HSBC 2013 Annual Report Download - page 40

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38
no evidence of impairment has been individually
identified or for high-volume groups of homogeneous
loans that are not considered individually significant. In
determining an appropriate level of collectively assessed
impairment, we apply the following methodologies:
– Business and government – For these loans, the
underlying credit metrics including PD, LGD
and EAD, for each customer are derived from
the bank’s internal rating system as a basis for
the collectively assessed impairment allowance.
The bank incorporates a quantitatively supported
management judgement framework which includes
both internal and external indicators, to establish an
overall collective impairment allowance consistent
with recent loss experience and uncertainties in the
environment.
– Residential mortgages – Historic average loss rates
are used to determine the general provision for these
portfolios. Management may consider other current
information should they believe that these historic
loss rates do not fully reflect incurred losses in these
portfolios.
– Consumer Finance and other consumer loans –
Analysis of historical delinquency movements by
product type is used as the basis for the collectively
assessed impairment allowance for these loan
portfolios. By tracking delinquency movement
among pools of homogeneous loans, an estimate of
incurred losses in each pool is determined. These
estimates can be amended should management
believe they do not fully reflect incurred losses. This
judgemental adjustment employs an established
framework and references both internal and external
indicators of credit quality.
In addition to the methodologies outlined above,
the balance of the collectively assessed impairment
allowance is also analyzed as a function of risk-weighted
assets and is also referenced to the allowances held by
our peer group.
Impaired financial assets (Audited) EAD
2013
$m
EAD
2012
$m
Impaired wholesale portfolio1
Real estate ................................................................................................................ 121 221
Energy ...................................................................................................................... 53 55
Construction services ............................................................................................... 33 31
Manufacturing .......................................................................................................... 27 27
Wholesale trade ........................................................................................................ 22 38
Agriculture ............................................................................................................... 19 16
Automotive .............................................................................................................. 18 21
Hotels and accommodation ...................................................................................... 17 15
Mining, logging and forestry ................................................................................... 15 8
Business services ..................................................................................................... 13 6
Sole proprietors ........................................................................................................ 13 14
Transportation and storage ....................................................................................... 13 38
Services .................................................................................................................... 12 15
Finance and insurance .............................................................................................. 5–
Retail trade ............................................................................................................... 38
Total impaired wholesale portfolio ................................................................................ 384 513
Impaired retail portfolio
Residential mortgages .............................................................................................. 77 117
Other retail loans ...................................................................................................... 18 23
Run off consumer finance portfolio ......................................................................... 24 50
Total impaired retail portfolio ........................................................................................ 119 190
Total impaired financial assets ....................................................................................... 503 703
1 Includes $19m (2012: $7m) of impaired acceptances, letters of credit and guarantees
Management’s Discussion and Analysis (continued)
HSBC BANK CANADA
38