HSBC 2008 Annual Report Download - page 239

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securities which are deemed to be liquid, are
excluded from the advances to deposits ratio, as are
current accounts and savings accounts from
customers deemed to be ‘non-core’. The definition
of a non-core deposit includes a consideration of the
size of the customer’s total deposit balances. Due to
the distinction between core and non-core
depositors, the Group’s measure of advances to
deposits will be more restrictive than that which
could be inferred from the published financial
statements.
The three banking entities listed in the table
below represented 70 per cent of HSBC’s total core
deposits at 31 December 2008 (2007: 71 per cent).
The table demonstrates that loans and advances to
customers in HSBC’s principal banking entities are
broadly financed by reliable and stable sources of
funding. HSBC would meet any unexpected net cash
outflows by selling securities and accessing
additional funding sources such as interbank or
collateralised lending markets. The Group also uses
measures other than the advances to deposits ratio to
manage liquidity risk, including the ratio of net
liquid assets to customer liabilities and projected
cash flow scenario analyses.
Ratio of net liquid assets to customer
liabilities
(Audited)
Net liquid assets are liquid assets less all funds
maturing in the next 30 days from wholesale market
sources and from customers who are deemed to be
professional. For this purpose, HSBC defines liquid
assets as cash balances, short-term interbank
deposits and highly-rated debt securities available
for immediate sale and for which a deep and liquid
market exists. Contingent liquidity risk associated
with committed loan facilities is not reflected in the
ratios. The Group’s framework for monitoring this
risk is outlined under ‘Contingent liquidity risk’
below.
Limits for the ratio of net liquid assets to
customer liabilities are set for each bank operating
entity, except for HSBC Finance. As HSBC Finance
does not accept customer deposits, it is not
appropriate to manage its liquidity using standard
liquidity ratios. The liquidity and funding risk
management framework of HSBC Finance is
discussed below.
Ratios of net liquid assets to customer liabilities
are provided in the following table, along with the
US dollar equivalents of net liquid assets.
HSBC’s principal banking entities – the management of liquidity risk
(Audited)
Advances to deposits ratios
Ratio of net liquid assets
to customer liabilities Net liquid assets
2008 2007 2008 2007 2008 2007
% % % % US$bn US$bn
HSBC Bank (UK operations)
Year-end ............................ 106.0 97.5 7.1 12.1 21.3 44.2
Maximum ......................... 106.7 101.7 14.1 21.5 52.5 80.6
Minimum .......................... 97.5 92.6 6.9 12.1 21.3 39.9
Average ............................. 101.5 97.1 10.0 15.6 35.8 52.4
The Hongkong and Shanghai
Banking Corporation
Year-end ............................ 77.4 76.7 25.0 21.8 64.6 53.9
Maximum ......................... 82.9 82.2 25.0 24.1 64.6 56.9
Minimum .......................... 76.7 72.4 19.9 16.1 51.1 35.3
Average ............................. 80.6 76.4 21.9 20.8 56.5 48.2
HSBC Bank USA
Year-end ............................ 103.7 114.9 31.5 15.8 27.4 17.1
Maximum ......................... 117.3 116.8 31.5 25.7 27.4 26.1
Minimum .......................... 103.7
107.0 15.8 15.8 17.1 17.1
Average ............................. 111.8 112.7 22.6 21.3 21.5 22.0
Total of HSBC’s other
principal banking entities1
Year-end ............................ 85.2 88.4 26.5 21.0 83.5 66.1
Maximum ......................... 92.3 89.3 26.5 26.1 83.5 72.7
Minimum .......................... 82.7 86.2 19.4 21.0 66.1 58.8
Average ............................. 88.1 87.7 22.5 24.0 73.9 65.3
1 This comprises the Group’s other main banking subsidiaries and, as such, includes businesses spread across a range of locations, in
many of which HSBC may require a higher ratio of net liquid assets to customer liabilities to reflect local market conditions.