HSBC 2012 Annual Report Download - page 150

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Personal lending
148
In 2012, the credit quality of the majority of
our personal lending portfolios improved, reflecting
the continued low levels of interest rates and strong
customer repayments in many markets, as well
as actions taken in previous years to tighten our
lending criteria and focus on higher quality and
secured assets.
In the US, the origination of new personal
lending was limited as we have discontinued all
new consumer finance real estate lending following
the closure of the consumer finance distribution
network. Customer lending balances across HSBC
Finance portfolios continued to decline and, in May
and August 2012 respectively, we completed the
sales of the Card and Retail Services business and
non-strategic branches, in the US. We continue to
explore options to accelerate the liquidation of the
CML portfolio and, to this effect, reclassified certain
non-real estate personal loan balances, net of
impairment allowances, to ‘Assets held for sale’
as we actively marketed this portfolio.
The commentary that follows is on a constant
currency basis.
At 31 December 2012, the Group’s exposure
to personal lending was US$415bn, 3% higher than
at 31 December 2011, reflecting a rise in first lien
residential mortgage lending, partly offset
by a reduction in other personal lending. Loan
impairment allowances on our personal lending
portfolios were US$8.2bn compared with US$9.8bn
at the end of 2011, while the ratio of loan
impairment allowances to total personal lending
reduced from 2.4% at 31 December 2011 to 2.0%
at 31 December 2012. This decline reflected
volume and performance-based improvements,
predominantly in our US portfolios, due to the
continued run-off of the CML portfolio as well as
the reclassification of impairment allowances on
non-real estate personal loan balances to ‘Assets
held for sale’. We also continued to focus on
growing our lower-risk residential mortgage
portfolios in the UK, Hong Kong and rest of Asia-
Pacific, where our loss experience and impairment
allowance requirements are typically lower.
Loan impairment charges in our personal
lending portfolios were US$5.4bn in 2012,
US$3.8bn or 41% lower than in 2011 and
representing 66% of the overall Group’s LICs.
The decline was predominantly in the US reflecting
the reduction in balances in the CML portfolio and
the sale of the Card and Retail Services business in
May 2012.
At 31 December 2012, total personal lending
increased by US$13.7bn reflecting growth in first
lien residential mortgages, notably in the UK, Hong
Kong and Rest of Asia-Pacific. Balances in the
UK increased following the success of marketing
campaigns and competitive pricing. The rise in Hong
Kong reflected the low interest rate environment and
active property market, whereas growth in the
Rest of Asia-Pacific, mainly in Singapore, mainland
China, Australia and Malaysia, reflected the
continued strength of property markets and
expansion of our distribution network.
Total personal lending balances in the US at
31 December 2012 were US$57bn, a decrease of
15% compared with the end of 2011. The decline
reflected the run-off of our CML portfolio, which
also fell due to the reclassification of non-real estate
personal loan balances to ‘Assets held for sale’.
In Latin America, personal lending decreased by
4% compared with 31 December 2011, following a
reduction in other personal lending in Brazil, where
we managed down our exposure to non-strategic
portfolios and focused on higher quality lending
including first lien residential mortgage lending.
This complemented a range of corrective actions,
including improving our collections capabilities,
reducing third party originations and improving
credit scoring models. These actions were
implemented to limit our exposure to further market
weakness following a rise in delinquency in 2011
which continued in 2012. We also reclassified
lending balances in Colombia, Paraguay and Peru to
‘Assets held for sale’.
Mortgage lending
(Unaudited)
We offer a wide range of mortgage products
designed to meet customer needs, including capital
repayment, interest-only, affordability and offset
mortgages.
Group credit policy prescribes the range of
acceptable residential property loan-to-value
(‘LTV’) thresholds with the maximum upper limit
for new loans set between 75% and 95%. Specific
LTV thresholds and debt-to-income ratios are
managed at regional and country levels and,
although the parameters must comply with Group
policy, strategy and risk appetite, they differ in the
various locations in which we operate to reflect the
local economic and housing market conditions,
regulations, portfolio performance, pricing and other
product features.