HSBC 2009 Annual Report Download - page 217

215
Dubai and the UAE
In November 2009, Dubai World, a Dubai
government-owned firm, requested a creditor
standstill on its debt repayments and those of some
of its subsidiaries. The announcement prompted
a significant sell-off in markets across the world.
Abu Dhabi announced that it would offer additional
assistance to Dubai, providing liquidity and a
platform for the debt restructuring process to
continue.
HSBC, as the longest-established bank in the
region, has a longstanding relationship with the
government of Dubai and its related entities. HSBC
has contributed from the earliest days to the
development of Dubai as an emerging economy and
continues to maintain supportive relationships with
all parts of the UAE. HSBC will continue to offer its
support to the government of Dubai in achieving a
workable resolution of its current liquidity problems.
HSBC’s exposure within Dubai is acceptably
spread and is primarily to operating companies
within the emirate. HSBC is playing a prominent
role in restructuring indebtedness in order to help
restore confidence in the region.
In the UAE, gross customer loans and advances
fell from US$18 billion at 31 December 2008 to
US$15 billion at 31 December 2009. Although the
Middle East represents 2 per cent of the Group’s
balance sheet, it remains a region to which HSBC
is strongly committed.
Sovereign counterparties
The overall quality of the Group’s sovereign risk
exposure remained satisfactory during 2009, with the
large majority of both in-country and cross-border
limits extended to countries with strong internal
credit risk ratings. There was no significant
downward shift in the quality of the exposure
although, given the higher debt and weaker fiscal
positions of many Western governments, there is
increased potential for deterioration in sovereign risk
profiles before budgetary re-balancing is achieved.
In order to manage this, the Group regularly updates
its assessments of higher-risk countries and adjusts
its risk appetite to reflect such changes.
Leveraged financing
The Group operates a controlled approach towards
leveraged finance origination with caps on
underwriting and final hold levels in place. This puts
a premium on successfully distributing risk in order
to create capacity under the caps. Group exposure to
leveraged finance transactions remained modest in
relation to overall exposure.
Personal lending
(Unaudited)
HSBC provides a broad range of secured and
unsecured personal lending products to meet
customer needs. Given the diverse nature of the
markets in which HSBC operates, the range is not
standardised across all countries but is tailored to
meet the demands of individual markets while using
appropriate distribution channels and, wherever
possible, standard global IT platforms.
Personal lending includes advances to customers
for asset purchase, such as residential property and
motor vehicles, where the loans are typically secured
on the assets being acquired. HSBC also offers loans
secured on existing assets, such as first and second
liens on residential property; unsecured lending
products such as overdrafts, credit cards and payroll
loans; and debt consolidation loans which may be
secured or unsecured.
In 2009, credit exposure in the personal lending
portfolios continued to be affected by adverse global
economic conditions, particularly increased
unemployment levels and the restricted availability
of refinancing which limited the ability of many
customers to service financial obligations in line
with contractual commitments. This led to
delinquency levels and loan impairment charges
remaining high, although management action in
recent years to run off the US consumer finance exit
portfolios and curtail originator activity helped
reduce the overall impairment charge.
The commentary that follows is on an
underlying basis.
At 31 December 2009, total personal lending
was US$434 billion, a decline of 6 per cent from
31 December 2008, driven by run-off in the US
consumer finance exit portfolios. Within Personal
Financial Services total loan impairment charges and
other credit risk provisions of US$19.9 billion were
3 per cent lower than in 2008 and were concentrated
in North America (US$14.4 billion) and, to a lesser
extent, Europe (US$2.0 billion) and Latin America
(US$2.0 billion).
In early March 2009, HSBC Finance announced
the discontinuation of new customer account
originations for all products offered by its Consumer
Lending business and closed approximately 800
Consumer Lending branch offices. In November
2009, it entered into an agreement to sell its vehicle
loan servicing operations to Santander Consumer
USA Inc. (‘SC USA’) as well as an aggregate
US$1.0 billion of vehicle finance loans, both
delinquent and non-delinquent. Under a separate
agreement, SC USA will service the remainder of