivative transactions.

The fair value of collateral received and repledged in relation to reverse repos, stock borrowing and derivatives is reported on a gross basis. The related balance sheet receivables and payables are reported on a net basis where required under IFRSs offset criteria.

As a consequence of reverse repo, stock borrowing and derivative transactions where the collateral received could be but had not been sold or repledged, we held $78bn (2014: $81bn) of unencumbered collateral available to support potential future funding and collateral needs at 31 December 2015.

Analysis of on-balance sheet encumbered and unencumbered assets

		Assets encumbered as a result of transactions with counterparties other than central banks						Assets                positioned                 at central      banks (i.e. pre-       positioned plus         encumbered)		Unencumbered assets not positioned at central banks								Total
		As a result of covered bonds		As a result of securitisations		Other				Assets readily available for encumbrance		Other assets capable of being encumbered		Reverse repos/stock borrowing receivables and derivative assets		Assets that cannot be encumbered
		$m		$m		$m		$m		$m		$m		$m		$m		$m
Cash and balances at central banks		-		-		-		98		95,545		350		-		2,941		98,934
Items in the course of collection from other banks		-		-		-		-		-		-		-		5,768		5,768
Hong Kong Government certificates of indebtedness		-		-		-		-		-		-		-		28,410		28,410
Trading assets		-		-		31,605		1,573		138,070		8,269		7,520		37,800		224,837
- Treasury and other eligible bills		-		-		1,099		984		5,618		128		-		-		7,829
- Debt securities		-		-		25,890		492		72,377		233		-		46		99,038
- Equity securities		-		-		4,616		-		59,430		2,445		-		-		66,491
- Loans and advances to banks		-		-		-		-		456		2,890		2,763		16,194		22,303
- Loans and advances to customers		-		-		-		97		189		2,573		4,757		21,560		29,176
Financial assets designated at fair value		-		-		-		-		1,775		1,244		-		20,833		23,852
- Treasury and other eligible bills		-		-		-		-		258		-		-		138		396
- Debt securities		-		-		-		-		1,327		265		-		2,749		4,341
- Equity securities		-		-		-		-		178		979		-		17,838		18,995
- Loans and advances to banks and customers		-		-		-		-		12		-		-		108		120
Derivatives		-		-		-		-		-		-		288,476		-		288,476
Loans and advances to banks		-		1,329		-		1,702		2,054		61,992		815		22,509		90,401
Loans and advances to customers		6,947		15,288		6,848		20,683		60,031		792,650		1,531		20,476		924,454
Reverse repurchase agreements - non-trading		-		-		-		-		-		-		146,255		-		146,255
Financial investments		-		-		25,078		8,150		325,101		14,753		-		55,873		428,955
- Treasury and other eligible bills		-		-		509		3,675		98,866		1,177		-		324		104,551
- Debt securities		-		-		24,561		4,475		224,355		11,124		-		54,054		318,569
- Equity securities		-		-		8		-		1,880		2,452		-		1,495		5,835
Prepayments, accrued income and other assets		-		-		63		-		4,685		65,190		-		28,360		98,298
Current tax assets		-		-		-		-		-		-		-		1,221		1,221
Interest in associates and joint ventures		-		-		-		-		51		18,794		-		294		19,139
Goodwill and intangible assets		-		-		-		-		-		-		-		24,605		24,605
Deferred tax		-		-		-		-		-		-		-		6,051		6,051
At 31 December 2015		6,947		16,617		63,594		32,206		627,312		963,242		444,597		255,141		2,409,656

Additional contractual obligations

Under the terms of our current collateral obligations under derivative contracts (which are ISDA compliant CSA contracts and contracts entered into for pension obligations and exclude the contracts entered for special purpose vehicles and additional termination events), and based on the positions at 31 December 2015, we estimate that we could be required to post additional collateral of up to $0.4bn (2014: $0.5bn) in the event of a one-notch downgrade in credit ratings, which would increase to $0.7bn (2014: $1.2bn) in the event of a two-notch downgrade.

Contractual maturity of financial liabilities

The balances in the table below do not agree directly with those in our consolidated balance sheet as the table incorporates, on an undiscounted basis, all cash flows
relating to principal and future coupon payments (except for trading liabilities and derivatives not treated as hedging derivatives). Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Trading liabilities and derivatives not treated as hedging derivatives are included in the 'On demand' time bucket and not by contractual maturity.

A maturity analysis of repos and debt securities in issue included in trading liabilities is presented in Note 31 on the Financial Statements.

In addition, loans and other credit-related commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The undiscounted cash flows potentially payable under financial guarantees and similar contracts are classified on the basis of the earliest date they can be called.

Cash flows payable by HSBC under financial liabilities by remaining contractual maturities

(Audited)

		On                demand                          $m		Due within              3 months                          $m		Due between 3     and 12 months $m		Due between     1 and 5 years                          $m		Due after                 5 years                          $m
Deposits by banks		42,182		6,643		1,452		4,029		107
Customer accounts		1,076,595		160,368		43,289		10,964		263
Repurchase agreements - non-trading		13,181		64,109		2,144		535		543
Trading liabilities		141,614		-		-		-		-
Financial liabilities designated at fair value		327		4,077		6,149		24,642		41,365
Derivatives		276,141		255		970		1,721		1,652
Debt securities in issue		377		25,910		23,886		35,499		6,993
Subordinated liabilities		-		803		971		10,151		28,132
Other financial liabilities		59,298		17,476		7,226		10,188		1,014
		1,609,715		279,641		86,087		97,729		80,069
Loan and other credit-related commitments		425,000		93,149		73,115		60,078		15,089
Financial guarantees and similar contracts		12,579		5,727		15,091		9,915		2,805
At 31 December 2015		2,047,294		378,517		174,293		167,722		97,963
Deposits by banks		52,682		17,337		3,600		3,580		390
Customer accounts		1,088,769		187,207		61,687		15,826		390
Repurchase agreements - non-trading		8,727		91,542		6,180		23		1,057
Trading liabilities		190,572		-		-		-		-
Financial liabilities designated at fair value		365		2,201		9,192		28,260		39,397
Derivatives		335,168		375		1,257		4,231		1,517
Debt securities in issue		9		32,513		30,194		37,842		7,710
Subordinated liabilities		-		737		1,256		10,003		42,328
Other financial liabilities		41,517		23,228		4,740		1,893		988
		1,717,809		355,140		118,106		101,658		93,777
Loan and other credit-related commitments		406,561		101,156		64,582		62,312		16,769
Financial guarantees and similar contracts		13,166		6,306		13,753		9,575		4,278
At 31 December 2014		2,137,536		462,602		196,441		173,545		114,824

HSBC Holdings

Liquidity risk in HSBC Holdings is overseen by Holdings ALCO ('HALCO'). Liquidity risk arises because of HSBC Holdings' obligation to make payments to debt holders as they fall due. The liquidity risk related to these cash flows is managed by matching external debt obligations with internal loan cash flows and by maintaining an appropriate liquidity buffer that is monitored by HALCO.

At 31 December 2015, the Group had new issuance of $6.8bn of CRD IV compliant non-common equity capital instruments, of which $3.2bn were classified as tier 2 and $3.6bn were classified as additional tier 1 (for details on tier 2 and additional tier 1 instruments see Notes 30 and 35 on the Financial Statements).

The balances in the table below do not agree directly with those on the balance sheet of HSBC Holdings as the table incorporates, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for derivatives not treated as hedging derivatives). Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Derivatives not treated as hedging derivatives are included in the 'On demand' time bucket.

In addition, loan commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The undiscounted cash flows potentially payable under financial guarantees and similar contracts are classified on the basis of the earliest date on which they can be called.

Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities

(Audited)

		On                demand		Due within              3 months		Due between               3 and 12                 months		Due between     1 and 5 years		Due after                 5 years
		$m		$m		$m		$m		$m
Amounts owed to HSBC undertakings		257		1,375		424		110		-
Financial liabilities designated at fair value		-		1,145		655		5,202		20,779
Derivatives		2,065		-		-		213		-
Debt securities in issue		-		15		47		250		1,176
Subordinated liabilities		-		229		699		5,149		25,474
Other financial liabilities		-		1,426		152		-		-
		2,322		4,190		1,977		10,924		47,429
Loan commitments		-		-		-		-		-
Financial guarantees and similar contracts		68,333		-		-		-		-
At 31 December 2015		70,655		4,190		1,977		10,924		47,429
Amounts owed to HSBC undertakings		1,441		985		42		449		-
Financial liabilities designated at fair value		-		210		642		6,345		19,005
Derivatives		1,066		-		-		103		-
Debt securities in issue		-		16		50		263		1,303
Subordinated liabilities		-		252		770		5,815		28,961
Other financial liabilities		-		1,132		158		-		-
		2,507		2,595		1,662		12,975		49,269
Loan commitments		16		-		-		-		-
Financial guarantees and similar contracts		52,023		-		-		-		-
At 31 December 2014		54,546		2,595		1,662		12,975		49,269

 

END

 

 

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