HSBC 2005 Annual Report Download - page 130

HSBC HOLDINGS PLC
Financial Review (continued)
128
There are a variety of reasons why certain loans designated as ‘past due’ are not regarded as impaired. Unless other
information is available to indicate to the contrary, all loans less than 90 days past due are not considered impaired. It
is also not unusual for short-term trade finance facilities to extend beyond 90 days past due for reasons that do not
reflect any concern on the creditworthiness of the counterparty, such as delays in documentation. In addition, past
due loans secured in full by cash collateral are not considered impaired and, where appropriate, neither are residential
mortgages in arrears by more than 90 days where the value of collateral is sufficient to repay both the debt and all
potential interest for at least one year.
Impaired loans and advances (Audited IFRS 7 information)
For individually assessed accounts, loans are treated as impaired as soon as there is objective evidence that an
impairment loss has been incurred. The criteria used by HSBC to determine that there is objective evidence of an
impairment loss include, inter alia:
– known cash flow difficulties experienced by the borrower;
– overdue contractual payments of either principal or interest;
– breach of loan covenants or conditions;
– the probability that the borrower will enter bankruptcy or other financial reorganisation; and
– a downgrading in credit rating by an external credit rating agency.
Accounts in portfolios of homogeneous loans are treated as impaired once facilities are 90 days or more overdue.
Further information on impaired loans is provided below in ‘Impairment assessment’.
The total gross amount of impaired loans and advances to customers as at 31 December 2005 was
US$11,446 million, of which US$4,960 million related to individually impaired loans and advances and
US$6,486 million related to portfolios of homogeneous loans and advances. The following table presents an analysis
of individually impaired loans by industry sector and by geographical region:
At 31 December 2005
Europe
Hong
Kong
Rest of
Asia-
Pacific
North
America
South
America
Gross
impaired
loans and
advances to
customers
Gross
impaired
loans by
industry
sector as a
% of total
gross loa
n
US$m US$m US$m US$m US$m US$m %
Personal ....................................... 655 256 119 5 – 1,035 20.9
Commercial and corporate ........... 2,562 198 629 338 198 3,925 79.1
Total impaired loans and
advances to customers.............. 3,217 454 748 343 198 4,960 100.0
The types of collateral or other security held are described above in ‘Collateral and other credit enhancements’.