HSBC 2008 Annual Report Download - page 218

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Credit risk > Areas of special interest > Renegotiated loans // Credit quality
216
Two months and over contractual delinquency1 (continued)
(Unaudited)
Quarter ended
31
December
2008
30
September
2008
30
June
2008
31
March
2008
31
December
2007
30
September
2007
30
June
2007
31
March
2007
US$m US$m US$m US$m US$m US$m US$m US$m
In Mortgage Services and
consumer lending
Mortgage Services:
– first lien ................. 3,912 3,420 3,363 3,456 3,248 2,554 2,099 1,863
– second lien ............. 787 807 897 1,028 1,050 841 663 613
Total ............................... 4,699 4,227 4,260 4,484 4,298 3,395 2,762 2,476
Consumer lending:
– first lien ................. 4,724 3,176 2,194 1,954 1,622 1,259 907 832
– second lien ............. 853 690 583 530 478 346 236 220
Total ............................... 5,577 3,866 2,777 2,484 2,100 1,605 1,143 1,052
%
3 %3 % 3 % 3 % 3 % 3 %3 %3
Mortgage Services:
– first lien ................. 16.87 14.16 12.91 12.41 11.02 8.13 6.33 4.98
– second lien ............. 17.72 16.62 16.63 16.99 15.57 11.28 7.91 6.59
Total ............................... 17.01 14.57 13.55 13.22 11.87 8.73 6.65 5.30
Consumer lending:
– first lien ................. 11.71 7.72 5.15 4.52 3.74 2.92 2.15 2.03
– second lien ............. 14.54 11.27 9.04 7.96 6.97 5.03 3.60 3.34
Total ............................... 12.07 8.18 5.66 4.98 4.18 3.21 2.34 2.21
1 Delinquency data for the period from 31 March 2007 to 30 June 2008 has been restated to include certain delinquent mortgage loans
that were previously excluded due to system coding within the Mortgage Services loan servicing platform which had the effect of
excluding certain delinquent mortgage loans from the calculation of delinquency ratios. This change affected Mortgage Services’ first
and second lien delinquency percentages above. The effect on previously reported amounts was not material.
2 Delinquency data for the periods ending 31 December 2007 to 30 June 2008 has been restated to exclude certain delinquency balances
of HSBC USA which related to residential mortgages classified as held for sale.
3 Expressed as a percentage of the relevant balance.
Renegotiated loans
(Audited)
Restructuring activity is designed to manage
customer relationships, maximise collection
opportunities and, if possible, avoid foreclosure or
repossession. Such activities include extended
payment arrangements, approved external debt
management plans, deferring foreclosure,
modification, loan rewrites and/or deferral of
payments pending a change in circumstances.
Following restructuring, an overdue consumer
account is normally reset from delinquent to current
status. Restructuring policies and practices are based
on indicators or criteria which, in the judgement of
local management, indicate that repayment will
probably continue. These policies are required to be
kept under continual review and their application
varies according to the nature of the market, the
product, and the availability of empirical data.
Criteria vary between products, but typically include
receipt of one or more or, in the case of HSBC
Finance, two or more, qualifying payments within a
certain period, a minimum lapse of time from
origination before restructuring may occur, and
restrictions on the number and/or frequency of
successive restructurings. When empirical evidence
indicates an increased propensity to default on
restructured accounts, the use of roll rate
methodology ensures this factor is taken into account
when calculating impairment allowances.
Renegotiated loans that would otherwise be
past due or impaired totalled US$35 billion at
31 December 2008 (2007: US$28 billion).
Restructuring is most commonly applied to
consumer finance portfolios. The largest
concentration was in the US and amounted to
US$31 billion (2007: US$24 billion) or 89 per
cent (2007: 86 per cent) of the Group’s total
renegotiated loans. The increase was due to a
significant deterioration in credit quality in the US,
where most restructurings related to loans secured
on real estate.
US loan modifications
(Unaudited)
In 2008, HSBC Finance continued to refine and
expand its customer account management policies
and practices. Through its ARM Reset Modification
Programme, established in October 2006, HSBC
Finance proactively contacts customers who have