HSBC 2015 Annual Report Download - page 175

HSBC HOLDINGS PLC
173
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
See page 215 in the Risk Appendix for more information about
interest rate behaviouralisation and the role of BSM.
The NII sensitivity in BSM arises from a combination of
the techniques that BSM use to mitigate the transferred
interest rate risk and the methods they use to optimise
net revenues in line with their defined risk mandate. The
figures in the table below do not incorporate the effect of
any management decisions within BSM, but in reality it is
likely that there would be some short-term adjustment in
BSM positioning to offset the NII effects of the specific
interest rate scenario where necessary.
The NII sensitivity arising from the funding of the trading
book is comprised of the expense of funding trading assets,
while the revenue from these trading assets is reported in
net trading income. This leads to an asymmetry in the NII
sensitivity figures which is cancelled out in our global
business results, where we include both net interest
income and net trading income. It is likely, therefore, that
the overall effect on profit before tax of the funding of the
trading book will be much less pronounced than shown in
the figures below.
Sensitivity of net interest income34
(Audited)
US dollar
bloc
$m
Rest of
Americas
bloc
$m
Hong Kong
dollar
bloc
$m
Rest of
Asia
bloc
$m
Sterling
bloc
$m
Euro
bloc
$m
Total
$m
Change in 2015 net interest income arising from
a shift in yield curves of:
+25 basis points at the beginning of each quarter 410 72 217 369 135 49 1,251
–
25 basis points at the beginning of each quarter (691) (74) (645) (290) (528) (30) (2,258)
Change in 2014 net interest income arising from
a shift in yield curves of:
+25 basis points at the beginning of each quarter 209 (9) 245 265 321 (146) 885
–
25 basis points at the beginning of each quarter (521) (1) (494) (259) (783) (31) (2,089)
For footnote, see page 191.
These estimates are based on certain assumptions,
principally:
• all non-interest rate risk variables remain constant; and
• the size and composition of HSBC’s balance sheet
remains as it was at 31 December 2015.
We expect NII to rise in the rising rate scenario and fall in
the falling rate scenario. This is due to a structural mismatch
between our assets and liabilities (on balance we would
expect our assets to reprice more quickly, and to a greater
extent, than our liabilities).
We are more sensitive to both up and down shocks relative
to 31 December 2014. In the up-shock we benefit from
BSM positioning in US dollars. In the down-shock we lose
due to larger rate decreases on deployment of US and
HK dollar deposits given the higher rate environment.
Sensitivity of capital and reserves
Under CRD IV, available-for-sale (‘AFS’) reserves are
included as part of CET1 capital. We measure the potential
downside risk to the CET1 ratio due to interest rate and
credit spread risk in the AFS portfolio by the portfolio’s
stressed VaR, using a 99% confidence level and an assumed
holding period of one quarter. At December 2015, the
stressed VaR of the portfolio was $2.8bn.
We monitor the sensitivity of reported cash flow hedging
reserves to interest rate movements on a monthly basis by
assessing the expected reduction in valuation of cash flow
hedges due to parallel movements of plus or minus 100bps
in all yield curves. These particular exposures form only a
part of our overall interest rate exposures.
The table below describes the sensitivity of our cash flow
hedge reported reserves to the stipulated movements in
yield curves and the maximum and minimum month-end
figures during the year. The sensitivities are indicative and
based on simplified scenarios.
Sensitivity of cash flow hedging reported reserves to interest rate movements
$m
Maximum
impact
$m
Minimum
impact
$m
At 31 December 2015
+ 100 basis point parallel move in all yield curves (1,235) (1,259) (1,137)
As a percentage of total shareholders’ equity (0.66%) (0.67%) (0.60%)
–
100 basis point parallel move in all yield curves 1,224 1,232 1,133
As a percentage of total shareholders’ equity 0.65% 0.65% 0.60%
At 31 December 2014
+ 100 basis point parallel move in all yield curves (1,260) (1,478) (1,131)
As a percentage of total shareholders’ equity (0.66%) (0.78%) (0.60%)
–
100 basis point parallel move in all yield curves 1,232 1,463 1,126
As a percentage of total shareholders’ equity 0.65% 0.77% 0.59%