HSBC 2008 Annual Report Download - page 210

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Credit risk > Areas of special interest > Personal lending
208
At 31 December 2008, HSBC had in-country
foreign currency and cross-border amounts
outstanding to counterparties in Japan of between
0.75 per cent and 1.0 per cent of total assets; in
aggregate, US$24.4 billion.
At 31 December 2007, HSBC had in-country
foreign currency and cross-border amounts
outstanding to counterparties in Hong Kong,
Belgium and Ireland of between 0.75 per cent and
1.0 per cent of total assets. The aggregate in-
country foreign currency and cross-border amounts
outstanding were Hong Kong, US$19.7 billion,
Belgium, US$19.3 billion and Ireland,
US$19.3 billion.
At 31 December 2006, HSBC had in-country
foreign currency and cross-border amounts
outstanding to counterparties in Australia and Hong
Kong of between 0.75 per cent and 1 per cent of
total assets. The aggregate in-country foreign
currency and cross-border amounts outstanding
were Australia, US$17.1 billion, Hong Kong,
US$13.9 billion.
Areas of special interest
Personal lending
(Unaudited)
HSBC provides a broad range of secured and
unsecured personal lending products to meet
customer needs. Given the diverse nature of the
markets in which HSBC operates, the range is not
standardised across all countries but is tailored to
meet the demands of individual markets while
using appropriate distribution channels and,
wherever possible, common global IT platforms.
Personal lending includes advances to
customers for asset purchase, such as residential
property and motor vehicles, where the loans are
typically secured on the assets being acquired.
HSBC also offers loans secured on existing assets,
such as first and second liens on residential
property; unsecured lending products such as
overdrafts, credit cards and payroll loans; and debt
consolidation loans which may be secured or
unsecured. At the end of February 2009, HSBC
authorised the discontinuation as soon as
practicable of all new receivable originations of all
products by the branch-based consumer lending
business of HSBC Finance in North America (see
page 70).
Various underwriting controls are applied
before a loan is issued, and delinquency is managed
through collection and customer management
procedures. The expected occurrence and degree of
delinquency varies according to the type of loan
and the customer segment. Delinquency levels tend
to increase in the normal course of portfolio ageing.
As a result, loan impairment charges usually relate
to lending originated in earlier accounting periods.
As discussed in ‘Challenges and uncertainties’
on page 12, rising unemployment has been the
major factor in the deterioration in credit quality of
personal lending portfolios in 2008. Further
weakening in consumers’ confidence and capacity
to service financial commitments may result in
deteriorating payment patterns and increased
delinquencies and default rates and, as a
consequence, higher loan impairment allowances
and write-offs. HSBC monitors the effect of these
factors on its personal lending portfolios and keeps
under review a range of measures designed to limit
the Group’s exposure and mitigate the effect on
customers.
Loan impairment allowances are sensitive to
changes in the level of unemployment, particularly
at the current time in North America, which affects
customers’ future ability to repay their loans. For
example, had there been an additional 1 per cent
increase in unemployment in North America, loan
impairment allowances could have been higher by
between US$0.7 billion and US$1.5 billion as at
31 December 2008. The relationship between
changes in unemployment and loan impairment
charges cannot be predicted with any degree of
certainty. For example, sharp increases in
unemployment may not have a linear impact on the
level of increase in loan impairment charges.
Please refer to page 205 for further analysis of
gross loans and advances by region and pages 34
and 229 for discussion of loan impairment charges
and other credit risk provisions.