(Audited)
Estimated liquidity value at 31 December 2012 2011 £m £m HSBC UK Level 1 ... 80,712 74,018 Level 2 ... 186 222 Level 3 ... 14,726 – Non-government assets ... – 14,858 95,624 89,098 HSBC France Level 1 ... 14,065 7,252 Level 2 ... 1,567 8 Level 3 ... 452 – Non-government assets ... – 1,167 16,084 8,427
Total of other principal group entities
Level 1 ... 7,275 7,760 Level 2 ... 1,269 1,202 Level 3 ... 734 629
Non-government assets ... – –
9,278 9,591 The Group’s liquid asset policy was refined as at 1 January 2012 to apply a more granular classification of liquid assets. These classifications are as follows: Level 1 - Central governments, central banks,
supranationals and multilateral development banks; Level 2 – Local and regional governments, public
sector entities, secured covered bonds and pass- through ABSs, and gold; and
Level 3 – Unsecured non-financial entity securities and equities listed on recognised exchanges and within liquid indices.
All assets held within the liquid asset portfolio are unencumbered.
An increase in the level of customer accounts causes a rise in the level of non-core deposits, and therefore the holding of Level 1 liquid assets increases.
Contingent liquidity risk arising from committed lending facilities
(Audited)
The group provides customers with committed facilities, including committed backstop lines to conduit vehicles sponsored by the group and standby facilities to corporate customers. These facilities increase the funding
requirements of the group when customers choose to raise drawdown levels above their normal utilisation rates. The liquidity risk consequences of increased levels of drawdown are analysed in the form of projected cash flows under different stress scenarios. The RMM also sets limits for non-cancellable contingent funding
commitments by group entity after due consideration of each entity’s ability to fund them. The limits are split according to the borrower, the liquidity of the underlying assets and the size of the committed line.
The group-managed asset exposures relate to consolidated securities investment conduits, primarily Solitaire and Mazarin. These vehicles issue debt secured by asset backed-securities which are managed by the group. At 31 December 2012, the commercial paper issued by Solitaire and Mazarin was entirely funded by the group.
In relation to commitment to customers, the table below shows the level of undrawn commitments outstanding in terms of the five largest single facilities and the largest market sector.
The group’s contractual exposures as at 31 December monitored under the contingent liquidity risk limit structure
(Audited) The group 2012 2011 £bn £bn Conduits Client-originated assets1 – total lines ... 6.3 8.3 – largest individual lines ... 0.4 0.4 Assets managed by the group ... 11.2 14.3
Single-issuer liquidity facilities
– five largest2 ... 3.7 2.2
– largest market sector3 ... 6.8 4.9 1 These exposures relate to consolidated multi-seller conduits, primarily Regency and Bryant Park. These vehicles provide funding to group
Primary sources of funding (Audited)
Current accounts and savings deposits payable on demand or at short notice form a significant part of the group’s funding, and the group places considerable importance on maintaining their stability. For deposits, stability depends upon preserving depositor confidence in the group’s capital strength and liquidity, and on
competitive and transparent pricing. The group’s liquidity risk framework includes both monitoring depositor concentration to avoid undue reliance on large individual depositors and also limits the concentration of deposits from Global Banking and Markets counterparties. The group also accesses professional markets in order to obtain funding for non-banking subsidiaries that do not accept deposits, to align asset and liability maturities and currencies and to maintain a presence in local money markets.
An analysis of cash flows payable by the group and bank under financial liabilities by remaining contractual maturities at the balance sheet date is included in Note 34 ‘Maturity analysis of assets and liabilities’.
The funding sources and uses table, which provides a consolidated view of how the balance sheet is funded, should be read in the light of the group’s risk
management framework, which requires its operating entities to manage liquidity and funding risk on a stand- alone basis. The table analyses the group balance sheet according to the assets that primarily arise from operating activities and the sources of funding primarily supporting these activities. The assets and liabilities that do not arise from operating activities are presented as a net balancing source or deployment of funds.
In 2012, the level of customer accounts continued to exceed the level of loans and advances to customers. Excluding the impact of repos from customer accounts and reverse repos from loans and advances to customers, the adjusted advances to deposit ratio at 31 December 2012 for the group was 85 per cent (2011: 88 per cent). The positive funding gap was predominantly deployed into liquid assets, cash and balances with central banks and financial investments, as required by the Group’s liquidity and funding risk management framework.
Funding sources and deployment
(Audited) The group At 31 December At 31 December 2012 20111 2012 20111 £m £m £m £m Sources Uses
Customer accounts ... 324,886 296,900 Loans and advances to customers ... 282,685 273,271 – repos ... 12,207 14,898 – reverse repos ... 16,890 24,214 – cash deposits ... 312,679 282,002 – loans or other receivables ... 265,795 249,057 Deposits by banks ... 39,571 46,825 Loans and advances to banks ... 32,286 40,654 – repos ... 6,357 9,348 – reverse repos ... 13,798 20,278 – cash deposits ... 33,214 37,477 – loans or other receivables ... 18,488 20,376 Debt securities issued ... 40,358 45,990 Assets held for sale ... 109 75
Liabilities of disposal groups Trading assets ... 161,516 126,533
held for sale ... – – – reverse repos ... 35,951 22,926 – stock borrowing ... 6,863 5,210 Subordinated liabilities ... 10,350 9,998 – other trading assets ... 118,702 98,397 Financial liabilities designated at fair Financial investments ... 71,265 75,421
value ... 32,918 31,992