HSBC 2009 Annual Report Download - page 243

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Impaired loans increased by 37 per cent to
US$2.3 billion at 31 December 2008.
The most significant increase was in Mexico,
reflecting higher impairment charges in the credit
card portfolio due to a combination of higher
average balances from organic expansion and
growing delinquency rates driven by a deterioration
in credit quality as the 2006 and 2007 vintages
continued to season and move into later stages of
delinquency. Management action to improve the
quality of new business included tightened
underwriting, enhanced collection strategies and
better managed customer acquisition channels. The
commercial portfolio in Mexico also experienced
higher impairment charges due to credit quality
deterioration among small and medium sized
enterprises as the economy weakened. In Brazil,
higher impairment charges were driven by a
combination of balance growth and credit quality
deterioration in the vehicle finance and payroll loan
portfolios.
HSBC Holdings
(Audited)
Credit risk primarily arises in HSBC Holdings from
transactions with Group subsidiaries and from
guarantees issued in support of obligations assumed
by certain Group operations in the normal conduct of
their business.
These risks are reviewed and managed within
regulatory and internal limits for exposures by the
HSBC Global Risk function, which provides high-
level centralised oversight and management of
HSBC’s credit risks worldwide.
No collateral or other credit enhancements were
held by HSBC Holdings in respect of its transactions
with subsidiaries.
HSBC Holdings’ maximum exposure to credit
risk at 31 December 2009 is shown below. Its
financial assets principally represent claims on
Group subsidiaries in Europe and North America.
HSBC Holdings – maximum exposure to credit risk
(Audited)
Maximum exposure
2009 2008
US$m US$m
Derivatives ............................................................................................................................................ 2,981 3,682
Loans and advances to HSBC undertakings ........................................................................................ 23,212 11,804
Financial investments ........................................................................................................................... 2,455 2,629
Financial guarantees and similar contracts .......................................................................................... 35,073 47,341
Loan and other credit-related commitments ........................................................................................ 3,240 3,241
66,961 68,697
All of the derivative transactions are with HSBC
undertakings which are banking counterparties
(2008: 100 per cent).
The credit quality of the loans and advances to
HSBC undertakings is assessed as satisfactory risk,
with 100 per cent of the exposure being neither past
due nor impaired (2008: 100 per cent).
The long-term debt ratings of the HSBC Group
issuers of the financial investments are within the
Standard & Poor’s ratings range of A+ to A– (2008:
AA– to A).
Risk elements in the loan portfolio
(Unaudited)
The disclosure of credit risk elements in this section
reflects US accounting practice and classifications.
The purpose of the disclosure is to present within the
US disclosure framework those elements of the loan
portfolios with a greater risk of loss. The three main
classifications of credit risk elements presented are:
• impaired loans;
• unimpaired loans contractually past due 90 days
or more as to interest or principal; and
• troubled debt restructurings not included in the
above.
In the following tables, HSBC presents
information on its impaired loans and advances in
accordance with the classification approach
described on page 225.
Impaired loans
Loans are classified as impaired when there is
objective evidence that not all contractual cash flows
will be received. In accordance with IFRSs, HSBC
recognises interest income on assets after they have
been written down as a result of an impairment loss.
Unimpaired loans past due 90 days or more
Loans that are subject to individual impairment
assessment and are over 90 days past due as regards