HSBC 2012 Annual Report Download - page 216

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Liquidity and funding > Encumbered and unencumbered assets / Contractual maturity of financial liabilities
214
Definitions of the categories included in the table ‘Analysis
of encumbered and unencumbered assets’:
• Encumbered assets are assets on our balance sheet which
have been pledged as collateral against an existing liability,
and as a result are assets which are unavailable to the bank
to secure funding, satisfy collateral needs or be sold to
reduce potential future funding requirements.
• Unencumbered – readily realisable assets are assets
regarded by the bank to be readily realisable in the normal
course of business, to secure funding, meet collateral needs,
or be sold to reduce potential future funding requirements,
and are not subject to any restrictions on their use for these
purposes.
• Unencumbered – other realisable assets are assets where
there are no restrictions on their use to secure funding, meet
collateral needs, or be sold to reduce potential future
funding requirements, but are not readily realisable in the
normal course of business in their current form.
• Unencumbered – reverse repo/stock borrow receivables and
derivative assets are assets related specifically to reverse
repo, stock borrowing and derivative transactions. These are
shown separately as these on-balance sheet assets cannot be
pledged, but often give rise to the receipt of non-cash assets
which are not recognised on the balance sheet, and can
additionally be used to raise secured funding, meet
additional collateral requirements or be sold.
• Unencumbered – cannot be pledged as collateral are assets
that have not been pledged but which we have assessed
could not be pledged and therefore could not be used to
secure funding, meet collateral needs, or be sold to reduce
potential future funding requirements, for example assets
held by the Group’s insurance subsidiaries that back
liabilities to policyholders and support the solvency of these
entities.
Historically, the Group has not recognised any contingent
liquidity value for assets other than those assets defined under
the LFRF as being liquid assets, and any other negotiable
instruments that under stress are assumed to be realisable after
three months, even though they may currently be realisable.
This approach has generally been driven by our risk appetite
not to place any reliance on central banks. In a few cases, we
have recognised the contingent value of discrete pools of
assets, but the amounts involved are insignificant. As a result,
we have reported the majority of our loans and advances to
customers and banks in the category ‘Other realisable assets’
as management would need to perform additional actions in
order to make the assets transferable and readily realisable.
Additional information
The amount of such assets reported in Note 36 on the
Financial Statements may be greater than the book
value of assets reported as being encumbered in the
table on page 213. Examples of where such
differences will occur are:
• ABSs and covered bonds where the amount of
liabilities issued plus the required mandatory
over-collateralisation is lower than the book
value of assets pledged to the pool. Any
difference is categorised in the table above
as ‘Unencumbered – readily realisable assets;’
• negotiable securities held by custodians or
settlement agents, where a floating charge has
been given over the entire holding to secure
intra-day settlement liabilities, are only reported
as encumbered to the extent that we have a
liability to the custodian or settlement agent at
the reporting date, with the balance reported as
‘Unencumbered – readily realisable assets;’ and
• assets pre-positioned with central banks or
government agencies are only reported as
encumbered to the extent that we have secured
funding with the collateral. The unutilised
pre-positioned collateral is reported as
‘Unencumbered – readily realisable assets.’
Contractual maturity of financial liabilities
(Audited)
The balances in the table below will 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 on page 485.
In addition, loan 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.