HSBC 2001 Annual Report Download - page 114

HSBC HOLDINGS PLC
Financial Review (continued)
112
Liquidity management
Liquidity relates to the ability of a company to meet
its obligations as they fall due. Management of
liquidity in HSBC therefore is carried out at local
level in individual companies instead of on a
consolidated basis because the range of currencies,
markets and time zones across which HSBC operates
means that resources may not readily be transferred
across HSBC to meet liquidity needs.
HSBC requires operating entities to maintain a
strong liquidity position and to manage the liquidity
structure of their assets, liabilities and commitments
so that cash flows are appropriately balanced and all
funding obligations are met when due.
It is the responsibility of local management to
ensure compliance with local regulatory and Group
Executive Committee requirements. Liquidity is
managed on a daily basis by local treasury functions,
with the larger regional treasury sites providing
support to smaller entities where required.
Compliance with liquidity requirements is
monitored by local Asset and Liability Policy
Committees which report to Group Head Office on a
regular basis. This process includes:
• projecting cash flows by major currency and a
consideration of the level of liquid assets in
relation thereto;
• maintenance of strong balance sheet liquidity
ratios;
• monitoring of depositor concentration both in
terms of the overall funding mix and to avoid
undue reliance on large individual depositors;
and
• maintenance of liquidity contingency plans.
These plans include the identification of early
indicators of liquidity problems and actions
which are to be taken to improve the liquidity
position at this stage, together with the actions
which the entity can take to maintain liquidity in
a crisis situation while minimising the long-term
impact on its business.
Current accounts and savings deposits payable
on demand or at short notice form a significant part
of HSBCs overall funding. HSBC places
considerable importance on the stability of these
deposits, which is achieved through HSBCs diverse
geographical retail banking activities and by
maintaining depositor confidence in HSBCs capital
strength. Professional markets are accessed for the
purposes of providing additional funding,
maintaining a presence in local money markets and
optimising asset and liability maturities.
HSBC
HSBC funds itself essentially by raising customer
deposits in local markets and makes limited use of
wholesale market funding; indeed HSBC is a
liquidity provider to financial markets placing
significantly more funds with other banks than it
borrows.
While consolidated figures are not useful for
management purposes, they do provide a broad
overview of the nature of HSBC's liquidity position.
Of total liabilities of US$696 billion, funding
from customers amounted to US$450 billion, of
which US$441 billion was contractually repayable
within one year. However in practice, although
many customer accounts are contractually repayable
on demand or at short notice, deposit balances
remain stable as in the normal course deposits and
withdrawals will offset each other as long as
customers have no doubts that their funds will be
available when required. Other liabilities include
US$54 billion deposits by banks (US$51 billion
repayable within one year), US$32 billion of short
positions in securities and US$27 billion of securities
in issue. Assets available to meet these liabilities,
and to cover outstanding commitments to lend
(US$199 billion), include cash, central bank
balances, items in course of collection and treasury
and other bills (US$30 billion); loans to banks
(US$105 billion  including US$102 billion
repayable within one year) and loans to customers
(US$309 billion  including US$152 billion
repayable within one year). A proportion of customer
loans contractually repayable within one year will
be extended in the normal course of business. In
addition, HSBC held US$161 billion of debt
securities marketable at that value. Of these assets,
some US$31 billion of debt securities and treasury
and other bills have been pledged to secure
liabilities. HSBCs ability to sell securities together
with its access to alternative funding sources such as
inter-bank markets or securitisation, would be the
routes through which HSBC would meet unexpected
outflows in excess of available liquid assets.