HSBC 2015 Annual Report Download - page 359

HSBC HOLDINGS PLC
357
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
Reversals of impairment
If the amount of an impairment loss decreases in a subsequent period, and the decrease can be related objectively to an event
occurring after the impairment was recognised, the excess is written back by reducing the loan impairment allowance account
accordingly. The write-back is recognised in the income statement.
Assets acquired in exchange for loans
Non-financial assets acquired in exchange for loans as part of an orderly realisation are recorded as ‘Assets held for sale’ and
reported in ‘Other assets’ if those assets are classified as held for sale. The asset acquired is recorded at the lower of its fair
value less costs to sell and the carrying amount of the loan (net of impairment allowance) at the date of exchange. No
depreciation is charged in respect of assets held for sale. Write-downs of the acquired asset to fair value less cost to sell and
any reversals of previous write-downs are recognised in the income statement in ‘Other operating income’, together with any
realised gains or losses on disposal.
Renegotiated loans
Loans subject to collective impairment assessment whose terms have been renegotiated are no longer considered past due,
but are treated as up to date loans for measurement purposes once a minimum number of payments required have been
received. Where collectively assessed loan portfolios include significant levels of renegotiated loans, these loans are
segregated from other parts of the loan portfolio for the purposes of collective impairment assessment to reflect their risk
profile. Loans subject to individual impairment assessment, whose terms have been renegotiated, are subject to ongoing
review to determine whether they remain impaired. The carrying amounts of loans that have been classified as renegotiated
retain this classification until maturity or derecognition.
A loan that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement made on substantially
different terms or if the terms of an existing agreement are modified such that the renegotiated loan is substantially a
different financial instrument. Any new loans that arise following derecognition events will continue to be disclosed as
renegotiated loans and are assessed for impairment as above.
Impairment of available-for-sale financial assets
Available-for-sale financial assets are assessed at each balance sheet date for objective evidence of impairment. If such
evidence exists as a result of one or more events that occurred after the initial recognition of the financial asset (a ‘loss event’),
and that loss event has an impact which can be reliably measured on the estimated future cash flows of the financial asset, an
impairment loss is recognised.
If the available-for-sale financial asset is impaired, the difference between its acquisition cost (net of any principal repayments
and amortisation) and its current fair value, less any previous impairment loss recognised in the income statement, is
recognised in the income statement.
Impairment losses are recognised in the income statement within ‘Loan impairment charges and other credit risk provisions’
for debt instruments and within ‘Gains less losses from financial investments’ for equities. The impairment methodologies for
available-for-sale financial assets are set out as follows:
• Available-for-sale debt securities. In assessing objective evidence of impairment at the reporting date, HSBC considers all
available evidence, including observable data or information about events specifically relating to the securities which may
result in a shortfall in the recovery of future cash flows. Financial difficulties of the issuer, as well as other factors such as
information about the issuers’ liquidity, business and financial risk exposures, levels of and trends in default for similar
financial assets, national and local economic trends and conditions, and the fair value of collateral and guarantees may be
considered individually, or in combination, to determine if there is objective evidence of impairment.
In addition, the performance of underlying collateral and the extent and depth of market price declines is relevant when
assessing objective evidence of impairment of available-for-sale ABSs. The primary indicators of potential impairment are
considered to be adverse fair value movements and the disappearance of an active market for a security, while changes in
credit ratings are of secondary importance.
• Available-for-sale equity securities. Objective evidence of impairment may include specific information about the issuer as
detailed above, but may also include information about significant changes in technology, markets, economics or the law
that provides evidence that the cost of the equity securities may not be recovered.
A significant or prolonged decline in the fair value of the equity below its cost is also objective evidence of impairment.
In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial
recognition. In assessing whether it is prolonged, the decline is evaluated against the continuous period in which the fair
value of the asset has been below its original cost at initial recognition.
Once an impairment loss has been recognised, the subsequent accounting treatment for changes in the fair value of that asset
depends on the type of asset:
• for an available-for-sale debt security, a subsequent decline in the fair value of the instrument is recognised in the income
statement when there is objective evidence of impairment as a result of further decreases in the estimated future cash