Annual Financial Report - 30 of 54

RNS Number : 0462I

HSBC Holdings PLC

20 March 2015

 



Liquidity and funding

	Page		App1		Tables	Page
Liquidity and funding	164		215
Primary sources of funding			215
Liquidity and funding in 2014	164
Customer deposit markets	164
Wholesale senior funding markets	164
Liquidity regulation	164
Management of liquidity and funding risk	165		215
Inherent liquidity risk categorisation			215
Core deposits			216
Advances to core funding ratio	165		216		Advances to core funding ratios	165
Stressed coverage ratios	165		216		Stressed one-month and three-month coverage ratios	165
Stressed scenario analysis			216
Liquid assets of HSBC's principal operating entities	166		217		Liquid assets of HSBC's principal entities	166
Net contractual cash flows	166		217		Net cash inflows/(outflows) for inter-bank loans and intra-group deposits and reverse repo, repo and short positions	167
Wholesale debt monitoring			218
Liquidity behaviouralisation			218
Funds transfer pricing			219
Contingent liquidity risk arising from committed lending facilities	167				The Group's contractual undrawn exposures monitored under the contingent liquidity risk limit structure	167
Sources of funding	168
Repos and stock lending			219		Funding sources and uses	168
Cross-border intra-Group and cross-currency liquidity and funding risk	169				Advances to core funding ratios by material currency	169
Wholesale term debt maturity profile	169				Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities	170
Encumbered and unencumbered assets	171		220		Summary of assets available to support potential future funding and collateral needs (on and off-balance sheet)	171
Collateral	171
The effect of active collateral management			220
Off-balance sheet collateral received and pledged for reverse repo, stock borrowing and derivative transactions	171
Analysis of on-balance sheet encumbered and unencumbered assets	171				Analysis of on-balance sheet encumbered and unencumbered assets	172
Additional contractual obligations	173
Contractual maturity of financial liabilities	173				Cash flows payable by HSBC under financial liabilities by remaining contractual maturities	173
Management of cross-currency liquidity and funding risk			221
HSBC Holdings	174		221		Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities	174
1.. Appendix to Risk - risk policies and practices.

Liquidity and funding

Liquidity risk is the risk that the Group does 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.

There were no material changes to our policies and practices for the management of liquidity and funding risks in 2014.

Following the change in balance sheet presentation explained on page 347, the advances to deposits ratio now excludes non-trading reverse repos and repos with customers. The change had no effect on the 31 December 2013 ratio as disclosed.

A summary of our current policies and practices regarding liquidity and funding is provided in the Appendix to Risk on page 215.

Our 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 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 2014

(Unaudited)

The liquidity position of the Group strengthened in 2014, and we continued to enjoy strong inflows of customer deposits and maintained good access to wholesale markets. Customer accounts increased by 4% (US$47bn) on a constant currency basis. On a reported basis, customer account balances decreased marginally by 1% (US$11bn). Loans and advances to customers increased by 3% (US$28bn) on a constant currency basis. On a reported basis, loans and advances to customers decreased by 2% (US$17bn). These changes resulted in a small decrease in our advances to deposits ratio to 72% (2013:73%)

HSBC UK recorded a decrease in its advances to core funding ('ACF') ratio to 97% at 31 December 2014 (2013: 100%), mainly because core deposits increased more than advances, and due to the disposal of legacy assets.

The Hongkong and Shanghai Banking Corporation recorded an increase in its ACF ratio to 75% at 31 December 2014 (2013: 72%), mainly because advances increased more than core deposits.

HSBC USA recorded an increase in its ACF ratio to 100% at 31 December 2014 (2013: 85%), mainly because of growth in customer advances.

HSBC UK, The Hongkong and Shanghai Banking Corporation and HSBC USA are defined in footnotes 26 to 28 on page 202. The ACF ratio is discussed on page 216.

Customer deposit markets

(On constant currency basis)

Retail Banking and Wealth Management

RBWM customer account balances increased by 4%, driven by our two home markets of the UK and Hong Kong and the majority of our priority growth markets.

Commercial Banking

Customer accounts increased by 7% in 2014, driven by growth in Payments and Cash Management accounts in our two home markets.

Global Banking and Markets

Customer accounts increased by 2% in 2014, mainly from a rise in Payments and Cash Management accounts.

Global Private Banking

GPB customer account balances decreased by 10% compared with the end of 2013 following the continued repositioning of the GPB business and a client portfolio disposal.

Wholesale senior funding markets

Conditions in the bank wholesale debt markets were generally positive in 2014, supporting increased primary market issuance volumes across the capital structure from banks when compared with 2013. Periods of volatility remained, however, particularly during the latter months of the year when concerns around the decline in the oil price and growth in Europe combined with a variety of other factors to leave the outlook uncertain, with market confidence affected as a result.

In 2014, we issued the equivalent of US$20bn (2013: US$16bn) of senior term debt securities in the public capital markets in a range of currencies and maturities from a number of Group entities.

Liquidity regulation

(Unaudited)

The European adoption of the Basel Committee framework (legislative texts known as the Capital Requirements Regulation and Directive - 'CRR/CRD IV') was published in June 2013, and required the reporting of the liquidity coverage ratio ('LCR') and the net stable funding ratio ('NSFR') to European regulators from January 2014, which was subsequently delayed until 30 June 2014. A significant level of interpretation has been required to report and calculate the LCR as defined in the CRR text as certain areas were only addressed by the finalisation of the LCR delegated act in January 2015, which will not become a regulatory standard until 1 October 2015. The European calibration of NSFR is still pending following the Basel Committee's final recommendation in October 2014.

Management of liquidity and funding risk

(Audited)

Our liquidity and funding risk management framework ('LFRF') employs two key measures to define, monitor and control the liquidity and funding risk of each of our operating entities. The ACF ratio is used to monitor the structural long-term funding position, and the stressed coverage ratio, incorporating Group-defined stress scenarios, is used to monitor the resilience to severe liquidity stresses.

The three principal entities listed in the tables below represented 66% (2013: 66%) of the Group's customer accounts. Including the other principal entities, the percentage was 95% (2013: 94%).

Advances to core funding ratio

The table to the right 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 2014 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.

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 greater 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 related to assets contractually maturing within the time period.

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

Advances to core funding ratios²⁵

(Audited)

		At 31 December
		2014		2013
		%		%
HSBC UK26
Year-end		97		100
Maximum		102		107
Minimum		97		100
Average		100		104
The Hongkong and Shanghai Banking Corporation27
Year-end		75		72
Maximum		75		77
Minimum		72		70
Average		74		74
HSBC USA28
Year-end		100		85
Maximum		100		85
Minimum		85		78
Average		95		82
Total of HSBC's other principal entities29
Year-end		92		93
Maximum		94		93
Minimum		92		89
Average		93		91

For footnotes, see page 202.

The one-month stressed coverage ratio for HSBC UK increased as certain assets previously treated as realisable under stress between 1 and 3 months were reassessed as being either realisable within 1 month or beyond 3 months. The three-month stressed coverage ratio remained broadly unchanged.

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

Stressed one-month and three-month coverage ratios²⁵

(Audited)

		Stressed one-month coverage ratios at 31 December				Stressed three-month coverage ratios at 31 December
		2014		2013		2014		2013
		%		%		%		%
HSBC UK26
Year-end		117		106		109		109
Maximum		117		114		109		109
Minimum		102		100		103		101
Average		107		106		104		103
The Hongkong and Shanghai Banking Corporation27
Year-end		117		119		112		114
Maximum		119		131		114		126
Minimum		114		113		111		109
Average		116		119		112		114
HSBC USA28
Year-end		111		114		104		110
Maximum		122		126		111		119
Minimum		108		110		104		109
Average		115		115		107		112
Total of HSBC's other principal entities29
Year-end		121		121		108		114
Maximum		121		128		115		119
Minimum		114		113		108		109
Average		117		120		110		113

For footnotes, see page 202.

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.

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 function, primarily for the purpose of managing liquidity risk, in line with the LFRF.

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

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 217.

Liquid assets of HSBC's principal entities

(Audited)

		Estimated liquidity value30
		31 December                         2014		31 December                          2013
		US$m		US$m
HSBC UK26
Level 1		131,756		168,877
Level 2		4,688		1,076
Level 3		66,011		63,509
		202,455		233,462
The Hongkong and Shanghai Banking Corporation27
Level 1		109,683		108,713
Level 2		4,854		5,191
Level 3		7,043		7,106
		121,580		121,010
HSBC USA28
Level 1		51,969		43,446
Level 2		15,184		12,709
Level 3		197		5,044
Other		9,492		8,000
		76,842		69,199
Total of HSBC's other principal entities29
Level 1		141,659		144,774
Level 2		10,419		12,419
Level 3		13,038		13,663
		165,116		170,856

For footnotes, see page 202.

All assets held within the liquid asset portfolio are unencumbered.

Liquid assets held by HSBC UK decreased as a result of switching from central bank reserves to short-term reverse repo placements. A corresponding improvement can be seen in HSBC UK's net repo cash flow shown in the net contractual cash flow table.

Liquid assets held by The Hongkong and Shanghai Banking Corporation remained broadly unchanged.

Liquid assets held by HSBC USA increased, mainly due to a reduction in short-term repos and the reclassification of some assets as liquid in line with the LFRF.

Net contractual cash flows

The following table quantifiesthe 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 170.

For a summary of our policy and definitions of the classifications shown in the table below, see the Appendix to Risk on page 218.

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

(Audited)

		At 31 December 2014				At 31 December 2013
		Cash flows       within 1 month		Cash flows from         1 to 3 months		Cash flows       within 1 month		Cash flows from         1 to 3 months
		US$m		US$m		US$m		US$m
Interbank and intra-Group loans and deposits
HSBC UK26		(14,110)		(2,846)		(19,033)		(5,272)
The Hongkong and Shanghai Banking Corporation27		(1,277)		6,862		2,314		7,487
HSBC USA28		(18,353)		1,648		(24,268)		729
Total of HSBC's other principal entities29		(1,322)		6,158		4,295		10,149
Reverse repo, repo, stock borrowing, stock lending and outright short positions (including intra-Group)
HSBC UK26		(16,070)		11,551		(39,064)		149
The Hongkong and Shanghai Banking Corporation27		8,139		8,189		12,662		4,297
HSBC USA28		(4,928)		-		(11,001)		-
Total of HSBC's other principal entities29		(22,110)		(11,120)		(40,223)		9,551

For footnotes, see page 202.

Contingent liquidity risk arising from committed lending facilities

(Audited)

The Group's operating entities provide commitments to various counterparties. In terms of liquidity risk, the most significant 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 443), 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 2014, HSBC UK had undrawn committed lending facilities to these conduits of US$11bn (2013: US$15bn), of which Solitaire represented US$9.5bn (2013: US$11bn) and the remaining US$1.6bn (2013: US$4bn) pertained to Mazarin. Although HSBC UK 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 2014, the commercial paper issued by Solitaire and Mazarin was entirely held by HSBC UK. 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 UK26				HSBC USA28				HSBC Canada				The Hongkong and Shanghai Banking Corporation27
		2014		2013		2014		2013		2014		2013		2014		2013
		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn		US$bn
Commitments to conduits
Consolidated multi-seller conduits
-  total lines		9.8		10.1		2.3		2.5		0.2		1.0		-		-
-  largest individual lines		0.9		0.7		0.5		0.5		0.2		0.7		-		-
Consolidated securities investment conduits  - total lines		11.1		14.8		-		-		-		-		-		-
Third party conduits - total lines		-		-		0.1		0.7		-		-		-		-
Commitments to customers
-  five largest31		2.6		4.4		7.1		6.3		1.7		1.5		1.5		2.4
-  largest market sector32		16.6		9.5		10.0		8.2		3.5		3.4		3.2		2.7

For footnotes, see page 202.

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 219.

Funding sources and uses³³

(Audited)

		2014		2013
		US$m		US$m
Sources
Customer accounts1		1,350,642		1,361,297
Deposits by banks1		77,426		86,507
Repurchase agreements - non-trading1		107,432		164,220
Debt securities issued		95,947		104,080
Subordinated liabilities		26,664		28,976
Financial liabilities designated
at fair value		76,153		89,084
Liabilities under insurance contracts		73,861		74,181
Trading liabilities		190,572		207,025
- repos		3,798		17,421
- stock lending		12,032		12,218
- settlement accounts		17,454		17,428
- other trading liabilities		157,288		159,958
Total equity		199,979		190,459
At 31 December		2,198,676		2,305,829

 

		2014		2013
		US$m		US$m
Uses
Loans and advances to customers1		974,660		992,089
Loans and advances to banks1		112,149		120,046
Repurchase agreements - non-trading1		161,713		179,690
Trading assets		304,193		303,192
- reverse repos		1,297		10,120
- stock borrowing		7,969		10,318
- settlement accounts		21,327		19,435
- other trading assets		273,600		263,319
Financial investments		415,467		425,925
Cash and balances with central banks
		129,957		166,599
Net deployment in other balance sheet assets and liabilities
		100,537		118,288
At 31 December		2,198,676		2,305,829

For footnote, see page 202.

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

(Unaudited)

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 co-ordinated 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 and HSBC Bank.

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 restricts 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 2014.

Advances to core funding ratios by material currency²⁵

(Unaudited)

		At 31      December
		2014
		%
HSBC UK26
Local currency (sterling)		98
US dollars		100
Euros		99
Consolidated		97
The Hongkong and Shanghai Banking Corporation27
Local currency (Hong Kong dollars)		81
US dollars		74
Consolidated		75
HSBC USA28
Local currency (US dollars)		100
Consolidated		100
Total of HSBC's other principal entities29
Local currency		97
US dollars		101
Consolidated		92

For footnotes, see page 202.

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

Wholesale term debt maturity profile

(Unaudited)

The maturity profile of our wholesale term debt obligations is set out in the table on page 170, '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.

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

(Unaudited)

		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
		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m
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 ABCP		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
Debt securities issued		25,426		9,752		17,942		11,659		10,587		31,839		46,934		31,066		185,205
-  unsecured CDs and CP		7,589		7,206		9,867		3,239		5,043		4,449		2,749		−		40,142
-  unsecured senior MTNs		6,284		71		5,448		4,221		3,062		21,428		33,091		21,433		95,038
-  unsecured senior structured notes		987		1,423		1,952		1,689		1,718		3,712		6,036		5,021		22,538
-  secured covered bonds		−		−		−		1,250		−		225		2,747		3,317		7,539
-  secured ABCP		10,383		−		−		−		−		−		−		−		10,383
-  secured ABS		74		1,052		675		1,260		764		1,861		2,311		−		7,997
-  others		109		−		−		−		−		164		−		1,295		1,568
Subordinated liabilities		−		28		1,171		144		6		1,460		3,374		41,801		47,984
-  subordinated debt securities		−		28		1,171		144		6		460		3,374		34,899		40,082
-  preferred securities		−		−		−		−		−		1,000		−		6,902		7,902
At 31 December 2013		25,426		9,780		19,113		11,803		10,593		33,299		50,308		72,867		233,189

Encumbered and unencumbered assets

(Unaudited)

The table on page 172, 'Analysis of on-balance sheet encumbered and unencumbered assets', summarises the total on and off-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.

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.

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 the 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'.

At 31 December 2014, the Group held US$1,770bn of unencumbered assets that could be used to support potential future funding and collateral needs, representing 85% of the total assets that can support funding and collateral needs (on and off-balance sheet). Of this amount, US$765bn (US$684bn on-balance sheet) were assessed to be readily realisable.

Summary of assets available to support potential future funding and collateral needs (on and off-balance sheet)

(Unaudited)

		2014		2013
		US$bn		US$bn
Total on-balance sheet assets		2,634		2,671
Less:
Reverse repo/stock borrowing receivables and derivative assets		(518)		(482)
Other assets that cannot be pledged as collateral		(281)		(255)
Total on-balance sheet assets that can support funding and collateral needs		1,835		1,934
Add off-balance sheet assets:
Fair value of collateral received from reverse repo/stock borrowing/derivatives that is available to sell or repledge		257		265
Total assets that can support funding and collateral needs (on and off-balance sheet)		2,092		2,199
Less:
On-balance sheet assets pledged		(146)		(187)
Off-balance sheet collateral received from reverse repo/stock borrowing/derivatives which has been repledged or sold		(176)		(187)
Assets available to support future funding and collateral needs at 31 December		1,770		1,825

For a summary of our policy on collateral management and definition of encumbrance, see the Appendix to Risk on page 213.

Collateral

(Unaudited)

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 US$257bn at 31 December 2014 (2013: US$265bn). The fair value of any such collateral sold or repledged was US$176bn (2013: US$187bn). 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 US$81bn (2013: US$78bn) of unencumbered collateral available to support potential future funding and collateral needs at 31 December 2014.

Analysis of on-balance sheet encumbered and unencumbered assets

The table below presents an analysis of on-balance sheet holdings only, and shows the amounts of balance sheet assets on a liquidity and funding basis that are encumbered. The table therefore excludes any available off-balance sheet holdings received in respect of reverse repos, stock borrowing or derivatives.

Analysis of on-balance sheet encumbered and unencumbered assets

(Unaudited)

		Encumbered		Unencumbered
		Assets         pledged as            collateral		Readily           realisable                  assets		Other           realisable                  assets		Reverse       repos/stock          borrowing        receivables and derivative                  assets		Cannot         be pledged       as collateral		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Cash and balances at central banks		-		123,990		425		-		5,542		129,957
Items in the course of collection from other banks		-		-		-		-		4,927		4,927
Hong Kong Government certificates of indebtedness		-		-		-		-		27,674		27,674
Trading assets		59,162		182,305		17,869		9,266		35,591		304,193
- . Treasury and other eligible bills		1,994		14,122		4		-		50		16,170
- . debt securities		46,311		94,941		23		-		257		141,532
- . equity securities		10,857		62,855		1,497		-		40		75,249
- . loans and advances to banks		-		2,530		4,818		2,781		17,452		27,581
- . loans and advances to customers		-		7,857		11,527		6,485		17,792		43,661
Financial assets designated at fair value		-		177		2,330				26,530		29,037
- . Treasury and other eligible bills		-		-		52		-		4		56
- . debt securities		-		177		1,058		-		7,656		8,891
- . equity securities		-		-		1,139		-		18,867		20,006
- . loans and advances to banks and customers		-		-		81		-		3		84
Derivatives		-		-		-		345,008		-		345,008
Loans and advances to banks		178		3,573		74,231		762		33,405		112,149
Loans and advances to customers		24,329		92,238		840,241		1,170		16,682		974,660
Reverse repurchase agreements - non-trading		-		-		-		161,713		-		161,713
Financial investments		61,785		275,732		22,780		-		55,170		415,467
- . Treasury and other eligible bills		3,176		75,896		2,167		-		278		81,517
- . debt securities		58,609		192,411		18,266		-		53,970		323,256
- . equity securities		-		7,425		2,347		-		922		10,694
Prepayments, accrued income and other assets		294		6,334		29,780		-		38,768		75,176
Current tax assets		-		-		-		-		1,309		1,309
Interest in associates and joint ventures		-		22		17,875		-		284		18,181
Goodwill and intangible assets		-		-		-		-		27,577		27,577
Deferred tax		-		-		-		-		7,111		7,111
At 31 December 2014		145,748		684,371		1,005,531		517,919		280,570		2,634,139
Cash and balances at central banks		-		161,240		269		-		5,090		166,599
Items in the course of collection from other banks		-		-		-		-		6,021		6,021
Hong Kong Government certificates of indebtedness		-		-		-		-		25,220		25,220
Trading assets		99,326		142,211		14,654		20,438		26,563		303,192
- . Treasury and other eligible bills		3,402		17,976		206		-		-		21,584
- . debt securities		83,563		57,850		-		-		231		141,644
- . equity securities		8,373		55,156		363		-		-		63,892
- . loans and advances to banks		1,796		2,813		6,151		5,263		11,861		27,884
- . loans and advances to customers		2,192		8,416		7,934		15,175		14,471		48,188
Financial assets designated at fair value		19		2,706		1,883		-		33,822		38,430
- . Treasury and other eligible bills		-		-		-		-		50		50
- . debt securities		19		826		776		-		10,968		12,589
- . equity securities		-		1,874		1,103		-		22,734		25,711
- . loans and advances to banks and customers		-		6		4		-		70		80
Derivatives		-		-		-		282,265		-		282,265
Loans and advances to banks		162		8,342		80,231		-		31,311		120,046
Loans and advances to customers		32,218		102,203		854,724		65		2,879		992,089
Reverse repurchase agreements - non-trading		-		-		-		179,690		-		179,690
Financial investments		54,473		289,093		31,096		-		51,263		425,925
- . Treasury and other eligible bills		2,985		72,849		2,052		-		226		78,112
- . debt securities		51,488		210,516		25,720		-		50,949		338,673
- . equity securities		-		5,728		3,324		-		88		9,140
Prepayments, accrued income and other assets		1,028		16,788		24,619		-		34,407		76,842
Current tax assets		-		-		-		-		985		985
Interest in associates and joint ventures		-		12		16,356		-		272		16,640
Goodwill and intangible assets		-		-		-		-		29,918		29,918
Deferred tax		-		-		-		-		7,456		7,456
At 31 December 2013		187,226		722,595		1,023,832		482,458		255,207		2,671,318

The US$24bn (2013: US$32bn) of loans and advances to customers reported in the table above as encumbered have been pledged predominantly to support the issuance of secured debt instruments such as covered bonds and ABSs, including asset-backed commercial paper issued by consolidated multi-seller conduits. It also includes those pledged in relation to any other form of secured borrowing.

In total, the Group pledged US$121bn (2013: US$150bn) of negotiable securities, predominantly as a result of market-making in securities financing to our clients.

Additional contractual obligations

Under the terms of our current collateral obligations under derivative contracts (which are ISDA compliant CSA contracts and contracts entered for pension obligations, and exclude the contracts entered for special purpose vehicles and additional termination events) and based on the positions at 31 December 2014, we estimate that we could be required to post additional collateral of up to US$0.5bn (2013: US$0.7bn) in the event of a one-notch downgrade in credit ratings, which would increase to US$1.2bn (2013: US$1.2bn) in the event of a two-notch downgrade.

Contractual maturity of financial liabilities

(Audited)

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                    US$m		Due within              3 months                    US$m		Due between 3     and 12 months US$m		Due between     1 and 5 years                    US$m		Due after                 5 years                    US$m
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
Deposits by banks		56,198		22,965		3,734		2,819		686
Customer accounts		1,097,159		196,048		57,243		15,520		726
Repurchase agreements - non-trading		37,117		112,621		14,177		-		-
Trading liabilities		207,025		-		-		-		-
Financial liabilities designated at fair value		18,689		1,967		3,223		39,554		64,144
Derivatives		269,554		456		1,684		6,099		1,638
Debt securities in issue		2,528		35,401		33,695		46,141		6,526
Subordinated liabilities		55		391		2,687		11,871		44,969
Other financial liabilities		31,996		30,706		6,564		2,376		1,300
		1,720,321		400,555		123,007		124,380		119,989
Loan and other credit-related commitments		377,352		79,599		55,124		59,747		16,872
Financial guarantees and similar contracts		18,039		4,796		12,040		7,479		3,988
At 31 December 2013		2,115,712		484,950		190,171		191,606		140,849

HSBC Holdings

(Audited)

Liquidity risk in HSBC Holdings is overseen by 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 debt obligations with internal loan cash flows and by maintaining an appropriate liquidity buffer that is monitored by HALCO.

At 31 December 2014, the Group had US$9.2bn of CRD IV compliant non-common equity capital instruments, of which US$3.5bn were classified as tier 2 and US$5.7bn were classified as additional tier 1 (for details on the additional tier 1 instruments issued during the year see Note 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 similarcontracts 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
		US$m		US$m		US$m		US$m		US$m
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
Amounts owed to HSBC undertakings		2,053		1,759		2,315		857		5,654
Financial liabilities designated at fair value		-		299		671		4,921		26,518
Derivatives		704		-		-		-		-
Debt securities in issue		-		37		1,780		279		1,451
Subordinated liabilities		-		225		676		5,699		24,812
Other financial liabilities		-		885		284		-		-
		2,757		3,205		5,726		11,756		58,435
Loan commitments		1,245		-		-		-		-
Financial guarantees and similar contracts		52,836		-		-		-		-
At 31 December 2013		56,838		3,205		5,726		11,756		58,435

 

END

 

 

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