HSBC 2012 Annual Report Download - page 194

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Eurozone exposures
192
Eurozone exposures
(Unaudited)
Page Tables Page
Exposures to countries in the eurozone ........................... 192
Basis of preparation ............................................................. 192
Credit default swaps and off-balance sheet ......................... 193 Summary of exposures to eurozone countries ....................... 193
Exposures to peripheral eurozone countries ........................ 194 Exposures to Spain ................................................................ 194
Exposures to Ireland ............................................................. 195
Exposures to Italy .................................................................. 196
Exposures to Greece .............................................................. 197
Exposures to Portugal ........................................................... 198
Commentary on exposures .................................................. 199
Exposures to other eurozone countries ................................ 200 Summary of exposures to other eurozone countries ............. 200
Redenomination risk ......................................................... 201 In-country funding exposure ................................................. 202
Exposures to countries in the eurozone
(Audited)
The tables in this section summarise our exposures
to selected eurozone countries, including:
• governments and central banks along with quasi
government agencies;
• banks;
• other financial institutions and corporates; and
• personal lending.
Exposures to banks, other financial institutions,
other corporates and personal lending are based upon
the counterparty’s country of domicile.
Basis of preparation
The gross exposure represents the on-balance sheet
carrying amounts recorded in accordance with IFRSs
and off-balance sheet exposures.
The net exposure is stated after taking into
account mitigating offsets that are incorporated into
the risk management view of the exposure but do
not meet accounting offset requirements. These risk
mitigating offsets include:
• short positions managed together with trading
assets;
• derivative liabilities for which a legally
enforceable right of offset with derivative assets
exists; and
• collateral received on derivative assets.
Short positions managed together with trading
assets mitigate risk to which HSBC is exposed at the
balance sheet date when, in the event of default, the
trading asset and related short position crystallise
gains and losses simultaneously. When such
relationships exist, an element of the risk will remain
where the short and long positions do not match
exactly, for example, the maturity of the short
position is less than the trading asset or the short
position does not represent an identical security. The
remaining risk is reflected in the gross balance sheet
exposure shown before risk mitigation. However, as
the net position best reflects the effects of a credit
event should it occur at the balance sheet date, we
consider that this measure is a key view of risk
at that date.
Credit risk mitigation includes derivative
liabilities with the same counterparty when a master
netting arrangement is in place and the credit risk
exposure is managed on a net basis or the position
is specifically collateralised, normally in the form
of cash. These amounts do not qualify for net
presentation for accounting purposes as settlement
may not actually be made on a net basis, though we
consider the net presentation more accurately reflects
the risk exposure.
The effect of the transfer of risk to policyholders
under unit-linked insurance contracts, as well as
trading assets which represent collateral to support
associated liabilities, are separately disclosed in the
detailed peripheral country exposures, but are not
deducted from the total net exposure.
CDSs reported in the detailed peripheral
eurozone country tables are not included in the
derivative exposure line as they are typically
transacted with counterparties incorporated or
domiciled outside the country whose exposure they
reference.