HSBC 2009 Annual Report Download - page 38

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Financial summary > Group performance > Loan impairment charges
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impairment charges in the real estate secured
portfolio. Loan impairment charges in the Card
and Retail Services portfolio decreased despite
the state of the US economy and higher levels of
unemployment and personal bankruptcy. The main
reason was the decline in card balances following
actions taken to manage risk beginning in the fourth
quarter of 2007 and continuing through 2009, and
stable credit conditions.
In HSBC Bank USA, increased loan impairment
charges in the personal lending portfolios were due
to additional delinquencies which resulted in
increased write-offs in the prime first lien mortgage
loan portfolios as house prices continued to
deteriorate in certain markets.
Loan impairment charges and other credit risk
provisions increased significantly in Global Banking
and Markets. Loan impairment charges increased,
reflecting the impairment of a small number of
exposures in the financial and property sectors in
Europe and the Middle East. Further impairments
were also recognised in respect of certain asset-
backed securities held in the available-for-sale
portfolio, reflecting mark-to-market losses which
HSBC judged to be significantly in excess of the
likely ultimate cash losses.
Loan impairment charges declined in
Personal Financial Services in the US but
rose in Commercial Banking outside Hong
Kong and in Global Banking and Markets.
In the UK, loan impairment charges rose in both
the Commercial Banking and Personal Financial
Services portfolios. However, despite the contraction
in the economy, charges remained a low proportion
of the portfolio. In Commercial Banking, loan
impairment charges largely reflected economic
weakness in a broad range of sectors.
In UK Personal Financial Services, loan
impairment charges also increased as unemployment
rose. This was seen primarily in the credit card and
unsecured personal loan portfolios. In the residential
mortgage portfolios, delinquency rates decreased
as HSBC continued to benefit from very limited
exposure to buy-to-let and self-certified mortgages.
HSBC’s mortgage exposure continued to be well
secured, with an average loan-to-value ratio for new
UK business in HSBC Bank’s mortgage portfolio,
excluding First Direct, of under 55 per cent in 2009,
compared with 59 per cent in 2008.
In the Middle East, loan impairment charges
increased markedly from US$280 million to
US$1.3 billion as the region experienced a
significant economic contraction in activity,
predominantly in real estate and construction,
which particularly affected the UAE. Commercial
Banking recorded a number of specific loan
impairment charges and a significant increase
in collective loan impairment charges. Lower
employment in the region, largely driven by the
decline in construction activity, led to a rise in loan
impairment charges in Personal Financial Services,
particularly in the credit card and personal lending
portfolios.
In Latin America, portfolios were affected by
the weaker economic environment for much of
the year. In Personal Financial Services, loan
impairment charges rose by 12 per cent to
US$2.0 billion, with increased delinquencies in
credit cards, mortgages, vehicle finance and payroll
loans due to higher unemployment. In the Brazilian
Commercial Banking portfolios, higher
delinquencies were experienced primarily in the
business banking and mid-market segments. In
Mexico, action taken in 2008 to curtail originations
and increase collection resources held loan
impairment charges broadly unchanged
notwithstanding the deterioration in the economy
and the impact of the H1N1 virus.
In India, as in Mexico, curtailment of
origination activity in unsecured personal lending
slowed the increase in loan impairment charges in
the unsecured credit card and personal lending
portfolios in Personal Financial Services. In
Commercial Banking, a higher number of corporate
failures including a number of fraud-related losses,
led to increased loan impairment charges.
Loan impairment charges and other credit risk
provisions in Hong Kong decreased by 35 per cent to
US$500 million as the economic environment
improved in 2009, credit conditions recovered and
international trade volumes improved.
In Private Banking, loan impairment charges
increased from a very low level, largely attributable
to a specific charge relating to a single client
relationship in the US.
2008 compared with 2007
Reported loan impairment charges and other credit
risk provisions were US$24.9 billion in 2008, an
increase of 45 per cent over 2007, 46 per cent on an
underlying basis.
A deterioration in credit quality was
experienced across all customer groups and
geographical regions as the global economy slowed.
The rise in Group loan impairment charges and other
credit risk provisions also reflected an underlying