Annual Financial Report - 27 of 54

RNS Number : 0774I

HSBC Holdings PLC

20 March 2015

 



Impairment of loans and advances

(Audited)

A summary of our current policies and practices regarding impairment assessment is provided in the Appendix to Risk on page 212. For an analysis of loan impairment charges and other credit risk provisions by global business, see page 76.

The tables below analyse the impairment allowances recognised for impaired loans and advances that are either individually or collectively assessed, and collective impairment allowances on loans and advances that are classified as not impaired.

Loan impairment charge to the income statement by industry sector

(Unaudited)

		Europe		Asia4		MENA		North           America		Latin           America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Personal		245		321		25		117		1,095		1,803
- first lien residential mortgages		(75)		6		(24)		26		15		(52)
- other personal7		320		315		49		91		1,080		1,855
Corporate and commercial		790		327		6		196		937		2,256
- manufacturing and international trade and services		520		197		36		116		382		1,251
- commercial real estate and other property-related		78		29		(28)		27		176		282
- other commercial8		192		101		(2)		53		379		723
Financial5		44		(4)		(32)		(13)		1		(4)
Total loan impairment charge for the year ended 31 December 2014		1,079		644		(1)		300		2,033		4,055
Personal		320		345		46		963		1,522		3,196
- first lien residential mortgages		(11)		(7)		(13)		647		11		627
- other personal7		331		352		59		316		1,511		2,569
Corporate and commercial		1,467		152		(13)		253		1,115		2,974
- manufacturing and international trade and services		800		134		37		125		594		1,690
- commercial real estate and other property-related		432		(2)		(5)		79		322		826
- other commercial8		235		20		(45)		49		199		458
Financial5		(55)		(14)		(77)		19		5		(122)
Total loan impairment charge for the year ended 31 December 2013		1,732		483		(44)		1,235		2,642		6,048
Loan impairment charge to the income statement by assessment type (Unaudited)
		Europe		Asia4		MENA		North           America		Latin           America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Individually assessed impairment allowances		617		351		32		190		590		1,780
- new allowances		1,112		542		134		298		738		2,824
- release of allowances no longer required		(486)		(171)		(95)		(88)		(90)		(930)
- recoveries of amounts previously written off		(9)		(20)		(7)		(20)		(58)		(114)
Collectively assessed impairment allowances12		462		293		(33)		110		1,443		2,275
- new allowances net of allowance releases		757		426		2		205		1,726		3,116
- recoveries of amounts previously written off		(295)		(133)		(35)		(95)		(283)		(841)
Total loan impairment charge for the year ended 31 December 2014		1,079		644		(1)		300		2,033		4,055
Individually assessed impairment allowances		1,376		145		(86)		262		623		2,320
- new allowances		1,828		316		196		398		702		3,440
- release of allowances no longer required		(402)		(145)		(235)		(98)		(31)		(911)
- recoveries of amounts previously written off		(50)		(26)		(47)		(38)		(48)		(209)
Collectively assessed impairment allowances12		356		338		42		973		2,019		3,728
- new allowances net of allowance releases		943		479		82		1,058		2,253		4,815
- recoveries of amounts previously written off		(587)		(141)		(40)		(85)		(234)		(1,087)
Total loan impairment charge for the year ended 31 December 2013		1,732		483		(44)		1,235		2,642		6,048

For footnotes, see page 202.

Total loan impairment charges of US$4.1bn were US$2.0bn lower than in 2013 reflecting reduced impairment charges in both the personal lending and
the corporate and commercial lending portfolios, primarily in North America, Europe and Latin America.

In North America, loan impairment charges relating to both first lien mortgages and other personal lending decreased, which reflected reduced levels of both delinquency and new impaired loans in the CML portfolio, and a fall in lending balances from continued run-off and loan sales. This was partly offset by lower favourable market value adjustments of underlying properties as improvements in housing market conditions were less pronounced in 2014 than in 2013.

In Europe, the reduction in loan impairment charges was primarily in corporate and commercial lending, as a result of lower individually assessed impairment allowances reflecting the improved quality of the portfolio and economic conditions. Loan impairment charges also decreased in personal lending, albeit to a lesser extent, due to lower delinquency levels in the improved economic environment and as customers continued to reduce outstanding credit card and loan balances. These factors were partly offset by an increase in collectively assessed allowances in the corporate and commercial lending sector as we revised certain estimates in our collective corporate loan impairment calculation, and in the financial industry sector reflecting charges compared with releases in 2013.

In Latin America, the reduction in loan impairment charges in the other personal lending and the corporate and commercial portfolios primarily reflected the prior year adverse effect of changes to the impairment model and assumption revisions for restructured loan portfolios in Brazil. Individually assessed allowances were broadly stable. There were lower loan impairment charges in Mexico in the commercial real estate and other property related sector, in particular relating to certain homebuilders. In Brazil individually assessed allowances increased due to an impairment relating to a corporate customer in the other commercial sector.

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

(Unaudited)

		Europe		Asia4		MENA		North       America		Latin       America		Total
		%		%		%		%		%		%
New allowances net of allowance releases		0.37		0.22		0.14		0.32		5.00		0.53
Recoveries		(0.08)		(0.04)		(0.14)		(0.09)		(0.72)		(0.10)
Total charge for impairment losses at 31 December 2014		0.29		0.18		-		0.23		4.28		0.43
Amount written off net of recoveries		0.49		0.13		0.58		0.97		3.59		0.58
New allowances net of allowance releases		0.65		0.20		0.15		1.00		5.93		0.81
Recoveries		(0.17)		(0.05)		(0.29)		(0.09)		(0.57)		(0.14)
Total charge for impairment losses at 31 December 2013		0.48		0.15		(0.14)		0.91		5.36		0.67
Amount written off net of recoveries		0.42		0.12		0.38		1.10		3.69		0.59

For footnote, see page 202.

Movement in impairment allowances by industry sector and by geographical region

(Unaudited)

		Europe		Asia4		MENA		North       America		Latin       America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Impairment allowances at 1 January 2014		5,598		1,214		1,583		4,242		2,564		15,201
Amounts written off
Personal		(724)		(463)		(157)		(1,030)		(1,359)		(3,733)
- first lien residential mortgages		(21)		(17)		(4)		(731)		(40)		(813)
- other personal7		(703)		(446)		(153)		(299)		(1,319)		(2,920)
Corporate and commercial		(1,202)		(146)		(47)		(346)		(684)		(2,425)
- manufacturing and international trade and services		(732)		(86)		(41)		(81)		(428)		(1,368)
- commercial real estate and other property-related		(342)		(53)		(6)		(153)		(39)		(593)
- other commercial8		(128)		(7)		-		(112)		(217)		(464)
Financial5		(203)		-		(8)		(6)		(4)		(221)
Total amounts written off		(2,129)		(609)		(212)		(1,382)		(2,047)		(6,379)
Recoveries of amounts written off in previous years
Personal		271		143		35		86		283		818
- first lien residential mortgages		3		3		-		40		33		79
- other personal7		268		140		35		46		250		739
Corporate and commercial		29		9		7		25		58		128
- manufacturing and international trade and services		19		7		7		6		46		85
- commercial real estate and other property-related		11		-		-		3		1		15
- other commercial8		(1)		2		-		16		11		28
Financial5		4		1		-		4		-		9
Total recoveries of amounts written off in previous years		304		153		42		115		341		955
Charge to income statement		1,079		644		(1)		300		2,033		4,055
Exchange and other movements13		(397)		(46)		(6)		(635)		(362)		(1,446)
Impairment allowances at 31 December 2014		4,455		1,356		1,406		2,640		2,529		12,386

		Europe		Asia4		MENA		North       America		Latin       America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Impairment allowances against banks:
- individually assessed		31		-		18		-		-		49
Impairment allowances against customers:
- individually assessed		2,981		812		1,110		276		1,016		6,195
- collectively assessed12		1,443		544		278		2,364		1,513		6,142
Impairment allowances at 31 December 2014		4,455		1,356		1,406		2,640		2,529		12,386
Impairment allowances at 1 January 2013		5,361		1,219		1,811		5,616		2,162		16,169
Amounts written off
Personal		(876)		(461)		(107)		(1,330)		(1,593)		(4,367)
- first lien residential mortgages		(83)		(7)		(2)		(779)		(25)		(896)
- other personal7		(793)		(454)		(105)		(551)		(1,568)		(3,471)
Corporate and commercial		(1,264)		(96)		(78)		(277)		(514)		(2,229)
- manufacturing and international trade and services		(680)		(73)		(64)		(80)		(386)		(1,283)
- commercial real estate and other property-related		(289)		(7)		(2)		(141)		(23)		(462)
- other commercial8		(295)		(16)		(12)		(56)		(105)		(484)
Financial5		(40)		(3)		(10)		(3)		(3)		(59)
Total amounts written off		(2,180)		(560)		(195)		(1,610)		(2,110)		(6,655)
Recoveries of amounts written off in previous years
Personal		584		153		41		82		237		1,097
- first lien residential mortgages		25		4		-		67		23		119
- other personal7		559		149		41		15		214		978
Corporate and commercial		52		14		46		41		45		198
- manufacturing and international trade and services		19		7		2		6		27		61
- commercial real estate and other property-related		6		4		-		18		1		29
- other commercial8		27		3		44		17		17		108
Financial5		1		-		-		-		-		1
Total recoveries of amounts written off in previous years		637		167		87		123		282		1,296
Charge to income statement		1,732		483		(44)		1,235		2,642		6,048
Exchange and other movements13		48		(95)		(76)		(1,122)		(412)		(1,657)
Impairment allowances at 31 December 2013		5,598		1,214		1,583		4,242		2,564		15,201
Impairment allowances against banks:
- individually assessed		35		-		18		5		-		58
Impairment allowances against customers:
- individually assessed		4,019		634		1,131		410		878		7,072
- collectively assessed12		1,544		580		434		3,827		1,686		8,071
Impairment allowances at 31 December 2013		5,598		1,214		1,583		4,242		2,564		15,201

For footnotes, see page 202.

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

(Audited)

		Banks		Customers
		individually                  assessed		Individually                  assessed		Collectively                  assessed		Total
		US$m		US$m		US$m		US$m
At 1 January 2014		58		7,072		8,071		15,201
Amounts written off		(6)		(2,313)		(4,060)		(6,379)
Recoveries of loans and advances previously written off		-		114		841		955
Charge to income statement		4		1,776		2,275		4,055
Exchange and other movements13		(7)		(454)		(985)		(1,446)
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 loans and advances1		0.04%		0.63%		0.62%		1.13%

Movement in impairment allowances on loans and advances to customers and banks (continued)

(Audited)

		Banks		Customers
		individually                  assessed		Individually                  assessed		Collectively                  assessed		Total
		US$m		US$m		US$m		US$m
At 1 January 2013		57		6,572		9,540		16,169
Amounts written off		(4)		(1,937)		(4,714)		(6,655)

Recoveries of loans and advances previously written off		-		209		1,087		1,296
Charge to income statement		5		2,315		3,728		6,048
Exchange and other movements13		-		(87)		(1,570)		(1,657)
At 31 December 2013		58		7,072		8,071		15,201
Impairment allowances:
on loans and advances to customers				7,072		8,071		15,143
- personal				589		6,013		6,602
- corporate and commercial				6,096		1,963		8,059
- financial				387		95		482
as a percentage of loans and advances1		0.05%		0.70%		0.80%		1.35%

For footnotes, see page 202.

Wholesale lending

On a reported basis gross loans decreased by US$11bn, which included adverse foreign exchange movements of US$32bn, mainly in Europe.

The following commentary is on a constant currency basis.

Wholesale lending grew by US$21bn in the year. In Asia, balances grew by US$16bn as we continued to leverage our position in emerging markets. In North America, we also experienced strong growth of US$10bn as we executed our strategy of expanding our core offerings and proactively targeting companies with international banking requirements in key growth markets. The fall in lending in Europe of US$15bn was mainly driven by a reduction in corporate overdraft balances. In the UK, a small number of clients benefited from the use of net interest arrangements across their overdraft and deposit positions. During the year, as we aligned our approach in our Payments and Cash Management business to be more globally consistent, many of these clients increased the frequency with which they settled these balances, reducing their overdraft and deposit balances, which fell by US$28bn. The Middle East and North Africa and Latin America grew by US$6bn and US$4bn, respectively.

Total wholesale lending

(Unaudited)

		Europe		Asia4		MENA		North            America		Latin           America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Corporate and commercial (A)		210,585		220,799		20,588		57,862		30,722		540,556
- 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 commercial8		56,923		38,966		4,702		13,423		6,942		120,956
Financial (non-bank financial institutions) (B)		23,103		13,997		3,291		9,034		1,393		50,818
Asset-backed securities reclassified		1,938		-		-		131		-		2,069
Loans and advances to banks (C)		21,978		62,960		10,495		7,405		9,360		112,198
Gross loans at 31 December 2014 (D)		257,604		297,756		34,374		74,432		41,475		705,641
Impairment allowances on wholesale lending
Corporate and commercial (a)		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 (non-bank financial institutions) (b)		221		13		21		39		2		296
Loans and advances to banks (c)		31		-		18		-		-		49
Impairment allowances at 31 December 2014 (d)		3,364		1,102		1,210		647		1,463		7,786
(a) as a percentage of (A)		1.48%		0.49%		5.69%		1.05%		4.76%		1.38%
(b) as a percentage of (B)		0.96%		0.09%		0.64%		0.43%		0.14%		0.58%
(c) as a percentage of (C)		0.14%		-		0.17%		-		-		0.04%
(d) as a percentage of (D)		1.31%		0.37%		3.52%		0.87%		3.53%		1.10%

		Europe		Asia4		MENA		North            America		Latin           America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Corporate and commercial (I)		239,116		203,894		19,760		50,307		30,188		543,265
- manufacturing		55,920		30,758		3,180		11,778		12,214		113,850
- international trade and services		76,700		79,368		8,629		11,676		8,295		184,668
- commercial real estate		31,326		34,560		639		5,900		2,421		74,846
- other property-related		7,308		27,147		1,333		8,716		328		44,832
- government		3,340		1,021		1,443		499		974		7,277
- other commercial8		64,522		31,040		4,536		11,738		5,956		117,792
Financial (non-bank financial institutions) (J)		27,872		9,688		2,532		9,055		1,376		50,523
Asset-backed securities reclassified		2,578		-		-		138		-		2,716
Loans and advances to banks (K)		24,273		72,814		6,419		6,420		10,178		120,104
Gross loans at 31 December 2013 (L)		293,839		286,396		28,711		65,920		41,742		716,608
Impairment allowances on wholesale lending
Corporate and commercial (i)		3,821		918		1,212		769		1,339		8,059
- manufacturing		618		246		182		89		384		1,519
- international trade and services		1,216		428		502		188		349		2,683
- commercial real estate		1,116		22		153		202		396		1,889
- other property-related		269		102		236		93		8		708
- government		3		-		10		1		-		14
- other commercial		599		120		129		196		202		1,246
Financial (non-bank financial institutions) (j)		344		17		60		50		11		482
Loans and advances to banks (k)		35		-		18		5		-		58
Impairment allowances at 31 December 2013 (l)		4,200		935		1,290		824		1,350		8,599
(i) as a percentage of (I)		1.60%		0.45%		6.13%		1.53%		4.44%		1.48%
(j) as a percentage of (J)		1.23%		0.18%		2.37%		0.55%		0.80%		0.95%
(k) as a percentage of (K)		0.14%		-		0.28%		0.08%		-		0.05%
(l) as a percentage of (L)		1.43%		0.33%		4.49%		1.25%		3.23%		1.20%

For footnotes, see page 202.

Commercial real estate

Commercial real estate lending

(Unaudited)

		Europe		Asia4		MENA		North         America		Latin         America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Neither past due nor impaired		25,860		35,430		333		6,136		1,535		69,294
Past due but not impaired		18		170		47		100		28		363
Impaired loans		2,309		78		199		322		728		3,636
Total gross loans and advances at 31 December 2014		28,187		35,678		579		6,558		2,291		73,293
Of which:
- renegotiated loans14		1,954		19		183		191		377		2,724
		909
Impairment allowances		909		44		147		101		476		1,677
Neither past due nor impaired		28,044		34,433		402		5,400		2,249		70,528
Past due but not impaired		95		103		18		29		35		280
Impaired loans		3,187		24		219		471		137		4,038
Total gross loans and advances at 31 December 2013		31,326		34,560		639		5,900		2,421		74,846
Of which:
- renegotiated loans14		2,590		20		229		280		461		3,580
Impairment allowances		1,116		22		153		202		396		1,889

For footnotes, see page 202.

Commercial real estate lending includes the financing of corporate, institutional and high net worth individuals who are investing primarily in income producing assets and, to a lesser extent, in their construction and development. The business focuses mainly on traditional core asset classes such as retail, offices, light industrial and residential building projects. The portfolio is globally diversified with larger concentrations in Hong Kong, the UK, the US and Canada.

In more developed markets, our exposure mainly comprises the financing of investment assets, the redevelopment of existing stock and the augmentation of both commercial and residential markets to support economic and population growth. In lesser developed commercial real estate markets our exposures comprise lending for development assets on relatively short tenors with a particular focus on supporting the larger, better capitalised developers involved in residential construction or in assets supporting economic expansion.

Many of these markets are beginning to move away from the rapid construction of recent years with an increasing focus on investment assets consistent with more

developed markets. A significant amount of exposure is centred on cities which are key locations of economic, political or cultural importance.

Total commercial real estate was US$73bn at 31 December 2014, a reduction of US$1.6bn which included adverse foreign exchange movements of US$3.3bn, mainly in Europe.

Refinance risk in commercial real estate

Commercial real estate lending tends to require the repayment of a significant proportion of the principal at maturity. Typically, a customer will arrange repayment through the acquisition of a new loan to settle the existing debt. Refinance risk is the risk that a customer, being unable to repay the debt on maturity, fails to refinance it at commercial rates. Refinance risk is described in more detail on page 214. We monitor our commercial real estate portfolio closely, assessing those drivers that may indicate potential issues with refinancing. The principal driver is the vintage of the loan, when origination reflected previous market norms which do not apply in the current market. Examples might be higher LTV ratios and/or lower interest cover ratios. The range of refinancing sources in the local market is also an important consideration, with risk increasing when lenders are restricted to banks and when bank liquidity is limited. In addition, underlying fundamentals such as the reliability of tenants, the ability to let and the condition of the property are important, as they influence property values.

For the Group's commercial real estate portfolios as a whole, the behaviour of markets and the quality of assets did not cause undue concern in 2014. In the UK, which was subject to heightened concerns in recent years, the drivers described above are not currently causing sufficient concern to warrant enhanced management attention.

Further details on our UK portfolio are as follows: at 31 December 2014, we had US$20bn (2013: US$22bn) of commercial real estate loans of which US$5.9bn (2013: US$6.8bn) were due to be refinanced within the next 12 months. Of these balances, cases subject to close monitoring in our Loan Management Unit amounted to US$2.1bn (2013: US$2.4bn). US$1.3bn (2013: US$1.6bn) were disclosed as impaired with impairment allowances of US$0.6bn (2013: US$0.6bn). Where these loans are not considered impaired it is because there is sufficient evidence to indicate that the associated contractual cash flows will be recovered or that the loans will not need to be refinanced on terms we would consider below market norms.

Collateral on loans and advances

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

Collateral held is analysed separately below for commercial real estate and for other corporate, commercial and financial (non-bank) lending. This reflects the greater correlation between collateral performance and principal repayment in the commercial real estate sector than applies to other lending. In each case, the analysis includes off‑balance sheet loan commitments, primarily undrawn credit lines.

The collateral measured in the tables below consists of fixed first charges on real estate and charges over cash and marketable financial instruments. The values in the tables represent the expected market value on an open market basis; no adjustment has been made to the collateral for any expected costs of recovery. Cash is valued at its nominal value and marketable securities at their fair value. The LTV ratios presented are calculated by directly associating loans and advances with the collateral that individually and uniquely supports each facility. When collateral assets are shared by multiple loans and advances, whether specifically or, more generally, by way of an all monies charge, the collateral value is pro-rated across the loans and advances protected by the collateral.

Other types of collateral which are commonly taken for corporate and commercial lending such as unsupported guarantees and floating charges over the assets of a customer's business are not measured in the tables below. While such mitigants have value, often providing rights in insolvency, their assignable value is not sufficiently certain and they are therefore assigned no value for disclosure purposes.

For impaired loans the collateral values cannot be directly compared with impairment allowances recognised. The LTV tables below use open market values with no adjustments. Impairment allowances are calculated on a different basis, by considering other cash flows and adjusting collateral values for costs of realising collateral as explained further on page 212.

Commercial real estate loans and advances

The value of commercial real estate collateral is determined by using a combination of professional and internal valuations and physical inspections. Due to the complexity of valuing collateral for commercial real estate, local valuation policies determine the frequency of review on the basis of local market conditions. Revaluations are sought with greater frequency as concerns over the performance of the collateral or the direct obligor increase. Revaluations may also be sought where customers amend their banking requirements, resulting in the Group extending further funds or other significant rearrangements of exposure or collateral, which may change the customer risk profile. As a result, the real estate collateral values used for CRR1-7 might date back to the last point at which such considerations applied. For CRR 8 and 9-10 almost all collateral would have been revalued within the last three years.

In Hong Kong, market practice is typically for lending to major property companies to be either secured by guarantees or unsecured. In Europe, facilities of a working capital nature are generally not secured by a first fixed charge and are therefore disclosed as not collateralised.

Commercial real estate loans and advances 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
Rated CRR/EL 1 to 7
Not collateralised		5,351		16,132		361		87		1,719		23,650
Fully collateralised		25,873		26,323		23		9,093		556		61,868
Partially collateralised (A)		1,384		1,599		-		1,819		152		4,954
- collateral value on A		1,032		901		-		1,199		47		3,179
		32,608		44,054		384		10,999		2,427		90,472
Rated CRR/EL 8
Not collateralised		34		7		-		9		2		52
Fully collateralised		568		23		-		30		1		622
LTV ratio:
- less than 50%		64		-		-		16		1		81
- 51% to 75%		222		11		-		10		-		243
- 76% to 90%		132		9		-		4		-		145
- 91% to 100%		150		3		-		-		-		153
Partially collateralised (B)		365		-		-		7		-		372
- collateral value on B		296		-		-		2		-		298
		967		30		-		46		3		1,046
Rated CRR/EL 9 to 10
Not collateralised		369		48		6		1		499		923
Fully collateralised		992		15		7		166		178		1,358
LTV ratio:
- less than 50%		78		6		7		28		10		129
- 51% to 75%		593		2		-		91		43		729
- 76% to 90%		167		2		-		17		53		239
- 91% to 100%		154		5		-		30		72		261
Partially collateralised (C)		1,085		15		181		37		50		1,368
- collateral value on C		664		5		89		30		13		801
		2,446		78		194		204		727		3,649
At 31 December 2014		36,021		44,162		578		11,249		3,157		95,167
Rated CRR/EL 1 to 7
Not collateralised		4,865		14,164		192		137		935		20,293
Fully collateralised		24,154		25,317		21		8,627		1,728		59,847
Partially collateralised (D)		2,664		2,377		139		704		484		6,368
- collateral value on D		1,827		1,688		24		303		292		4,134
							0
		31,683		41,858		352		9,468		3,147		86,508
Rated CRR/EL 8
Not collateralised		109		10		-		1		3		123
Fully collateralised		793		-		72		68		1		934
LTV ratio:
- less than 50%		139		-		-		15		-		154
- 51% to 75%		367		-		72		49		1		489
- 76% to 90%		173		-		-		4		-		177
- 91% to 100%		114		-		-		-		-		114
Partially collateralised (E)		360		2		-		13		-		375
- collateral value on E		281		1		-		11		-		293
		1,262		12		72		82		4		1,432
Rated CRR/EL 9 to 10
Not collateralised		564		-		7		4		521		1,096
Fully collateralised		1,079		12		31		233		286		1,641
LTV ratio:
- less than 50%		275		2		7		39		32		355
- 51% to 75%		436		6		7		110		57		616
- 76% to 90%		209		3		17		62		62		353
- 91% to 100%		159		1		-		22		135		317
Partially collateralised (F)		1,815		5		181		240		56		2,297
- collateral value on F		1,284		5		89		115		34		1,527
		3,458		17		219		477		863		5,034
At 31 December 2013		36,403		41,887		643		10,027		4,014		92,974

For footnote, see page 202.

Other corporate, commercial and financial
(non-bank loans) are analysed separately below. For financing activities in other corporate and commercial lending, collateral value is not strongly correlated to principal repayment performance. Collateral values are generally refreshed when an obligor's general credit performance deteriorates and we have to assess the likely performance of secondary sources of repayment should it prove necessary to rely on them.

Accordingly, the table below reports values only for customers with CRR 8 to 10, recognising that these loans and advances generally have valuations which are comparatively recent.

Other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level of collateral rated CRR/EL 8 to 10 only

(Audited)

		Europe		Asia4		MENA		North            America		Latin            America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Rated CRR/EL 8
Not collateralised		2,051		237		15		320		227		2,850
Fully collateralised		629		56		72		331		11		1,099
LTV ratio:				13
- less than 50%		120		13		-		186		5		324
- 51% to 75%		293		-		-		72		6		371
- 76% to 90%		51		9		69		46		-		175
- 91% to 100%		165		34		3		27		-		229
Partially collateralised (A)		105		44		1		148		6		304
- collateral value on A		46		17		1		68		4		136
								68
		2,785		337		88		799		244		4,253
Rated CRR/EL 9 to 10
Not collateralised		4,185		939		813		62		1,420		7,419
Fully collateralised		615		143		147		231		124		1,260
LTV ratio:
- less than 50%		169		68		25		48		48		358
- 51% to 75%		136		27		19		39		35		256
- 76% to 90%		168		16		6		35		26		251
- 91% to 100%		142		32		97		109		15		395
Partially collateralised (B)		624		364		547		251		140		1,926
- collateral value on B		341		169		92		141		46		789
		5,424		1,446		1,507		544		1,684		10,605
At 31 December 2014		8,209		1,783		1,595		1,343		1,928		14,858
Rated CRR/EL 8
Not collateralised		2,411		185		37		328		456		3,417
Fully collateralised		259		51		1		227		70		608
LTV ratio:
- less than 50%		65		38		1		84		11		199
- 51% to 75%		103		4		-		47		10		164
- 76% to 90%		25		8		-		31		5		69
- 91% to 100%		66		1		-		65		44		176
Partially collateralised (C)		435		23		528		345		73		1,404
- collateral value on C		17		5		398		89		18		527
		3,105		259		566		900		599		5,429
Rated CRR/EL 9 to 10
Not collateralised		1,467		685		1,089		26		1,615		4,882
Fully collateralised		1,121		161		49		309		266		1,906
LTV ratio:
- less than 50%		124		57		2		24		159		366
- 51% to 75%		161		21		47		29		49		307
- 76% to 90%		156		53		-		46		43		298
- 91% to 100%		680		30		-		210		15		935
Partially collateralised (D)		1,192		304		770		359		290		2,915
- collateral value on D		606		150		102		149		131		1,138
		3,780		1,150		1,908		694		2,171		9,703
At 31 December 2013		6,885		1,409		2,474		1,594		2,770		15,132

For footnote, see page 202.

Loans and advances to banks are typically unsecured. Collateral values held for customers rated CRR 9 to 10 (i.e. classified as impaired) are separately disclosed.

Loans and advances to banks 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
Rated CRR/EL 1 to 8
Not collateralised		22,405		64,210		10,472		7,985		9,406		114,478
Fully collateralised		104		1,587		-		-		-		1,691
Partially collateralised (A)		5		-		-		-		-		5
- collateral value on A		3		-		-		-		-		3
		22,514
		22,514		65,797		10,472		7,985		9,406		116,174
Rated CRR/EL 9 to 10
Not collateralised		102		1		21		-		-		124
At 31 December 2014		22,616		65,798		10,493		7,985		9,406		116,298
Rated CRR/EL 1 to 8
Not collateralised		21,225		72,986		6,373		7,210		9,837		117,631
Fully collateralised		3,614		1,376		-		-		266		5,256
Partially collateralised (B)		68		560		-		-		-		628
- collateral value on B		3		389		-		-		-		392
		24,907		74,922		6,373		7,210		10,103		123,515
Rated CRR/EL 9 to 10
Not collateralised		153		-		312		14		-		479
At 31 December 2013		25,060		74,922		6,685		7,224		10,103		123,994

For footnote, see page 202.

Other credit risk exposures

In addition to collateralised lending, other credit enhancements are employed and methods used to mitigate credit risk arising from financial assets. These are described in more detail below:

·   some securities issued by governments, banks and other financial institutions benefit from additional credit enhancement provided by government guarantees that cover the assets.

Details of government guarantees are included in Notes 12, 15 and 18 on the Financial Statements.

·   debt securities issued by banks and financial institutions include ABSs and similar instruments which are supported by underlying pools of financial assets. Credit risk associated with ABSs is reduced through the purchase of credit default swap ('CDS') protection.

Disclosure of the Group's holdings of ABSs and associated CDS protection is provided on page 162.

·   trading assets include loans and advances held with trading intent. These mainly consist of cash collateral posted to satisfy margin requirements on derivatives, settlement accounts, reverse repos and stock borrowing. There is limited credit risk on cash collateral posted since in the event of default of the counterparty these would be set-off against the related liability. Reverse repos and stock borrowing are by their nature collateralised.

Collateral accepted as security that the Group is permitted to sell or repledge under these arrangements is described in Note 19 on the Financial Statements.

·  
the Group's maximum exposure to credit risk includes financial guarantees and similar contracts granted, as well as loan and other credit-related commitments. Depending on the terms of the arrangement, we may have recourse to additional credit mitigation in the event that a guarantee is called upon or a loan commitment is drawn and subsequently defaults. For further information on these arrangements, see Note 37 on the Financial Statements.

Derivatives

HSBC participates in transactions exposing us to counterparty credit risk. Counterparty credit risk is the risk of financial loss if the counterparty to a transaction defaults before satisfactorily settling it. It arises principally from OTC derivatives and securities financing transactions and is calculated in both the trading and non-trading books. Transactions vary in value by reference to a market factor such as interest rate, exchange rate or asset price.

The counterparty risk from derivative transactions is taken into account when reporting the fair value of derivative positions. The adjustment to the fair value is known as the credit value adjustment ('CVA').

For an analysis of CVA, see Note 13 on the Financial Statements.

The table below reflects by risk type the fair values and gross notional contract amounts of derivatives cleared through an exchange, central counterparty and non-central counterparty.

 

END

 

 

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