HSBC 2012 Annual Report Download - page 170

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Collateral / Impairment of loans and advances
168
general OTC derivative counterparty exposure
in the credit markets, although we may manage
individual exposures in certain circumstances.
A description of the derivative offset amount
in the ‘Maximum exposure to credit risk’ table is
provided on page 145.
Other credit risk exposures
In addition to collateralised lending described above,
other credit enhancements are employed and
methods used to mitigate credit risk arising from
financial assets. These are described in more detail
below.
Securities issued by governments, banks and
other financial institutions may benefit from
additional credit enhancement, notably through
government guarantees that reference these assets.
Details of government guarantees are included in
Notes 6, 10 and 12 on the Financial Statements.
Corporate issued debt securities are primarily
unsecured. Debt securities issued by banks and
financial institutions include ABSs and similar
instruments, which are supported by underlying
pools of financial assets. Credit risk associated with
ABSs is reduced through the purchase of CDS
protection. Disclosure of the Group’s holdings of
ABSs and associated CDS protection is provided
on page 184.
Trading assets include loans and advances held
with trading intent, the majority of which consist of
reverse repos and stock borrowing which, by their
nature, are collateralised. Collateral accepted as
security that the Group is permitted to sell or
repledge under these arrangements is described
in Note 36 on the Financial Statements. Trading
assets also include money market term placements,
which are unsecured.
The Group’s maximum exposure to credit
risk includes financial guarantees and similar
arrangements that we issue or enter into, and loan
commitments that we are irrevocably committed to.
Depending on the terms of the arrangement, we may
have recourse to additional credit mitigation in the
event that a guarantee is called upon or a loan
commitment is drawn and subsequently defaults.
Further information about these arrangements is
provided in Note 40 on the Financial Statements.
Collateral and other credit enhancements
obtained
(Audited)
The carrying amount of assets obtained by taking
possession of collateral held as security, or calling
upon other credit enhancements, is as follows:
Carrying amount at
31 December
2012 2011
US$m US$m
Nature of assets
Residential property ..................... 353 420
Commercial and industrial
property .................................... 88 64
Other ............................................ 3 17
444 501
The significant reduction in residential
properties was due to the suspension of foreclosure
activities at the end of 2011 and during the first half
of 2012 (see page 151).
We make repossessed properties available for
sale in an orderly fashion, with the proceeds used
to reduce or repay the outstanding indebtedness. If
excess funds arise after the debt has been repaid,
they are made available to repay other secured
lenders with lower priority or returned to the
customer. We do not generally occupy repossessed
properties for our business use.
Impairment of loans and advances
(Audited)
A summary of our current policies and
p
ractices regarding impairment assessment
is provided in the Appendix to Risk on
p
age 258.
The tables below analyse by geographical region the
impairment allowances recognised for impaired
loans and advances that are either individually
assessed or collectively assessed, and collective
impairment allowances on loans and advances
classified as not impaired.