HSBC 2011 Annual Report Download - page 191

189
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Credit risk
Credit risk management
(Audited)
The role of an independent credit control unit is fulfilled by Group Risk which is part of the Global Risk function.
Credit approval authorities are delegated by the Board to certain executive officers of HSBC Holdings plc. Similar
credit approval authorities are delegated by the boards of subsidiary companies to executive officers of the relevant
subsidiaries. In each major subsidiary, a Chief Risk Officer reports to the local Chief Executive Officer on credit-
related issues, while maintaining a direct functional reporting line to the Group Chief Risk Officer in Global Risk.
Details of the roles and responsibilities of the credit risk management function and the policies and procedures for
managing credit risk are set out below.
The principal objectives of our credit risk management are:
• to maintain across HSBC a strong culture of responsible lending and a robust risk policy and control framework;
• to both partner and challenge our businesses in defining, implementing and continually re-evaluating our risk
appetite under actual and scenario conditions; and
• to ensure there is independent, expert scrutiny of credit risks, their costs and their mitigation.
The high-level oversight and management of credit risk provided globally by the Credit Risk function in Global Risk
• to formulate Group credit policy. Compliance, subject to approved dispensations, is mandatory for all operating companies which must
develop local credit policies consistent with Group policies;
• to guide operating companies on our appetite for credit risk exposure to specified market sectors, activities and banking products and
controlling exposures to certain higher-risk sectors;
• to undertake an independent review and objective assessment of risk. Global Risk assesses all commercial non-bank credit facilities and
exposures over designated limits, prior to the facilities being committed to customers or transactions being undertaken;
• to monitor the performance and management of portfolios across the Group;
• to control exposure to sovereign entities, banks and other financial institutions, as well as debt securities which are not held solely for the
purpose of trading;
• to set Group policy on large credit exposures, ensuring that concentrations of exposure by counterparty, sector or geography do not
become excessive in relation to our capital base, and remain within internal and regulatory limits;
• to control our cross-border exposures (see page 190);
• to maintain and develop our risk rating framework and systems. The Group Chief Risk Officer chairs the Credit Risk Analytics
Oversight Committee, which reports to the Risk Management Meeting and oversees risk rating model governance for both wholesale
and retail business;
• to report on retail portfolio performance, high risk portfolios, risk concentrations, country limits and cross-border exposures, large
impaired accounts, impairment allowances and stress testing results and recommendations to the Risk Management Meeting, the Group
Risk Committee and the Board; and
• to act on behalf of HSBC Holdings as the primary interface, for credit-related issues, with the Bank of England, the FSA, local
regulators, rating agencies, analysts and counterparts in major banks and non-bank financial institutions.
Credit quality
(Audited)
Our credit risk rating systems and processes differentiate exposures in order to highlight those with greater risk
factors and higher potential severity of loss. In the case of individually significant accounts, risk ratings are reviewed
regularly and any amendments are implemented promptly. Within our retail businesses, risk is assessed and managed
using a wide range of risk and pricing models to generate portfolio data.
Our risk rating system facilitates the internal ratings-based (‘IRB’) approach under Basel II adopted by the Group to
support calculation of our minimum credit regulatory capital requirement. For further details, see ‘Credit quality of
financial instruments’ on page 191.
Special attention is paid to problem exposures in order to accelerate remedial action. Where appropriate, our
operating companies use specialist units to provide customers with support in order to help them avoid default
wherever possible.
Group and regional Credit Review and Risk Identification teams regularly review exposures and processes in order
to provide an independent, rigorous assessment of credit risk across the HSBC Group, reinforce secondary risk
management controls and share best practice. Internal audit, as a tertiary control function, focuses on risks