HSBC 2003 Annual Report Download - page 164

HSBC HOLDINGS PLC
Financial Review (continued)
162
non-performing loans in HSBC Mexico, partly offset
by an increase in the percentage coverage in South
America as unsecured personal finance loans grew
faster than corporate and commercial lending.
In both the UK and France, underlying credit
quality remained stable. Household’s European
operations added US$326 million to non-performing
loans. Excluding this, and at constant exchange rates,
non-performing loans increased by US$264 million,
or 5 per cent. The rise in the level of non-performing
loans reflected the deterioration of a small number of
corporate accounts. In value terms, this was
concentrated in the energy, engineering, and
telecommunications sectors.
In Hong Kong, non-performing loans decreased
slightly during 2003, largely due to recoveries and
loan repayments.
In the rest of Asia-Pacific, non-performing loans
decreased by US$517 million during 2003 due
mainly to write-offs and recoveries in Malaysia,
New Zealand, Indonesia and Singapore.
The level of non-performing loans in North
America increased significantly due to the
acquisition of Household. In Mexico,
non-performing loans fell following write-offs of
US$936 million in the commercial and consumer
loan books as management continued to review
critically the acquired loan assets. The level of
non-performing loans elsewhere in North America
remained in line with the level at 31 December 2002.
In South America, there was a decrease in non-
performing loans in 2003 in Argentina as recoveries
were made on a number of accounts; about 56 per
cent of the non-government customer loan book is
now classified as non-performing compared with 74
per cent at 31 December 2002. In Brazil, the level of
non-performing loans increased as the relatively high
prevailing interest rates resulted in higher
delinquencies in both the personal and
commercial/corporate portfolios.
Troubled debt restructurings
US GAAP requires separate disclosure of any loans
whose terms have been modified to grant
concessions other than warranted by market
conditions due to problems with the borrower. These
are classified as ‘troubled debt restructurings’ and
are distinct from the normal restructuring activities
described above. Disclosure of troubled debt
restructurings may be discontinued after the first year
if the debt is performing in accordance with the new
terms.
Troubled debt restructurings increased in
Mexico from restructuring of commercial accounts,
and in Europe arising from the restructuring of a
corporate borrower in the telecommunications
equipment sector. The reduction in Hong Kong
reflected the full repayment of balances on certain
restructured borrowings.
Accruing loans past due 90 days or more
Accruing loans past due 90 days increased as a result
of the acquisition of Household. In common with
other card issuers including other parts of HSBC,
Household continues to accrue interest on credit
cards past 90 days until charged off at 180 days past
due. Appropriate provisions are raised against the
proportion of interest thought to be irrecoverable.
Potential problem loans
Credit risk elements also cover potential problem
loans. These are loans where known information
about possible credit problems of borrowers causes
management serious doubts as to the borrowers’
ability to comply with the loan repayment terms. At
31 December 2003, all loans and advances in
Argentina and all cross-border loans to Argentina
which were not otherwise included as part of total
risk elements, have been designated as potential
problem loans.
At 31 December 2003, there were potential
problem loans of US$701 million (31 December
2002: US$599 million) in respect of Argentine loans.
Risk elements
The following table provides an analysis of risk
elements in the loan portfolios at 31 December for
the past five years: