HSBC 2011 Annual Report Download - page 149

147
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
any impairment allowances recognised in respect of
impaired loans, as the loans may be performing in
accordance with their contractual terms. Where loans
are not performing in accordance with their
contractual terms, the recovery of cash flows may be
affected by other cash resources of the customer, or
other credit risk enhancements not quantified for the
purposes of the tables above. The Group’s policy for
determining impairment allowances, including the
effect of collateral on these impairment allowances,
is provided on page 190.
Loans and advances to banks
The following table shows loans and advances to
banks including off-balance sheet loan commitments
by level of collateral.
Loans and advances to banks including loan commitments by level of collateral
(Audited)
Europe
Hong
Kong
Rest of
Asia-Pacific MENA
North
America
Latin
America Total
US$m US$m US$m US$m US$m US$m US$m
At 31 December 2011
Not collateralised ........................ 25,896 34,892 42,586 9,337 14,132 19,516 146,359
Fully collateralised ..................... 31,515 1,365 6,927 32 978 1,238 42,055
Partially collateralised (A)........... 146 50 445 – 784 114 1,539
– collateral value on A ............ 104 50 207 –702 88 1,151
Total ............................................ 57,557 36,307 49,958 9,369 15,894 20,868 189,953
At 31 December 2010
Not collateralised ........................ 31,225 34,336 32,631 10,416 16,829 22,436 147,873
Fully collateralised ..................... 50,316 154 9,558 188 3,101 4,937 68,254
Partially collateralised (B)........... 91 – 28 – 959 3 1,081
– collateral value on B ............ 64 – 24 – 956 – 1,044
Total ............................................ 81,632 34,490 42,217 10,604 20,889 27,376 217,208
The collateral used in the assessment of the
above relates primarily to cash and marketable
securities. Loans and advances to banks are typically
unsecured. Certain products such as reverse repos
and stock borrowing are effectively collateralised
and have been included in the above as fully
collateralised. The fully collateralised loans and
advances to banks for Europe in the table above
consist primarily of reverse repurchase agreements
and stock borrowing.
Derivatives
The ISDA Master Agreement is our preferred
agreement for documenting derivatives activity. It
provides the contractual framework within which
dealing activity across a full range of OTC products
is conducted, and contractually binds both parties
to apply close-out netting across all outstanding
transactions covered by an agreement if either party
defaults or another pre-agreed termination event
occurs. It is common, and our preferred practice, for
the parties to execute a Credit Support Annex
(‘CSA’) in conjunction with the ISDA Master
Agreement. Under a CSA, collateral is passed
between the parties to mitigate the counterparty risk
inherent in outstanding positions. The majority of
our CSAs are with financial institutional clients.
A description of the derivative offset amount
in the ‘Maximum exposure to credit risk’ table is
provided on page 107.
Other credit risk exposures
In addition to collateralised lending described above,
other credit enhancements are employed and
methods used to mitigate credit risk arising from
financial assets. These are described in more detail
below.
Government, bank and other financial institution
issued securities may benefit from additional credit
enhancement, notably through government
guarantees that reference these assets. Details of
government guarantees are included in Notes 15, 19
and 21 on the Financial Statements. Corporate issued
debt securities are primarily unsecured. Debt
securities issued by banks and financial institutions
include ABSs and similar instruments, which are
supported by underlying pools of financial assets.
Credit risk associated with ABSs is reduced through
the purchase of CDS protection. Disclosure of the
Group’s holdings of ABSs and associated CDS
protection is provided on page 152.
Trading assets include loans and advances held
with trading intent, the majority of which consist of