HSBC 2006 Annual Report Download - page 213

211
HSBC Holdings
(Audited)
HSBC Holdings manages its credit risk by limiting
its exposure to transactions with its subsidiary
undertakings.
HSBC Holdings’ maximum exposure to credit
risk at 31 December 2006, excluding collateral or
other credit enhancements, was as tabulated below.
No collateral or other credit enhancements were
held by HSBC Holdings in respect of its transactions
with subsidiary undertakings.
HSBC Holdings’ financial assets are held with
subsidiaries of HSBC, primarily those domiciled in
Europe and North America.
2006 2005
Carrying
value
Off-balance
sheet
exposure
Maximum
exposure
Carrying
value
Off-balance
sheet
exposure
Maximum
exposure
US$m US$m US$m US$m US$m US$m
Derivatives .......................................................... 1,599 – 1,599 968 – 968
Loans and advances to HSBC
undertakings ................................................... 14,456 3,967 18,423 14,092 3,663 17,755
Financial investments – debt securities of
HSBC undertakings ....................................... 3,316 – 3,316 3,256 – 3,256
Guarantees .......................................................... – 17,605 17,605 – 36,877 36,877
19,371 21,572 40,943 18,316 40,540 58,856
Risk elements in the loan portfolio
(Unaudited)
The disclosure of credit risk elements under the
following headings reflects 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.
Troubled debt restructurings
(Unaudited)
US GAAP requires separate disclosure of any loans
whose terms have been modified because of
problems with the borrower to grant concessions
other than are warranted by market conditions.
These are classified as ‘troubled debt restructurings’
and are distinct from the normal restructuring
activities in personal loan portfolios described in
‘Renegotiated loans’ on page 196. Disclosure of
troubled debt restructurings may be discontinued
after the first year if the debt performs in accordance
with the new terms.
Troubled debt restructurings were broadly in
line with 2005.
Unimpaired loans past due 90 days or more
(Unaudited)
Unimpaired loans contractually past due 90 days or
more increased by 18 per cent. The rise was largely
attributable to the US and, to a lesser extent, Mexico.
In the US, the credit deterioration in the mortgage
services business was the principal cause of the rise
and in Mexico the increase was partly volume
driven.
Impaired loans
(Unaudited)
In accordance with IFRSs, interest income continues
to be recognised on assets that have been written
down as a result of an impairment loss. In the
following tables, HSBC presents information on its
impaired loans and advances which are designated in
accordance with the policy described above.
Impaired loans are consistent with the ‘non-
accrual basis’ classification used in US GAAP and in
prior years. For further information on impaired
loans refer to page 174.
Potential problem loans
(Unaudited)
Credit risk elements also cover potential problem
loans. These are loans where information about
borrowers’ possible credit problems causes
management serious doubts about the borrowers’
ability to comply with the loan repayment terms.
There are no potential problem loans other than
those identified in the table of risk elements set out
below, and as discussed in ‘areas of special interest’
above, including ARMs and stated income products.