HSBC 2002 Annual Report Download - page 117

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determined by taking into account economic and
political factors, together with local business
knowledge. Transactions with countries deemed
to be higher risk are considered on a case-by-
case basis.
• Control of exposure to certain industries. Group
Credit and Risk controls HSBC’ s exposure to
the shipping and aviation industries, and closely
monitors exposures to other industries or products
such as telecoms and commercial real estate.
Controls, such as restrictions on new business or
the capping of exposure within HSBC
subsidiaries, may be introduced where necessary.
• Maintenance of HSBC’ s universal facility
grading process. HSBC’ s grading structure
contains seven grades, the first three of which
are applied to differing levels of satisfactory
risk. Of the four unsatisfactory grades, grades 6
and 7 are non-performing loans. In the case of
banks, the grading structure involves 9 tiers, five
of which cover satisfactory risk. It is the
responsibility of the final approving executive to
approve the facility grade. Facility grades are
subject to frequent review and amendments,
where necessary, are required to be undertaken
promptly.
• Review of efficiency and effectiveness of
subsidiaries’ credit approval processes. Regular
reports are provided to Group Credit and Risk
on the credit quality of the local portfolios and
corrective action is taken where necessary.
• Reporting to senior executives on aspects of the
HSBC loan portfolio. Reports are produced for
senior management, including the Group
Executive Committee, Group Audit Committee
and the Board, covering:
− risk concentrations and exposures to
industry sectors;
− large customer group exposures;
− emerging market debt and provisioning;
− large non-performing accounts and
provisions;
− specific segments of the portfolio:
commercial real estate, telecoms, aviation,
shipping, credit cards, as well as ad hoc
reviews as necessary; and
– country limits and cross-border exposures.
• Management and direction of credit-related
systems initiatives. HSBC has a centralised
database of large corporate, sovereign and bank
facilities and is currently rolling out a new
standard corporate credit application system.
• Provision of advice and guidance to HSBC’ s
subsidiaries. In order to promote best practice
throughout HSBC, advice is given and
procedures approved where necessary on
numerous credit-related issues such as:
− regulatory issues;
− environmental policy;
− credit scoring;
− new products;
− training courses; and
− credit-related reporting.
• Primary interface for credit-related issues on
behalf of HSBC Holdings with external parties
including the Bank of England and the UK
Financial Services Authority (‘FSA’ ), the rating
agencies and corporate analysts and counterparts
in the world’ s major banks and non-bank
financial institutions.
In each of HSBC’s subsidiaries, local
management is responsible for the quality of its
credit portfolio. Each major subsidiary has an
appointed Chief Credit Officer, who reports to the
local Chief Executive Officer, with a functional
reporting line to the Group General Manager, Group
Credit and Risk. Each subsidiary has established a
credit process involving credit policies, procedures
and lending guidelines conforming with HSBC
requirements, and credit approval authorities
delegated from the Board of Directors of HSBC
Holdings to the local Chief Executive Officer. The
objective is to build and maintain risk assets of high
quality where risk and return are commensurate.
Each subsidiary is responsible for the assets in
its portfolio, including any subject to central control
by Group Credit and Risk, and for managing its own
risk concentrations on a market sector, geographical
and product basis. Each HSBC subsidiary has
systems in place to control and monitor its exposures
at the customer and counterparty level.
Special attention is paid to the management of
problem loans. Where deemed appropriate, specialist
units are established by HSBC subsidiaries to
provide intensive management and control in order
to maximise recoveries of doubtful debts.
Regular audits of subsidiaries’ credit processes
are undertaken by HSBC’s Internal Audit function.