Annual Financial Report - 26 of 54

RNS Number : 0766I

HSBC Holdings PLC

20 March 2015

 



Credit risk

	Page		App		Tables	Page
Credit risk	129		206		Summary of credit risk	129
					Gross loans to customers and banks over five years	130
					Loan impairment charge over five years	130
					Loan impairment charges by geographical region	130
					Loan impairment charges by industry	130
					Loan impairment allowances over five years	130
Credit risk management			206
Credit exposure	130
Maximum exposure to credit risk	130
Other credit risk mitigants	130				Maximum exposure to credit risk	131
					Loan and other credit-related commitments	131
Concentration of exposure	132		206
Financial investments	132
Trading assets	132
Derivatives	132
Loans and advances	132				Gross loans and advances to customers by industry sector and by geographical region	132
Credit quality of financial instruments	133		207
Credit quality classification					Distribution of financial instruments by credit quality	134
Past due but not impaired gross financial instruments	136				Past due but not impaired gross financial instruments by geographical region	136
					Ageing analysis of days for past due but not impaired gross financial instruments	136
Impaired loans	137				Movement in impaired loans by geographical region	137
Renegotiated loans and forbearance	138		208		Renegotiated loans and advances to customers by geographical region	139
					Movement in renegotiated loans by geographical region	140
Impairment of loans and advances	141				Loan impairment charge to the income statement by industry sector	141
					Loan impairment charge to the income statement by assessment type	141
					Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region	142
					Movement in impairment allowances by industry sector and geographical region	142
					Movement in impairment allowances on loans and advances to customers and banks	143
Impairment assessment			212
Wholesale lending	144				Total wholesale lending	144
Commercial real estate	145				Commercial real estate lending	145
					Commercial real estate loans and advances including loan commitments by level of collateral	147
					Other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level of collateral rated CRR/EL8 to 10 only	148
					Loans and advances to banks including loan commitments by level of collateral	149
Other credit risk exposures	149
Derivatives	149				Notional contract amounts and fair values of derivatives by product type	150
					OTC collateral agreements by type	150
Reverse repos - non-trading by geographical region	151				Reverse repos - non-trading by geographical region	151
Loan Management Unit			213

	Page		App		Tables	Page
Personal lending	151				Total personal lending	151
Mortgage lending	152
Other personal lending	153				HSBC Finance US Consumer and Mortgage Lending residential mortgages	153
					HSBC Finance: foreclosed properties in the US	153
					Trends in two months and over conctractual delinquency in the US	153
					Gross loan portfolio of HSBC Finance and real estate secured balances	154
					Number of renegotiated real estate secured accounts remaining in HSBC Finance's portfolio	154
HSBC Finance loan modifications and re-age programmes	154
Collateral and other credit enhancements held	156				Residential mortgage loans including loan commitments by level of collateral	156
Supplementary information	157				Gross loans and advances by industry sector over 5 years	157
					Reconciliation of reported and constant currency impaired loans, allowances and charges by geographical region	158
					Reconciliation of reported and constant currency loan impairment charges to the income statement	158
					Loan impairment charges by industry sector over 5 years	159
					Charge for impairment losses as a percentage of average gross loans and advances to customers	159
					Movement in impairment allowances over 5 years	159
					Gross loans and advances to customers by country	160
Refinance risk			214
HSBC Holdings	161				HSBC Holdings - maximum exposure to credit risk	161
Securitisation exposures and other structured products	161		214		Overall exposure of HSBC	161
					Carrying amount of HSBC's consolidated holdings of ABSs	162
					Definitions and classifications of ABSs and CDOs	214
Representations and warranties related to mortgage sales and securitisation activities	162
1   Appendix to Risk - risk policies and practices.

Credit risk

(Unaudited)

Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises principally from direct lending, trade finance and leasing business, but also from other products such as guarantees and credit derivatives and from holding assets in the form of debt securities.

There were no material changes to our policies and practices for the management of credit risk in 2014.

A summary of our current policies and practices regarding credit risk is provided in the Appendix to Risk on page 204.

Our maximum exposure to credit risk is presented on page 131 and credit quality on page 133. While credit risk arises across most of our balance sheet, losses have typically been incurred on loans and advances and securitisation exposures and other structured products. As a result, our disclosures focus primarily on these two areas.

This year we have redesigned the 'Credit risk' section in order to enhance clarity and reduce duplication. It now begins with a summary of credit risk followed by an overview of our gross exposures. We describe various measures of credit quality such as past due status, impaired loans and renegotiated loans before analysing impairment allowances. There are specific sections on wholesale lending and personal lending where additional detail is provided and we cover areas of particular focus such as our exposure to commercial real estate in wholesale lending and our Consumer and Mortgage Lending ('CML') portfolio in personal lending. This is followed by a section describing our securitisation exposures and other structured products. Information on our exposures to oil and gas, Russia and Greece is provided in 'Areas of special interest' on page 126.

Following the change in balance sheet presentation explained on page 347, non-trading reverse repos are shown separately on the balance sheet and are no longer included in 'Loans and advances to customers' and 'Loans and advances to banks'. Comparative data have been re-presented accordingly. As a result, any analysis that references loans and advances to customers or banks excludes non-trading reverse repos. The amount of the non-trading reverse repos to customers and banks is set out on page 151.

Loan impairment charges, loan impairment allowances and impaired loans all reduced compared with 2013.

Gross loans and advances decreased by US$28bn which included adverse foreign exchange movements of US$51bn; excluding these movements customer lending grew in 2014.

The commentary that follows is on a constant currency basis, whilst tables are presented on a reported basis.

Summary of credit risk

(Unaudited)

		2014		2013		Page
		US$bn		US$bn
At year-end
Maximum exposure to credit risk		3,133		3,112		131
Gross loans and advances1
-  personal lending		393		411		132
-  wholesale lending		706		716		132
Total		1,099		1,127		132
Impaired loans
-  personal lending		15		19		137
-  wholesale lending		14		18		137
Total		29		37		137
Impaired loans as a % of gross loans and advances
-  personal lending		3.9%		4.6%
-  wholesale lending		2.0%		2.5%
-  total		2.7%		3.3%
		US$bn		US$bn
Impairment allowances
-  personal lending		4.6		6.6		143
-  wholesale lending		7.8		8.6		143
Total		12.4		15.2		143
Loans and advances net of impairment allowances1		1,087		1,112
For year ended 31 December
Loan impairment charge
-  personal lending		1.8		3.1		141
-  wholesale lending		2.3		2.9		141
Total		4.1		6.0		141

For footnote, see page 202.

See page 158 for further details in respect of the constant currency reconciliation. For an analysis of loans and advances by country see page 160.

Wholesale gross loans and advances increased by US$21bn. Asia grew by US$16bn and North America by US$10bn with more modest levels of growth in the Middle East and North Africa and Latin America. This was offset by a decrease of US$15bn in Europe. Loan impairment charges were lower in 2014 as we continued to benefit from the improvement in various economies and the low interest rate environment.

Personal lending balances, excluding the planned US CML portfolio run off, grew by US$7.7bn. This was primarily driven by increased mortgage and other lending in Asia and growth in the mortgage portfolio in both North America and Latin America. The growth was partially offset by lower lending balances in Europe due to repayments on the mortgage and credit card portfolio in the UK. The CML portfolio declined by a further US$5.7bn during the year. Loan impairment charges were down as a result of improvements in the US housing market and the continued run-off of the CML portfolio.

Gross loans to customers and banks over five years¹(US$bn)

(Unaudited)

Loan impairment charge over five years (US$bn)

(Unaudited)

Loan impairment charges by geographical region (US$bn)

(Unaudited)

Loan impairment charges by industry (US$bn)

(Unaudited)

Loan impairment allowances over five years

(Unaudited)

For footnote, see page 202.

Credit exposure

Maximum exposure to credit risk

(Audited)

The table on page 131 provides information on balance sheet items, offsets and loan and other credit-related commitments. Commentary on balance sheet movements is provided on page 58. The offset on derivatives increased in line with the increase in maximum exposure amounts.

The offset on corporate and commercial loans to customers decreased by US$31bn. This reduction was in the UK where a small number of clients benefit from the use of net interest arrangements across their overdraft and deposit positions. During the year, as we aligned our approach in our Payments and Cash Management business to be more globally consistent, many of these clients increased the frequency with which they settled these balances thereby reducing the amount of offset available.

'Maximum exposure to credit risk' table (page 131)

The table presents our maximum exposure to credit risk from balance sheet and off‑balance sheet financial instruments before taking account of any collateral held or other credit enhancements (unless such enhancements meet accounting offsetting requirements). For financial assets recognised on the balance sheet, the maximum exposure to credit risk equals their carrying amount; for financial guarantees and similar contracts granted, it is the maximum amount that we would have to pay if the guarantees were called upon. For loan commitments and other credit-related commitments, it is generally the full amount of the committed facilities.

The offset in the table relates to amounts where there is a legally enforceable right of offset in the event of counterparty default and where, as a result, there is a net exposure for credit risk purposes. However, as there is no intention to settle these balances on a net basis under normal circumstances, they do not qualify for net presentation for accounting purposes.

In the case of derivatives the offset column also includes collateral received in cash and other financial assets.

Other credit risk mitigants

While not disclosed as an offset in the 'Maximum exposure to credit risk' table, other arrangements are in place which reduce our maximum exposure to credit risk. These include a charge over collateral over borrowers' specific assets such as residential properties. Other credit risk mitigants include short positions in securities and financial assets held as part of linked insurance/ investment contracts where the risk is predominantly borne by the policyholder. In addition, we hold collateral in the form of financial instruments that are not recognised on the balance sheet.

See Note 32 and from page 147 and page 156 respectively on the Financial Statements for further details on collateral in respect of certain loans and advances and derivatives.

Maximum exposure to credit risk

(Audited)

		2014						2013
		Maximum exposure		Offset		Net		Maximum exposure		Offset		Net
		US$m		US$m		US$m		US$m		US$m		US$m
Cash and balances at central banks		129,957		-		129,957		166,599		-		166,599
Items in the course of collection from other banks		4,927		-		4,927		6,021		-		6,021
Hong Kong Government certificates of indebtedness		27,674		-		27,674		25,220		-		25,220
Trading assets		228,944		-		228,944		239,301		(1,777)		237,524
- Treasury and other eligible bills		16,170		-		16,170		21,584		-		21,584
- debt securities		141,532		-		141,532		141,644		-		141,644
- loans and advances to banks		27,581		-		27,581		27,885		-		27,885
- loans and advances to customers		43,661		-		43,661		48,188		(1,777)		46,411
Financial assets designated at fair value		9,031		-		9,031		12,719		-		12,719
- Treasury and other eligible bills		56		-		56		50		-		50
- debt securities		8,891		-		8,891		12,589		-		12,589
- loans and advances to banks		84		-		84		76		-		76
- loans and advances to customers		-		-		-		4		-		4
Derivatives		345,008		(313,300)		31,708		282,265		(252,344)		29,921
Loans and advances to customers held at amortised cost1		974,660		(67,094)		907,566		992,089		(96,726)		895,363
- personal		388,954		(4,412)		384,542		404,126		(1,348)		402,778
- corporate and commercial		535,184		(59,197)		475,987		537,922		(90,215)		447,707
- financial (non-bank financial institutions)		50,522		(3,485)		47,037		50,041		(5,163)		44,878
Loans and advances to banks held at amortised cost1		112,149		(258)		111,891		120,046		(587)		119,459
Reverse repurchase agreements - non-trading		161,713		(5,750)		155,963		179,690		(22,267)		157,423
Financial investments		404,773		-		404,773		416,785		-		416,785
- Treasury and other similar bills		81,517		-		81,517		78,111		-		78,111
- debt securities		323,256		-		323,256		338,674		-		338,674
Other assets		35,264		-		35,264		37,324		(22)		37,302
- assets held for sale		1,375		-		1,375		3,306		(22)		3,284
- endorsements and acceptances		10,775		-		10,775		11,624		-		11,624
- other		23,114		-		23,114		22,394		-		22,394
Financial guarantees and similar contracts2		47,078		-		47,078		46,300		-		46,300
Loan and other credit-related commitments3		651,380		-		651,380		587,603		-		587,603
At 31 December		3,132,558		(386,402)		2,746,156		3,111,962		(373,723)		2,738,239

For footnotes, see page 202.

Loan and other credit-related commitments³

(Unaudited)

		Europe		Asia4		MENA		North America		Latin America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Personal		86,247		96,497		2,995		15,636		11,679		213,054
Corporate and commercial		98,045		138,366		20,141		102,911		17,540		377,003
Financial5		26,605		9,355		711		23,559		1,093		61,323
At 31 December 2014		210,897		244,218		23,847		142,106		30,312		651,380
Personal		92,148		74,445		2,940		15,647		9,774		194,954
Corporate and commercial		91,895		120,084		19,045		92,837		21,956		345,817
Financial5		18,930		8,477		705		17,478		1,242		46,832
At 31 December 2013		202,973		203,006		22,690		125,962		32,972		587,603

For footnotes, see page 202.

Concentration of exposure

(Unaudited)

Concentrations of credit risk are described in the Appendix to Risk on page 206.

The geographical diversification of our lending portfolio and our broad range of global businesses and products ensured that we did not overly depend on a few markets to generate growth in 2014. This diversification also supported our strategy for growth in faster-growing markets and those with international connectivity.

Financial investments

Our holdings of available-for-sale government and government agency debt securities, corporate debt securities, ABSs and other securities were spread across a wide range of issuers and geographical regions in 2014, with 15% invested in securities issued by banks and other financial institutions and 72% in government or government agency debt securities. We also held assets backing insurance and investment contracts.

For an analysis of financial investments, see Note 18 on the Financial Statements.

Trading assets

Trading securities remained the largest concentration within trading assets at 77% compared with 75% in 2013. The largest concentration within the trading securities
portfolio was in government and government agency debt securities. We had significant exposures to US Treasury and government agency debt securities (US$26bn) and UK (US$9.3bn) and Hong Kong (US$6.9bn) government debt securities.

For an analysis of debt and equity securities held for trading, see Note 12 on the Financial Statements.

Derivatives

Derivative assets were US$345bn at 31 December 2014 (2013: US$282bn). Details of derivative amounts cleared through an exchange, central counterparty and non-central counterparty are shown on page 150.

For an analysis of derivatives, see page 150 and Note 16 on the Financial Statements.

Loans and advances to customers

The following tables analyse loans and advances to customers by industry sector and by the location of the principal operations of the lending subsidiary or, in the case of the operations of The Hongkong and Shanghai Banking Corporation, HSBC Bank, HSBC Bank Middle East Limited ('HSBC Bank Middle East') and HSBC Bank USA, by the location of the lending branch. The distribution of loans across geographical regions and industries remained similar to last year.

For an analysis of loans and advances by country see page 160.

 

Gross loans and advances to customers by industry sector and by geographical region

(Audited)

		Europe		Asia4		MENA		North         America		Latin         America		Total		As a %             of total                gross
		US$m		US$m		US$m		US$m		US$m		US$m		loans
Personal		178,531		129,515		6,571		65,400		13,537		393,554		39.9
- first lien residential mortgages6		131,000		93,147		2,647		55,577		4,153		286,524		29.0
- other personal7		47,531		36,368		3,924		9,823		9,384		107,030		10.9
Corporate and commercial		210,585		220,799		20,588		57,862		30,722		540,556		54.8
- manufacturing		39,456		37,767		2,413		15,299		12,051		106,986		10.9
- international trade and services		76,629		72,814		9,675		13,484		8,189		180,791		18.3
- commercial real estate		28,187		35,678		579		6,558		2,291		73,293		7.4
- other property-related		7,126		34,379		1,667		8,934		281		52,387		5.3
- government		2,264		1,195		1,552		164		968		6,143		0.6
- other commercial8		56,923		38,966		4,702		13,423		6,942		120,956		12.3
Financial		23,103		13,997		3,291		9,034		1,393		50,818		5.1
- non-bank financial institutions		21,867		13,410		3,289		9,034		1,199		48,799		4.9
- settlement accounts		1,236		587		2		-		194		2,019		0.2
Asset-backed securities reclassified		1,938		-		-		131		-		2,069		0.2
Total gross loans and advances to customers at 31 December 2014 (A)		414,157		364,311		30,450		132,427		45,652		986,997		100.0
Percentage of A by geographical region		42.0%		36.9%		3.1%		13.4%		4.6%		100.0%		-

		Europe		Asia4		MENA		North         America		Latin         America		Total		As a %             of total                gross
		US$m		US$m		US$m		US$m		US$m		US$m		loans
Personal		192,107		124,529		6,484		72,690		14,918		410,728		40.8
- first lien residential mortgages6		140,474		92,047		2,451		60,955		3,948		299,875		29.8
- other personal7		51,633		32,482		4,033		11,735		10,970		110,853		11.0
Corporate and commercial		239,116		203,894		19,760		50,307		30,188		543,265		53.9
- manufacturing		55,920		30,758		3,180		11,778		12,214		113,850		11.3
- international trade and services		76,700		79,368		8,629		11,676		8,295		184,668		18.3
- commercial real estate		31,326		34,560		639		5,900		2,421		74,846		7.4
- other property-related		7,308		27,147		1,333		8,716		328		44,832		4.5
- government		3,340		1,021		1,443		499		974		7,277		0.7
- other commercial8		64,522		31,040		4,536		11,738		5,956		117,792		11.7
Financial		27,872		9,688		2,532		9,055		1,376		50,523		5.0
- non-bank financial institutions		26,314		9,359		2,532		9,055		1,277		48,537		4.8
- settlement accounts		1,558		329		-		-		99		1,986		0.2
Asset-backed securities reclassified		2,578		-		-		138		-		2,716		0.3
Total gross loans and advances to customers at 31 December 2013 (B)		461,673		338,111		28,776		132,190		46,482		1,007,232		100.0
Percentage of B by geographical region		45.8%		33.6%		2.9%		13.1%		4.6%		100.0%

For footnotes, see page 202.

Credit quality of financial instruments

(Audited)

A summary of our current policies and practices regarding the credit quality of financial instruments is provided in the Appendix to Risk on page 207.

We assess credit quality on all financial instruments which are subject to credit risk.

The five classifications describing the credit quality of our lending, debt securities portfolios and derivatives are defined on page 207 (unaudited). Additional credit quality information in respect of our consolidated holdings of ABSs is provided on page 162.

For the purpose of the following disclosure, retail loans which are past due up to 90 days and are not otherwise classified as impaired in accordance with our disclosure convention are not disclosed within the expected loss ('EL') grade to which they relate, but are separately classified as past due but not impaired.

The overall credit quality of assets remained stable with 'Strong' and 'Good' categories making up 84% of the portfolio, 'Satisfactory' 13%, 'Sub-standard' and 'Past due but not impaired' 2% and 'Impaired' 1%.

Distribution of financial instruments by credit quality

(Audited)

		Neither past due nor impaired								Past due       but not   impaired				Total          gross     amount		Impairment    allowances9		Total
		Strong		Good	Satisfactory			Sub-   standard				Impaired
		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m
Cash and balances at central banks		127,971		1,438		195		353						129,957				129,957
Items in the course of collection from other banks		4,515		46		365		1						4,927				4,927
Hong Kong Government certificates of indebtedness		27,674		-		-		-						27,674				27,674
Trading assets10		168,521		35,042		24,740		641						228,944				228,944
- treasury and other eligible bills		13,938		1,641		559		32						16,170				16,170
- debt securities		111,138		17,786		12,305		303						141,532				141,532
- loans and advances:
to banks		17,492		4,961		5,016		112						27,581				27,581
to customers		25,953		10,654		6,860		194						43,661				43,661
Financial assets designated at fair value10		3,017		4,476		1,207		331						9,031				9,031
- treasury and other eligible bills		5		-		-		51						56				56
- debt securities		3,011		4,476		1,124		280						8,891				8,891
- loans and advances:
to banks		1		-		83		-						84				84
to customers		-		-		-		-						-				-
Derivatives10		269,490		58,596		15,962		960						345,008				345,008
Loans and advances to customers held at amortised cost11		487,734		239,136		196,685		20,802		13,357		29,283		986,997		(12,337)		974,660
- personal		320,678		32,601		15,109		1,130		8,876		15,160		393,554		(4,600)		388,954
- corporate and commercial		141,375		192,799		171,748		18,986		3,922		13,795		542,625		(7,441)		535,184
- financial (non-bank financial institutions)		25,681		13,736		9,828		686		559		328		50,818		(296)		50,522
Loans and advances to banks held at amortised cost		83,766		19,525		7,945		914		1		47		112,198		(49)		112,149
Reverse repurchase agreements - non-trading		98,470		28,367		33,283		1,593		-		-		161,713		-		161,713
Financial investments		347,218		27,373		22,600		5,304		-		2,278		404,773				404,773
- treasury and other similar bills		68,966		6,294		4,431		1,826		-		-		81,517				81,517
- debt securities		278,252		21,079		18,169		3,478		-		2,278		323,256				323,256
Other assets		13,015		7,564		12,976		631		210		884		35,280		(16)		35,264
- assets held for sale		802		43		79		-		2		465		1,391		(16)		1,375
- endorsements and acceptances		1,507		4,644		4,281		298		34		11		10,775				10,775
- accrued income and other		10,706		2,877		8,616		333		174		408		23,114				23,114
At 31 December 2014		1,631,391		421,563		315,958		31,530		13,568		32,492		2,446,502		(12,402)		2,434,100

		Neither past due nor impaired								Past due				Total gross amount
		Strong		Good	Satisfactory			Sub-    standard		but not    impaired		Impaired				Impairment     allowances9		Total
		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m
Cash and balances at central banks		162,017		2,877		265		1,440						166,599				166,599
Items in the course of collection from other banks		5,590		66		286		79						6,021				6,021
Hong Kong Government certificates of indebtedness		25,220		-		-		-						25,220				25,220
Trading assets10		163,444		39,475		34,868		1,514						239,301				239,301
- treasury and other eligible bills		17,235		3,585		758		6						21,584				21,584
- debt securities		107,831		16,498		16,167		1,148						141,644				141,644
- loans and advances:
to banks		15,804		5,546		6,342		193						27,885				27,885
to customers		22,574		13,846		11,601		167						48,188				48,188
Financial assets designated at fair value10		6,608		5,183		671		257						12,719				12,719
- treasury and other eligible bills		50		-		-		-						50				50
- debt securities		6,490		5,179		664		256						12,589				12,589
- loans and advances:
to banks		68		-		7		1						76				76
to customers		-		4		-		-						4				4
Derivatives10		220,711		47,004		13,425		1,125						282,265				282,265
Loans and advances to customers held at amortised cost11		488,504		243,077		199,821		23,942		15,460		36,428		1,007,232		(15,143)		992,089
- personal		326,269		39,024		14,882		1,580		10,175		18,798		410,728		(6,602)		404,126
- corporate and commercial		132,943		194,966		174,905		21,281		5,009		16,877		545,981		(8,059)		537,922
- financial (non-bank financial institutions)		29,292		9,087		10,034		1,081		276		753		50,523		(482)		50,041
Loans and advances to banks held at amortised cost		91,498		21,131		6,266		1,123		11		75		120,104		(58)		120,046
Reverse repurchase agreements - non-trading		111,543		37,878		28,265		2,004		-		-		179,690		-		179,690
Financial investments		362,799		27,833		17,556		6,089		-		2,508		416,785				416,785
- treasury and other similar bills		69,364		5,595		1,856		1,296		-		-		78,111				78,111
- debt securities		293,435		22,238		15,700		4,793		-		2,508		338,674				338,674
Other assets		12,501		8,028		14,848		1,159		307		592		37,435		(111)		37,324
- assets held for sale		1,129		642		1,050		351		89		156		3,417		(111)		3,306
- endorsements and acceptances		1,976		4,824		4,562		225		19		18		11,624				11,624
- accrued income and other		9,396		2,562		9,236		583		199		418		22,394				22,394
At 31 December 2013		1,650,435		432,552		316,271		38,732		15,778		39,603		2,493,371		(15,312)		2,478,059

For footnotes, see page 202.

Past due but not impaired gross financial instruments

(Audited)

Past due but not impaired gross financial instruments are those loans where, although customers have failed to make payments in accordance with the contractual terms of their facilities, they have not met the impaired loan criteria described on page 137.

Overall, past due but not impaired balances decreased by US$2.2bn, mainly due to continued run-off and loan sales in the CML portfolio.

Past due but not impaired gross financial instruments by geographical region

(Audited)

		Europe		Asia4		MENA		North            America		Latin           America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Loans and advances to customers held at amortised cost		2,409		4,260		704		4,634		1,350		13,357
- personal		1,159		2,880		182		3,759		896		8,876
- corporate and commercial		1,244		1,102		508		623		445		3,922
- financial (non-bank financial institutions)		6		278		14		252		9		559
Other financial instruments		6		52		31		97		25		211
At 31 December 2014		2,415		4,312		735		4,731		1,375		13,568
Loans and advances to customers held at amortised cost		2,399		4,211		757		6,453		1,640		15,460
- personal		1,287		2,764		174		4,817		1,133		10,175
- corporate and commercial		1,092		1,197		580		1,635		505		5,009
- financial (non-bank financial institutions)		20		250		3		1		2		276
Other financial instruments		45		49		50		101		73		318
At 31 December 2013		2,444		4,260		807		6,554		1,713		15,778

For footnote, see page 202.

Ageing analysis of days for past due but not impaired gross financial instruments

(Audited)

		Up to 29 days		30-59 days		60-89 days		90-179  days		180 days and over		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Loans and advances to customers held at amortised cost		10,427		2,057		801		54		18		13,357
- personal		6,477		1,717		676		5		1		8,876
- corporate and commercial		3,417		328		114		48		15		3,922
- financial (non-bank financial institutions)		533		12		11		1		2		559
Other financial instruments		130		33		18		12		18		211
At 31 December 2014		10,557		2,090		819		66		36		13,568
Loans and advances to customers held at amortised cost		11,689		2,587		1,057		76		51		15,460
- personal		7,170		2,124		865		16		-		10,175
- corporate and commercial		4,290		418		190		60		51		5,009
- financial (non-bank financial institutions)		229		45		2		-		-		276
Other financial instruments		214		55		26		12		11		318
At 31 December 2013		11,903		2,642		1,083		88		62		15,778

Impaired loans

(Audited)

Impaired loans and advances are those that meet any of the following criteria:

·   wholesale loans and advances classified as Customer Risk Rating ('CRR') 9 or CRR 10. These grades are assigned when the bank considers that either the customer is unlikely to pay their credit obligations in full, without recourse to security, or when the customer is more than 90 days past due on any material credit obligation to HSBC.

·   retail loans and advances classified as Expected Loss ('EL') 9 or EL 10. These grades are typically assigned to retail loans and advances more than 90 days past due unless individually they have been assessed as not impaired.

·   renegotiated loans and advances that have been subject to a change in contractual cash flows as a result of a concession which the lender would not otherwise consider, and where it is probable that without the concession the borrower would be unable to meet the contractual payment obligations in full, unless the concession is insignificant and there are no other indicators of impairment. Renegotiated loans remain classified as impaired until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment of future cash flows, and there are no other indicators of impairment.

For loans that are assessed for impairment on a collective basis, the evidence to support reclassification as no longer impaired typically comprises a history of payment performance against the original or revised terms, depending on the nature and volume of renegotiation and the credit risk characteristics surrounding the renegotiation. For loans that are assessed for impairment on an individual basis, all available evidence is assessed on a case-by-case basis.

For further details of the CRR and the EL scales see page 207.

Movement in impaired loans by geographical region

(Unaudited)

		Europe		Asia4		MENA		North America		Latin America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Impaired loans at 1 January 2014		13,228		1,623		2,285		15,123		4,244		36,503
- personal		2,938		526		317		13,669		1,348		18,798
- corporate and commercial		9,714		1,082		1,765		1,427		2,889		16,877
- financial5		576		15		203		27		7		828
Classified as impaired during the year		3,367		1,970		346		4,724		3,342		13,749
- personal		1,168		857		193		4,360		1,958		8,536
- corporate and commercial		2,166		1,113		153		354		1,383		5,169
- financial5		33		-		-		10		1		44
Transferred from impaired to unimpaired during the year		(1,661)		(230)		(320)		(2,609)		(730)		(5,550)
- personal		(282)		(184)		(178)		(2,551)		(364)		(3,559)
- corporate and commercial		(1,319)		(46)		(53)		(57)		(366)		(1,841)
- financial5		(60)		-		(89)		(1)		-		(150)
Amounts written off		(2,037)		(617)		(111)		(1,369)		(2,048)		(6,182)
- personal		(631)		(470)		(77)		(1,007)		(1,371)		(3,556)
- corporate and commercial		(1,201)		(147)		(29)		(356)		(673)		(2,406)
- financial5		(205)		-		(5)		(6)		(4)		(220)
Net repayments and other		(2,655)		(698)		(219)		(4,175)		(1,443)		(9,190)
- personal		(649)		(238)		(13)		(3,645)		(514)		(5,059)
- corporate and commercial		(1,975)		(457)		(140)		(506)		(926)		(4,004)
- financial5		(31)		(3)		(66)		(24)		(3)		(127)
Impaired loans at 31 December 2014		10,242		2,048		1,981		11,694		3,365		29,330
- personal		2,544		491		242		10,826		1,057		15,160
- corporate and commercial		7,385		1,545		1,696		862		2,307		13,795
- financial5		313		12		43		6		1		375
Impaired loans as a percentage of gross loans	%	2.3%		0.5%		4.8%		8.4%		6.1%		2.7%
- personal		1.4%		0.4%		3.7%		16.6%		7.8%		3.9%
- corporate and commercial		3.5%		0.7%		8.2%		1.5%		7.5%		2.5%
- financial5		0.7%		0.0%		0.3%		0.0%		0.0%		0.2%

Movement in impaired loans by geographical region (continued)

(Unaudited)

		Europe		Asia4		MENA		North America		Latin America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Impaired loans at 1 January 2013		11,145		1,624		2,474		20,345		3,188		38,776
- personal		2,466		611		368		18,726		1,580		23,751
- corporate and commercial		8,058		967		1,872		1,592		1,604		14,093
- financial5		621		46		234		27		4		932
Classified as impaired during the year		4,952		1,424		419		6,168		4,333		17,296
- personal		1,176		798		107		5,319		1,872		9,272
- corporate and commercial		3,726		623		306		837		2,453		7,945
- financial5		50		3		6		12		8		79
Transferred from impaired to unimpaired during the year		(1,215)		(145)		(166)		(3,198)		(642)		(5,366)
- personal		(265)		(137)		(68)		(3,172)		(266)		(3,908)
- corporate and commercial		(804)		(8)		(85)		(24)		(375)		(1,296)
- financial5		(146)		-		(13)		(2)		(1)		(162)
Amounts written off		(1,411)		(538)		(165)		(1,706)		(1,957)		(5,777)
- personal		(423)		(444)		(79)		(1,433)		(1,456)		(3,835)
- corporate and commercial		(927)		(91)		(75)		(270)		(499)		(1,862)
- financial5		(61)		(3)		(11)		(3)		(2)		(80)
Net repayments and other		(243)		(742)		(277)		(6,486)		(678)		(8,426)
- personal		(16)		(302)		(11)		(5,771)		(382)		(6,482)
- corporate and commercial		(339)		(409)		(253)		(708)		(294)		(2,003)
- financial5		112		(31)		(13)		(7)		(2)		59
Impaired loans at 31 December 2013		13,228		1,623		2,285		15,123		4,244		36,503
- personal		2,938		526		317		13,669		1,348		18,798
- corporate and commercial		9,714		1,082		1,765		1,427		2,889		16,877
- financial5		576		15		203		27		7		828
Impaired loans as a percentage of gross loans		2.7%		0.4%		6.5%		10.9%		7.5%		3.2%
- personal		1.5%		0.4%		4.9%		18.8%		9.0%		4.6%
- corporate and commercial		4.0%		0.5%		8.9%		2.8%		9.6%		3.1%
- financial5		1.1%		0.0%		2.3%		0.2%		0.1%		0.5%

For footnotes, see page 202.

Impaired loans decreased by US$7.2bn during the year. Personal impaired loans declined mainly due to the continued run off and loan sales in the CML portfolio in North America. In personal lending, 'Net repayments and other' includes US$2.9bn of CML portfolio assets that were reclassified as held for sale and also sold during the year.

Impaired loans in wholesale lending declined mainly in Europe and, to a lesser extent, in North America and Latin America due to repayments and a reduction in new impaired loans which reflected improvements in the economic conditions in these markets. These decreases were offset by an increase in Asia.

Renegotiated loans and forbearance

(Audited)

Current policies and procedures regarding renegotiated loans and forbearance are described in the Appendix to Risk on page 208.

The contractual terms of a loan may be modified for a number of reasons, including changes in market conditions, customer retention and other factors not related to the current or potential credit deterioration of a customer. 'Forbearance' describes concessions made on the contractual terms of a loan in response to an obligor's financial difficulties. We classify and report loans on which concessions have been granted under conditions of credit distress as 'renegotiated loans' when their contractual payment terms have been modified, because we have significant concerns about the borrowers' ability to meet contractual payments when due. On renegotiation, where the existing agreement is cancelled and a new agreement is made on substantially different terms, or if the terms of an existing agreement are modified such that the renegotiated loan is substantially a different financial instrument, the loan would be derecognised and recognised as a new loan for accounting purposes. However, the newly recognised financial asset will retain the renegotiated loan classification. Concessions on loans made to customers which do not affect the payment structure or basis of repayment, such as waivers of financial or security covenants, do not directly provide concessionary relief to customers in terms of their ability to service obligations as they fall due and are therefore not included in this classification.

The most significant portfolio of renegotiated loans remained in North America, substantially all of which were retail loans held by HSBC Finance.

The following tables show the gross carrying amounts of the Group's holdings of renegotiated loans and advances to customers by industry sector, geography and credit quality classification.

Renegotiated loans and advances to customers by geographical region

(Audited)

		Europe		Asia4		MENA		North            America		Latin           America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
First lien residential mortgages		1,605		94		58		13,540		60		15,357
- neither past due nor impaired		529		63		19		3,695		32		4,338
- past due but not impaired		221		8		1		1,894		5		2,129
- impaired		855		23		38		7,951		23		8,890
Other personal lending7		324		292		27		1,267		326		2,236
- neither past due nor impaired		184		173		16		453		14		840
- past due but not impaired		40		22		5		214		1		282
- impaired		100		97		6		600		311		1,114
Corporate and commercial		5,469		501		1,439		427		1,324		9,160
- neither past due nor impaired		1,383		102		483		36		303		2,307
- past due but not impaired		68		-		31		1		1		101
- impaired		4,018		399		925		390		1,020		6,752
Financial5		413		4		323		1		1		742
- neither past due nor impaired		219		-		305		-		-		524
- past due but not impaired		-		-		-		-		-		-
- impaired		194		4		18		1		1		218
Renegotiated loans at 31 December 2014		7,811		891		1,847		15,235		1,711		27,495
- neither past due nor impaired		2,315		338		823		4,184		349		8,009
- past due but not impaired		329		30		37		2,109		7		2,512
- impaired		5,167		523		987		8,942		1,355		16,974
Impairment allowances on renegotiated loans		1,458		170		458		1,499		704		4,289
- renegotiated loans as % of total gross loans		1.9%		0.2%		6.1%		11.5%		3.7%		2.8%
First lien residential mortgages		1,820		117		91		16,853		76		18,957
- neither past due nor impaired		392		78		47		4,332		32		4,881
- past due but not impaired		517		11		3		2,684		4		3,219
- impaired		911		28		41		9,837		40		10,857
Other personal lending7		431		318		58		1,277		531		2,615
- neither past due nor impaired		253		207		33		503		18		1,014
- past due but not impaired		39		24		17		284		2		366
- impaired		139		87		8		490		511		1,235
Corporate and commercial		7,270		330		1,583		658		2,161		12,002
- neither past due nor impaired		1,796		134		677		47		493		3,147
- past due but not impaired		193		4		126		34		5		362
- impaired		5,281		192		780		577		1,663		8,493
Financial5		235		2		362		1		1		601
- neither past due nor impaired		93		-		265		-		-		358
- past due but not impaired		-		-		-		-		-		-
- impaired		142		2		97		1		1		243
Renegotiated loans at 31 December 2013		9,756		767		2,094		18,789		2,769		34,175
- neither past due nor impaired		2,534		419		1,022		4,882		543		9,400
- past due but not impaired		749		39		146		3,002		11		3,947
- impaired		6,473		309		926		10,905		2,215		20,828
Impairment allowances on renegotiated loans		1,867		101		460		2,285		1,014		5,727
- renegotiated loans as % of total gross loans		2.1%		0.2%		7.3%		14.2%		6.0%		3.4%

For footnotes, see page 202.

The following table shows movements in renegotiated loans during the year. Renegotiated loans reduced by US$6.7bn to US$27bn in 2014. Renegotiated loans in personal lending reduced by US$4bn. Included within 'other' movements is US$1.9bn of CML portfolio assets that were transferred to held for sale. New renegotiated loans and write-offs reduced as a result of improvements in the US housing market and economic conditions.

Renegotiated loans in wholesale lending decreased by US$2.7bn. The reductions were mainly concentrated in Europe and Latin America and were the result of increased write-offs and repayments.

Movement in renegotiated loans by geographical region

(Unaudited)

		Europe		Asia4		MENA		North           America		Latin           America		Total
		US$m		US$m		US$m		US$m		US$m		US$m
Renegotiated loans at 1 January 2014		9,756		767		2,094		18,789		2,769		34,175
- personal		2,251		435		149		18,130		607		21,572
- corporate and commercial		7,270		330		1,583		658		2,161		12,002
- financial		235		2		362		1		1		601
Loans renegotiated in the year without derecognition		1,543		371		296		862		725		3,797
- personal		433		83		10		774		310		1,610
- corporate and commercial		939		288		286		78		415		2,006
- financial		171		-		-		10		-		181
Loans renegotiated in the year resulting in recognition of a new loan		500		5		79		-		92		676
- personal		69		2		-		-		28		99
- corporate and commercial		381		-		61		-		64		506
- financial		50		3		18		-		-		71
Repayments		(2,416)		(246)		(562)		(1,518)		(1,036)		(5,778)
- personal		(635)		(96)		(47)		(1,319)		(288)		(2,385)
- corporate and commercial		(1,757)		(149)		(445)		(189)		(747)		(3,287)
- financial		(24)		(1)		(70)		(10)		(1)		(106)
Amounts written off		(828)		(42)		(23)		(640)		(510)		(2,043)
- personal		(88)		(28)		(7)		(568)		(223)		(914)
- corporate and commercial		(740)		(14)		(16)		(72)		(286)		(1,128)
- financial		-		-		-		-		(1)		(1)
Other		(744)		36		(37)		(2,258)		(329)		(3,332)
- personal		(101)		(10)		(20)		(2,210)		(48)		(2,389)
- corporate and commercial		(624)		46		(30)		(48)		(283)		(939)
- financial		(19)		-		13		-		2		(4)
At 31 December 2014		7,811		891		1,847		15,235		1,711		27,495
- personal		1,929		386		85		14,807		386		17,593
- corporate and commercial		5,469		501		1,439		427		1,324		9,160
- financial		413		4		323		1		1		742
Renegotiated loans at 1 January 2013		9,974		944		2,389		26,162		2,758		42,227
- personal		2,817		493		190		25,474		781		29,755
- corporate and commercial		6,829		447		1,859		685		1,975		11,795
- financial		328		4		340		3		2		677
Loans renegotiated in the year without derecognition		2,807		49		101		1,727		1,311		5,995
- personal		264		8		16		1,335		507		2,130
- corporate and commercial		2,541		41		85		391		803		3,861
- financial		2		-		-		1		1		4
Loans renegotiated in the year resulting in recognition of a new loan		105		113		14		-		62		294
- personal		17		76		14		-		25		132
- corporate and commercial		88		37		-		-		37		162
- financial		-		-		-		-		-		-
Repayments		(2,139)		(233)		(541)		(1,759)		(707)		(5,379)
- personal		(489)		(111)		(64)		(1,387)		(353)		(2,404)
- corporate and commercial		(1,574)		(121)		(477)		(370)		(354)		(2,896)
- financial		(76)		(1)		-		(2)		-		(79)
Amounts written off		(426)		(25)		(38)		(1,035)		(409)		(1,933)
- personal		(99)		(20)		(9)		(995)		(233)		(1,356)
- corporate and commercial		(303)		(5)		(29)		(40)		(175)		(552)
- financial		(24)		-		-		-		(1)		(25)
Other		(565)		(81)		169		(6,306)		(246)		(7,029)
- personal		(259)		(11)		2		(6,297)		(120)		(6,685)
- corporate and commercial		(311)		(69)		145		(8)		(125)		(368)
- financial		5		(1)		22		(1)		(1)		24
At 31 December 2013		9,756		767		2,094		18,789		2,769		34,175
- personal		2,251		435		149		18,130		607		21,572
- corporate and commercial		7,270		330		1,583		658		2,161		12,002
- financial		235		2		362		1		1		601

For footnote, see page 202.

 

END

 

 

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