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36
– in the financial sector, charges over financial
instruments such as debt and equity securities in
support of trading facilities.
Our credit risk management policies include
appropriate guidelines on the acceptability of specific
classes of collateral or credit risk mitigation. Valuation
parameters are updated periodically depending on
the nature of the collateral. Full covering corporate
guarantees as well as bank and sovereign guarantees are
recognized as credit mitigants for capital purposes.
The bank does not disclose the fair value of collateral
held as security or other credit enhancements on loans
past due but not impaired or individually assessed
impaired loans, as it is not practical to do so.
Collateral held as security for financial assets other
than loans is determined by the nature of the instrument.
Government and other debt securities, including money
market instruments, are generally unsecured, with
the exception of asset-backed securities and similar
instruments, which are secured by pools of financial
assets.
The bank has policies in place to monitor the
existence of undesirable concentration of the collateral
supporting our credit exposures.
Credit quality
The bank uses the classification as outlined in the table below to measure the quality of its loans and advances.
Credit quality classification
Wholesale lending Retail lending
Quality classification
External
credit rating Internal
credit rating
12 month
probability of
default % Internal
credit rating Expected
loss %
Strong ........................ A– and above CRR1 to CRR2 0–0.169 EL1 to EL2 0–0.999
Good .......................... BBB+ to BBB– CCR3 0.170–0.740 EL3 1.000–4.999
Satisfactory ............... BB+ to B+ CCR4 to CCR5 0.741–4.914 EL4 to EL5 5.000–19.999
Sub-standard ............. B to C CRR6 to CRR8 4.915–99.999 EL6 to EL8 20.000–99.999
Impaired .................... Default CRR9 to CRR10 100 EL9 to EL10 100+ or defaulted
Credit quality of wholesale portfolio (Audited)
2013 2012
EAD
Drawn
$m
EAD
Undrawn
$m
EAD
Total
$m
EAD
Drawn
$m
EAD
Undrawn
$m
EAD
Total
$m
Strong ........................ 33,220 3,320 36,540 29,726 2,656 32,382
Good .......................... 16,049 6,014 22,063 13,843 5,745 19,588
Satisfactory ............... 9,157 2,065 11,222 11,110 2,615 13,725
Sub-standard ............. 1,180 224 1,404 880 137 1,017
Impaired .................... 354 30 384 513 – 513
59,960 11,653 71,613 56,072 11,153 67,225
Credit quality of retail portfolio (Audited)
2013 2012
EAD
Drawn
$m
EAD
Undrawn
$m
EAD
Total
$m
EAD
Drawn
$m
EAD
Undrawn
$m
EAD
Total
$m
Strong ........................ 10,586 829 11,415 10,721 810 11,531
Good .......................... 10,148 3,904 14,052 11,093 4,200 15,293
Satisfactory ............... 1,842 269 2,111 2,226 304 2,530
Sub-standard ............. 631 86 717 772 96 868
Impaired .................... 119 –119 190 – 190
23,326 5,088 28,414 25,002 5,410 30,412
Management’s Discussion and Analysis (continued)
HSBC BANK CANADA
36