HSBC 2003 Annual Report Download - page 160

HSBC HOLDINGS PLC
Financial Review (continued)
158
Year ended 31 December 2003 compared with
year ended 31 December 2002
The increase in the level of new specific provisions
was principally driven by:
• New provisions in North America, which were
US$4,563 million higher than in 2002,
essentially reflected the acquisition of
Household, which reported US$4,580 million of
new provisions. The majority of Household’s
customer loans are in the consumer finance
sector and are geographically well-spread across
the United States. During the period since its
acquisition, Household’ s new provisions
reflected the impact of the weak economy,
including higher personal bankruptcy filings and
a higher level of amounts becoming past due. In
the latter part of 2003, there were signs of an
improvement in credit quality and delinquency
levels stabilised. At 31 December 2003,
Household’ s two-month-and-over consumer
contractual delinquency ratio was 5.8 per cent. A
charge of US$48 million from HSBC Mexico
arose from consumer lending and credit card
portfolios, which are provisioned on a portfolio
basis. In Canada, new provisions in 2003 were
US$66 million lower than in 2002, when
significant new provisions for a small number of
commercial facilities were necessary, most
notably in the telecommunications sector.
• In Europe, new provisions were US$522 million
higher than in 2002 of which US$193 million
related to Household’s UK consumer finance
business, which is provisioned on a portfolio
basis. Elsewhere in the UK, the increase in new
provisions in personal lending reflected the
growth in loan portfolios. In the corporate and
commercial portfolio, new provisions were
raised to cover a number of accounts in the
energy and manufacturing sectors. In France,
there were higher provisions, principally due to
the deterioration of a borrower in the
engineering sector.
• New provisions in Hong Kong were
US$127 million higher than in 2002. Higher
levels of new provisions were required in the
electronics sector against a small number of
customers in niche markets which suffered from
a combination of technological developments
and excess market capacity. New specific
provisions for personal lending (including credit
cards) reduced in 2003, reflecting a reduction in
bankruptcy filings and improving economic
conditions. This more than offsets increased
charges in respect of residential mortgages,
which reflected the fall in the first half of 2003
in the value of residential property. The second
half of 2003 saw property prices stabilise,
delinquencies fall and the percentage of the
mortgage book with negative equity reduce.
• New specific provisions in the rest of
Asia-Pacific were broadly in line with 2002,
reflecting the relatively stable and improving
economic environment across much of the
region during 2003.
• In South America, new provisions decreased by
US$125 million, mainly reflecting an
improvement in the economic conditions in
Argentina. This was partly offset by increased
new provisions in Brazil’s personal lending as a
difficult economic environment led to higher
levels of delinquencies. There were also higher
new specific provisions for corporate customers
in the commodities and food sectors as a result
of business failure and, in one case, fraud.
In aggregate, releases and recoveries increased
by US$557 million compared with 2002. Household
contributed US$311 million of the increase due to
collections and sales of written-off accounts. In
Europe, excluding Household, releases and
recoveries were US$139 million higher, mainly the
result of a recovery from an exposure in the transport
sector and the upgrading of corporate exposures in
the telecommunications and retail sectors.
There was a net release of general provisions of
US$121 million in 2003 compared with a release of
US$351 million in 2002. There were general
provision charges of US$113 million in Household
and US$78 million in HSBC Mexico, reflecting
growth in lending. In Europe, excluding Household’s
UK consumer finance business, a net release of
general provision of US$131 million reflected an
improved economic outlook and successful
restructuring and refinancing activity in industry
sectors which had been causing concern. In
Argentina, a net release of US$122 million reflected
success in collections and the improved environment
and hence quality of the remaining loan book. At 31
December 2003, specific and general provisions
together covered about 47 per cent of