HSBC 2008 Annual Report Download - page 233

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commentary that follows is on a constant currency
basis:
New allowances for loan impairment charges
rose by 52 per cent, compared with 2006. Releases
and recoveries of allowances increased by 1 per cent
to US$1.6 billion.
In Europe, new loan impairment charges were
US$3.5 billion, a rise of 8 per cent compared with
2006. This partly reflected growth in commercial
lending, where charges remained low compared with
historical amounts but rose from the exceptionally
low levels experienced in 2005 and 2006. Increased
charges also reflected growth in credit card lending
in Turkey. In the UK, refinements to the
methodology used to calculate roll rate percentages
resulted in a higher charge in the consumer finance
operations in the first half of the year. Excluding
this, loan impairment charges were marginally lower
than in 2006.
Releases and recoveries in Europe were broadly
in line with 2006.
In Hong Kong, new loan impairment charges of
US$287 million were recorded, an increase of 19 per
cent, due to the growth in credit card balances and
new corporate loan charges.
Releases and recoveries in Hong Kong
decreased to US$75 million, primarily in the
corporate sector. This reflected the low level of
allowances added in recent years.
In Rest of Asia-Pacific, new loan impairment
charges rose by 10 per cent to US$834 million, with
higher loan impairment charges arising in the
commercial loan books in Thailand and Malaysia.
This was offset by a decline in loan impairment
charges for personal lending, particularly in Taiwan
and Indonesia, where charges returned to more
regular levels after an upsurge in 2006 due to
regulatory changes which affected collection activity
and minimum payments.
With corporate and commercial loan impairment
charges low in recent years, releases and recoveries
decreased by 6 per cent to US$220 million.
New loan impairment charges in North America
rose by 76 per cent to US$12.2 billion, driven by the
continued deterioration in credit quality in the US
consumer finance loan portfolio.
US credit quality deteriorated as mortgage
delinquencies rose, house prices declined,
refinancing credit became less available in the
market and the macroeconomic outlook worsened.
Other factors affecting the rise in US loan
impairment charges included normal seasoning of
the portfolio, a higher proportion of unsecured
personal lending and a return to historical norms
from the unusually low levels of bankruptcy filings
experienced in 2006, following changes enacted to
US bankruptcy law in 2005.
Delinquency rates rose across all parts of the
HSBC Finance personal lending portfolio, with
Mortgage Services and consumer lending
experiencing significant rises in delinquency which
flowed through subsequent stages through to
foreclosure. As the housing downturn began to have
more effect on the broader economy, delinquency
rates in credit cards and vehicle finance rose in the
final quarter of 2007. A change in product mix in the
cards portfolio towards higher yielding products also
contributed to higher impairment charges as this
segment of the portfolio seasoned.
Releases and recoveries in North America
decreased to US$116 million. In the US consumer
finance business, collection staff increased in all
lending portfolios as part of the response to the
deteriorating credit environment.
In Latin America, new loan impairment
charges rose by 63 per cent to US$2.0 billion. The
most significant increase was registered in Mexico,
reflecting strong growth in balances, normal
portfolio seasoning and a rise in delinquency rates
in credit cards. Charges for commercial lending in
Mexico fell as increased delinquency rates in the
small and medium-sized business portfolios were
offset by impairment allowance releases. Products
with high credit losses were discontinued or
restructured. Loan impairment charges in Brazil rose
marginally, due to growth in store loans and credit
cards.
Releases and recoveries in Latin America
increased to US$272 million. In Brazil, credit
models were changed during 2007 to align with
credit behaviour in underlying portfolios.