Annual Financial Report - 28 of 54

RNS Number : 0438I

HSBC Holdings PLC

20 March 2015

Notional contract amounts and fair values of derivatives by product type

(Unaudited)

	2014			2013
	Notional	Fair value		Notional	Fair value
	amount	Assets	Liabilities	amount	Assets	Liabilities
	US$m	US$m	US$m	US$m	US$m	US$m

Foreign exchange	5,573,415	97,312	95,759	5,291,003	80,914	75,798
- exchange traded	81,785	229	369	41,384	121	93
- central counterparty cleared OTC	18,567	321	349	16,869	415	622
- non-central counterparty cleared OTC	5,473,063	96,762	95,041	5,232,750	80,378	75,083

Interest rate	22,328,518	473,243	468,152	27,347,918	458,576	452,531
- exchange traded	1,432,333	112	161	857,562	335	225
- central counterparty cleared OTC	15,039,001	261,880	264,509	18,753,836	285,390	285,375
- non-central counterparty cleared OTC	5,857,184	211,251	203,482	7,736,520	172,851	166,931

Equity	568,932	11,694	13,654	589,903	18,389	22,573
- exchange traded	289,140	2,318	3,201	274,880	8,403	2,949
- non-central counterparty cleared OTC	279,792	9,376	10,453	315,023	9,986	19,624

Credit	550,197	9,340	10,061	678,256	9,092	8,926
- central counterparty cleared OTC	126,115	1,999	2,111	104,532	1,346	1,409
- non-central counterparty cleared OTC	424,082	7,341	7,950	573,724	7,746	7,517

Commodity and other	77,565	3,884	3,508	77,842	2,624	1,786
- exchange traded	7,015	80	23	6,531	182	6
- non-central counterparty cleared OTC	70,550	3,804	3,485	71,311	2,442	1,780


Total OTC derivatives	27,288,354	592,735	587,379	32,804,565	560,554	558,341
- total OTC derivatives cleared by central counterparties	15,183,683	264,200	266,968	18,875,237	287,151	287,406
- total OTC derivatives not cleared by central counterparties	12,104,671	328,535	320,411	13,929,328	273,403	270,935

Total exchange traded derivatives	1,810,273	2,739	3,755	1,180,357	9,041	3,273

Gross	29,098,627	595,473	591,134	33,984,922	569,595	561,614

Offset		(250,465)	(250,465)		(287,330)	(287,330)

Total at 31 December		345,008	340,669		282,265	274,284

The purposes for which HSBC uses derivatives are described in Note 16 on the Financial Statements.

The International Swaps and Derivatives Association ('ISDA') Master Agreement is our preferred agreement for documenting derivatives activity. It provides the contractual framework within which dealing activity across a full range of OTC products is conducted, and contractually binds both parties to apply close-out netting across all outstanding transactions covered by an agreement if either party defaults or another pre-agreed termination event occurs. It is common, and our preferred practice, for the parties to execute a Credit Support Annex ('CSA') in conjunction with the ISDA Master Agreement. Under a CSA, collateral is passed between the parties to mitigate the counterparty risk inherent in outstanding positions.

We manage the counterparty exposure arising from market risk on our OTC derivative contracts by using collateral agreements with counterparties and netting agreements. Currently, we do not actively manage our general OTC derivative counterparty exposure in the credit markets, although we may manage individual exposures in certain circumstances.

We have historically placed strict policy restrictions on collateral types and as a consequence the types of collateral received and pledged are, by value, highly liquid and of a strong quality, being predominantly cash.

Where a collateral type is required to be approved outside the collateral policy (which includes collateral that includes wrong way risks), a submission to one of three regional Documentation Approval Committees ('DAC's) for approval is required. These DACs require the participation and sign-off of senior representatives from regional Global Markets Chief Operating Officers, Legal and Risk.

The majority of the counterparties with whom we have a collateral agreement are European. The majority of our CSAs are with financial institutional clients.

As a consequence of our policy, the type of agreement we enter into is predominately ISDA CSAs, the majority of which are written under English law. The table below provides a breakdown of OTC collateral agreements by agreement type:

OTC collateral agreements by type

(Unaudited)

		Number of agreements

ISDA CSA (English law)		2,434
ISDA CSA (New York law)		1,628
ISDA CSA (Japanese law)		18
French Master Agreement and CSA equivalent¹⁵		227
German Master Agreement and CSA equivalent¹⁶		90
Others		205

At 31 December 2014		4,602

For footnotes, see page 202.

See page 130 and Note 32 on the Financial Statements for details regarding legally enforceable right of offset in the event of counterparty default and collateral received in respect of derivatives.

Reverse repos - non-trading by geographical region

Following the change in balance sheet presentation explained on page 347, non-trading reverse repos are presented separately on the face of 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 in the Credit Risk section that references loans and advances to customers or banks excludes non-trading reverse repos to customers or banks, respectively. For reference, the amount of non-trading reverse repos to customers and banks is set out below.

Reverse repos - non-trading by geographical region

(Audited)

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

With customers	25,841	5,409	-	35,060	-	66,310
With banks	34,748	22,813	19	29,008	8,815	95,403

At 31 December 2014	60,589	28,222	19	64,068	8,815	161,713

With customers	48,091	6,448	-	33,676	-	88,215
With banks	49,631	12,973	24	23,744	5,103	91,475

At 31 December 2013	97,722	19,421	24	57,420	5,103	179,690

For footnote, see page 202.

Personal lending

We provide a broad range of secured and unsecured personal lending products to meet customer needs. Personal lending includes advances to customers for asset purchases such as residential property where the
loans are secured by the assets being acquired. We also offer loans secured on existing assets, such as first liens on residential property, and unsecured lending products such as overdrafts, credit cards and payroll loans.

Total personal lending

(Unaudited)

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

First lien residential mortgages (A)	131,000	93,147	2,647	55,577	4,153	286,524

Of which:
- interest only (including offset)	44,163	956	-	276	-	45,395
- affordability including ARMs	337	5,248	-	16,452	-	22,037

Other personal lending (B)	47,531	36,368	3,924	9,823	9,384	107,030
- other	34,567	25,695	2,633	4,328	4,846	72,069
- credit cards	12,959	10,289	897	1,050	3,322	28,517
- second lien residential mortgages	-	56	2	4,433	-	4,491
- motor vehicle finance	5	328	392	12	1,216	1,953


Total gross loans at 31 December 2014 (C)	178,531	129,515	6,571	65,400	13,537	393,554

Impairment allowances on personal lending
First lien residential mortgages (a)	306	46	97	1,644	36	2,129
Other personal lending (b)	786	208	97	350	1,030	2,471
- other	438	87	59	43	672	1,299
- credit cards	347	119	33	36	298	833
- second lien residential mortgages	-	-	-	271	-	271
- motor vehicle finance	1	2	5	-	60	68


Total impairment allowances at 31 December 2014 (c)	1,092	254	194	1,994	1,066	4,600

(a) as a percentage of A	0.2%	-	3.7%	3.0%	0.9%	0.7%
(b) as a percentage of B	1.7%	0.6%	2.5%	3.6%	11.0%	2.3%
(c) as a percentage of C	0.6%	0.2%	3.0%	3.0%	7.9%	1.2%

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

First lien residential mortgages (D)	140,474	92,047	2,451	60,955	3,948	299,875
s
Of which:
- interest only (including offset)	49,460	1,115	-	352	-	50,927
- affordability including ARMs	508	5,593	-	16,274	-	22,375

Other personal lending (E)	51,633	32,482	4,033	11,735	10,970	110,853
- other	37,126	21,636	2,728	5,309	5,651	72,450
- credit cards	14,496	10,274	915	1,145	3,526	30,356
- second lien residential mortgages	-	91	2	5,261	-	5,354
- motor vehicle finance	11	481	388	20	1,793	2,693


Total gross loans at 31 December 2013 (F)	192,107	124,529	6,484	72,690	14,918	410,728

Impairment allowances on personal lending
First lien residential mortgages (d)	439	57	124	2,886	32	3,538
Other personal lending (e)	959	222	169	532	1,182	3,064
- other	553	93	104	59	881	1,690
- credit cards	403	127	61	47	217	855
- second lien residential mortgages	-	-	-	426	-	426
- motor vehicle finance	3	2	4	-	84	93


Total impairment allowances at 31 December 2013 (f)	1,398	279	293	3,418	1,214	6,602

(d) as a percentage of D	0.3%	0.1%	5.1%	4.7%	0.8%	1.2%
(e) as a percentage of E	1.9%	0.7%	4.2%	4.5%	10.8%	2.8%
(f) as a percentage of F	0.7%	0.2%	4.5%	4.7%	8.1%	1.6%

For footnote, see page 202.

Total personal lending was US$394bn at 31 December 2014, down from US$411bn at the end of 2013 (US$392bn on a constant currency basis). We continued to run-off our CML portfolio in North America and the balance declined by a further US$5.7bn during the year.

Personal lendingexcluding the US CML run-off portfolio grew by US$7.7bn on a constant currency basis in 2014. This was mainly due to increased mortgage and other lending in Asia and growth in the mortgage portfolio in the US and Brazil. It was partially offset by a reduction in personal lending in UK.

Mortgage lending

(Unaudited)

We offer a wide range of mortgage products designed to meet customer needs, including capital repayment, interest-only, affordability and offset mortgages.

Group credit policy prescribes the range of acceptable residential property LTV thresholds with the maximum upper limit for new loans set at between 75% and 95%.

Specific LTV thresholds and debt-to-income ratios are managed at regional and country levels and, although the parameters must comply with Group policy, strategy and risk appetite, they differ in the various locations in which we operate to reflect the local economic and housing market conditions, regulations, portfolio performance, pricing and other product features.

The commentary that follows is on a constant currency basis

Personal lendingexcluding the US CML run-off portfolio, mortgage lending balances increased by US$3.9bn during the year. Mortgage lending in Asia, excluding the reclassification to Other Personal lending discussed on page 153, grew by US$4.8bn. The increases were primarily attributable to continued growth in Hong Kong (US$2.9bn) and, to a lesser extent, in Australia (US$0.5bn), Malaysia (US$0.4bn), and Taiwan (US$0.3bn) as a result of strong demand and competitive customer offerings. The quality of our Asian mortgage book remained high with negligible defaults and impairment allowances. The average LTV ratio on new mortgage lending in Hong Kong was 47% compared with an estimated 29% for the overall portfolio.

In North America, our Canadian mortgage balances increased by US$0.5bn during the year as a result of a focused mortgage campaign and process improvements. The Premier mortgage portfolio in the US also increased by US$0.9bn during 2014 as we continued to focus on growth in our core portfolios. Our business in the US exhibited lower collectively assessed impairment charges due to continued improvement in the credit quality of the mortgage portfolio. The US CML portfolio declined by US$5.7bn in 2014.

Mortgage lending in Brazil increased by US$0.5bn as a result of improvements to both our process and products offered and overall growth in the mortgage market in the country during the year.

In Europe, there was a marginal decline of US$1.4bn or 1% due to decreased lending and effects of repayments, mainly in the UK mortgage portfolio.

Interest-only products made up US$44bn of total UK mortgage lending, including US$19bn of offset mortgages in First Direct. The LTV ratio on new lending was 60% compared with an average of 43.7% for the total mortgage portfolio. The credit quality of our UK mortgage portfolio remained high and both loan impairment charges and delinquency levels declined in 2014.

We grew our mortgage book in France by US$0.6bn in the year due to strong demand.

Other personal lending

(Unaudited)

Other personal lending increased by US$3.7bn in 2014. This was driven by growth in personal loans and revolving credit facilities in Asia, mainly in Hong Kong (US$3.1bn). We also reclassified US$1.7bn of loans in mainland China from Residential mortgages to other personal lending as the supporting collateral over some of the properties either under construction or completed was yet to be fully registered. These increases were partially offset by a reduction in credit card lending of US$0.7bn in the UK and US$0.3bn in Turkey, due to repayments. Term lending in North America, primarily Canada, declined by US$0.7bn during the year. There was also a US$0.2bn reduction in the auto finance dealers run off portfolio in Brazil.

HSBC Finance US Consumer and Mortgage Lending - residential mortgages¹⁷

(Unaudited)

	2014	2013
	US$m	US$m
Residential mortgages:
- first lien	21,915	27,305
Other personal lending:
- second lien	2,509	3,014

Total (A) at 31 December	24,424	30,319

Impairment allowances	1,679	3,028
- as a percentage of A	6.9%	10.0%

For footnote, see page 202.

HSBC Finance

Mortgage lending balances in HSBC Finance declined by US$5.7bn during 2014. In addition to the continued loan sales in the CML portfolio, we transferred a further US$2.9bn to assets held for sale during the year, and expect to sell these in multiple transactions over the next 12 months.

The decrease in impairment allowances reflected lower levels of both new impaired loans and loan balances outstanding as a result of continued liquidation of the portfolio. This included loan sales and loss estimates due to lower delinquency and loss severity levels than in 2013.

Across the first and second lien residential mortgages in our CML portfolio, two months and over delinquent balances reduced by US$2.5bn to US$2.4bn during 2014 reflecting the continued portfolio run-off and loan sales.

HSBC Finance: foreclosed properties in the US

(Unaudited)

	2014	2013
	US$m	US$m
Number of foreclosed properties at year-end	2,139	4,254
Number of properties added to foreclosed inventory in the period	3,716	9,752
Average (gain)/loss on sale of foreclosed properties¹⁸	(1%)	1%
Average total loss on foreclosed properties¹⁹	51%	51%
Average time to sell foreclosed properties (days)	189	154

For footnotes, see page 202.

The number of foreclosed properties at 31 December 2014 significantly decreased compared with the end of 2013 as during 2014 more properties were sold than were added to the foreclosed inventory. We added fewer properties to the inventory as many of them were sold prior to taking title as a result of the ongoing sale of receivables from the CML portfolio.

HSBC Bank USA

In HSBC Bank USA, mortgage balances grew by US$0.9bn during 2014 as we implemented our strategy to grow the HSBC Premier customer base. Credit quality improved further during 2014 and balances which were two months and over delinquent in our first lien residential mortgage portfolio declined by US$0.3bn to US$1.1bn at December 2014. We also continued to sell all agency eligible new originations in the secondary market as a means of managing our interest rate risk and improving structural liquidity.

Trends in two months and over contractual delinquency in the US

(Unaudited)

	2014	2013
	US$m	US$m
In personal lending in the US
First lien residential mortgages	3,271	5,931
- Consumer and Mortgage Lending	2,210	4,595
- other mortgage lending	1,061	1,336

Second lien residential mortgages	216	406
- Consumer and Mortgage Lending	154	276
- other mortgage lending	62	130

Credit card	17	25
Personal non-credit card	7	25

Total at 31 December	3,511	6,387

	%	%
As a percentage of the equivalent loans and receivables balances
First lien residential mortgages	8.6	14.0
Second lien residential mortgages	5.0	8.1
Credit card	2.4	3.4
Personal non-credit card	1.4	4.9

Total at 31 December	8.1	13.1

Gross loan portfolio of HSBC Finance real estate secured balances

(Unaudited)

	Re-aged²⁰	Modified and re-aged	Modified	Total renegotiated loans	Total non- renegotiated loans		Total gross loans	Total impairment allowances	Impairment allowances/ gross loans
	US$m	US$m	US$m	US$m		US$m	US$m	US$m	%

At 31 December 2014	6,637	6,581	587	13,805		10,619	24,424	1,679	7
At 31 December 2013	8,167	8,213	768	17,148		13,171	30,319	3,028	10

For footnote, see page 202.

Number of renegotiated real estate secured accounts remaining in HSBC Finance's portfolio

(Unaudited)

	Number of renegotiated loans (000s)				Total number of loans (000s)
	Re-aged	Modified and re-aged	Modified	Total	Total number of loans (000s)

At 31 December 2014	85	64	6	155	297
At 31 December 2013	102	78	8	188	352

HSBC Finance loan modifications and re-age programmes

HSBC Finance maintains loan modification and re‑age ('loan renegotiation') programmes in order to manage customer relationships, improve collection opportunities and, if possible, avoid foreclosure.

Since 2006, HSBC Finance has implemented an extensive loan renegotiation programme, and a significant portion of its loan portfolio has been subject to renegotiation at some stage in the life of the customer relationship as a consequence of the economic conditions in the US and the characteristics of HSBC Finance's customer base.

The volume of loans that qualify for modification has reduced significantly in recent years and we expect this trend to continue. Volumes of new loan modifications are decreasing due to improvements in economic conditions, the cessation of new real estate secured and personal non-credit card receivables originations, and the continued run-off and loan sales in the CML portfolio.

Qualifying criteria

For an account to qualify for renegotiation it must meet certain criteria, and HSBC Finance retains the right to decline a renegotiation. The extent to which HSBC Finance renegotiates accounts that are eligible under its existing policies varies according to its view of prevailing economic conditions and other factors which may change from year to year. In addition, exceptions to policies and practices may be made in specific situations in response to legal or regulatory agreements or orders.

Renegotiated real estate secured are not eligible for a subsequent renegotiation for 12 months, with a maximum of five renegotiations permitted within
a five-year period. Borrowers must be approved for a modification and, to activate it, must generally make
two minimum qualifying monthly payments within 60 days. In certain circumstances where the debt has been restructured in bankruptcy proceedings, fewer or no payments may be required. Real estate secured loans involving a bankruptcy and accounts whose borrowers are subject to a Chapter 13 plan filed with a bankruptcy court generally may be considered current upon receipt of one qualifying payment, while accounts whose borrowers have filed for Chapter 7 bankruptcy protection may be re-aged upon receipt of a signed reaffirmation agreement. In addition, some products accounts may be re-aged without receipt of a payment in certain special circumstances (e.g. in the event of a natural disaster or a hardship programme).

2014 compared with 2013

At 31 December 2014, renegotiated real estate secured accounts in HSBC Finance represented 91% (2013: 91%) of North America's total renegotiated loans. US$8.0bn of renegotiated real estate secured loans were classified as impaired (2013: US$10bn). During 2014, the aggregate number of renegotiated loans in HSBC Finance reduced, due to the run-off and loan sales in the CML portfolio, despite renegotiation activity continuing.

Within the constraints of our Group credit policy, HSBC Finance's policies allow for multiple renegotiations under certain circumstances. Consequently, a significant proportion of loans included in the table above have undergone multiple re-ages or modifications. In this regard, multiple modifications have remained consistent at 70% to 75% of total modifications.

The accounts that received second or subsequent renegotiations during the year do not appear in the statistics presented. These statistics treat a loan as an addition to the volume of renegotiated loans on its first renegotiation only.

Types of loan renegotiation programmes in HSBC Finance

· A temporary modification is a change to the contractual terms of a loan that results in HSBC Finance giving up a right to contractual cash flows over a pre-defined period. With a temporary modification the loan is expected to revert back to the original contractual terms, including the interest rate charged, after the modification period. An example is reduced interest payments.

A substantial number of HSBC Finance modifications involve interest rate reductions, which lower the amount of interest income HSBC Finance is contractually entitled to receive in future periods. Historically, modifications were granted for terms as low as six months, although, more recent modifications have a minimum term of two years.

Loans that have been re-aged are classified as impaired with the exception of first-time loan re-ages that were less than 60 days past due at the time of re-age. These remain classified as impaired until they have demonstrated a history of payment performance against their original contracted terms for at least 12 months.

· A permanent modification is a change to the contractual terms of a loan that results in HSBC Finance giving up a right to contractual cash flows over the life of the loan. An example is a permanent reduction in the interest rate charged.

Permanent or long-term modifications which are due to an underlying hardship event remain classified as impaired for their full life.

The term 're-age' describes a renegotiation by which the contractual delinquency status of a loan is reset to current after demonstrating payment performance. The overdue principal and/or interest is deferred and paid at a later date. Loan re-ageing enables customers who have been unable to make a small number of payments to have their loan delinquency status reset to current so that their credit score is not affected by the overdue balances.

Loans that have been re-aged remain classified as impaired until they have demonstrated a history of payment performance against the original contractual terms for at least 12 months.

A temporary or permanent modification may also lead to a re‑ageing of a loan although a loan may be re-aged without any modification to its original terms and conditions.

Where loans have been granted multiple concessions, subject to the qualifying criteria discussed above, the concession is deemed to have been made due to concern regarding the

borrower's ability to pay, and the loan is disclosed as impaired. The loan remains disclosed as impaired from that date forward until the borrower has demonstrated a history of repayment performance for the period of time required for either modifications or re-ages, as described above.

Valuation of foreclosed properties in the US

We obtain real estate by foreclosing on the collateral pledged as security for residential mortgages. Prior to foreclosure, carrying amounts of the loans in excess of fair value less costs to sell are written down to the discounted cash flows expected to be recovered, including from the sale of the property.

Broker price opinions are obtained and updated every 180 days and real estate price trends are reviewed quarterly to reflect any improvement or additional deterioration. Our methodology is regularly validated by comparing the discounted cash flows expected to be recovered based on current market conditions (including estimated cash flows from the sale of the property) to the updated broker price opinion, adjusted for the estimated historical difference between interior and exterior appraisals. The fair values of foreclosed properties are initially determined on the basis of broker price opinions. Within 90 days of foreclosure, a more detailed property valuation is performed reflecting information obtained from a physical interior inspection of the property and additional allowances or write-downs are recorded as appropriate. Updates to the valuation are performed no less than once every 45 days until the property is sold, with declines or increases recognised through changes to allowances.

Second lien mortgages in the US

The majority of second lien residential mortgages were taken up by customers who held a first lien mortgage issued by a third party. Second lien residential mortgage loans have a risk profile characterised by higher LTV ratios, because in the majority of cases the loans were taken out to complete the refinancing of properties. Loss severity on default of second liens has typically approached 100% of the amount outstanding, as any equity in the property is consumed through the repayment of the first lien loan.

Impairment allowances for these loans were determined by applying a roll-rate migration analysis which captures the propensity of these loans to default based on past experience. Once we believe that a second lien residential mortgage loan is likely to progress to write-off, the loss severity assumed in establishing our impairment allowance is close to 100% in the CML portfolios, and more than 80% in HSBC Bank USA.

Collateral and other credit enhancements held

(Audited)

Loans and advances held at amortised cost

Details of the Group's practice regarding the use of collateral are provided in the Appendix to Risk on page 213.

The tables below provide a quantification of the value of fixed charges we hold over specific assets where we have a history of enforcing, and are able to enforce,
collateral in satisfying a debt in the event of the borrower failing to meet its contractual obligations, and where the collateral is cash or can be realised by sale in an established market. The collateral valuation excludes any adjustments for obtaining and selling the collateral and, in particular, loans shown as not collateralised or partially collateralised may also benefit from other forms of credit mitigants.

Residential mortgage loans including loan commitments by level of collateral

(Audited)

	Europe	Asia⁴	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Non-impaired loans and advances
Fully collateralised	135,875	99,257	2,431	43,317	3,759	284,639
LTV ratio:
- less than 50%	66,075	60,315	1,324	14,003	1,454	143,171
- 51% to 75%	56,178	31,142	856	20,872	1,777	110,825
- 76% to 90%	11,856	6,906	212	5,994	480	25,448
- 91% to 100%	1,766	894	39	2,448	48	5,195

Partially collateralised:
- greater than 100% LTV (A)	537	99	60	2,209	167	3,072
- collateral value on A	532	81	44	1,999	24	2,680


	136,412	99,356	2,491	45,526	3,926	287,711
Impaired loans and advances
Fully collateralised	906	256	122	8,618	154	10,056
LTV ratio:
- less than 50%	232	130	53	1,291	103	1,809
- 51% to 75%	417	90	29	3,462	35	4,033
- 76% to 90%	163	32	19	2,471	10	2,695
- 91% to 100%	94	4	21	1,394	6	1,519

Partially collateralised:
- greater than 100% LTV (B)	55	7	31	1,395	2	1,490
- collateral value on B	40	5	23	1,181	1	1,250


	961	263	153	10,013	156	11,546

At 31 December 2014	137,373	99,619	2,644	55,539	4,082	299,257

Non-impaired loans and advances
Fully collateralised	146,326	98,332	2,235	44,125	3,749	294,767
LTV ratio:
- less than 50%	55,028	55,479	749	13,172	1,337	125,765
- 51% to 75%	66,452	34,370	1,095	20,751	1,715	124,383
- 76% to 90%	21,603	6,836	348	6,933	606	36,326
- 91% to 100%	3,243	1,647	43	3,269	91	8,293

Partially collateralised:
- greater than 100% LTV (C)	1,410	362	42	4,150	59	6,023
- collateral value on C	852	307	37	3,681	49	4,926


	147,736	98,694	2,277	48,275	3,808	300,790
Impaired loans and advances
Fully collateralised	1,369	254	90	10,128	160	12,001
LTV ratio:
- less than 50%	244	100	15	1,393	97	1,849
- 51% to 75%	452	96	31	4,250	47	4,876
- 76% to 90%	320	49	34	2,809	13	3,225
- 91% to 100%	353	9	10	1,676	3	2,051

Partially collateralised:
- greater than 100% LTV (D)	104	17	6	2,548	8	2,683
- collateral value on D	91	4	6	2,272	4	2,377


	1,473	271	96	12,676	168	14,684

At 31 December 2013	149,209	98,965	2,373	60,951	3,976	315,474

For footnote, see page 202.

Supplementary information

Gross loans and advances by industry sector over five years

(Unaudited)

	2014	Currency translation adjustment	Movement	2013	2012	2011	2010
	US$m	US$m	US$m	US$m	US$m	US$m	US$m

Personal	393,554	(19,092)	1,918	410,728	415,093	393,625	425,320
- first lien residential mortgages⁶	286,524	(12,372)	(979)	299,875	301,862	278,963	268,681
- other personal⁷	107,030	(6,720)	2,897	110,853	113,231	114,662	156,639

Corporate and commercial	540,556	(24,729)	22,020	543,265	513,229	472,784	445,505
- manufacturing	106,986	(5,856)	(1,008)	113,850	112,149	96,054	91,121
- international trade and services	180,791	(8,232)	4,355	184,668	169,389	152,709	146,567
- commercial real estate	73,293	(3,270)	1,717	74,846	76,760	73,941	71,880
- other property-related	52,387	(922)	8,477	44,832	40,532	39,539	34,838
- government	6,143	(395)	(739)	7,277	10,785	11,079	8,594
- other commercial⁸	120,956	(6,054)	9,218	117,792	103,614	99,462	92,505

Financial	50,818	(2,303)	2,598	50,523	46,871	44,832	41,213
- non-bank financial institutions	48,799	(2,180)	2,442	48,537	45,430	43,888	39,651
- settlement accounts	2,019	(123)	156	1,986	1,441	944	1,562

Asset-backed securities reclassified	2,069	(147)	(500)	2,716	3,891	5,280	5,892

Total gross loans and advances to customers (A)	986,997	(46,271)	26,036	1,007,232	979,084	916,521	917,930

Gross loans and advances to banks	112,198	(4,925)	(2,981)	120,104	117,142	139,203	142,027

Total gross loans and advances	1,099,195	(51,196)	23,055	1,127,336	1,096,226	1,055,724	1,059,957

Impaired loans and advances to customers	29,283	(1,538)	(5,607)	36,428	38,671	41,584	46,871
- . as a percentage of A	3.0%			3.6%	3.9%	4.5%	4.8%

Impairment allowances on loans and advances to customers	12,337	(776)	(2,030)	15,143	16,112	17,511	20,083
- . as a percentage of A	1.2%			1.5%	1.6%	1.9%	2.2%

Loan impairment charge	4,055	(160)	(1,833)	6,048	8,160	11,505	13,548
- new allowances net of allowance releases	5,010	(158)	(2,176)	7,344	9,306	12,931	14,568
- recoveries	(955)	(2)	343	(1,296)	(1,146)	(1,426)	(1,020)

For footnotes, see page 202.

The personal lending currency effect on gross loans and advances of US$19bn was made up as follows: Europe US$13bn, Asia US$2.6bn, Latin America US$1.8bn, North America US$1.8bn. The wholesale lending currency effect on gross loans and advances of US$32bn was made up as follows: Europe US$21bn, Asia US$4.8bn, Latin America US$4.7bn, North America US$1.5bn and Middle East and North Africa US$0.3bn.

Reconciliation of reported and constant currency impaired loans, allowances and charges by geographical region

(Unaudited)

	31 Dec 13 as reported	Currency translation adjustment²¹	31 Dec 13 at 31 Dec 14 exchange rates	Movement - constant currency basis	31 Dec 14 as reported	Reported change²²	Constant currency change²²
	US$m	US$m	US$m	US$m	US$m	%	%
Impaired loans
Europe	13,228	(1,011)	12,217	(1,975)	10,242	(23)	(16)
Asia⁴	1,623	(54)	1,569	479	2,048	26	31
Middle East and North Africa	2,285	(8)	2,277	(296)	1,981	(13)	(13)
North America	15,123	(42)	15,081	(3,387)	11,694	(23)	(22)
Latin America	4,244	(425)	3,819	(454)	3,365	(21)	(12)

	36,503	(1,540)	34,963	(5,633)	29,330	(20)	(16)

Impairment allowances
Europe	5,598	(420)	5,178	(723)	4,455	(20)	(14)
Asia⁴	1,214	(32)	1,182	174	1,356	12	15
Middle East and North Africa	1,583	(4)	1,579	(173)	1,406	(11)	(11)
North America	4,242	(28)	4,214	(1,574)	2,640	(38)	(37)
Latin America	2,564	(294)	2,270	259	2,529	(1)	11

	15,201	(778)	14,423	(2,037)	12,386	(19)	(14)

Loan impairment charge
Europe	1,732	62	1,794	(715)	1,079	(38)	(40)
Asia⁴	483	(17)	466	178	644	33	38
Middle East and North Africa	(44)	-	(44)	43	(1)	98	98
North America	1,235	(15)	1,220	(920)	300	(76)	(75)
Latin America	2,642	(190)	2,452	(419)	2,033	(23)	(17)

	6,048	(160)	5,888	(1,833)	4,055	(33)	(31)

For footnotes, see page 202.

Reconciliation of reported and constant currency loan impairment charges to the income statement

(Unaudited)

	31 Dec 13 as reported	Currency translation adjustment²¹	31 Dec 13 at 31 Dec 14 exchange rates	Movement - constant currency basis	31 Dec 14 as reported	Reported change²²	Constant currency change²²
	US$m	US$m	US$m	US$m	US$m	%	%
Loan impairment charge
Europe	1,732	62	1,794	(715)	1,079	(38)	(40)
- new allowances	3,082	99	3,181	(736)	2,445	(21)	(23)
- releases	(713)	(11)	(724)	(338)	(1,062)	(49)	(47)
- recoveries	(637)	(26)	(663)	359	(304)	52	54

Asia⁴	483	(17)	466	178	644	33	38
- new allowances	953	(31)	922	193	1,115	17	21
- releases	(303)	8	(295)	(23)	(318)	(5)	(8)
- recoveries	(167)	6	(161)	8	(153)	8	5

Middle East and North Africa	(44)	-	(44)	43	(1)	98	98
- new allowances	408	(1)	407	(52)	355	(13)	(13)
- releases	(365)	2	(363)	49	(314)	14	13
- recoveries	(87)	(1)	(88)	46	(42)	52	52

North America	1,235	(15)	1,220	(920)	300	(76)	(75)
- new allowances	1,640	(17)	1,623	(715)	908	(45)	(44)
- releases	(282)	2	(280)	(213)	(493)	(75)	(76)
- recoveries	(123)	-	(123)	8	(115)	7	7

Latin America	2,642	(190)	2,452	(419)	2,033	(23)	(17)
- new allowances	3,262	(243)	3,019	(312)	2,707	(17)	(10)
- releases	(338)	34	(304)	(29)	(333)	1	(10)
- recoveries	(282)	19	(263)	(78)	(341)	(21)	(30)


Total	6,048	(160)	5,888	(1,833)	4,055	(33)	(31)
- new allowances	9,345	(193)	9,152	(1,622)	7,530	(19)	(18)
- releases	(2,001)	35	(1,966)	(554)	(2,520)	(26)	(28)
- recoveries	(1,296)	(2)	(1,298)	343	(955)	26	26

For footnotes, see page 202.

Loan impairment charges by industry sector over five years

(Unaudited)

	2014	2013	2012	2011	2010
	US$m	US$m	US$m	US$m	US$m

Loan impairment charge/(release)
Personal	1,803	3,196	5,362	9,318	11,187
Corporate and commercial	2,256	2,974	2,802	2,114	2,198
Financial⁵	(4)	(122)	(4)	73	163

Year ended 31 December	4,055	6,048	8,160	11,505	13,548

For footnotes, see page 202.

Charge for impairment losses as a percentage of average gross loans and advances to customers

(Unaudited)

	2014	2013	2012	2011	2010
	%	%	%	%	%

New allowances net of allowance releases	0.53	0.81	1.00	1.34	1.65
Recoveries	(0.10)	(0.14)	(0.12)	(0.15)	(0.12)

Total charge for impairment losses	0.43	0.67	0.88	1.19	1.53

Amount written off net of recoveries	0.58	0.59	0.93	1.14	2.08

Movement in impairment allowances over five years

(Unaudited)

	2014	2013	2012	2011	2010
	US$m	US$m	US$m	US$m	US$m

Impairment allowances at 1 January	15,201	16,169	17,636	20,241	25,649

Amounts written off	(6,379)	(6,655)	(9,812)	(12,480)	(19,300)
- personal	(3,733)	(4,367)	(6,905)	(10,431)	(16,458)
- corporate and commercial	(2,425)	(2,229)	(2,677)	(2,009)	(2,789)
- financial⁵	(221)	(59)	(230)	(40)	(53)

Recoveries of amounts written off in previous years	955	1,296	1,146	1,426	1,020
- personal	818	1,097	966	1,175	846
- corporate and commercial	128	198	172	242	156
- financial⁵	9	1	8	9	18

Loan impairment charge	4,055	6,048	8,160	11,505	13,548
Exchange and other movements¹³	(1,446)	(1,657)	(961)	(3,056)	(676)

Impairment allowances at 31 December	12,386	15,201	16,169	17,636	20,241

Impairment allowances
- individually assessed	6,244	7,130	6,629	6,662	6,615
- collectively assessed	6,142	8,071	9,540	10,974	13,626

Impairment allowances at 31 December	12,386	15,201	16,169	17,636	20,241

Amount written off net of recoveries as a percentage of average gross loans and advances to customers	0.6%	0.6%	1.0%	1.2%	2.2%

For footnotes, see page 202.

Gross loans and advances to customers by country

(Unaudited)

	First lien residential mortgages⁶ US$m	Other personal⁷ US$m	Property- related US$m	Commercial, international trade and other US$m	Total US$m

Europe	131,000	47,531	35,313	200,313	414,157
UK	123,239	21,023	25,927	156,577	326,766
France	2,914	12,820	7,341	21,834	44,909
Germany	6	212	304	7,275	7,797
Switzerland	298	8,149	225	614	9,286
Turkey	645	3,389	297	4,244	8,575
Other	3,898	1,938	1,219	9,769	16,824

Asia	93,147	36,368	70,057	164,739	364,311
Hong Kong	56,656	22,891	52,208	82,362	214,117
Australia	9,154	815	2,130	6,360	18,459
India	1,235	285	613	5,099	7,232
Indonesia	64	469	202	5,476	6,211
Mainland China	4,238	1,981	6,606	24,875	37,700
Malaysia	5,201	1,750	1,988	5,217	14,156
Singapore	9,521	5,878	4,210	11,951	31,560
Taiwan	3,920	626	118	7,057	11,721
Other	3,158	1,673	1,982	16,342	23,155

Middle East and North Africa (excluding Saudi Arabia)	2,647	3,924	2,246	21,633	30,450
Egypt	1	510	98	2,272	2,881
UAE	2,263	1,782	1,545	13,814	19,404
Other	383	1,632	603	5,547	8,165

North America	55,577	9,823	15,492	51,535	132,427
US	37,937	5,482	11,461	38,632	93,512
Canada	16,236	4,085	3,708	11,825	35,854
Other	1,404	256	323	1,078	3,061

Latin America	4,153	9,384	2,572	29,543	45,652
Argentina	15	1,169	93	2,119	3,396
Brazil	2,067	5,531	1,077	16,814	25,489
Mexico	1,967	2,642	1,336	9,503	15,448
Other	104	42	66	1,107	1,319


At 31 December 2014	286,524	107,030	125,680	467,763	986,997

Europe	140,474	51,633	38,634	230,932	461,673
UK	132,174	22,913	28,127	185,534	368,748
France	2,661	13,840	8,442	23,962	48,905
Germany	7	218	127	6,361	6,713
Switzerland	364	8,616	269	320	9,569
Turkey	833	4,002	305	4,059	9,199
Other	4,435	2,044	1,364	10,696	18,539

Asia	92,047	32,482	61,707	151,875	338,111
Hong Kong	53,762	19,794	44,904	75,547	194,007
Australia	9,468	1,236	2,511	7,138	20,353
India	1,080	297	425	4,231	6,033
Indonesia	69	447	78	5,361	5,955
Mainland China	4,880	300	5,808	22,149	33,137
Malaysia	5,140	1,994	1,997	5,420	14,551
Singapore	10,283	5,754	3,953	12,188	32,178
Taiwan	3,797	660	158	5,198	9,813
Other	3,568	2,000	1,873	14,643	22,084

Middle East and North Africa (excluding Saudi Arabia)	2,451	4,033	1,972	20,320	28,776
Egypt	1	477	146	2,232	2,856
UAE	2,082	1,842	1,331	12,344	17,599
Other	368	1,714	495	5,744	8,321

North America	60,955	11,735	14,616	44,884	132,190
US	42,317	6,257	10,174	30,952	89,700
Canada	17,036	5,116	3,912	13,079	39,143
Other	1,602	362	530	853	3,347

Latin America	3,948	10,970	2,749	28,815	46,482
Argentina	20	1,425	62	2,103	3,610
Brazil	1,811	6,466	1,268	17,132	26,677
Mexico	2,117	3,079	1,398	8,994	15,588
Other	-	-	21	586	607


At 31 December 2013	299,875	110,853	119,678	476,826	1,007,232