Annual Financial Report - 26 of 54

RNS Number : 0766I

HSBC Holdings PLC

20 March 2015

Credit risk

	Page	App	Tables	Page

Credit risk	129	206	Summary of credit risk	129
			Gross loans to customers and banks over five years	130
			Loan impairment charge over five years	130
			Loan impairment charges by geographical region	130
			Loan impairment charges by industry	130
			Loan impairment allowances over five years	130
Credit risk management		206

Credit exposure	130
Maximum exposure to credit risk	130
Other credit risk mitigants	130		Maximum exposure to credit risk	131
			Loan and other credit-related commitments	131

Concentration of exposure	132	206
Financial investments	132
Trading assets	132
Derivatives	132
Loans and advances	132		Gross loans and advances to customers by industry sector and by geographical region	132

Credit quality of financial instruments	133	207
Credit quality classification			Distribution of financial instruments by credit quality	134
Past due but not impaired gross financial instruments	136		Past due but not impaired gross financial instruments by geographical region	136
			Ageing analysis of days for past due but not impaired gross financial instruments	136

Impaired loans	137		Movement in impaired loans by geographical region	137
Renegotiated loans and forbearance	138	208	Renegotiated loans and advances to customers by geographical region	139
			Movement in renegotiated loans by geographical region	140
Impairment of loans and advances	141		Loan impairment charge to the income statement by industry sector	141
			Loan impairment charge to the income statement by assessment type	141
			Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region	142
			Movement in impairment allowances by industry sector and geographical region	142
			Movement in impairment allowances on loans and advances to customers and banks	143
Impairment assessment		212

Wholesale lending	144		Total wholesale lending	144
Commercial real estate	145		Commercial real estate lending	145
			Commercial real estate loans and advances including loan commitments by level of collateral	147
			Other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level of collateral rated CRR/EL8 to 10 only	148
			Loans and advances to banks including loan commitments by level of collateral	149
Other credit risk exposures	149
Derivatives	149		Notional contract amounts and fair values of derivatives by product type	150
			OTC collateral agreements by type	150
Reverse repos - non-trading by geographical region	151		Reverse repos - non-trading by geographical region	151
Loan Management Unit		213

	Page	App	Tables	Page

Personal lending	151		Total personal lending	151
Mortgage lending	152
Other personal lending	153		HSBC Finance US Consumer and Mortgage Lending residential mortgages	153
			HSBC Finance: foreclosed properties in the US	153
			Trends in two months and over conctractual delinquency in the US	153
			Gross loan portfolio of HSBC Finance and real estate secured balances	154
			Number of renegotiated real estate secured accounts remaining in HSBC Finance's portfolio	154
HSBC Finance loan modifications and re-age programmes	154
Collateral and other credit enhancements held	156		Residential mortgage loans including loan commitments by level of collateral	156
Supplementary information	157		Gross loans and advances by industry sector over 5 years	157
			Reconciliation of reported and constant currency impaired loans, allowances and charges by geographical region	158
			Reconciliation of reported and constant currency loan impairment charges to the income statement	158
			Loan impairment charges by industry sector over 5 years	159
			Charge for impairment losses as a percentage of average gross loans and advances to customers	159
			Movement in impairment allowances over 5 years	159
			Gross loans and advances to customers by country	160
Refinance risk		214

HSBC Holdings	161		HSBC Holdings - maximum exposure to credit risk	161

Securitisation exposures and other structured products	161	214	Overall exposure of HSBC	161
			Carrying amount of HSBC's consolidated holdings of ABSs	162
			Definitions and classifications of ABSs and CDOs	214

Representations and warranties related to mortgage sales and securitisation activities	162


1 Appendix to Risk - risk policies and practices.

Credit risk

(Unaudited)

Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises principally from direct lending, trade finance and leasing business, but also from other products such as guarantees and credit derivatives and from holding assets in the form of debt securities.

There were no material changes to our policies and practices for the management of credit risk in 2014.

A summary of our current policies and practices regarding credit risk is provided in the Appendix to Risk on page 204.

Our maximum exposure to credit risk is presented on page 131 and credit quality on page 133. While credit risk arises across most of our balance sheet, losses have typically been incurred on loans and advances and securitisation exposures and other structured products. As a result, our disclosures focus primarily on these two areas.

This year we have redesigned the 'Credit risk' section in order to enhance clarity and reduce duplication. It now begins with a summary of credit risk followed by an overview of our gross exposures. We describe various measures of credit quality such as past due status, impaired loans and renegotiated loans before analysing impairment allowances. There are specific sections on wholesale lending and personal lending where additional detail is provided and we cover areas of particular focus such as our exposure to commercial real estate in wholesale lending and our Consumer and Mortgage Lending ('CML') portfolio in personal lending. This is followed by a section describing our securitisation exposures and other structured products. Information on our exposures to oil and gas, Russia and Greece is provided in 'Areas of special interest' on page 126.

Following the change in balance sheet presentation explained on page 347, non-trading reverse repos are shown separately on the balance sheet and are no longer included in 'Loans and advances to customers' and 'Loans and advances to banks'. Comparative data have been re-presented accordingly. As a result, any analysis that references loans and advances to customers or banks excludes non-trading reverse repos. The amount of the non-trading reverse repos to customers and banks is set out on page 151.

Loan impairment charges, loan impairment allowances and impaired loans all reduced compared with 2013.

Gross loans and advances decreased by US$28bn which included adverse foreign exchange movements of US$51bn; excluding these movements customer lending grew in 2014.

The commentary that follows is on a constant currency basis, whilst tables are presented on a reported basis.

Summary of credit risk

(Unaudited)

	2014	2013	Page
	US$bn	US$bn
At year-end
Maximum exposure to credit risk	3,133	3,112	131

Gross loans and advances¹
- personal lending	393	411	132
- wholesale lending	706	716	132

Total	1,099	1,127	132

Impaired loans
- personal lending	15	19	137
- wholesale lending	14	18	137

Total	29	37	137

Impaired loans as a % of gross loans and advances
- personal lending	3.9%	4.6%
- wholesale lending	2.0%	2.5%
- total	2.7%	3.3%

	US$bn	US$bn
Impairment allowances
- personal lending	4.6	6.6	143
- wholesale lending	7.8	8.6	143

Total	12.4	15.2	143

Loans and advances net of impairment allowances¹	1,087	1,112

For year ended 31 December
Loan impairment charge
- personal lending	1.8	3.1	141
- wholesale lending	2.3	2.9	141

Total	4.1	6.0	141

For footnote, see page 202.

See page 158 for further details in respect of the constant currency reconciliation. For an analysis of loans and advances by country see page 160.

Wholesale gross loans and advances increased by US$21bn. Asia grew by US$16bn and North America by US$10bn with more modest levels of growth in the Middle East and North Africa and Latin America. This was offset by a decrease of US$15bn in Europe. Loan impairment charges were lower in 2014 as we continued to benefit from the improvement in various economies and the low interest rate environment.

Personal lending balances, excluding the planned US CML portfolio run off, grew by US$7.7bn. This was primarily driven by increased mortgage and other lending in Asia and growth in the mortgage portfolio in both North America and Latin America. The growth was partially offset by lower lending balances in Europe due to repayments on the mortgage and credit card portfolio in the UK. The CML portfolio declined by a further US$5.7bn during the year. Loan impairment charges were down as a result of improvements in the US housing market and the continued run-off of the CML portfolio.

Gross loans to customers and banks over five years¹(US$bn)

(Unaudited)

Loan impairment charge over five years (US$bn)

(Unaudited)

Loan impairment charges by geographical region (US$bn)

(Unaudited)

Loan impairment charges by industry (US$bn)

(Unaudited)

Loan impairment allowances over five years

(Unaudited)

For footnote, see page 202.

Credit exposure

Maximum exposure to credit risk

(Audited)

The table on page 131 provides information on balance sheet items, offsets and loan and other credit-related commitments. Commentary on balance sheet movements is provided on page 58. The offset on derivatives increased in line with the increase in maximum exposure amounts.

The offset on corporate and commercial loans to customers decreased by US$31bn. This reduction was in the UK where a small number of clients benefit from the use of net interest arrangements across their overdraft and deposit positions. During the year, as we aligned our approach in our Payments and Cash Management business to be more globally consistent, many of these clients increased the frequency with which they settled these balances thereby reducing the amount of offset available.

'Maximum exposure to credit risk' table (page 131)

The table presents our maximum exposure to credit risk from balance sheet and off‑balance sheet financial instruments before taking account of any collateral held or other credit enhancements (unless such enhancements meet accounting offsetting requirements). For financial assets recognised on the balance sheet, the maximum exposure to credit risk equals their carrying amount; for financial guarantees and similar contracts granted, it is the maximum amount that we would have to pay if the guarantees were called upon. For loan commitments and other credit-related commitments, it is generally the full amount of the committed facilities.

The offset in the table relates to amounts where there is a legally enforceable right of offset in the event of counterparty default and where, as a result, there is a net exposure for credit risk purposes. However, as there is no intention to settle these balances on a net basis under normal circumstances, they do not qualify for net presentation for accounting purposes.

In the case of derivatives the offset column also includes collateral received in cash and other financial assets.

Other credit risk mitigants

While not disclosed as an offset in the 'Maximum exposure to credit risk' table, other arrangements are in place which reduce our maximum exposure to credit risk. These include a charge over collateral over borrowers' specific assets such as residential properties. Other credit risk mitigants include short positions in securities and financial assets held as part of linked insurance/ investment contracts where the risk is predominantly borne by the policyholder. In addition, we hold collateral in the form of financial instruments that are not recognised on the balance sheet.

See Note 32 and from page 147 and page 156 respectively on the Financial Statements for further details on collateral in respect of certain loans and advances and derivatives.

Maximum exposure to credit risk

(Audited)

	2014			2013
	Maximum exposure	Offset	Net	Maximum exposure	Offset	Net
	US$m	US$m	US$m	US$m	US$m	US$m

Cash and balances at central banks	129,957	-	129,957	166,599	-	166,599
Items in the course of collection from other banks	4,927	-	4,927	6,021	-	6,021
Hong Kong Government certificates of indebtedness	27,674	-	27,674	25,220	-	25,220

Trading assets	228,944	-	228,944	239,301	(1,777)	237,524
- Treasury and other eligible bills	16,170	-	16,170	21,584	-	21,584
- debt securities	141,532	-	141,532	141,644	-	141,644
- loans and advances to banks	27,581	-	27,581	27,885	-	27,885
- loans and advances to customers	43,661	-	43,661	48,188	(1,777)	46,411

Financial assets designated at fair value	9,031	-	9,031	12,719	-	12,719
- Treasury and other eligible bills	56	-	56	50	-	50
- debt securities	8,891	-	8,891	12,589	-	12,589
- loans and advances to banks	84	-	84	76	-	76
- loans and advances to customers	-	-	-	4	-	4

Derivatives	345,008	(313,300)	31,708	282,265	(252,344)	29,921

Loans and advances to customers held at amortised cost¹	974,660	(67,094)	907,566	992,089	(96,726)	895,363
- personal	388,954	(4,412)	384,542	404,126	(1,348)	402,778
- corporate and commercial	535,184	(59,197)	475,987	537,922	(90,215)	447,707
- financial (non-bank financial institutions)	50,522	(3,485)	47,037	50,041	(5,163)	44,878

Loans and advances to banks held at amortised cost¹	112,149	(258)	111,891	120,046	(587)	119,459

Reverse repurchase agreements - non-trading	161,713	(5,750)	155,963	179,690	(22,267)	157,423
Financial investments	404,773	-	404,773	416,785	-	416,785
- Treasury and other similar bills	81,517	-	81,517	78,111	-	78,111
- debt securities	323,256	-	323,256	338,674	-	338,674

Other assets	35,264	-	35,264	37,324	(22)	37,302
- assets held for sale	1,375	-	1,375	3,306	(22)	3,284
- endorsements and acceptances	10,775	-	10,775	11,624	-	11,624
- other	23,114	-	23,114	22,394	-	22,394

Financial guarantees and similar contracts²	47,078	-	47,078	46,300	-	46,300
Loan and other credit-related commitments³	651,380	-	651,380	587,603	-	587,603

At 31 December	3,132,558	(386,402)	2,746,156	3,111,962	(373,723)	2,738,239

For footnotes, see page 202.

Loan and other credit-related commitments³

(Unaudited)

	Europe	Asia⁴	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m

Personal	86,247	96,497	2,995	15,636	11,679	213,054
Corporate and commercial	98,045	138,366	20,141	102,911	17,540	377,003
Financial⁵	26,605	9,355	711	23,559	1,093	61,323

At 31 December 2014	210,897	244,218	23,847	142,106	30,312	651,380

Personal	92,148	74,445	2,940	15,647	9,774	194,954
Corporate and commercial	91,895	120,084	19,045	92,837	21,956	345,817
Financial⁵	18,930	8,477	705	17,478	1,242	46,832

At 31 December 2013	202,973	203,006	22,690	125,962	32,972	587,603

For footnotes, see page 202.

Concentration of exposure

(Unaudited)

Concentrations of credit risk are described in the Appendix to Risk on page 206.

The geographical diversification of our lending portfolio and our broad range of global businesses and products ensured that we did not overly depend on a few markets to generate growth in 2014. This diversification also supported our strategy for growth in faster-growing markets and those with international connectivity.

Financial investments

Our holdings of available-for-sale government and government agency debt securities, corporate debt securities, ABSs and other securities were spread across a wide range of issuers and geographical regions in 2014, with 15% invested in securities issued by banks and other financial institutions and 72% in government or government agency debt securities. We also held assets backing insurance and investment contracts.

For an analysis of financial investments, see Note 18 on the Financial Statements.

Trading assets

Trading securities remained the largest concentration within trading assets at 77% compared with 75% in 2013. The largest concentration within the trading securities
portfolio was in government and government agency debt securities. We had significant exposures to US Treasury and government agency debt securities (US$26bn) and UK (US$9.3bn) and Hong Kong (US$6.9bn) government debt securities.

For an analysis of debt and equity securities held for trading, see Note 12 on the Financial Statements.

Derivatives

Derivative assets were US$345bn at 31 December 2014 (2013: US$282bn). Details of derivative amounts cleared through an exchange, central counterparty and non-central counterparty are shown on page 150.

For an analysis of derivatives, see page 150 and Note 16 on the Financial Statements.

Loans and advances to customers

The following tables analyse loans and advances to customers by industry sector and by the location of the principal operations of the lending subsidiary or, in the case of the operations of The Hongkong and Shanghai Banking Corporation, HSBC Bank, HSBC Bank Middle East Limited ('HSBC Bank Middle East') and HSBC Bank USA, by the location of the lending branch. The distribution of loans across geographical regions and industries remained similar to last year.

For an analysis of loans and advances by country see page 160.

Gross loans and advances to customers by industry sector and by geographical region

(Audited)

	Europe	Asia⁴	MENA	North America	Latin America	Total	As a % of total gross
	US$m	US$m	US$m	US$m	US$m	US$m	loans

Personal	178,531	129,515	6,571	65,400	13,537	393,554	39.9
- first lien residential mortgages⁶	131,000	93,147	2,647	55,577	4,153	286,524	29.0
- other personal⁷	47,531	36,368	3,924	9,823	9,384	107,030	10.9

Corporate and commercial	210,585	220,799	20,588	57,862	30,722	540,556	54.8
- manufacturing	39,456	37,767	2,413	15,299	12,051	106,986	10.9
- international trade and services	76,629	72,814	9,675	13,484	8,189	180,791	18.3
- commercial real estate	28,187	35,678	579	6,558	2,291	73,293	7.4
- other property-related	7,126	34,379	1,667	8,934	281	52,387	5.3
- government	2,264	1,195	1,552	164	968	6,143	0.6
- other commercial⁸	56,923	38,966	4,702	13,423	6,942	120,956	12.3

Financial	23,103	13,997	3,291	9,034	1,393	50,818	5.1
- non-bank financial institutions	21,867	13,410	3,289	9,034	1,199	48,799	4.9
- settlement accounts	1,236	587	2	-	194	2,019	0.2

Asset-backed securities reclassified	1,938	-	-	131	-	2,069	0.2

Total gross loans and advances to customers at 31 December 2014 (A)	414,157	364,311	30,450	132,427	45,652	986,997	100.0

Percentage of A by geographical region	42.0%	36.9%	3.1%	13.4%	4.6%	100.0%	-

	Europe	Asia⁴	MENA	North America	Latin America	Total	As a % of total gross
	US$m	US$m	US$m	US$m	US$m	US$m	loans

Personal	192,107	124,529	6,484	72,690	14,918	410,728	40.8
- first lien residential mortgages⁶	140,474	92,047	2,451	60,955	3,948	299,875	29.8
- other personal⁷	51,633	32,482	4,033	11,735	10,970	110,853	11.0

Corporate and commercial	239,116	203,894	19,760	50,307	30,188	543,265	53.9
- manufacturing	55,920	30,758	3,180	11,778	12,214	113,850	11.3
- international trade and services	76,700	79,368	8,629	11,676	8,295	184,668	18.3
- commercial real estate	31,326	34,560	639	5,900	2,421	74,846	7.4
- other property-related	7,308	27,147	1,333	8,716	328	44,832	4.5
- government	3,340	1,021	1,443	499	974	7,277	0.7
- other commercial⁸	64,522	31,040	4,536	11,738	5,956	117,792	11.7

Financial	27,872	9,688	2,532	9,055	1,376	50,523	5.0
- non-bank financial institutions	26,314	9,359	2,532	9,055	1,277	48,537	4.8
- settlement accounts	1,558	329	-	-	99	1,986	0.2

Asset-backed securities reclassified	2,578	-	-	138	-	2,716	0.3

Total gross loans and advances to customers at 31 December 2013 (B)	461,673	338,111	28,776	132,190	46,482	1,007,232	100.0

Percentage of B by geographical region	45.8%	33.6%	2.9%	13.1%	4.6%	100.0%

For footnotes, see page 202.

Credit quality of financial instruments

(Audited)

A summary of our current policies and practices regarding the credit quality of financial instruments is provided in the Appendix to Risk on page 207.

We assess credit quality on all financial instruments which are subject to credit risk.

The five classifications describing the credit quality of our lending, debt securities portfolios and derivatives are defined on page 207 (unaudited). Additional credit quality information in respect of our consolidated holdings of ABSs is provided on page 162.

For the purpose of the following disclosure, retail loans which are past due up to 90 days and are not otherwise classified as impaired in accordance with our disclosure convention are not disclosed within the expected loss ('EL') grade to which they relate, but are separately classified as past due but not impaired.

The overall credit quality of assets remained stable with 'Strong' and 'Good' categories making up 84% of the portfolio, 'Satisfactory' 13%, 'Sub-standard' and 'Past due but not impaired' 2% and 'Impaired' 1%.

Distribution of financial instruments by credit quality

(Audited)

	Neither past due nor impaired					Past due but not impaired		Total gross amount	Impairment allowances⁹	Total
	Strong	Good	Satisfactory		Sub- standard		Impaired
	Strong	Good	Satisfactory		Sub- standard		Impaired
	US$m	US$m		US$m	US$m	US$m	US$m	US$m	US$m	US$m
Cash and balances at central banks	127,971	1,438		195	353			129,957		129,957
Items in the course of collection from other banks	4,515	46		365	1			4,927		4,927
Hong Kong Government certificates of indebtedness	27,674	-		-	-			27,674		27,674

Trading assets¹⁰	168,521	35,042		24,740	641			228,944		228,944
- treasury and other eligible bills	13,938	1,641		559	32			16,170		16,170
- debt securities	111,138	17,786		12,305	303			141,532		141,532
- loans and advances:
to banks	17,492	4,961		5,016	112			27,581		27,581
to customers	25,953	10,654		6,860	194			43,661		43,661

Financial assets designated at fair value¹⁰	3,017	4,476		1,207	331			9,031		9,031
- treasury and other eligible bills	5	-		-	51			56		56
- debt securities	3,011	4,476		1,124	280			8,891		8,891
- loans and advances:
to banks	1	-		83	-			84		84
to customers	-	-		-	-			-		-

Derivatives¹⁰	269,490	58,596		15,962	960			345,008		345,008

Loans and advances to customers held at amortised cost¹¹	487,734	239,136		196,685	20,802	13,357	29,283	986,997	(12,337)	974,660
- personal	320,678	32,601		15,109	1,130	8,876	15,160	393,554	(4,600)	388,954
- corporate and commercial	141,375	192,799		171,748	18,986	3,922	13,795	542,625	(7,441)	535,184
- financial (non-bank financial institutions)	25,681	13,736		9,828	686	559	328	50,818	(296)	50,522

Loans and advances to banks held at amortised cost	83,766	19,525		7,945	914	1	47	112,198	(49)	112,149
Reverse repurchase agreements - non-trading	98,470	28,367		33,283	1,593	-	-	161,713	-	161,713

Financial investments	347,218	27,373		22,600	5,304	-	2,278	404,773		404,773
- treasury and other similar bills	68,966	6,294		4,431	1,826	-	-	81,517		81,517
- debt securities	278,252	21,079		18,169	3,478	-	2,278	323,256		323,256

Other assets	13,015	7,564		12,976	631	210	884	35,280	(16)	35,264
- assets held for sale	802	43		79	-	2	465	1,391	(16)	1,375
- endorsements and acceptances	1,507	4,644		4,281	298	34	11	10,775		10,775
- accrued income and other	10,706	2,877		8,616	333	174	408	23,114		23,114


At 31 December 2014	1,631,391	421,563		315,958	31,530	13,568	32,492	2,446,502	(12,402)	2,434,100

	Neither past due nor impaired					Past due		Total gross amount
	Strong	Good	Satisfactory		Sub- standard	but not impaired	Impaired		Impairment allowances⁹	Total
	Strong	Good	Satisfactory		Sub- standard	but not impaired	Impaired		Impairment allowances⁹	Total
	US$m	US$m		US$m	US$m	US$m	US$m	US$m	US$m	US$m

Cash and balances at central banks	162,017	2,877		265	1,440			166,599		166,599
Items in the course of collection from other banks	5,590	66		286	79			6,021		6,021
Hong Kong Government certificates of indebtedness	25,220	-		-	-			25,220		25,220

Trading assets¹⁰	163,444	39,475		34,868	1,514			239,301		239,301
- treasury and other eligible bills	17,235	3,585		758	6			21,584		21,584
- debt securities	107,831	16,498		16,167	1,148			141,644		141,644
- loans and advances:
to banks	15,804	5,546		6,342	193			27,885		27,885
to customers	22,574	13,846		11,601	167			48,188		48,188

Financial assets designated at fair value¹⁰	6,608	5,183		671	257			12,719		12,719
- treasury and other eligible bills	50	-		-	-			50		50
- debt securities	6,490	5,179		664	256			12,589		12,589
- loans and advances:
to banks	68	-		7	1			76		76
to customers	-	4		-	-			4		4

Derivatives¹⁰	220,711	47,004		13,425	1,125			282,265		282,265

Loans and advances to customers held at amortised cost¹¹	488,504	243,077		199,821	23,942	15,460	36,428	1,007,232	(15,143)	992,089
- personal	326,269	39,024		14,882	1,580	10,175	18,798	410,728	(6,602)	404,126
- corporate and commercial	132,943	194,966		174,905	21,281	5,009	16,877	545,981	(8,059)	537,922
- financial (non-bank financial institutions)	29,292	9,087		10,034	1,081	276	753	50,523	(482)	50,041

Loans and advances to banks held at amortised cost	91,498	21,131		6,266	1,123	11	75	120,104	(58)	120,046

Reverse repurchase agreements - non-trading	111,543	37,878		28,265	2,004	-	-	179,690	-	179,690

Financial investments	362,799	27,833		17,556	6,089	-	2,508	416,785		416,785
- treasury and other similar bills	69,364	5,595		1,856	1,296	-	-	78,111		78,111
- debt securities	293,435	22,238		15,700	4,793	-	2,508	338,674		338,674

Other assets	12,501	8,028		14,848	1,159	307	592	37,435	(111)	37,324
- assets held for sale	1,129	642		1,050	351	89	156	3,417	(111)	3,306
- endorsements and acceptances	1,976	4,824		4,562	225	19	18	11,624		11,624
- accrued income and other	9,396	2,562		9,236	583	199	418	22,394		22,394


At 31 December 2013	1,650,435	432,552		316,271	38,732	15,778	39,603	2,493,371	(15,312)	2,478,059

For footnotes, see page 202.

Past due but not impaired gross financial instruments

(Audited)

Past due but not impaired gross financial instruments are those loans where, although customers have failed to make payments in accordance with the contractual terms of their facilities, they have not met the impaired loan criteria described on page 137.

Overall, past due but not impaired balances decreased by US$2.2bn, mainly due to continued run-off and loan sales in the CML portfolio.

Past due but not impaired gross financial instruments by geographical region

(Audited)

	Europe	Asia⁴	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Loans and advances to customers held at amortised cost	2,409	4,260	704	4,634	1,350	13,357
- personal	1,159	2,880	182	3,759	896	8,876
- corporate and commercial	1,244	1,102	508	623	445	3,922
- financial (non-bank financial institutions)	6	278	14	252	9	559

Other financial instruments	6	52	31	97	25	211

At 31 December 2014	2,415	4,312	735	4,731	1,375	13,568

Loans and advances to customers held at amortised cost	2,399	4,211	757	6,453	1,640	15,460
- personal	1,287	2,764	174	4,817	1,133	10,175
- corporate and commercial	1,092	1,197	580	1,635	505	5,009
- financial (non-bank financial institutions)	20	250	3	1	2	276

Other financial instruments	45	49	50	101	73	318

At 31 December 2013	2,444	4,260	807	6,554	1,713	15,778

For footnote, see page 202.

Ageing analysis of days for past due but not impaired gross financial instruments

(Audited)

	Up to 29 days	30-59 days	60-89 days	90-179 days	180 days and over	Total
	US$m	US$m	US$m	US$m	US$m	US$m

Loans and advances to customers held at amortised cost	10,427	2,057	801	54	18	13,357
- personal	6,477	1,717	676	5	1	8,876
- corporate and commercial	3,417	328	114	48	15	3,922
- financial (non-bank financial institutions)	533	12	11	1	2	559

Other financial instruments	130	33	18	12	18	211

At 31 December 2014	10,557	2,090	819	66	36	13,568

Loans and advances to customers held at amortised cost	11,689	2,587	1,057	76	51	15,460
- personal	7,170	2,124	865	16	-	10,175
- corporate and commercial	4,290	418	190	60	51	5,009
- financial (non-bank financial institutions)	229	45	2	-	-	276

Other financial instruments	214	55	26	12	11	318

At 31 December 2013	11,903	2,642	1,083	88	62	15,778

Impaired loans

(Audited)

Impaired loans and advances are those that meet any of the following criteria:

· wholesale loans and advances classified as Customer Risk Rating ('CRR') 9 or CRR 10. These grades are assigned when the bank considers that either the customer is unlikely to pay their credit obligations in full, without recourse to security, or when the customer is more than 90 days past due on any material credit obligation to HSBC.

· retail loans and advances classified as Expected Loss ('EL') 9 or EL 10. These grades are typically assigned to retail loans and advances more than 90 days past due unless individually they have been assessed as not impaired.

· renegotiated loans and advances that have been subject to a change in contractual cash flows as a result of a concession which the lender would not otherwise consider, and where it is probable that without the concession the borrower would be unable to meet the contractual payment obligations in full, unless the concession is insignificant and there are no other indicators of impairment. Renegotiated loans remain classified as impaired until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment of future cash flows, and there are no other indicators of impairment.

For loans that are assessed for impairment on a collective basis, the evidence to support reclassification as no longer impaired typically comprises a history of payment performance against the original or revised terms, depending on the nature and volume of renegotiation and the credit risk characteristics surrounding the renegotiation. For loans that are assessed for impairment on an individual basis, all available evidence is assessed on a case-by-case basis.

For further details of the CRR and the EL scales see page 207.

Movement in impaired loans by geographical region

(Unaudited)

		Europe	Asia⁴	MENA	North America	Latin America	Total
		US$m	US$m	US$m	US$m	US$m	US$m

Impaired loans at 1 January 2014		13,228	1,623	2,285	15,123	4,244	36,503
- personal		2,938	526	317	13,669	1,348	18,798
- corporate and commercial		9,714	1,082	1,765	1,427	2,889	16,877
- financial⁵		576	15	203	27	7	828

Classified as impaired during the year		3,367	1,970	346	4,724	3,342	13,749
- personal		1,168	857	193	4,360	1,958	8,536
- corporate and commercial		2,166	1,113	153	354	1,383	5,169
- financial⁵		33	-	-	10	1	44

Transferred from impaired to unimpaired during the year		(1,661)	(230)	(320)	(2,609)	(730)	(5,550)
- personal		(282)	(184)	(178)	(2,551)	(364)	(3,559)
- corporate and commercial		(1,319)	(46)	(53)	(57)	(366)	(1,841)
- financial⁵		(60)	-	(89)	(1)	-	(150)

Amounts written off		(2,037)	(617)	(111)	(1,369)	(2,048)	(6,182)
- personal		(631)	(470)	(77)	(1,007)	(1,371)	(3,556)
- corporate and commercial		(1,201)	(147)	(29)	(356)	(673)	(2,406)
- financial⁵		(205)	-	(5)	(6)	(4)	(220)

Net repayments and other		(2,655)	(698)	(219)	(4,175)	(1,443)	(9,190)
- personal		(649)	(238)	(13)	(3,645)	(514)	(5,059)
- corporate and commercial		(1,975)	(457)	(140)	(506)	(926)	(4,004)
- financial⁵		(31)	(3)	(66)	(24)	(3)	(127)


Impaired loans at 31 December 2014		10,242	2,048	1,981	11,694	3,365	29,330
- personal		2,544	491	242	10,826	1,057	15,160
- corporate and commercial		7,385	1,545	1,696	862	2,307	13,795
- financial⁵		313	12	43	6	1	375


Impaired loans as a percentage of gross loans	%	2.3%	0.5%	4.8%	8.4%	6.1%	2.7%
- personal		1.4%	0.4%	3.7%	16.6%	7.8%	3.9%
- corporate and commercial		3.5%	0.7%	8.2%	1.5%	7.5%	2.5%
- financial⁵		0.7%	0.0%	0.3%	0.0%	0.0%	0.2%

Movement in impaired loans by geographical region (continued)

(Unaudited)

	Europe	Asia⁴	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m

Impaired loans at 1 January 2013	11,145	1,624	2,474	20,345	3,188	38,776
- personal	2,466	611	368	18,726	1,580	23,751
- corporate and commercial	8,058	967	1,872	1,592	1,604	14,093
- financial⁵	621	46	234	27	4	932

Classified as impaired during the year	4,952	1,424	419	6,168	4,333	17,296
- personal	1,176	798	107	5,319	1,872	9,272
- corporate and commercial	3,726	623	306	837	2,453	7,945
- financial⁵	50	3	6	12	8	79

Transferred from impaired to unimpaired during the year	(1,215)	(145)	(166)	(3,198)	(642)	(5,366)
- personal	(265)	(137)	(68)	(3,172)	(266)	(3,908)
- corporate and commercial	(804)	(8)	(85)	(24)	(375)	(1,296)
- financial⁵	(146)	-	(13)	(2)	(1)	(162)

Amounts written off	(1,411)	(538)	(165)	(1,706)	(1,957)	(5,777)
- personal	(423)	(444)	(79)	(1,433)	(1,456)	(3,835)
- corporate and commercial	(927)	(91)	(75)	(270)	(499)	(1,862)
- financial⁵	(61)	(3)	(11)	(3)	(2)	(80)

Net repayments and other	(243)	(742)	(277)	(6,486)	(678)	(8,426)
- personal	(16)	(302)	(11)	(5,771)	(382)	(6,482)
- corporate and commercial	(339)	(409)	(253)	(708)	(294)	(2,003)
- financial⁵	112	(31)	(13)	(7)	(2)	59


Impaired loans at 31 December 2013	13,228	1,623	2,285	15,123	4,244	36,503
- personal	2,938	526	317	13,669	1,348	18,798
- corporate and commercial	9,714	1,082	1,765	1,427	2,889	16,877
- financial⁵	576	15	203	27	7	828


Impaired loans as a percentage of gross loans	2.7%	0.4%	6.5%	10.9%	7.5%	3.2%
- personal	1.5%	0.4%	4.9%	18.8%	9.0%	4.6%
- corporate and commercial	4.0%	0.5%	8.9%	2.8%	9.6%	3.1%
- financial⁵	1.1%	0.0%	2.3%	0.2%	0.1%	0.5%

For footnotes, see page 202.

Impaired loans decreased by US$7.2bn during the year. Personal impaired loans declined mainly due to the continued run off and loan sales in the CML portfolio in North America. In personal lending, 'Net repayments and other' includes US$2.9bn of CML portfolio assets that were reclassified as held for sale and also sold during the year.

Impaired loans in wholesale lending declined mainly in Europe and, to a lesser extent, in North America and Latin America due to repayments and a reduction in new impaired loans which reflected improvements in the economic conditions in these markets. These decreases were offset by an increase in Asia.

Renegotiated loans and forbearance

(Audited)

Current policies and procedures regarding renegotiated loans and forbearance are described in the Appendix to Risk on page 208.

The contractual terms of a loan may be modified for a number of reasons, including changes in market conditions, customer retention and other factors not related to the current or potential credit deterioration of a customer. 'Forbearance' describes concessions made on the contractual terms of a loan in response to an obligor's financial difficulties. We classify and report loans on which concessions have been granted under conditions of credit distress as 'renegotiated loans' when their contractual payment terms have been modified, because we have significant concerns about the borrowers' ability to meet contractual payments when due. On renegotiation, where the existing agreement is cancelled and a new agreement is made on substantially different terms, or if the terms of an existing agreement are modified such that the renegotiated loan is substantially a different financial instrument, the loan would be derecognised and recognised as a new loan for accounting purposes. However, the newly recognised financial asset will retain the renegotiated loan classification. Concessions on loans made to customers which do not affect the payment structure or basis of repayment, such as waivers of financial or security covenants, do not directly provide concessionary relief to customers in terms of their ability to service obligations as they fall due and are therefore not included in this classification.

The most significant portfolio of renegotiated loans remained in North America, substantially all of which were retail loans held by HSBC Finance.

The following tables show the gross carrying amounts of the Group's holdings of renegotiated loans and advances to customers by industry sector, geography and credit quality classification.

Renegotiated loans and advances to customers by geographical region

(Audited)

	Europe	Asia⁴	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m

First lien residential mortgages	1,605	94	58	13,540	60	15,357
- neither past due nor impaired	529	63	19	3,695	32	4,338
- past due but not impaired	221	8	1	1,894	5	2,129
- impaired	855	23	38	7,951	23	8,890

Other personal lending⁷	324	292	27	1,267	326	2,236
- neither past due nor impaired	184	173	16	453	14	840
- past due but not impaired	40	22	5	214	1	282
- impaired	100	97	6	600	311	1,114

Corporate and commercial	5,469	501	1,439	427	1,324	9,160
- neither past due nor impaired	1,383	102	483	36	303	2,307
- past due but not impaired	68	-	31	1	1	101
- impaired	4,018	399	925	390	1,020	6,752

Financial⁵	413	4	323	1	1	742
- neither past due nor impaired	219	-	305	-	-	524
- past due but not impaired	-	-	-	-	-	-
- impaired	194	4	18	1	1	218


Renegotiated loans at 31 December 2014	7,811	891	1,847	15,235	1,711	27,495
- neither past due nor impaired	2,315	338	823	4,184	349	8,009
- past due but not impaired	329	30	37	2,109	7	2,512
- impaired	5,167	523	987	8,942	1,355	16,974


Impairment allowances on renegotiated loans	1,458	170	458	1,499	704	4,289
- renegotiated loans as % of total gross loans	1.9%	0.2%	6.1%	11.5%	3.7%	2.8%

First lien residential mortgages	1,820	117	91	16,853	76	18,957
- neither past due nor impaired	392	78	47	4,332	32	4,881
- past due but not impaired	517	11	3	2,684	4	3,219
- impaired	911	28	41	9,837	40	10,857

Other personal lending⁷	431	318	58	1,277	531	2,615
- neither past due nor impaired	253	207	33	503	18	1,014
- past due but not impaired	39	24	17	284	2	366
- impaired	139	87	8	490	511	1,235

Corporate and commercial	7,270	330	1,583	658	2,161	12,002
- neither past due nor impaired	1,796	134	677	47	493	3,147
- past due but not impaired	193	4	126	34	5	362
- impaired	5,281	192	780	577	1,663	8,493

Financial⁵	235	2	362	1	1	601
- neither past due nor impaired	93	-	265	-	-	358
- past due but not impaired	-	-	-	-	-	-
- impaired	142	2	97	1	1	243


Renegotiated loans at 31 December 2013	9,756	767	2,094	18,789	2,769	34,175
- neither past due nor impaired	2,534	419	1,022	4,882	543	9,400
- past due but not impaired	749	39	146	3,002	11	3,947
- impaired	6,473	309	926	10,905	2,215	20,828


Impairment allowances on renegotiated loans	1,867	101	460	2,285	1,014	5,727
- renegotiated loans as % of total gross loans	2.1%	0.2%	7.3%	14.2%	6.0%	3.4%

For footnotes, see page 202.

The following table shows movements in renegotiated loans during the year. Renegotiated loans reduced by US$6.7bn to US$27bn in 2014. Renegotiated loans in personal lending reduced by US$4bn. Included within 'other' movements is US$1.9bn of CML portfolio assets that were transferred to held for sale. New renegotiated loans and write-offs reduced as a result of improvements in the US housing market and economic conditions.

Renegotiated loans in wholesale lending decreased by US$2.7bn. The reductions were mainly concentrated in Europe and Latin America and were the result of increased write-offs and repayments.

Movement in renegotiated loans by geographical region

(Unaudited)

	Europe	Asia⁴	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m

Renegotiated loans at 1 January 2014	9,756	767	2,094	18,789	2,769	34,175
- personal	2,251	435	149	18,130	607	21,572
- corporate and commercial	7,270	330	1,583	658	2,161	12,002
- financial	235	2	362	1	1	601

Loans renegotiated in the year without derecognition	1,543	371	296	862	725	3,797
- personal	433	83	10	774	310	1,610
- corporate and commercial	939	288	286	78	415	2,006
- financial	171	-	-	10	-	181

Loans renegotiated in the year resulting in recognition of a new loan	500	5	79	-	92	676
- personal	69	2	-	-	28	99
- corporate and commercial	381	-	61	-	64	506
- financial	50	3	18	-	-	71

Repayments	(2,416)	(246)	(562)	(1,518)	(1,036)	(5,778)
- personal	(635)	(96)	(47)	(1,319)	(288)	(2,385)
- corporate and commercial	(1,757)	(149)	(445)	(189)	(747)	(3,287)
- financial	(24)	(1)	(70)	(10)	(1)	(106)

Amounts written off	(828)	(42)	(23)	(640)	(510)	(2,043)
- personal	(88)	(28)	(7)	(568)	(223)	(914)
- corporate and commercial	(740)	(14)	(16)	(72)	(286)	(1,128)
- financial	-	-	-	-	(1)	(1)

Other	(744)	36	(37)	(2,258)	(329)	(3,332)
- personal	(101)	(10)	(20)	(2,210)	(48)	(2,389)
- corporate and commercial	(624)	46	(30)	(48)	(283)	(939)
- financial	(19)	-	13	-	2	(4)


At 31 December 2014	7,811	891	1,847	15,235	1,711	27,495
- personal	1,929	386	85	14,807	386	17,593
- corporate and commercial	5,469	501	1,439	427	1,324	9,160
- financial	413	4	323	1	1	742


Renegotiated loans at 1 January 2013	9,974	944	2,389	26,162	2,758	42,227
- personal	2,817	493	190	25,474	781	29,755
- corporate and commercial	6,829	447	1,859	685	1,975	11,795
- financial	328	4	340	3	2	677

Loans renegotiated in the year without derecognition	2,807	49	101	1,727	1,311	5,995
- personal	264	8	16	1,335	507	2,130
- corporate and commercial	2,541	41	85	391	803	3,861
- financial	2	-	-	1	1	4

Loans renegotiated in the year resulting in recognition of a new loan	105	113	14	-	62	294
- personal	17	76	14	-	25	132
- corporate and commercial	88	37	-	-	37	162
- financial	-	-	-	-	-	-

Repayments	(2,139)	(233)	(541)	(1,759)	(707)	(5,379)
- personal	(489)	(111)	(64)	(1,387)	(353)	(2,404)
- corporate and commercial	(1,574)	(121)	(477)	(370)	(354)	(2,896)
- financial	(76)	(1)	-	(2)	-	(79)

Amounts written off	(426)	(25)	(38)	(1,035)	(409)	(1,933)
- personal	(99)	(20)	(9)	(995)	(233)	(1,356)
- corporate and commercial	(303)	(5)	(29)	(40)	(175)	(552)
- financial	(24)	-	-	-	(1)	(25)

Other	(565)	(81)	169	(6,306)	(246)	(7,029)
- personal	(259)	(11)	2	(6,297)	(120)	(6,685)
- corporate and commercial	(311)	(69)	145	(8)	(125)	(368)
- financial	5	(1)	22	(1)	(1)	24


At 31 December 2013	9,756	767	2,094	18,789	2,769	34,175
- personal	2,251	435	149	18,130	607	21,572
- corporate and commercial	7,270	330	1,583	658	2,161	12,002
- financial	235	2	362	1	1	601