Annual Financial Report - 28 of 56 | RNS | Ticker

Annual Financial Report - 28 of 56

RNS Announcement

RNS Number : 6300S

HSBC Holdings PLC

18 March 2016

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

Individually assessed impairment allowances	617	351	32	190	590	1,780
- new allowances	1,112	542	134	298	738	2,824
- release of allowances no longer required	(486)	(171)	(95)	(88)	(90)	(930)
- recoveries of amounts previously written off	(9)	(20)	(7)	(20)	(58)	(114)

Collectively assessed impairment allowances¹⁰	462	293	(33)	110	1,443	2,275
- new allowances net of allowance releases	757	426	2	205	1,726	3,116
- recoveries of amounts previously written off	(295)	(133)	(35)	(95)	(283)	(841)


Total loan impairment charge for the year ended 31 December 2014	1,079	644	(1)	300	2,033	4,055

For footnote, see page 191.

On a reported basis, loan impairment charges of $3.6bn were $0.5bn lower than in 2014, primarily due to favourable currency translation in Latin America and Europe.

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

Loan impairment charges increased by $219m compared with 2014. Notably, in the fourth quarter of 2015, our loan impairment charges increased compared with the third quarter following a rise in individually assessed loan impairment charges in a small number of countries. This was reflective of specific circumstances associated with those countries with no common underlying theme. In addition, we increased our collectively assessed loan impairment allowances on exposures related to the oil and gas industry by $0.2bn. This was primarily in North America, Middle East and North Africa, and Asia.

The commentary that follows sets out in more detail the factors that have contributed to movements in loan impairment charges compared with 2014.

Collectively assessed loan impairment allowances rose by $221m, mainly in Middle East and North Africa, North America and Asia, partly offset in Europe. It arose from the following:

· in Middle East and North Africa (up by $167m), this was mainly in the UAE and reflected increased impairment allowances on our residential mortgage book following a review of the quality and value of collateral. In addition, loan impairment allowances increased on our corporate and commercial exposures, notably in the oil and foodstuffs industries;

· in North America (up by $132m) and Asia (up by $108m), the increase was in the 'other commercial' sector. This reflected an increase in allowances against our oil and gas exposures in the regions. In our US CML portfolio, loan impairment allowances on residential mortgages were higher than in 2014 following lower favourable market value adjustments of underlying properties as improvements in housing market conditions were less pronounced in 2015.

· in Europe, collectively assessed loan impairment allowances were $192m lower as 2014 included additional impairment charges from revisions to certain estimates used in our corporate collective loan impairment calculation.

Individually assessed loan impairment allowances were broadly unchanged from 2014. This reflected decreases in Latin America, Europe and Asia which were offset by increases in Middle East and North Africa and in North America. This included the following:

· in Latin America (down by $95m), Europe (down by $44m) and Asia (down by $44m), we saw reductions in individually assessed loan impairment allowances as 2014 included significant impairment charges related to corporate and commercial exposures in our respective regions. In Asia, the reduction was partly offset by an increase in loan impairment allowances against a small number of customers in Indonesia; and

· in Middle East and North Africa (up by $134m) and North America (up by $47m), individually assessed loan impairment allowances increased. In the former, this primarily related to higher loan impairment allowances on food wholesalers, while in North America the rise was in the oil and gas sector.

Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region

	Europe	Asia	MENA	North America	Latin America	Total
	%	%	%	%	%	%

New allowances net of allowance releases	0.31	0.23	1.07	0.41	5.37	0.48
Recoveries	(0.11)	(0.05)	(0.11)	(0.06)	(0.50)	(0.09)

Total charge for impairment losses at 31 December 2015	0.20	0.18	0.96	0.35	4.87	0.39

Amount written off net of recoveries	0.25	0.12	0.97	0.45	3.94	0.37

New allowances net of allowance releases	0.37	0.22	0.14	0.32	5.00	0.53
Recoveries	(0.08)	(0.04)	(0.14)	(0.09)	(0.72)	(0.10)

Total charge for impairment losses at 31 December 2014	0.29	0.18	-	0.23	4.28	0.43

Amount written off net of recoveries	0.49	0.13	0.58	0.97	3.59	0.58

Movement in impairment allowances by industry sector and by geographical region

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

Impairment allowances at 1 January 2015	4,455	1,356	1,406	2,640	2,529	12,386
Amounts written off
Personal	(627)	(416)	(114)	(554)	(996)	(2,707)
- first lien residential mortgages	(12)	(6)	(1)	(344)	(24)	(387)
- other personal³	(615)	(410)	(113)	(210)	(972)	(2,320)

Corporate and commercial	(657)	(179)	(222)	(106)	(309)	(1,473)
- manufacturing and international trade and services	(234)	(149)	(214)	(28)	(213)	(838)
- commercial real estate and other property-related	(244)	(5)	(8)	(57)	(30)	(344)
- other commercial⁴	(179)	(25)	-	(21)	(66)	(291)

Financial	(12)	-	-	(2)	-	(14)

Total amounts written off	(1,296)	(595)	(336)	(662)	(1,305)	(4,194)

Recoveries of amounts written off in previous years
Personal	340	135	30	57	119	681
- first lien residential mortgages	6	4	-	26	(17)	19
- other personal³	334	131	30	31	136	662

Corporate and commercial	46	30	3	18	27	124
- manufacturing and international trade and services	16	20	2	8	15	61
- commercial real estate and other property-related	24	5	-	5	2	36
- other commercial⁴	6	5	1	5	10	27

Financial	2	-	-	1	-	3

Total recoveries of amounts written off in previous years	388	165	33	76	146	808

Charge to income statement	709	681	299	469	1,434	3,592

Exchange and other movements¹¹	(387)	(82)	16	(482)	(2,084)	(3,019)

Impairment allowances at 31 December 2015	3,869	1,525	1,418	2,041	720	9,573

Impairment allowances against banks:
- individually assessed	-	-	18	-	-	18
Impairment allowances against customers:
- individually assessed	2,661	908	1,068	327	438	5,402
- collectively assessed¹⁰	1,208	617	332	1,714	282	4,153

Impairment allowances at 31 December 2015	3,869	1,525	1,418	2,041	720	9,573

Impairment allowances at 1 January 2014	5,598	1,214	1,583	4,242	2,564	15,201
Amounts written off
Personal	(724)	(463)	(157)	(1,030)	(1,359)	(3,733)
- first lien residential mortgages	(21)	(17)	(4)	(731)	(40)	(813)
- other personal³	(703)	(446)	(153)	(299)	(1,319)	(2,920)

Corporate and commercial	(1,202)	(146)	(47)	(346)	(684)	(2,425)
- manufacturing and international trade and services	(732)	(86)	(41)	(81)	(428)	(1,368)
- commercial real estate and other property-related	(342)	(53)	(6)	(153)	(39)	(593)
- other commercial⁴	(128)	(7)	-	(112)	(217)	(464)

Financial	(203)	-	(8)	(6)	(4)	(221)

Total amounts written off	(2,129)	(609)	(212)	(1,382)	(2,047)	(6,379)

Recoveries of amounts written off in previous years
Personal	271	143	35	86	283	818
- first lien residential mortgages	3	3	-	40	33	79
- other personal³	268	140	35	46	250	739

Corporate and commercial	29	9	7	25	58	128
- manufacturing and international trade and services	19	7	7	6	46	85
- commercial real estate and other property-related	11	-	-	3	1	15
- other commercial⁴	(1)	2	-	16	11	28

Financial	4	1	-	4	-	9

Total recoveries of amounts written off in previous years	304	153	42	115	341	955

Charge to income statement	1,079	644	(1)	300	2,033	4,055

Exchange and other movements¹¹	(397)	(46)	(6)	(635)	(362)	(1,446)

Impairment allowances at 31 December 2014	4,455	1,356	1,406	2,640	2,529	12,386

Impairment allowances against banks:
- individually assessed	31	-	18	-	-	49
Impairment allowances against customers:
- individually assessed	2,981	812	1,110	276	1,016	6,195
- collectively assessed¹⁰	1,443	544	278	2,364	1,513	6,142

Impairment allowances at 31 December 2014	4,455	1,356	1,406	2,640	2,529	12,386

For footnotes, see page 191.

Movement in impairment allowances on loans and advances to customers and banks

(Audited)

	Banks	Customers
	individually assessed	Individually assessed	Collectively assessed¹⁰	Total
	$m	$m	$m	$m

At 1 January 2015	49	6,195	6,142	12,386
Amounts written off	-	(1,368)	(2,826)	(4,194)
Recoveries of loans and advances previously written off	-	86	722	808
Charge to income statement	(11)	1,516	2,087	3,592
Exchange and other movements¹¹	(20)	(1,027)	(1,972)	(3,019)

At 31 December 2015	18	5,402	4,153	9,573

Impairment allowances:
on loans and advances to customers		5,402	4,153	9,555
- personal		426	2,453	2,879
- corporate and commercial		4,800	1,635	6,435
- non-bank financial institutions		176	65	241

	%	%	%	%

as a percentage of loans and advances	-	0.6	0.4	0.9

	$m	$m	$m	$m

At 1 January 2014	58	7,072	8,071	15,201
Amounts written off	(6)	(2,313)	(4,060)	(6,379)
Recoveries of loans and advances previously written off	-	114	841	955
Charge to income statement	4	1,776	2,275	4,055
Exchange and other movements¹¹	(7)	(454)	(985)	(1,446)

At 31 December 2014	49	6,195	6,142	12,386

Impairment allowances:
on loans and advances to customers		6,195	6,142	12,337
- personal		468	4,132	4,600
- corporate and commercial		5,532	1,909	7,441
- non-bank financial institutions		195	101	296

	%	%	%	%

as a percentage of loans and advances	-	0.6	0.6	1.1

For footnotes, see page 191.

Wholesale lending

On a reported basis and excluding the effects of the Brazilian reclassification of loans and advances to 'Assets held for sale', gross loans decreased by $32bn, mainly due to adverse foreign exchange effects.

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

Wholesale lending increased by $0.5bn in the year. However, in Asia it fell by $9.6bn, mainly in Hong Kong and, to a lesser extent, mainland China and Taiwan. In Asia, the fourth quarter of 2015 saw lower than expected credit growth with a continuation of the slowdown in trade, the repayment of some existing corporate loans and slower demand for new lending.

In Europe, lending increased by $3.2bn, mainly in the UK and Germany. In the UK it rose by $1.9bn with increases in 'financial' partly offset by decreases in 'corporate and commercial', mainly relating to corporate overdraft balances where a small number of clients benefit from the use of net interest arrangements between overdrafts and deposits.

In Middle East and North Africa, overall lending reduced by $1.2bn with decreases of $3.2bn in 'financial' offset by increases of $2.0bn in 'corporate and commercial'.

In North America, lending increased by $7.5bn, mainly comprising $3.7bn in the US and $4.9bn in Canada. The increase in Canada included: $3.8bn following a change in balance sheet presentation where certain bankers' acceptances previously disclosed under 'Trading assets' were included in 'Loans and advances'; and $1.0bn relating to corporate overdraft balances and the use of net interest arrangements between overdraft and deposits. Comparatives have not been restated.

Excluding the effects of the Brazilian reclassification, lending in Latin America increased by $0.6bn, mainly in Argentina.

Total wholesale lending

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

Corporate and commercial (A)	191,765	211,224	22,268	62,882	11,374	499,513
- manufacturing	39,003	34,272	2,504	17,507	2,572	95,858
- international trade and services	62,667	72,199	9,552	11,505	3,096	159,019
- commercial real estate	26,256	32,371	690	7,032	1,577	67,926
- other property-related	7,323	35,206	1,908	8,982	45	53,464
- government	3,653	1,132	1,695	203	772	7,455
- other commercial⁴	52,863	36,044	5,919	17,653	3,312	115,791

Financial	51,969	68,321	10,239	16,308	3,996	150,833
- non-bank financial institutions (B)	33,621	13,969	2,321	9,822	681	60,414
- banks (C)	18,348	54,352	7,918	6,486	3,315	90,419


Gross loans at 31 December 2015 (D)	243,734	279,545	32,507	79,190	15,370	650,346

Impairment allowances on wholesale lending
Corporate and commercial (a)	2,735	1,256	1,157	777	510	6,435
- manufacturing	528	254	135	140	49	1,106
- international trade and services	813	599	439	123	48	2,022
- commercial real estate	613	35	145	76	343	1,212
- other property-related	237	72	267	55	1	632
- government	6	-	-	-	2	8
- other commercial	538	296	171	383	67	1,455

Financial	194	13	22	30	-	259
- non-bank financial institutions (b)	194	13	4	30	-	241
- banks (c)	-	-	18	-	-	18


Impairment allowances at 31 December 2015 (d)	2,929	1,269	1,179	807	510	6,694

	%	%	%	%	%	%

(a) as a percentage of (A)	1.4	0.6	5.2	1.2	4.5	1.3
(b) as a percentage of (B)	0.6	0.1	0.2	0.3	-	0.4
(c) as a percentage of (C)	-	-	0.2	-	-	-
(d) as a percentage of (D)	1.2	0.5	3.6	1.0	3.3	1.0

	$m	$m	$m	$m	$m	$m

Corporate and commercial (E)	212,523	220,799	20,588	57,993	30,722	542,625
- manufacturing	39,456	37,767	2,413	15,299	12,051	106,986
- international trade and services	76,629	72,814	9,675	13,484	8,189	180,791
- commercial real estate	28,187	35,678	579	6,558	2,291	73,293
- other property-related	7,126	34,379	1,667	8,934	281	52,387
- government	2,264	1,195	1,552	164	968	6,143
- other commercial⁴	58,861	38,966	4,702	13,554	6,942	123,025

Financial	45,081	76,957	13,786	16,439	10,753	163,016
- non-bank financial institutions (F)	23,103	13,997	3,291	9,034	1,393	50,818
- banks (G)	21,978	62,960	10,495	7,405	9,360	112,198


Gross loans at 31 December 2014 (H)	257,604	297,756	34,374	74,432	41,475	705,641

Impairment allowances on wholesale lending
Corporate and commercial (e)	3,112	1,089	1,171	608	1,461	7,441
- manufacturing	529	242	141	152	348	1,412
- international trade and services	877	533	536	157	237	2,340
- commercial real estate	909	44	147	101	476	1,677
- other property-related	203	55	219	57	12	546
- government	4	-	1	-	-	5
- other commercial	590	215	127	141	388	1,461

Financial	252	13	39	39	2	345
- non-bank financial institutions (f)	221	13	21	39	2	296
- banks (g)	31	-	18	-	-	49


Impairment allowances at 31 December 2014 (h)	3,364	1,102	1,210	647	1,463	7,786

	%	%	%	%	%	%

(e) as a percentage of (E)	1.5	0.5	5.7	1.0	4.8	1.4
(f) as a percentage of (F)	0.9	0.1	0.6	0.4	0.1	0.6
(g) as a percentage of (G)	0.1	-	0.2	-	-	-
(h) as a percentage of (H)	1.3	0.4	3.5	0.9	3.5	1.1

For footnote, see page 191.

Commercial real estate

Commercial real estate lending

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

Neither past due nor impaired	24,533	32,182	466	6,659	1,086	64,926
Past due but not impaired	89	119	25	212	9	454
Impaired loans	1,634	70	199	161	482	2,546

Total gross loans and advances at 31 December 2015	26,256	32,371	690	7,032	1,577	67,926

Of which:
- renegotiated loans¹²	1,586	6	182	150	210	2,134
Impairment allowances	613	35	145	76	343	1,212

Neither past due nor impaired	25,860	35,430	333	6,136	1,535	69,294
Past due but not impaired	18	170	47	100	28	363
Impaired loans	2,309	78	199	322	728	3,636

Total gross loans and advances at 31 December 2014	28,187	35,678	579	6,558	2,291	73,293

Of which:
- renegotiated loans¹²	1,954	19	183	191	377	2,724
Impairment allowances	909	44	147	101	476	1,677

For footnote, see page 191.

Commercial real estate lending includes the financing of corporate, institutional and high net worth individuals who are investing primarily in income-producing assets and, to a lesser extent, in their construction and development. The business focuses mainly on traditional core asset classes such as retail, offices, light industrial and residential building projects. The portfolio is globally diversified with larger concentrations in Hong Kong, the UK, the US and Canada.

In more developed markets, our exposure mainly comprises the financing of investment assets, the redevelopment of existing stock and the augmentation of both commercial and residential markets to support economic and population growth. In lesser developed commercial real estate markets our exposures comprise lending for development assets on relatively short tenors with a particular focus on supporting the larger, better capitalised developers involved in residential construction or in assets supporting economic expansion.

Our global exposure is centred largely on cities representing key locations of economic, political or cultural significance. In many lesser developed markets, industry is evolving to move away from the development and rapid construction of recent years to increasingly focus on investment stock consistent with more developed markets.

Excluding the effects of the Brazilian reclassification, commercial real estate lending was lower by $4.5bn including decreases of $3.2bn relating to adverse foreign exchange movements.

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

The commercial real estate lending was lower by $1.3bn, largely due to a decrease of $2.6bn in Asia, mainly in Hong Kong and, to a lesser extent, mainland China and Singapore. The decrease in Asia was mainly due to the repayment and maturity of loans and was partly offset by increases of $1.0bn in North America and $0.4bn in Mexico. Europe and Middle East and Africa remained largely unchanged.

Refinance risk in commercial real estate

Commercial real estate lending tends to require the repayment of a significant proportion of the principal at maturity. Typically, a customer will arrange repayment through the acquisition of a new loan to settle the existing debt. Refinance risk is the risk that a customer, being unable to repay the debt on maturity, fails to refinance it at commercial rates. We monitor our commercial real estate portfolio closely, assessing those drivers that may indicate potential issues with refinancing. The principal driver is the vintage of the loan, when origination reflected previous market norms which do not apply in the current market. Examples might be higher loan-to-value ('LTV') ratios and/or lower interest cover ratios. The range of refinancing sources in the local market is also an important consideration, with risk increasing when lenders are restricted to banks and when bank liquidity is limited. In addition, underlying fundamentals such as the reliability of tenants, the ability to let and the condition of the property are important as they influence property values.

Commercial real estate loans and advances maturity analysis

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m
On demand, overdrafts or revolving
< 1 year¹³	6,830	8,811	252	2,992	694	19,579
1-2 years	4,367	5,934	66	939	102	11,408
2-5 years	11,459	11,399	235	2,037	138	25,268
> 5 years	3,600	6,227	137	1,064	643	11,671

At 31 December 2015	26,256	32,371	690	7,032	1,577	67,926

On demand, overdrafts or revolving
< 1 year¹³	7,382	9,810	264	1,855	1,325	20,636
1-2 years	4,643	6,689	24	1,158	205	12,719
2-5 years	11,686	12,156	156	2,131	320	26,449
> 5 years	4,476	7,023	135	1,414	441	13,489

At 31 December 2014	28,187	35,678	579	6,558	2,291	73,293

For footnote, see page 191.

Collateral on loans and advances

Collateral held is analysed separately below for commercial real estate and for other corporate, commercial and financial (non-bank) lending. This reflects the greater correlation between collateral performance and principal repayment in the commercial real estate sector than applies to other lending. In each case, the analysis includes off‑balance sheet loan commitments, primarily undrawn credit lines.

The collateral measured in the tables below consists of fixed first charges on real estate and charges over cash and marketable financial instruments. The values in the tables represent the expected market value on an open market basis; no adjustment has been made to the collateral for any expected costs of recovery. Cash is valued at its nominal value and marketable securities at their fair value. The LTV ratios presented are calculated by directly associating loans and advances with the collateral that individually and uniquely supports each facility. When collateral assets are shared by multiple loans and advances, whether specifically or, more generally, by way of an all monies charge, the collateral value is pro-rated across the loans and advances protected by the collateral.

Other types of collateral which are commonly taken for corporate and commercial lending such as unsupported guarantees and floating charges over the assets of a customer's business are not measured in the tables below. While such mitigants have value, often providing rights in insolvency, their assignable value is not sufficiently certain and they are therefore assigned no value for disclosure purposes.

For impaired loans the collateral values cannot be directly compared with impairment allowances recognised. The LTV tables below use open market values with no adjustments. Impairment allowances are calculated on a different basis, by considering other cash flows and adjusting collateral values for costs of realising collateral as explained further on page 202.

Commercial real estate loans and advances

The value of commercial real estate collateral is determined by using a combination of professional and internal valuations and physical inspections. Due to the complexity of valuing collateral for commercial real estate, local valuation policies determine the frequency of review on the basis of local market conditions. Revaluations are sought with greater frequency as concerns over the performance of the collateral or the direct obligor increase. Revaluations may also be sought where customers amend their banking requirements, resulting in the Group extending further funds or other significant rearrangements of exposure or collateral, which may change the customer risk profile. As a result, the real estate collateral values used for CRR1-7 might date back to the last point at which such considerations applied. For CRR 8 and 9-10 almost all collateral would have been revalued within the last three years.

In Hong Kong, market practice is typically for lending to major property companies to be either secured by guarantees or unsecured. In Europe, facilities of a working capital nature are generally not secured by a first fixed charge and are therefore disclosed as not collateralised.

Commercial real estate loans and advances including loan commitments by level of collateral

(Audited)

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m
Rated CRR/EL 1 to 7
Not collateralised	4,498	12,329	499	8	500	17,834
Fully collateralised	25,773	26,270	36	9,997	542	62,618
Partially collateralised (A)	3,025	1,924	-	1,264	52	6,265
- collateral value on A	2,106	1,175	-	981	8	4,270


	33,296	40,523	535	11,269	1,094	86,717

Rated CRR/EL 8
Not collateralised	28	-	-	-	-	28
Fully collateralised	668	4	-	9	1	682
LTV ratio:
- less than 50%	86	-	-	5	1	92
- 51% to 75%	377	4	-	4	-	385
- 76% to 90%	174	-	-	-	-	174
- 91% to 100%	31	-	-	-	-	31

Partially collateralised (B)	120	1	-	1	-	122
- collateral value on B	87	-	-	-	-	87


	816	5	-	10	1	832

Rated CRR/EL 9 to 10
Not collateralised	65	51	5	2	299	422
Fully collateralised	900	18	7	76	123	1,124
LTV ratio:
- less than 50%	174	10	7	15	15	221
- 51% to 75%	425	2	-	27	59	513
- 76% to 90%	140	2	-	10	4	156
- 91% to 100%	161	4	-	24	45	234

Partially collateralised (C)	716	5	181	66	64	1,032
- collateral value on C	397	3	89	35	31	555


	1,681	74	193	144	486	2,578

At 31 December 2015	35,793	40,602	728	11,423	1,581	90,127

Rated CRR/EL 1 to 7
Not collateralised	5,351	16,132	361	87	1,719	23,650
Fully collateralised	25,873	26,323	23	9,093	556	61,868
Partially collateralised (D)	1,384	1,599	-	1,819	152	4,954
- collateral value on D	1,032	901	-	1,199	47	3,179


	32,608	44,054	384	10,999	2,427	90,472

Rated CRR/EL 8
Not collateralised	34	7	-	9	2	52
Fully collateralised	568	23	-	30	1	622
LTV ratio:
- less than 50%	64	-	-	16	1	81
- 51% to 75%	222	11	-	10	-	243
- 76% to 90%	132	9	-	4	-	145
- 91% to 100%	150	3	-	-	-	153

Partially collateralised (E)	365	-	-	7	-	372
- collateral value on E	296	-	-	2	-	298


	967	30	-	46	3	1,046

Rated CRR/EL 9 to 10
Not collateralised	369	48	6	1	499	923
Fully collateralised	992	15	7	166	178	1,358
LTV ratio:
- less than 50%	78	6	7	28	10	129
- 51% to 75%	593	2	-	91	43	729
- 76% to 90%	167	2	-	17	53	239
- 91% to 100%	154	5	-	30	72	261

Partially collateralised (F)	1,085	15	181	37	50	1,368
- collateral value on F	664	5	89	30	13	801


	2,446	78	194	204	727	3,649

At 31 December 2014	36,021	44,162	578	11,249	3,157	95,167

Other corporate, commercial and financial (non-bank) loans are analysed separately below. For financing activities in other corporate and commercial lending, collateral value is not strongly correlated to principal repayment performance. Collateral values are generally refreshed when an obligor's general credit performance deteriorates and we have to
assess the likely performance of secondary sources of repayment should it prove necessary to rely on them.

Accordingly, the table below reports values only for customers with CRR 8 to 10, recognising that these loans and advances generally have valuations which are comparatively recent.

Other corporate, commercial and non-bank financial institutions loans and advances including loan commitments by level of collateral rated CRR/EL 8 to 10 only

(Audited)

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m
Rated CRR/EL 8
Not collateralised	1,618	164	36	609	102	2,529
Fully collateralised	434	41	-	454	1	930
LTV ratio:
- less than 50%	65	13	-	95	1	174
- 51% to 75%	337	8	-	85	-	430
- 76% to 90%	28	18	-	168	-	214
- 91% to 100%	4	2	-	106	-	112

Partially collateralised (A)	109	47	1	179	-	336
- collateral value on A	73	17	-	58	-	148


	2,161	252	37	1,242	103	3,795

Rated CRR/EL 9 to 10
Not collateralised	2,850	889	814	80	244	4,877
Fully collateralised	824	440	188	323	78	1,853
LTV ratio:
- less than 50%	283	94	46	47	44	514
- 51% to 75%	346	149	3	47	8	553
- 76% to 90%	96	74	25	27	9	231
- 91% to 100%	99	123	114	202	17	555

Partially collateralised (B)	1,702	506	441	423	7	3,079
- collateral value on B	795	236	55	283	5	1,374


	5,376	1,835	1,443	826	329	9,809

At 31 December 2015	7,537	2,087	1,480	2,068	432	13,604

Rated CRR/EL 8
Not collateralised	2,051	237	15	320	227	2,850
Fully collateralised	629	56	72	331	11	1,099
LTV ratio:
- less than 50%	120	13	-	186	5	324
- 51% to 75%	293	-	-	72	6	371
- 76% to 90%	51	9	69	46	-	175
- 91% to 100%	165	34	3	27	-	229

Partially collateralised (C)	105	44	1	148	6	304
- collateral value on C	46	17	1	68	4	136
				68

	2,785	337	88	799	244	4,253

Rated CRR/EL 9 to 10
Not collateralised	4,185	939	813	62	1,420	7,419
Fully collateralised	615	143	147	231	124	1,260
LTV ratio:
- less than 50%	169	68	25	48	48	358
- 51% to 75%	136	27	19	39	35	256
- 76% to 90%	168	16	6	35	26	251
- 91% to 100%	142	32	97	109	15	395

Partially collateralised (D)	624	364	547	251	140	1,926
- collateral value on D	341	169	92	141	46	789


	5,424	1,446	1,507	544	1,684	10,605

At 31 December 2014	8,209	1,783	1,595	1,343	1,928	14,858

Other credit risk exposures

In addition to collateralised lending, other credit enhancements are employed and methods used to mitigate credit risk arising from financial assets. These are described in more detail below:

· some securities issued by governments, banks and other financial institutions benefit from additional credit enhancement provided by government guarantees that cover the assets.

· 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 credit default swap ('CDS') protection.

Disclosure of the Group's holdings of ABSs and associated CDS protection is provided on page 153.

· trading assets include loans and advances held with trading intent. These mainly consist of cash collateral posted to satisfy margin requirements on derivatives, settlement accounts, reverse repos and stock borrowing. There is limited credit risk on cash collateral posted since in the event of default of the counterparty these would be set-off against the related liability. Reverse repos and stock borrowing are by their nature collateralised.

Collateral accepted as security that the Group is permitted to sell or repledge under these arrangements is described on page 162 on the Financial Statements.

·
the Group's maximum exposure to credit risk includes financial guarantees and similar contracts granted, as well as loan and other credit-related commitments. Depending on the terms of the arrangement, we may have recourse to additional credit mitigation in the event that a guarantee is called upon or a loan commitment is drawn and subsequently defaults.

For further information on these arrangements, see Note 37 on the Financial Statements.

Derivatives

HSBC participates in transactions exposing us to counterparty credit risk. Counterparty credit risk is the risk of financial loss if the counterparty to a transaction defaults before satisfactorily settling it. It arises principally from OTC derivatives and securities financing transactions and is calculated in both the trading and non-trading books. Transactions vary in value by reference to a market factor such as interest rate, exchange rate or asset price.

The counterparty risk from derivative transactions is taken into account when reporting the fair value of derivative positions. The adjustment to the fair value is known as the credit value adjustment ('CVA').

For an analysis of CVA, see Note 13 on the Financial Statements.

The table below reflects by risk type the fair values and gross notional contract amounts of derivatives cleared through an exchange, central counterparty and non-central counterparty.

This information is provided by RNS

The company news service from the London Stock Exchange

END

ACSUWAVRNBAOAAR

RNS metadata

Title: Annual Financial Report - 28 of 56
Time: 16:42:02
Date: 18 Mar 2016
Category: Results
ID: 6300S