Interim Report - 15 of 24

RNS Number : 2028X

HSBC Holdings PLC

26 August 2015

 



Credit risk

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 certain other products such as guarantees and credit derivatives and from holding assets in the form of debt securities.

There have been no material changes to the policies and practices for the management of credit risk summarised in the credit risk section on page 127 and the Appendix to Risk on page 206 of the Annual Report and Accounts 2014.

Credit risk in the first half of 2015

An update on the effect of oil and gas prices is provided in 'Areas of special interest' on page 59, and our exposures to Greece are set out on page 74.

Reported gross loans and advances declined by $26bn. During 1H15, the assets of our Brazilian operations were reclassified as 'Assets held for sale' (see Note 12 on the Financial Statements), which reduced reported gross loans and advances by $31bn as detailed on page 62. Foreign exchange differences reduced reported gross loans and advances by a further $11bn. Excluding these adjustments, lending grew in both wholesale and personal lending.

Loan impairment charges reduced by 25% compared with 1H14 with notable decreases in Latin America, North America and Europe.

Information on constant currency movements is provided on page 71. The commentary that follows is on a constant currency basis, while tables are presented on a reported basis.

Excluding the Brazilian reclassification, wholesale gross loans grew by $13bn. Balances in Asia grew by $12bn, mainly in other property and international trade and services, and in North America by $5.6bn, mainly in manufacturing and commercial real estate, though this growth was partly offset by a $4.0bn reduction in Europe.

Excluding the Brazilian reclassification and the ongoing
run-off of the US CML portfolio, personal lending balances grew by $4.5bn in 1H15. This was mainly due to increased mortgage and other lending in Asia, other personal lending in Mexico and growth in the Premier mortgage portfolio in the US.

Summary of credit risk

		30 Jun 2015		30 Jun 2014		31 Dec 2014
		$bn		$bn		$bn
At end of period
Maximum exposure to credit risk
- total assets subject to credit risk		2,373		2,546		2,434
- off-balance sheet commitments subject to credit risk1		699		688		699
		3,072		3,234		3,133
Gross loans and advances
- personal lending		385		416		393
- wholesale lending		688		773		706
		1,073		1,189		1,099
Impaired loans
- personal lending		13		18		15
- wholesale lending		12		16		14
		25		34		29
Impaired loans as a % of gross loans and advances
- personal lending		3.4%		4.2%		3.9%
- wholesale lending		1.7%		2.1%		2.0%
- total		2.3%		2.9%		2.7%
		$bn		$bn		$bn
Impairment allowances
- personal lending		3.3		5.9		4.6
- wholesale lending		6.4		8.1		7.8
		9.7		14.0		12.4
Loans and advances net of impairment allowances		1,063		1,175		1,087
For the period ended
Loan impairment charges
- personal lending		0.9		1.2		0.6
- wholesale lending		0.6		0.8		1.5
		1.5		2.0		2.1

For footnote, see page 86.

Loans and advances

The following table analyses loans and advances 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 plc, 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.

Gross loans and advances by industry sector and by geographical region

		Europe		Asia		MENA		North         America		Latin         America		Total		As a %             of total                gross
		$m		$m		$m		$m		$m		$m		loans
At 30 June 2015
Personal		177,311		132,375		6,648		62,990		5,976		385,300		35.9
- first lien residential mortgages		130,909		95,176		2,642		53,995		2,031		284,753		26.5
- other personal		46,402		37,199		4,006		8,995		3,945		100,547		9.4
Wholesale
Corporate and commercial		200,188		225,249		22,833		63,524		12,413		524,207		48.9
- manufacturing		43,465		35,599		2,570		17,392		3,072		102,098		9.5
- international trade and services		65,459		76,683		10,109		13,720		3,508		169,479		15.8
- commercial real estate		26,925		34,249		721		7,444		1,418		70,757		6.6
- other property-related		8,209		39,518		1,691		9,652		39		59,109		5.5
- government		2,260		1,117		1,552		164		947		6,040		0.6
- other commercial2		53,870		38,083		6,190		15,152		3,429		116,724		10.9
Financial		27,163		15,413		2,896		8,055		691		54,218		5.0
Banks		23,460		66,286		9,014		7,372		3,311		109,443		10.2
Total gross loans and advances		428,122		439,323		41,391		141,941		22,391		1,073,168		100.0
Percentage of total		39.9%		40.9%		3.9%		13.2%		2.1%		100.0%
At 30 June 2014
Personal		194,898		129,680		6,553		69,573		15,048		415,752		35.0
- first lien residential mortgages		144,225		95,489		2,543		58,677		4,501		305,435		25.7
- other personal		50,673		34,191		4,010		10,896		10,547		110,317		9.3
Wholesale
Corporate and commercial		260,097		221,852		20,983		56,054		32,965		591,951		49.8
- manufacturing		65,374		35,210		2,445		12,941		14,196		130,166		10.9
- international trade and services		79,981		80,574		10,072		13,087		8,534		192,248		16.2
- commercial real estate		30,935		34,727		434		6,677		2,492		75,265		6.3
- other property-related		7,444		32,730		1,593		8,644		348		50,759		4.3
- government		2,404		1,082		1,696		568		1,007		6,757		0.6
- other commercial2		73,959		37,529		4,743		14,137		6,388		136,756		11.5
Financial		29,603		12,091		2,838		7,579		1,397		53,508		4.5
Banks		27,763		72,222		8,644		6,252		12,569		127,450		10.7
Total gross loans and advances		512,361		435,845		39,018		139,458		61,979		1,188,661		100.0
Percentage of total		43.1%		36.7%		3.3%		11.7%		5.2%		100.0%
At 31 December 2014
Personal		178,531		129,515		6,571		65,400		13,537		393,554		35.8
-  first lien residential mortgages		131,000		93,147		2,647		55,577		4,153		286,524		26.1
-  other personal		47,531		36,368		3,924		9,823		9,384		107,030		9.7
Wholesale
Corporate and commercial		212,523		220,799		20,588		57,993		30,722		542,625		49.4
- manufacturing		39,456		37,767		2,413		15,299		12,051		106,986		9.7
- international trade and services		76,629		72,814		9,675		13,484		8,189		180,791		16.4
- commercial real estate		28,187		35,678		579		6,558		2,291		73,293		6.7
- other property-related		7,126		34,379		1,667		8,934		281		52,387		4.8
- government		2,264		1,195		1,552		164		968		6,143		0.6
- other commercial2		58,861		38,966		4,702		13,554		6,942		123,025		11.2
Financial		23,103		13,997		3,291		9,034		1,393		50,818		4.6
Banks		21,978		62,960		10,495		7,405		9,360		112,198		10.2
Total gross loans and advances		436,135		427,271		40,945		139,832		55,012		1,099,195		100.0
Percentage of total		39.7%		38.9%		3.7%		12.7%		5.0%		100.0%

For footnote, see page 86.

Assets held for sale

During 1H15, gross loans and advances and related impairment allowances arising in our Brazilian operations were reclassified from 'Loans and advances to customers' and 'Loans and advances to banks' to 'Assets held for sale' in the balance sheet. There was no separate income statement reclassification. As a result, charges for loan impairment losses shown in the credit risk disclosures include loan impairment charges relating to financial assets classified as 'Assets held for sale'.

Loans and advances to banks and customers measured at amortised cost

		Total gross             loans and             advances		Impairment          allowances       on loans and             advances
		$m		$m
As reported		1,073,168		(9,778)
Reported in 'Assets held for sale'		26,883		(1,666)
At 30 June 2015		1,100,051		(11,444)

At 31 December 2014, the gross loans and advances and related impairment allowances of our Brazilian operations were $31bn and $1.7bn, respectively. Gross loans and advances reduced by $4.3bn mainly as a result of foreign exchange movements.

Gross loans and impairment allowances on loans and advances to customers and banks reported in 'Assets held for sale'

		Brazil		Other		Total
		$m		$m		$m
Gross loans
Loans and advances to customers		22,460		230		22,690
- personal		6,749		182		6,931
- corporate and commercial		15,403		48		15,451
- financial		308		-		308
Loans and advances to banks		4,193		-		4,193
At 30 June 2015		26,653		230		26,883
Impairment allowances
Loans and advances to customers		(1,632)		(34)		(1,666)
- personal		(713)		(16)		(729)
- corporate and commercial		(918)		(18)		(936)
- financial		(1)		-		(1)
Loans and advances to banks		-		-		-
At 30 June 2015		(1,632)		(34)		(1,666)

The table below analyses the amount of LICs arising from assets held for sale. They primarily relate to the Brazilian operations.

Loan impairment charges and other credit risk provisions

		Total
		$m
LICs arising from:
- assets held for sale		478
- assets not held for sale		961
Half-year to 30 June 2015		1,439

Credit quality of financial instruments

We assess credit quality on all financial instruments which bear credit risk. The distribution of financial instruments by credit quality is tabulated below.

 

Distribution of total financial instruments exposed to credit risk by credit quality

		Neither past due nor impaired
		Strong		Good		Satis-factory		Sub-standard		Past due but not impaired		Impaired		Total gross amount		Impairment allowances		Total
		$m		$m		$m		$m		$m		$m		$m		$m		$m
At 30 June 2015		1,599,418		410,280		303,630		28,141		13,282		29,569		2,384,320		(11,445)		2,372,875
At 30 June 2014		1,677,301		456,507		335,139		40,041		14,163		37,112		2,560,263		(14,109)		2,546,154
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
		%		%		%		%		%		%		%
At 30 June 2015		67.1		17.2		12.7		1.2		0.6		1.2		100.0
At 30 June 2014		65.5		17.8		13.1		1.6		0.6		1.4		100.0
At 31 December 2014		66.7		17.2		12.9		1.3		0.6		1.3		100.0

This table shows the credit quality distribution for all assets exposed to credit risk, including the balances relating to our Brazilian operations. Within past due but not impaired amounts at 30 June 2015, 99% were less than 90 days past due in line with previous periods.

Distribution of loans and advances held at amortised cost by credit quality

		Neither past due nor impaired
		Strong		Good		Satis-factory		Sub-standard		Past due but not impaired		Impaired		Total gross amount		Impairment allowances		Total
		$m		$m		$m		$m		$m		$m		$m		$m		$m
At 30 June 2015
Loans and advances to customers3		478,003		234,178		196,723		17,463		12,248		25,110		963,725		(9,740)		953,985
- personal		316,984		31,572		14,715		975		7,817		13,237		385,300		(3,339)		381,961
- corporate and commercial		133,683		186,759		172,404		15,960		3,834		11,567		524,207		(6,127)		518,080
- financial		27,336		15,847		9,604		528		597		306		54,218		(274)		53,944
Loans and advances to banks		86,768		17,655		4,571		404		1		44		109,443		(38)		109,405
At 30 June 2014
Loans and advances to customers3		501,162		274,776		212,714		24,712		13,967		33,880		1,061,211		(13,970)		1,047,241
- personal		332,045		38,673		16,847		1,366		9,283		17,538		415,752		(5,906)		409,846
- corporate and commercial		140,941		222,982		185,541		22,450		4,327		15,710		591,951		(7,686)		584,265
- financial		28,176		13,121		10,326		896		357		632		53,508		(378)		53,130
Loans and advances to banks		96,849		21,948		6,986		1,599		12		56		127,450		(63)		127,387
At 31 December 2014
Loans and advances to customers3		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		25,681		13,736		9,828		686		559		328		50,818		(296)		50,522
Loans and advances to banks		83,766		19,525		7,945		914		1		47		112,198		(49)		112,149

For footnote, see page 86.

This table shows loans and advances held at amortised cost by credit quality distribution. Assets of our Brazilian operations are not included in the 30 June 2015 balances following their classification as 'Assets held for sale'.

Impaired loans

Impaired gross loans and advances to customers and banks by industry sector

		Impaired loans and advances at 30 June 2015						Impaired loans and advances at 30 June 2014						Impaired loans and advances at 31 December 2014
		Individ-           ually  assessed		Collect-           ively  assessed		Total		Individ-           ually  assessed		Collect-           ively  assessed		Total		Individ-           ually  assessed		Collect-           ively  assessed		Total
		$m		$m		$m		$m		$m		$m		$m		$m		$m
Banks		44		-		44		56		-		56		47		-		47
Customers		14,122		10,988		25,110		18,076		15,804		33,880		15,879		13,404		29,283
- personal		2,334		10,903		13,237		2,171		15,367		17,538		2,096		13,064		15,160
- corporate and commercial		11,482		85		11,567		15,274		436		15,710		13,456		339		13,795
- financial		306		-		306		631		1		632		327		1		328
		14,166		10,988		25,154		18,132		15,804		33,936		15,926		13,404		29,330

On a reported basis, during 1H15 impaired gross loans and advances declined by $4.2bn. The classification of the assets of our Brazilian operations as 'Assets held for sale' reduced personal collectively assessed impaired loan balances by $0.7bn. The continued run-off of the US CML portfolio reduced personal collectively assessed impaired loan balances by a further $0.9bn. Personal individually assessed impaired loans increased, largely due to enhancements to the identification of impaired UK residential mortgages and the calculation of allowances on individual loans rather than on a collective basis. Corporate and commercial impaired loans reduced by $2.2bn mainly due to the Brazilian reclassification. Corporate and commercial impaired loans also decreased as a result of write-offs in Europe and Middle East and North Africa.

Renegotiated loans and forbearance

The most significant portfolio of renegotiated loans remained in North America, substantially all of which were personal loans held by HSBC Finance Corporation ('HSBC Finance'). On a reported basis, during 1H15, total renegotiated loans decreased by $1.9bn to $25.6bn. The Brazilian reclassification reduced reported renegotiated loans by $1.0bn. The ongoing run-off of the US CML portfolio reduced renegotiated loans by a further $0.9bn, and new renegotiated loans and delinquency in the US CML portfolio diminished as a result of improvements in the US housing market and economic conditions.

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

		Europe		Asia		MENA		North            America		Latin           America		Total
		$m		$m		$m		$m		$m		$m
First lien residential mortgages		1,586		82		49		12,828		44		14,589
- neither past due nor impaired		568		55		26		3,680		28		4,357
- past due but not impaired		213		6		1		1,822		6		2,048
- impaired		805		21		22		7,326		10		8,184
Other personal lending		318		280		23		1,166		41		1,828
- neither past due nor impaired		183		160		14		446		13		816
- past due but not impaired		39		18		4		198		1		260
- impaired		96		102		5		522		27		752
Corporate and commercial4		5,468		471		1,394		430		648		8,411
- neither past due nor impaired		1,290		76		344		39		262		2,011
- past due but not impaired		42		1		24		-		4		71
- impaired		4,136		394		1,026		391		382		6,329
Financial5		444		4		282		-		-		730
- neither past due nor impaired		222		-		282		-		-		504
- past due but not impaired		-		-		-		-		-		-
- impaired		222		4		-		-		-		226
Renegotiated loans at 30 June 2015		7,816		837		1,748		14,424		733		25,558
- neither past due nor impaired		2,263		291		666		4,165		303		7,688
- past due but not impaired		294		25		29		2,020		11		2,379
- impaired		5,259		521		1,053		8,239		419		15,491
Impairment allowances on renegotiated loans		1,458		158		513		1,246		146		3,521
- renegotiated loans as % of total gross loans		1.9%		0.2%		5.4%		10.7%		3.8%		2.7%
First lien residential mortgages		1,743		107		69		15,034		74		17,027
- neither past due nor impaired		593		72		22		3,827		36		4,550
- past due but not impaired		296		13		10		2,032		5		2,356
- impaired		854		22		37		9,175		33		10,121
Other personal lending		423		311		54		1,376		457		2,621
- neither past due nor impaired		287		201		31		468		15		1,002
- past due but not impaired		28		24		17		234		2		305
- impaired		108		86		6		674		440		1,314
Corporate and commercial4		7,064		454		1,579		508		2,024		11,629
- neither past due nor impaired		1,559		124		689		41		436		2,849
- past due but not impaired		145		2		95		2		35		279
- impaired		5,360		328		795		465		1,553		8,501
Financial5		287		5		356		1		1		650
- neither past due nor impaired		93		-		265		-		-		358
- past due but not impaired		-		-		-		-		-		-
- impaired		194		5		91		1		1		292
Renegotiated loans at 30 June 2014		9,517		877		2,058		16,919		2,556		31,927
- neither past due nor impaired		2,532		396		1,007		4,336		488		8,759
- past due but not impaired		470		39		121		2,268		42		2,940
- impaired		6,515		442		930		10,315		2,026		20,228
Impairment allowances on renegotiated loans		1,355		73		436		2,025		893		4,782
- renegotiated loans as % of total gross loans		2.0%		0.2%		6.8%		12.7%		5.2%		3.0%

		Europe		Asia		MENA		North            America		Latin           America		Total
		$m		$m		$m		$m		$m		$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 lending		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 commercial4		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%

For footnotes, see page 86.

Loan impairment in the first half of 2015

On a reported basis, loan impairment charges of $1.4bn were $578m lower than in 1H14, in part reflecting the favourable effect of foreign currency movements of $282m, mainly in Latin America and, to a lesser extent, in Europe.

The following commentary is on a constant currency basis. Loan impairment charges decreased by $296m or 17%, primarily in North America, Europe and Latin America partly offset in Middle East and North Africa.

In North America, loan impairment charges decreased for both personal and corporate and commercial lending. The decrease in corporate and commercial lending impairment charges mainly reflected charges recorded in 1H14 following a revision to certain estimates used in our corporate loan impairment calculation. Personal lending loan impairment charges fell mainly due to lower collectively assessed charges on first lien mortgages, primarily in the US CML portfolio. This decline reflected reduced levels of delinquency and lower new impaired loans in addition to lower lending balances from the continued run-off and loan sales. These factors were partly offset by lower favourable market value adjustments of underlying properties as improvements in housing market conditions were less pronounced in 1H15 than in 1H14.

In Europe, the reduction was driven by lower impairment charges on corporate and commercial lending. This primarily reflected the lower individually assessed loan impairment charge in the UK in 1H14, partly offset by $92m of loan impairments charges relating to Greek exposures during 1H15. An additional $19m of other credit risk provisions were taken in relation to off-balance sheet exposures to Greece.

In Latin America, loan impairment charges decreased by $88m, primarily in personal lending in Brazil due to the non-recurrence of loan impairment charges from refinements made in 1H14 to the impairment model for non-restructured loan portfolios, and in Mexico, reflecting lower delinquency rates on personal lending, payroll and card portfolios.

These factors were partly offset in Middle East and North Africa, reflecting higher individually assessed loan impairment charges in 1H15 compared with a net release in 1H14, primarily on commercial exposures in the UAE.

Loan impairment charge to the income statement by industry sector

		Europe		Asia		MENA		North           America		Latin           America		Total
		$m		$m		$m		$m		$m		$m
Personal		113		145		24		101		488		871
- first lien residential mortgages		(32)		2		(7)		68		33		64
- other personal		145		143		31		33		455		807
Corporate and commercial		214		97		21		50		216		598
- manufacturing and international trade and services		103		109		(11)		9		175		385
- commercial real estate and other property-related		(10)		13		25		1		17		46
- other commercial2		121		(25)		7		40		24		167
Financial5		(6)		-		(12)		(3)		(1)		(22)
Total loan impairment charge for the half-year to 30 June 2015		321		242		33		148		703		1,447
Personal		122		155		15		225		701		1,218
- first lien residential mortgages		(37)		(2)		(5)		168		12		136
- other personal		159		157		20		57		689		1,082
Corporate and commercial		329		63		(44)		141		290		779
- manufacturing and international trade and services		291		61		(8)		79		141		564
- commercial real estate and other property-related		(17)		(9)		(30)		23		59		26
- other commercial2		55		11		(6)		39		90		189
Financial5		28		(2)		(28)		29		1		28
Total loan impairment charge for the half-year to 30 June 2014		479		216		(57)		395		992		2,025
Personal		123		166		10		(108)		394		585
- first lien residential mortgages		(38)		8		(19)		(142)		3		(188)
- other personal		161		158		29		34		391		773
Corporate and commercial		461		264		50		55		647		1,477
- manufacturing and international trade and services		229		136		44		37		241		687
- commercial real estate and other property-related		95		38		2		4		117		256
- other commercial2		137		90		4		14		289		534
Financial5		16		(2)		(4)		(42)		-		(32)
Total loan impairment charge for the half-year to 31 December 2014		600		428		56		(95)		1,041		2,030

For footnotes, see page 86.

Movement in impairment allowances on loans and advances to customers and banks

		Banks		Customers
		individually                  assessed		Individually                  assessed		Collectively                  assessed		Total
		$m		$m		$m		$m
At 1 January 2015		49		6,195		6,142		12,386
Amounts written off		-		(727)		(1,463)		(2,190)
Recoveries of loans and advances previously written off		-		23		327		350
Charge to income statement		(8)		488		967		1,447
Reclassified to held for sale		-		(656)		(1,047)		(1,703)
Exchange and other movements		(3)		(124)		(385)		(512)
At 30 June 2015		38		5,199		4,541		9,778
Impairment allowances:
on loans and advances to customers				5,199		4,541		9,740
- personal				425		2,914		3,339
- corporate and commercial				4,587		1,540		6,127
- financial				187		87		274
as a percentage of gross loans and advances		0.04%		0.54%		0.47%		0.92%

		Banks		Customers
		individually                  assessed		Individually                 assessed		Collectively                  assessed		Total
		$m		$m		$m		$m
At 1 January 2014		58		7,072		8,071		15,201
Amounts written off		(6)		(1,276)		(2,288)		(3,570)
Recoveries of loans and advances previously written off		-		74		483		557
Charge to income statement		10		548		1,467		2,025
Reclassified to held for sale		-		-		(160)		(160)
Exchange and other movements		1		73		(94)		(20)
At 30 June 2014		63		6,491		7,479		14,033
Impairment allowances:
on loans and advances to customers				6,491		7,479		13,970
- personal				534		5,372		5,906
- corporate and commercial				5,708		1,978		7,686
- financial				249		129		378
as a percentage of gross loans and advances		0.05%		0.61%		0.71%		1.19%
At 1 July 2014		63		6,491		7,479		14,033
Amounts written off		-		(1,037)		(1,772)		(2,809)
Recoveries of loans and advances previously written off		-		40		358		398
Charge to income statement		(6)		1,228		808		2,030
Reclassified to held for sale		-		(50)		(144)		(194)
Exchange and other movements		(8)		(477)		(587)		(1,072)
At 31 December 2014		49		6,195		6,142		12,386
Impairment allowances:
on loans and advances to customers				6,195		6,142		12,337
- personal				468		4,132		4,600
- corporate and commercial				5,532		1,909		7,441
- financial				195		101		296
as a percentage of gross loans and advances		0.04%		0.63%		0.62%		1.13%

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

		Europe		Asia		MENA		North            America		Latin            America		Total
		%		%		%		%		%		%
Half-year to 30 June 2015
New allowances net of allowance releases		0.27		0.18		0.32		0.29		3.65		0.39
Recoveries		(0.09)		(0.04)		(0.11)		(0.06)		(0.30)		(0.08)
Total charge for impairment losses		0.18		0.14		0.21		0.23		3.35		0.31
Amount written off net of recoveries		0.22		0.09		1.67		0.57		3.19		0.40
Half-year to 30 June 2014
New allowances net of allowance releases		0.39		0.17		(0.23)		0.71		4.72		0.55
Recoveries		(0.15)		(0.04)		(0.17)		(0.10)		(0.49)		(0.12)
Total charge for impairment losses		0.24		0.13		(0.40)		0.61		4.23		0.43
Amount written off net of recoveries		0.61		0.11		0.38		1.11		3.74		0.65
Half-year to 31 December 2014
New allowances net of allowance releases		0.34		0.29		0.51		(0.07)		5.38		0.52
Recoveries		(0.02)		(0.04)		(0.12)		(0.07)		(0.96)		(0.09)
Total charge for impairment losses		0.32		0.25		0.39		(0.14)		4.42		0.43
Amount written off net of recoveries		0.36		0.15		0.79		0.83		3.52		0.52

Wholesale lending

Wholesale lending covers the range of credit facilities granted to sovereign borrowers, banks, non-bank financial institutions, corporate entities and commercial borrowers.

Total wholesale lending

		Europe		Asia		MENA		North            America		Latin           America		Total
		$m		$m		$m		$m		$m		$m
Corporate and commercial		200,188		225,249		22,833		63,524		12,413		524,207
- manufacturing		43,465		35,599		2,570		17,392		3,072		102,098
- international trade and services		65,459		76,683		10,109		13,720		3,508		169,479
- commercial real estate		26,925		34,249		721		7,444		1,418		70,757
- other property-related		8,209		39,518		1,691		9,652		39		59,109
- government		2,260		1,117		1,552		164		947		6,040
- other commercial2		53,870		38,083		6,190		15,152		3,429		116,724
Financial		27,163		15,413		2,896		8,055		691		54,218
Loans and advances to banks		23,460		66,286		9,014		7,372		3,311		109,443
Gross loans at 30 June 2015		250,811		306,948		34,743		78,951		16,415		687,868
Impairment allowances on wholesale lending
Corporate and commercial		2,927		1,138		983		561		518		6,127
- manufacturing		563		266		134		134		50		1,147
- international trade and services		823		589		330		139		48		1,929
- commercial real estate		819		33		146		92		364		1,454
- other property-related		151		71		236		34		1		493
- government		7		-		-		1		-		8
- other commercial		564		179		137		161		55		1,096
Financial		216		13		10		35		-		274
Loans and advances to banks		20		-		18		-		-		38
Impairment allowances at 30 June 2015		3,163		1,151		1,011		596		518		6,439
Corporate and commercial		260,097		221,852		20,983		56,054		32,965		591,951
- manufacturing		65,374		35,210		2,445		12,941		14,196		130,166
- international trade and services		79,981		80,574		10,072		13,087		8,534		192,248
- commercial real estate		30,935		34,727		434		6,677		2,492		75,265
- other property-related		7,444		32,730		1,593		8,644		348		50,759
- government		2,404		1,082		1,696		568		1,007		6,757
- other commercial2		73,959		37,529		4,743		14,137		6,388		136,756
Financial		29,603		12,091		2,838		7,579		1,397		53,508
Loans and advances to banks		27,763		72,222		8,644		6,252		12,569		127,450
Gross loans at 30 June 2014		317,463		306,165		32,465		69,885		46,931		772,909
Impairment allowances on wholesale lending
Corporate and commercial		3,355		951		1,161		817		1,402		7,686
- manufacturing		526		252		162		148		372		1,460
- international trade and services		961		458		490		187		257		2,353
- commercial real estate		1,062		19		147		178		454		1,860
- other property-related		257		99		239		89		7		691
- government		3		-		4		1		-		8
- other commercial		546		123		119		214		312		1,314
Financial		250		15		30		81		2		378
Loans and advances to banks		45		-		18		-		-		63
Impairment allowances at 30 June 2014		3,650		966		1,209		898		1,404		8,127
Corporate and commercial		212,523		220,799		20,588		57,993		30,722		542,625
- manufacturing		39,456		37,767		2,413		15,299		12,051		106,986
- international trade and services		76,629		72,814		9,675		13,484		8,189		180,791
- commercial real estate		28,187		35,678		579		6,558		2,291		73,293
- other property-related		7,126		34,379		1,667		8,934		281		52,387
- government		2,264		1,195		1,552		164		968		6,143
- other commercial2		58,861		38,966		4,702		13,554		6,942		123,025
Financial		23,103		13,997		3,291		9,034		1,393		50,818
Loans and advances to banks		21,978		62,960		10,495		7,405		9,360		112,198
Gross loans at 31 December 2014		257,604		297,756		34,374		74,432		41,475		705,641

		Europe		Asia		MENA		North            America		Latin           America		Total
		$m		$m		$m		$m		$m		$m
Impairment allowances on wholesale lending
Corporate and commercial		3,112		1,089		1,171		608		1,461		7,441
- manufacturing		529		242		141		152		348		1,412
- international trade and services		877		533		536		157		237		2,340
- commercial real estate		909		44		147		101		476		1,677
- other property-related		203		55		219		57		12		546
- government		4		-		1		-		-		5
- other commercial		590		215		127		141		388		1,461
Financial		221		13		21		39		2		296
Loans and advances to banks		31		-		18		-		-		49
Impairment allowances at 31 December 2014		3,364		1,102		1,210		647		1,463		7,786

For footnote, see page 86.

On a reported basis, gross loans decreased by $18bn, mainly due to the classification of the assets of our Brazilian operations as 'Assets held for sale' of $23bn and adverse foreign exchange movements of $7.9bn.

Loan impairment allowances reduced by $1.3bn, mainly due to the Brazilian reclassification.

The commentary that follows is on a constant currency basis.

Excluding the Brazilian reclassification, gross loans increased by $13bn.

In Asia, balances grew by $12bn, mainly in other property and international trade and services. In North America, we experienced growth of $5.6bn mainly in manufacturing and commercial real estate. In Europe, balances reduced by $4.0bn mainly due to corporate and commercial lending balances reducing by $10bn which was partly offset by increases in financial and banks. The corporate and commercial lending reduction was mainly in the UK,
in international trade and service and other commercial balances which was partially offset by increases in manufacturing balances. These movements are mainly related to corporate overdraft balances where a small number of clients benefit from the use of net interest arrangements across overdraft and deposits. As a result, while net risk exposures are generally stable, gross balances can be volatile. In Middle East and North Africa, balances increased by $0.8bn, mainly due to an increase in corporate and commercial lending of $2.5bn partially offset by decreases in loans and advances to banks of $1.2bn.

Personal lending

We provide a broad range of secured and unsecured personal lending products to meet customer needs. Personal lending includes loans secured on assets such as first liens on residential property, and unsecured lending products such as overdrafts, credit cards and payroll loans.

Total personal lending

		Europe		Asia		MENA		North              America		Latin              America		Total
		$m		$m		$m		$m		$m		$m
First lien residential mortgages		130,909		95,176		2,642		53,995		2,031		284,753
Of which:
- interest only (including offset)		43,541		887		-		227		-		44,655
- affordability (including ARMs)		340		4,984		-		16,899		-		22,223
Other personal lending		46,402		37,199		4,006		8,995		3,945		100,547
- motor vehicle finance		5		264		377		16		408		1,070
- credit cards		12,559		9,760		859		999		1,934		26,111
- second lien residential mortgages		-		43		2		4,089		-		4,134
- other		33,838		27,132		2,768		3,891		1,603		69,232
Total gross loans at 30 June 2015		177,311		132,375		6,648		62,990		5,976		385,300
Impairment allowances on personal lending
First lien residential mortgages		271		43		88		1,362		23		1,787
Other personal lending		792		205		87		276		192		1,552
- motor vehicle finance		1		1		5		-		4		11
- credit cards		354		114		30		30		117		645
- second lien residential mortgages		-		-		-		210		-		210
- other		437		90		52		36		71		686
Total impairment allowances at 30 June 2015		1,063		248		175		1,638		215		3,339

Total personal lending (continued)

		Europe		Asia		MENA		North              America		Latin              America		Total
		$m		$m		$m		$m		$m		$m
First lien residential mortgages		144,225		95,489		2,543		58,677		4,501		305,435
Of which:
- interest only (including offset)		50,339		1,138		18		332		-		51,827
- affordability (including ARMs)		350		5,532		-		15,950		-		21,832
Other personal lending		50,673		34,191		4,010		10,896		10,547		110,317
- motor vehicle finance		9		407		379		28		1,568		2,391
- credit cards		14,019		9,681		905		1,084		3,515		29,204
- second lien residential mortgages		-		80		3		4,879		-		4,962
- other		36,645		24,023		2,723		4,905		5,464		73,760
Total gross loans at 30 June 2014		194,898		129,680		6,553		69,573		15,048		415,752
Impairment allowances on personal lending
First lien residential mortgages		398		52		110		2,254		39		2,853
Other personal lending		925		218		163		434		1,313		3,053
- motor vehicle finance		4		2		5		-		106		117
- credit cards		417		125		61		37		298		938
- second lien residential mortgages		-		-		-		345		-		345
- other		504		91		97		52		909		1,653
Total impairment allowances at 30 June 2014		1,323		270		273		2,688		1,352		5,906
First lien residential mortgages		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		47,531		36,368		3,924		9,823		9,384		107,030
- motor vehicle finance		5		328		392		12		1,216		1,953
- credit cards		12,959		10,289		897		1,050		3,322		28,517
- second lien residential mortgages		-		56		2		4,433		-		4,491
- other		34,567		25,695		2,633		4,328		4,846		72,069
Total gross loans at 31 December 2014		178,531		129,515		6,571		65,400		13,537		393,554
Impairment allowances on personal lending
First lien residential mortgages		306		46		97		1,644		36		2,129
Other personal lending		786		208		97		350		1,030		2,471
- motor vehicle finance		1		2		5		-		60		68
- credit cards		347		119		33		36		298		833
- second lien residential mortgages		-		-		-		271		-		271
- other		438		87		59		43		672		1,299
Total impairment allowances at 31 December 2014		1,092		254		194		1,994		1,066		4,600

On a reported basis, total personal lending reduced by $8.3bn, mainly due to the classification of $7.6bn of assets of our Brazilian operations as 'Assets held for sale' and adverse foreign exchange movements of $3.3bn.

Loan impairment allowances reduced by $1.3bn, mainly due to the Brazilian reclassification.

Loan impairment charges were $0.9bn, $0.3bn less than in 1H14 due to reduced levels of lending balances and lower new impaired loans and delinquency in the US CML portfolio, reflecting the continued portfolio run-off and loan sales.

Excluding the Brazilian reclassification, personal lending grew by $2.7bn on a constant currency basis.

Mortgage lending

The commentary that follows is on a constant currency basis:

Excluding the effect of the reclassification of the assets of our Brazilian operations as 'Assets held for sale' and the
US CML run-off portfolio, mortgage lending increased by $3.4bn during 1H15. Mortgage lending balances in Asia grew by $3.1bn, primarily attributable to continued growth in Hong Kong ($2.2bn) due to increased promotional campaigns and, to a lesser extent, in Australia and mainland China ($1.0bn) as a result of strong demand and our competitive customer offerings. The quality of our Asian mortgage book remained high with negligible defaults and impairment allowances. The average loan to value ('LTV') ratio on new mortgage lending in Hong Kong was 44% compared with an estimated 27% for the overall portfolio.

In North America, our Canadian mortgage balances increased by $0.5bn during 1H15 a result of a spring mortgage campaign.

The Premier mortgage portfolio in the US also increased by $0.6bn as we continued to focus on growth in our core portfolios of higher credit quality mortgages. Collectively assessed impairment allowances reduced in 1H15 due to continued improvement in the credit quality of the mortgage portfolio. The US CML portfolio declined by $1.8bn, including second lien mortgages, in 1H15.

We classified mortgage lending balances of $1.9bn in Brazil as 'Assets held for sale'.

In Europe, there was a decline of $0.8bn or 0.6% in the mortgage portfolio due to decreased new mortgage lending and the effect of repayments, mainly in the UK, and a fall in impairment allowances due to reductions in receivables and defaulted loans.

The LTV ratio on new lending in the UK was 55.9% compared with an average of 42.5% 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 1H15.

Other personal lending

The commentary that follows is on a constant currency basis:

Excluding the effect of the Brazilian reclassification and the US CML run-off portfolio, other personal lending increased by $1.0bn during 1H15. This was driven by strong growth in personal loans in Hong Kong ($1.5bn) and an increase in other lending in France ($0.4bn).

These increases were partially offset by reductions in credit card lending of $0.2bn in the UK and $0.3bn in Hong Kong. Other personal lending in North America declined by $0.6bn, of which $0.3bn was a reduction in second lien mortgage balances during 1H15.

HSBC Finance

Lending in HSBC Finance for residential mortgages, including second lien mortgages, decreased by $1.8bn to $21.8bn at 30 June 2015. Of the mortgage lending in HSBC Finance 90% consisted of first lien residential mortgages and 10% of second lien mortgages. In addition to the continued loan sales in the CML portfolio, we transferred a further $0.4bn to 'Assets held for sale' during 1H15, and these loans were mainly sold in May 2015. The average gain on sale of foreclosed properties that arose after we took title to the property was 1%.

The decrease in impairment allowances from $1.7bn at 31 December 2014 to $1.3bn at 30 June 2015 reflected reduced levels of delinquency and lower newly impaired loans and loan balances outstanding as a result of continued sale and liquidation of the portfolio.

Across the first and second lien residential mortgages in our CML portfolio, two months and over delinquent balances reduced by $0.5bn to $1.8bn during 1H15, reflecting the continued portfolio run-off and loan sales.

At 30 June 2015, renegotiated real estate secured accounts in HSBC Finance represented 92% (December 2014: 93%) of North America's total renegotiated loans. $7bn of renegotiated real estate secured loans were classified as impaired (31 December 2014: $8bn). During 1H15, the aggregate number of renegotiated loans in HSBC Finance reduced due to portfolio run-off and further loan sales in the CML portfolio.

HSBC Bank USA

In HSBC Bank USA, mortgage balances grew by $0.6bn to $17.4bn during 1H15 as we continued to implement our strategy to grow the HSBC Premier and Advance customer base. We continued to sell all agency eligible new originations in the secondary market.

 

Supplementary information

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

		31 December                   2014      as reported		Currency        translation       adjustment6		31 December              2014 at   30 June 2015          exchange                   rates		Movement                    on a            constant            currency                   basis		30 June                   2015     as reported		Reported               change7		Constant           currency               change7
		$m		$m		$m		$m		$m		%		%
Impaired loans
Europe		10,242		(231)		10,011		(491)		9,520		(7)		(5)
Asia		2,048		(56)		1,992		159		2,151		5		8
Middle East and North Africa		1,981		(13)		1,968		(264)		1,704		(14)		(13)
North America		11,694		(30)		11,664		(1,029)		10,635		(9)		(9)
Latin America		3,365		(383)		2,982		(1,838)		1,144		(66)		(62)
		29,330		(713)		28,617		(3,463)		25,154		(14)		(12)
Impairment allowances
Europe		4,455		(133)		4,322		(94)		4,228		(5)		(2)
Asia		1,356		(25)		1,331		67		1,398		3		5
Middle East and North Africa		1,406		(7)		1,399		(212)		1,187		(16)		(15)
North America		2,640		(21)		2,619		(388)		2,231		(15)		(15)
Latin America		2,529		(293)		2,236		(1,502)		734		(71)		(67)
		12,386		(479)		11,907		(2,129)		9,778		(21)		(18)

For footnotes, see page 86.

Gross loans and advances by industry sector

		At          31 December                          2014		Currency                         effect		Movement		At                     30 June                          2015
		$m		$m		$m		$m
Personal		393,554		(3,933)		(4,321)		385,300
- first lien residential mortgages		286,524		(1,895)		124		284,753
- other personal		107,030		(2,038)		(4,445)		100,547
Corporate and commercial		542,625		(8,345)		(10,073)		524,207
- manufacturing		106,986		(2,467)		(2,421)		102,098
- international trade and services		180,791		(2,651)		(8,661)		169,479
- commercial real estate		73,293		(993)		(1,543)		70,757
- other property-related		52,387		(326)		7,048		59,109
- government		6,143		(128)		25		6,040
- other commercial2		123,025		(1,780)		(4,521)		116,724
Financial		50,818		(357)		3,757		54,218
Total gross loans and advances to customers (A)		986,997		(12,635)		(10,637)		963,725
Gross loans and advances to banks		112,198		(2,471)		(284)		109,443
				(15,106)
Total gross loans and advances		1,099,195		(15,106)		(10,921)		1,073,168
Impaired loans and advances to customers		29,283		(713)		(3,460)		25,110
- as a percentage of (A)		3.0%						2.6%
Impairment allowances on loans and advances to customers		12,337		(480)		(2,117)		9,740
- as a percentage of (A)		1.2%						1.0%

For footnote, see page 86.

The currency effect on personal lending gross loans and advances of $3.9bn was made up as follows: Asia $1.4bn, North America $1.4bn, Latin America $1.0bn and Europe $0.1bn. The currency effect on wholesale lending gross
loans and advances of $11.2bn was made up as follows: Latin America $4.4bn, Europe $2.8bn, Asia $2.4bn, North America $1.1bn and Middle East and North Africa $0.5bn.

Gross loans and advances to customers by country

		First lien               residential              mortgages                             $m		Other                  personal                             $m		Property-                     related                             $m	Commercial,             international       trade and other                                $m			Total                             $m
Europe		130,909		46,402		35,134		192,217		404,662
- UK		124,001		21,221		26,303		148,414		319,939
- France		2,342		12,248		6,811		21,028		42,429
- Germany		5		216		364		7,933		8,518
- Switzerland		346		8,266		235		841		9,688
- other		4,215		4,451		1,421		14,001		24,088
Asia		95,176		37,199		73,767		166,895		373,037
- Hong Kong		58,884		24,380		55,627		84,411		223,302
- Australia		9,079		709		1,837		6,457		18,082
- India		1,357		287		630		6,189		8,463
- Indonesia		58		380		84		5,706		6,228
- Mainland China		4,823		1,908		6,992		25,224		38,947
- Malaysia		4,945		1,576		2,000		5,446		13,967
- Singapore		8,942		5,707		4,146		12,137		30,932
- Taiwan		4,099		689		119		5,903		10,810
- other		2,989		1,563		2,332		15,422		22,306
Middle East and North Africa (excluding Saudi Arabia)		2,642		4,006		2,412		23,317		32,377
- Egypt		1		515		124		2,414		3,054
- UAE		2,248		1,866		1,650		14,935		20,699
- other		393		1,625		638		5,968		8,624
North America		53,995		8,995		17,096		54,483		134,569
- US		36,952		5,088		12,964		41,812		96,816
- Canada		15,679		3,654		3,807		11,618		34,758
- other		1,364		253		325		1,053		2,995
Latin America		2,031		3,945		1,457		11,647		19,080
- Mexico		1,919		2,630		1,296		8,435		14,280
- other		112		1,315		161		3,212		4,800
At 30 June 2015		284,753		100,547		129,866		448,559		963,725

		First lien               residential              mortgages                             $m		Other                   personal                             $m		Property-                      related                             $m	Commercial,             international        trade and other                                $m			Total                             $m
Europe		144,225		50,673		38,379		251,321		484,598
- UK		135,701		22,121		28,124		204,624		390,570
- France		3,131		14,177		8,322		23,292		48,922
- Germany		6		205		146		8,080		8,437
- Switzerland		352		8,189		248		461		9,250
- other		5,035		5,981		1,539		14,864		27,419
Asia		95,489		34,191		67,457		166,486		363,623
- Hong Kong		54,988		21,777		49,209		84,002		209,976
- Australia		10,214		915		2,805		7,135		21,069
- India		1,169		303		593		4,993		7,058
- Indonesia		70		469		75		5,632		6,246
- Mainland China		5,516		151		6,228		24,349		36,244
- Malaysia		5,463		1,892		1,988		5,181		14,524
- Singapore		10,330		6,118		4,351		12,803		33,602
- Taiwan		4,193		691		127		6,960		11,971
- other		3,546		1,875		2,081		15,431		22,933
Middle East and North Africa (excluding Saudi Arabia)		2,543		4,010		2,027		21,794		30,374
- Egypt		1		493		104		2,264		2,862
- UAE		2,168		1,815		1,314		13,379		18,676
- other		374		1,702		609		6,151		8,836
North America		58,677		10,896		15,321		48,312		133,206
- US		39,939		5,842		10,609		34,279		90,669
- Canada		17,174		4,769		4,210		13,064		39,217
- other		1,564		285		502		969		3,320
Latin America		4,501		10,547		2,840		31,522		49,410
- Mexico		2,155		2,987		1,428		9,128		15,698
- other		2,346		7,560		1,412		22,394		33,712
Included in other: Brazil		2,232		6,360		1,273		19,555		29,420
At 30 June 2014		305,435		110,317		126,024		519,435		1,061,211
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
- other		4,543		5,327		1,516		14,013		25,399
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
- Mexico		1,967		2,642		1,336		9,503		15,448
- other		2,186		6,742		1,236		20,040		30,204
Included in other: Brazil		2,067		5,531		1,077		16,814		25,489
At 31 December 2014		286,524		107,030		125,680		467,763		986,997

Greece

As a result of the unfolding crisis, we have raised additional loan impairment charges and other credit risk provisions amounting to $111m. The tables in this section summarise our Greek country exposures.

Exposures to banks, other financial corporations, non-financial corporations and households are based on the counterparty's country of domicile. We separately identify exposures to the shipping industry. These are denominated in US dollars and booked in the UK. We believe the shipping industry is less sensitive to the Greek economy as it is mainly dependent on international trade. The average LTV weighted by the value of loans of our residential mortgages is 66%. We have had restricted lending appetite in Greece for a number of years.

Summary of exposures to Greece

		$bn
On-balance sheet exposures
Loans and advances to customers		3.0
- other financial institutions and corporates		0.7
- shipping industry booked in UK		1.7
- personal - mortgages		0.6
Derivative assets		0.4
Gross balance sheet exposure before risk mitigation		3.4
Risk mitigation: collateral and derivative liabilities		(0.4)
Net on-balance sheet exposure		3.0
Off-balance sheet exposures
Gross off-balance sheet exposure to banks before risk mitigation		0.3
Risk mitigation: collateral and guarantees held on off-balance sheet exposures to banks		(0.1)
Net off-balance sheet exposures to banks		0.2
Gross off-balance sheet exposures to customers		0.6
Net off-balance sheet exposures		0.8
Total net exposures at 30 June 2015		3.8

Basis of preparation

The gross exposure represents the on-balance sheet carrying amounts recorded in accordance with IFRSs and off-balance sheet exposures before risk mitigation.

The net exposure is stated after taking into account mitigating offsets that are incorporated into the risk management view of the exposure but do not meet accounting offset requirements. These risk mitigating offsets include:

·   derivative liabilities for which a legally enforceable right of offset with derivative assets exists;

·   collateral received on derivative assets; and

·   cash collateral and guarantees received on off-balance sheet exposures.

Redenomination risk

There is the continuing possibility of Greece exiting the eurozone. There remains no established legal framework within the European treaties to facilitate such an event; consequently, it is not possible to accurately predict the course of events and legal consequences that would ensue.

Greece funding exposure

		Denominated in
		Euros		US dollars		Other currencies		Total
		$bn		$bn		$bn		$bn
At 30 June 2015
In-country assets		1.0		-		-		1.0
In-country liabilities		(0.8)		(0.3)		-		(1.1)
Net in-country funding exposure		0.2		(0.3)		-		(0.1)
Off-balance sheet exposure		-		-		-		-

Key risks associated with an exit by Greece include:

Foreign exchange losses: an exit would probably be accompanied by the passing of laws establishing a new local currency and providing for a redenomination of euro assets into the new local currency. The value of assets and liabilities in Greece would immediately fall assuming the value of the redenominated currency is less than the original euros when translated into the carrying amounts. It is not possible to predict what the total consequential loss might be as it is uncertain which assets and liabilities would be legally redenominated or the extent of the devaluation. These assets and liabilities predominantly comprise loans and deposits arising from our commercial banking operations in Greece, and the net assets represent our net funding exposure. The table above also identifies in-country off-balance sheet exposures as these are at risk of redenomination should they be called, giving rise to a balance sheet exposure.

External contracts redenomination risk: contracts entered into between HSBC businesses based outside Greece with in-country counterparties or those otherwise closely connected with Greece may be affected by redenomination. The effect remains subject to a high level of uncertainty. Factors such as the country law under which the contract is documented, the HSBC entity involved and the payment mechanism may all be relevant to this assessment, as will the precise exit scenario as the consequences for external contracts of a disorderly exit may differ from one sanctioned under EU law. In addition, capital controls could be introduced which may affect our ability to repatriate funds including currencies not affected by the redenomination event.

We continue to identify and monitor potential redenomination risks and, where possible, take steps to mitigate them and/or reduce our overall exposure to losses that might arise in the event of a redenomination. We recognise, however, that a euro exit could take different forms, depending on the scenario. These could have distinct legal consequences which could significantly alter the potential effectiveness of any mitigation initiatives, and it is accordingly not possible to predict how effective particular measures may be until they are tested against the precise circumstances of a redenomination event.

 

END

 

 

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