HSBC 2009 Annual Report Download - page 204

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Credit risk > Management
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manuals their detailed credit policies and
procedures, consistent with Group policy;
• guiding HSBC’s operating companies on the
Group’s appetite for credit risk exposure to
specified market sectors, activities and banking
products. GMO Risk controls exposures to
certain higher-risk sectors and closely monitors
exposure to others, including real estate, the
automotive sector, certain non-bank financial
institutions, structured products and leveraged
finance transactions. When necessary,
restrictions are imposed on new business or
exposures, which may be capped at Group
and/or entity level;
• undertaking independent review and objective
assessment of risk. GMO Risk assesses all
commercial non-bank credit facilities and
exposures – including those embedded in
derivatives – that are originated or renewed by
HSBC’s operating companies over designated
limits, prior to the facilities being committed to
customers or transactions being undertaken.
Operating companies may not confirm credit
approval without this concurrence;
• monitoring the performance and management of
portfolios across the Group. GMO Risk tracks
emerging trends and conducts in-depth portfolio
reviews, overseeing the effective management
of any adverse characteristics;
• controlling centrally exposures to sovereign
entities, banks and other financial institutions.
HSBC’s credit and settlement risk limits to
counterparties in these sectors are approved and
managed by GMO Risk to optimise the use of
credit availability and avoid excessive risk
concentration;
• controlling exposure for all debt securities held;
where a security is not held solely for the
purpose of trading, a formal issuer risk limit is
established;
• establishing and maintaining HSBC’s policy
on large credit exposures, ensuring that
concentrations of exposure by counterparty,
sector or geography do not become excessive in
relation to the Group’s capital base and remain
within internal and regulatory limits. GMO Risk
also monitors HSBC’s intra-Group exposures to
ensure they are maintained within regulatory
limits and ensures that policy and practice are
fully aligned to evolving regulatory
requirements;
• controlling cross-border exposures, through the
imposition of country limits with sub-limits by
maturity and type of business. Country limits
are determined by taking into account economic
and political factors, and applying local business
knowledge. Transactions with countries deemed
to be higher risk are considered on a case by
case basis;
• maintaining and developing HSBC’s risk rating
framework and systems, to classify exposures
meaningfully and enable focused management
of the risks involved. The GCRO chairs the
Credit Risk Analytics Oversight Committee,
which reports to the RMM and oversees risk
rating model governance for both wholesale and
retail business. Rating methodologies, based
upon a wide range of analytics and market data-
based tools, are core inputs to the assessment of
customer risk. For larger facilities, while full use
is made of automated risk-rating processes, the
ultimate responsibility for setting risk ratings
rests with the final approving executive;
• assisting the Risk Strategy unit in the
development of stress-testing scenarios,
economic capital measurement and the
refinement of key risk indicators and their
reporting, embedded within the Group’s
business planning processes;
• reporting on aspects of the HSBC credit risk
portfolio to the RMM, the Group Audit
Committee and the Board of Directors of HSBC
Holdings by way of a variety of regular and ad
hoc reports covering:
– risk concentrations;
– retail portfolio performance at Group entity,
regional and overall Group levels;
– specific higher-risk portfolio segments;
– a risk map of the status of key risk topics,
with associated preventive and mitigating
actions;
– individual large impaired accounts, and
impairment allowances/charges for all
customer segments;
– country limits, cross-border exposures and
related impairment allowances;
– portfolio and analytical model performance
data; and
– stress-testing results and recommendations;
• managing and directing credit risk management
systems initiatives. A centralised database
covers substantially all the Group’s direct
lending exposures, to deliver an increasingly