HSBC 2001 Annual Report Download - page 110

HSBC HOLDINGS PLC
Financial Review (continued)
108
Provisions against loans and advances to
customers
31 December 31 Decembe
r
2001 2000
%%
Total provisions to gross lending*
Specific provisions........................... 1.90 2.17
General provisions
 held against Argentine risk............ 0.21

 other.............................................. 0.71 0.75
Total provisions ............................... 2.82 2.92
* Net of suspended interest, reverse repo transactions and
settlement accounts.
Risk elements in the loan portfolio
The SEC requires disclosure of credit risk elements
under the following headings that reflect US
accounting practice and classifications:
• loans accounted for on a non-accrual basis;
• accruing loans contractually past due 90 days or
more as to interest or principal; and
• troubled debt restructurings not included in the
above.
HSBC, however, classifies loans in accordance
with UK accounting practice which differs from US
practice as follows:
Suspended interest
Under the UK Statement of Recommended Practice
on Advances, UK banks continue to charge interest
on doubtful debts where there is a realistic prospect
of recovery. This interest is credited to a suspense
account and is not included in the profit and loss
account. In the United States, loans on which interest
has been accrued but suspended would be included
in risk elements as loans accounted for on a non-
accrual basis.
Assets acquired in exchange for advances
Under US GAAP, assets acquired in exchange for
advances in order to achieve an orderly realisation
are usually reported in a separate balance sheet
category, Owned Real Estate. Under UK GAAP,
these assets are reported within loans and advances.
Troubled debt restructurings
US GAAP requires separate disclosure of any loans
whose terms have been modified due to problems
with the borrower. Such disclosures may be
discontinued after the first year if the new terms were
in line with market conditions at the time of the
restructuring and the borrower has remained current
with the new terms.
In addition, US banks typically write off
problem lending more quickly than is the practice in
the United Kingdom. This practice means that
HSBCs reported level of credit risk elements is
likely to be higher than for a comparable US bank.
Potential problem loans
Credit risk elements also cover potential problem
loans. These are loans where known information
about possible credit problems of borrowers causes
management serious doubts as to the borrowers
ability to comply with the loan repayment terms. At
31 December 2001, all loans and advances in
Argentina, and all cross-border loans to Argentina,
which were not included as part of total risk elements
have been designated as potential problem loans.
There were no other significant potential problem
loans at 31 December 2001.
31 December 31 Decembe
r
2001 2000
US$m US$
m
Non-performing loans and
advances*
Banks.................................... 923
Customers............................. 9,649 10,372
Total non-performing loans and
advances .......................... 9,658 10,395
Total provisions cover as a
percentage of non-performing
loans and advances .......... 84.7% 78.9%
*Net of suspended interest.
Total non-performing loans to customers
decreased by US$723 million during 2001. At 31
December 2001, non-performing loans represented
3.0 per cent of total lending compared with 3.5 per
cent at 31 December 2000.
Underlying credit quality remained stable both
in the UK and in France although there was some
weakening of business confidence.
In Hong Kong, non-performing loans decreased
by US$494 million during 2001. This reflected the
impact of write-offs and recoveries, some
improvement in the corporate loan book offset
partially by an increase in delinquency in personal
lending.
In the Rest of Asia-Pacific, non-performing
loans decreased by US$356 million during 2001,
mainly due to the recovery achieved on the historical
Olympia & York loans.
The level of non-performing loans in North
America remained largely unchanged