HSBC 2005 Annual Report Download - page 149

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were also improvements in mainland China and
Singapore, due to strong economic growth.
In North America, impaired loans increased by
4 per cent to US$4,045 million. This rise reflected
portfolio growth and accelerated bankruptcies ahead
of new US legislation, particularly in secured and
personal unsecured lending. The trend in US
impaired loans as a percentage of gross receivables
was stable year-on-year. In Mexico, impaired loans
increased in line with portfolio growth. Improving
credit conditions in Canada, on the back of a strong
economy, drove a decrease in impaired loans,
offsetting the rises in the US and Mexico.
A rise of 26 per cent to US$891 million in South
America’s impaired loans was mainly due to the
34 per cent increase in Brazil. This was partly driven
by strong balance sheet growth, but there was also
some weakening in credit quality in the consumer
finance business, particularly in the low income
segment. Action taken during the year to amend
lending parameters has assisted in stabilising
delinquency. Argentina’s economy continued its
steady recovery and as a result impaired loans
declined by 9 per cent, partly offsetting the rise in
Brazil.
Troubled debt restructurings
US GAAP requires separate disclosure of any loans
whose terms have been modified because of
problems with the borrower to grant concessions
other than are warranted by market conditions. 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 performs in accordance with the new
terms.
The fall in troubled debt restructurings was
driven by the decline in Hong Kong, a product of the
continuing improvement in the quality of the loan
book.
Unimpaired loans past due 90 days or more
The rise in Europe was due to the UK, where
improved processes led to better credit data
collection. In North America, HSBC Finance’s
business benefited from improvement in delinquency
and default trends year on year. In common with
other card issuers, including other parts of HSBC,
HSBC Finance continues to accrue interest on credit
cards past 90 days until charged off. Appropriate
provisions are raised against the proportion judged to
be irrecoverable.
Potential problem loans
Credit risk elements also cover potential problem
loans. These are loans where information about
borrowers’ possible credit problems causes
management serious doubts about the borrowers’
ability to comply with the loan repayment terms.
There are no potential problem loans other than
those identified in the table of risk elements set out
below.