Annual Financial Report - 27 of 56 | RNS | Ticker

Annual Financial Report - 27 of 56

RNS Announcement

RNS Number : 6295S

HSBC Holdings PLC

18 March 2016

Credit risk



Credit risk	120	195	Summary of credit risk	120
			Gross loans to customers and banks over five years	121
			Loan impairment charge over five years	121
			Loan impairment charges by geographical region	121
			Loan impairment charges by industry	121
			Loan impairment allowances over five years	121
Credit risk management		195

Assets held for sale	121		Loans and advances to customers and banks measured at amortised cost	121
			Gross loans and impairment allowances on loans and advances to customers and banks reported in 'Assets held for sale'	122
			Loan impairment charges and other credit risk provisions	122

Credit exposure	122
Maximum exposure to credit risk	122
Other credit risk mitigants	122		Maximum exposure to credit risk	123
			Loan and other credit-related commitments	123

Concentration of exposure	123	196
Financial investments	123
Trading assets	124
Derivatives	124
Loans and advances	124		Gross loans and advances by industry sector and by geographical region	124

Credit quality of financial instruments	125	196
Credit quality classification		196	Distribution of financial instruments by credit quality	125
Past due but not impaired gross financial instruments	127		Past due but not impaired gross financial instruments by geographical region	127
			Ageing analysis of days for past due but not impaired gross financial instruments	127

Impaired loans	128		Movement in impaired loans by geographical region	128
Renegotiated loans and forbearance	129	197	Renegotiated loans and advances to customers by geographical region	130
			Movement in renegotiated loans and advances to customers by geographical region	131
			Renegotiated loans by arrangement type: corporate and commercial and financial	132
			Renegotiated loans by arrangement type: personal lending	132
Impairment of loans and advances	132		Loan impairment charge to the income statement by industry sector	132
			Loan impairment charge to the income statement by assessment type	132
			Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region	133
			Movement in impairment allowances by industry sector and geographical region	134
			Movement in impairment allowances on loans and advances to customers and banks	135
Impairment assessment		201

Wholesale lending	135		Total wholesale lending	136
Commercial real estate	137		Commercial real estate lending	137
			Commercial real estate loans and advances maturity analysis	138
			Commercial real estate loans and advances including loan commitments by level of collateral	139
			Other corporate, commercial and non-bank financial institutions loans and advances including loan commitments by level of collateral rated CRR/EL8 to 10 only	140



Other credit risk exposures	141
Derivatives	141		Notional contract amounts and fair values of derivatives by product type	142
			OTC collateral agreements by type	142
Reverse repos - non-trading by geographical region	143		Reverse repos - non-trading by geographical region	143
Loan Management Unit		202

Personal lending	143		Total personal lending	143
Mortgage lending	144		UK interest-only mortgage loans	145
Other personal lending	145		HSBC Finance US Consumer and Mortgage Lending residential mortgages	145
			Trends in two months and over contractual delinquency in the US	146
			Gross loan portfolio of HSBC Finance real estate secured balances	146
			Number of renegotiated real estate secured accounts remaining in HSBC Finance's portfolio	146
HSBC Finance loan modifications and re-age programmes	146
Collateral and other credit enhancements held	147		Residential mortgage loans including loan commitments by level of collateral	147

Supplementary information	148		Gross loans and advances by industry sector over 5 years	148
			Reconciliation of reported and constant currency impaired loans, allowances and charges by geographical region	149
			Reconciliation of reported and constant currency loan impairment charges to the income statement	149
			Loan impairment charges by industry sector over 5 years	150
			Charge for impairment losses as a percentage of average gross loans and advances to customers	150
			Movement in impairment allowances over 5 years	150
			Gross loans and advances to customers by country	151
Refinance risk		203

HSBC Holdings	152		HSBC Holdings - maximum exposure to credit risk	152

Securitisation exposures and other structured products	152	203	Carrying amount of HSBC's consolidated holdings of ABSs	153
			Definitions and classifications of ABSs and CDOs	203


1 Appendix to Risk - risk policies and practices.

Credit risk

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 have been no material changes to the policies and practices for the management of credit risk in 2015.

A summary of our current policies and practices regarding credit risk is provided in the Appendix to Risk on page 193.

Our maximum exposure to credit risk is presented on page 122 and credit quality on page 125. 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.

Our exposures to mainland China and the effects of the decline in 'metals and mining' and 'oil and gas' prices are provided in 'Areas of special interest' on page 116.

In 2015, reported gross loans and advances declined by $75bn, mainly due to foreign exchange effects reducing balances by $51bn and the reclassification of Brazilian assets as 'Assets held for sale' reducing balances by a further $31bn. Additional details relating to the Brazilian reclassification are provided on page 121. Excluding foreign exchange movements and the reclassification, both wholesale and personal lending grew.

Loan impairment charges reduced by $0.5bn or 11% compared with 2014 with notable decreases in Latin America from favourable foreign exchange effects.

Information on constant currency movements is provided on page 148. While tables are presented on a reported basis, the commentary that follows in this summary section excludes the effects of the Brazilian reclassification and is on a constant currency basis.

Summary of credit risk

	2015	2014	Page
	$bn	$bn
At year-end
Maximum exposure to credit risk
- total assets subject to credit risk	2,234	2,434
- off-balance sheet commitments subject to credit risk²	713	699

	2,947	3,133	123

Gross loans and advances
- personal lending	374	393	143
- wholesale lending	650	706	136

	1,024	1,099	124

Impaired loans
- personal lending	12	15	128
- wholesale lending	12	14	128

	24	29	128

Impaired loans as a % of gross loans and advances
- personal lending	3.1%	3.9%
- wholesale lending	1.9%	2.0%
- total	2.3%	2.7%

	$bn	$bn
Impairment allowances
- personal lending	2.9	4.6	135
- wholesale lending	6.7	7.8	136

	9.6	12.4	134

Loans and advances net of impairment allowances	1,015	1,087

For year ended 31 December
Loan impairment charge	3.6	4.1	133
- personal lending	1.8	1.8	132
- wholesale lending	1.8	2.3	132
Other credit risk provisions	0.1	(0.2)

	3.7	3.9

For footnote, see page 191.

In 2015, wholesale and personal gross loans and advances grew by $0.5bn and $7bn, respectively.

In wholesale lending, Asia balances decreased by $9.6bn and were partly offset by an increase of $7.5bn in North America and $3.2bn in Europe. Middle East and North Africa decreased $1.2bn and Latin America remained relatively unchanged.

In personal lending, Asia balances grew by $7.4bn across both its mortgage and other personal lending, and there was a $1.9bn increase in the Premier mortgage portfolio in the US and Canada. The increase was partly offset by a $5.0bn reduction in the US CML portfolio as a result of the ongoing run-off of the portfolio and continued loan sales.

Loan impairment charges increased by $0.2bn compared with 2014, notably in Middle East and North Africa and North America.

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

Loan impairment charge over five years ($bn)

Loan impairment charges by geographical region ($bn)

Loan impairment charges by industry ($bn)

Loan impairment allowances over five years

Assets held for sale

(Audited)

During 2015, gross loans and advances and related impairment allowances arising in our Brazilian operations were reclassified from 'Loans and advances to customers' and 'Loans and advances to banks' to 'Assets held for sale' in the balance sheet.

Disclosures relating to assets held for sale are provided in the following credit risk management tables, primarily where the disclosure is relevant to the measurement of these financial assets:

· Maximum exposure to credit risk (page 122);

· Distribution of financial instruments by credit quality (page 125);

· Past due but not impaired gross financial instruments by geographical region (page 127); and

· Ageing analysis of days past due but not impaired gross financial instruments (page 127).

Although there was a reclassification on the balance sheet, there was no separate income statement reclassification. As a result, charges for loan impairment losses shown in the credit risk disclosures include loan impairment charges relating to financial assets classified as 'Assets held for sale'.

Loans and advances to customers and banks measured at amortised cost

(Audited)

	Total gross loans and advances	Impairment allowances on loans and advances
	$m	$m

As reported	1,024,428	(9,573)
Reported in 'Assets held for sale'	24,544	(1,454)

At 31 December 2015	1,048,972	(11,027)

At 31 December 2014, the gross loans and advances and related impairment allowances of our Brazilian operations were $31bn and $1.7bn, respectively. Gross loans and advances reduced by $8.5bn, mainly as a result of foreign exchange movements.

Lending balances held for sale continue to be measured at amortised cost less allowances for impairment; such carrying amounts may differ from fair value. Any difference between the carrying amount and the sales price, which is the fair value at the time of sale, would be recognised as a gain or loss at the time of sale.

See Note 23 on the Financial Statements for the carrying amount and the fair value at 31 December 2015 of loans and advances to banks and customers classified as held for sale.

Gross loans and impairment allowances on loans and advances to customers and banks reported in 'Assets held for sale'

(Audited)

	Brazil	Other	Total
	$m	$m	$m
Gross loans
Loans and advances to customers	18,103	2,042	20,145
- personal	5,571	40	5,611
- corporate and commercial	12,532	2,002	14,534

Financial	4,399	-	4,399
- non-bank financial institutions	331	-	331
- banks	4,068	-	4,068


At 31 December 2015	22,502	2,042	24,544
24,543
Impairment allowances
Loans and advances to customers	(1,433)	(21)	(1,454)
- personal	(664)	-	(664)
- corporate and commercial	(769)	(21)	(790)

Financial	-	-	-
- non-bank financial institutions	-	-	-
- banks	-	-	-

- banks
At 31 December 2015	(1,433)	(21)	(1,454)

The table below analyses the amount of LICs arising from assets held for sale. The held for sale assets primarily relate to the Brazilian operations.

Loan impairment charges and other credit risk provisions

(Audited)

		2015
		$m
LICs arising from:
- assets held for sale		965
- assets not held for sale		2,757

Year ended 31 December		3,722

Credit exposure

Maximum exposure to credit risk

(Audited)

The table on page 123 provides information on balance sheet items, offsets and loan and other credit-related commitments. Commentary on balance sheet movements is provided on page 62.

The offset in derivatives decreased in line with the decrease in maximum exposure amounts.

The offset on corporate and commercial loans to customers decreased by $15bn. This reduction was mainly related to corporate overdraft balances where a small number of clients benefited from the use of net interest arrangements across overdrafts and deposits. As a result, while net risk exposures are generally stable, gross balances can be volatile.

'Maximum exposure to credit risk' table (page 123)

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. No offset has been applied to off-balance sheet collateral. 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 139 and page 147 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)

	2015			2014
	Maximum exposure	Offset	Net	Maximum exposure	Offset	Net
	$m	$m	$m	$m	$m	$m

Cash and balances at central banks	98,934	-	98,934	129,957	-	129,957
Items in the course of collection from other banks	5,768	-	5,768	4,927	-	4,927
Hong Kong Government certificates of indebtedness	28,410	-	28,410	27,674	-	27,674

Trading assets	158,346	-	158,346	228,944	-	228,944
- Treasury and other eligible bills	7,829	-	7,829	16,170	-	16,170
- debt securities	99,038	-	99,038	141,532	-	141,532
- loans and advances to banks	22,303	-	22,303	27,581	-	27,581
- loans and advances to customers	29,176	-	29,176	43,661	-	43,661

Financial assets designated at fair value	4,857	-	4,857	9,031	-	9,031
- Treasury and other eligible bills	396	-	396	56	-	56
- debt securities	4,341	-	4,341	8,891	-	8,891
- loans and advances to banks	120	-	120	84	-	84
- loans and advances to customers	-	-	-	-	-	-

Derivatives	288,476	(258,755)	29,721	345,008	(313,300)	31,708

Loans and advances to customers held at amortised cost	924,454	(52,190)	872,264	974,660	(67,094)	907,566
- personal	371,203	(5,373)	365,830	388,954	(4,412)	384,542
- corporate and commercial	493,078	(44,260)	448,818	535,184	(59,197)	475,987
- non-bank financial institutions	60,173	(2,557)	57,616	50,522	(3,485)	47,037

Loans and advances to banks held at amortised cost	90,401	(53)	90,348	112,149	(258)	111,891

Reverse repurchase agreements - non-trading	146,255	(900)	145,355	161,713	(5,750)	155,963
Financial investments	423,120	-	423,120	404,773	-	404,773
- Treasury and other similar bills	104,551	-	104,551	81,517	-	81,517
- debt securities	318,569	-	318,569	323,256	-	323,256

Assets held for sale	40,078	-	40,078	1,375	-	1,375
- disposal groups	38,097	-	38,097	889	-	889
- non-current assets held for sale	1,981	-	1,981	486	-	486

Other assets	25,310	-	25,310	33,889	-	33,889
- endorsements and acceptances	9,149	-	9,149	10,775	-	10,775
- other	16,161	-	16,161	23,114	-	23,114


Total balance sheet exposure to credit risk	2,234,409	(311,898)	1,922,511	2,434,100	(386,402)	2,047,698

Total off-balance sheet²	712,546	-	712,546	698,458	-	698,458
- financial guarantees and similar contracts	46,116	-	46,116	47,078	-	47,078
- loan and other credit-related commitments²	666,430	-	666,430	651,380	-	651,380


At 31 December	2,946,955	(311,898)	2,635,057	3,132,558	(386,402)	2,746,156

For footnote, see page 191.

Loan and other credit-related commitments²

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

Personal	70,013	103,153	3,092	14,510	12,175	202,943
Corporate and commercial	105,303	159,947	20,139	102,369	18,155	405,913
Financial	20,230	11,619	186	24,543	996	57,574

At 31 December 2015	195,546	274,719	23,417	141,422	31,326	666,430

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
Financial	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

For footnote, see page 191.

Concentration of exposure

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 2015. 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 2015, with 14% invested in securities issued by banks and other financial institutions and 75% in government or government agency debt securities. We also held assets backing insurance and investment contracts.

For an analysis of financial investments, see Note 17 on the Financial Statements.

Trading assets

Trading securities remained the largest concentration within trading assets at 77% in 2015 and 2014. 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 ($15bn) and UK ($10bn) and Hong Kong ($6.5bn) 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 $288bn at 31 December 2015 (2014: $345bn). Details of derivative amounts cleared through an exchange, central counterparty and non-central counterparty are shown on page 142.

For an analysis of derivatives, see page 141 and Note 16 on the Financial Statements.

Loans and advances

The following tables analyse loans 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 and HSBC Bank USA, by the location of the lending branch. Excluding the effect of the classification of Brazilian assets as 'Assets held for sale', 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 151.

Gross loans and advances by industry sector and by geographical region

(Audited)

	Europe	Asia	MENA	North America	Latin America	Total	As a % of total
	$m	$m	$m	$m	$m	$m	gross loans

Personal	170,526	132,707	6,705	58,186	5,958	374,082	36.5
- first lien residential mortgages	125,544	94,606	2,258	50,117	1,986	274,511	26.8
- other personal³	44,982	38,101	4,447	8,069	3,972	99,571	9.7

Wholesale
Corporate and commercial	191,765	211,224	22,268	62,882	11,374	499,513	48.8
- manufacturing	39,003	34,272	2,504	17,507	2,572	95,858	9.4
- international trade and services	62,667	72,199	9,552	11,505	3,096	159,019	15.5
- commercial real estate	26,256	32,371	690	7,032	1,577	67,926	6.7
- other property-related	7,323	35,206	1,908	8,982	45	53,464	5.2
- government	3,653	1,132	1,695	203	772	7,455	0.7
- other commercial⁴	52,863	36,044	5,919	17,653	3,312	115,791	11.3

Financial	51,969	68,321	10,239	16,308	3,996	150,833	14.7
- non-bank financial institutions	33,621	13,969	2,321	9,822	681	60,414	5.9
- banks	18,348	54,352	7,918	6,486	3,315	90,419	8.8

Total wholesale	243,734	279,545	32,507	79,190	15,370	650,346	63.5

Total gross loans and advances at 31 December 2015	414,260	412,252	39,212	137,376	21,328	1,024,428	100.0

Percentage of total gross loans and advances	40.4%	40.3%	3.8%	13.4%	2.1%	100.0%

Personal	178,531	129,515	6,571	65,400	13,537	393,554	35.8
- first lien residential mortgages	131,000	93,147	2,647	55,577	4,153	286,524	26.0
- other personal³	47,531	36,368	3,924	9,823	9,384	107,030	9.8

Wholesale
Corporate and commercial	212,523	220,799	20,588	57,993	30,722	542,625	49.4
- manufacturing	39,456	37,767	2,413	15,299	12,051	106,986	9.7
- international trade and services	76,629	72,814	9,675	13,484	8,189	180,791	16.4
- commercial real estate	28,187	35,678	579	6,558	2,291	73,293	6.7
- other property-related	7,126	34,379	1,667	8,934	281	52,387	4.8
- government	2,264	1,195	1,552	164	968	6,143	0.6
- other commercial⁴	58,861	38,966	4,702	13,554	6,942	123,025	11.2

Financial	45,081	76,957	13,786	16,439	10,753	163,016	14.8
- non-bank financial institutions	23,103	13,997	3,291	9,034	1,393	50,818	4.6
- banks	21,978	62,960	10,495	7,405	9,360	112,198	10.2

Total wholesale	257,604	297,756	34,374	74,432	41,475	705,641	64.2

Total gross loans and advances at 31 December 2014	436,135	427,271	40,945	139,832	55,012	1,099,195	100.0

Percentage of total gross loans and advances	39.7%	38.9%	3.7%	12.7%	5.0%	100.0%

For footnotes, see page 191.

Credit quality of financial instruments

(Audited)

We assess credit quality on all financial instruments which are subject to credit risk. Additional credit quality information in respect of our consolidated holdings of ABSs is provided on page 153.
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 grade to which they relate, but are separately classified as past due but not impaired.

Distribution of financial instruments by credit quality

(Audited)

	Neither past due nor impaired					Past due but not impaired	Impaired	Total gross amount		Total
	Strong	Good	Satisfactory		Sub- standard				Impairment allowances⁵
	Strong	Good	Satisfactory		Sub- standard				Impairment allowances⁵
	$m	$m		$m	$m	$m	$m	$m	$m	$m

Cash and balances at central banks	97,365	583		939	47	-	-	98,934		98,934
Items in the course of collection from other banks	5,318	32		416	2	-	-	5,768		5,768
Hong Kong Government certificates of indebtedness	28,410	-		-	-	-	-	28,410		28,410

Trading assets⁶	116,633	21,243		19,894	576			158,346		158,346
- treasury and other eligible bills	6,749	790		190	100			7,829		7,829
- debt securities	77,088	10,995		10,656	299			99,038		99,038
- loans and advances:
to banks	14,546	4,391		3,239	127			22,303		22,303
to customers	18,250	5,067		5,809	50			29,176		29,176

Financial assets designated at fair value⁶	3,037	701		736	383			4,857		4,857
- treasury and other eligible bills	139	193		-	64			396		396
- debt securities	2,898	508		616	319			4,341		4,341
- loans and advances:
to banks	-	-		120	-			120		120
to customers	-	-		-	-			-		-

Derivatives⁶	248,101	32,056		7,209	1,110			288,476		288,476

Loans and advances to customers held at amortised cost⁷	472,691	214,152		194,393	16,836	12,179	23,758	934,009	(9,555)	924,454
- personal	309,720	29,322		15,021	944	7,568	11,507	374,082	(2,879)	371,203
- corporate and commercial	127,673	168,772		171,466	15,379	4,274	11,949	499,513	(6,435)	493,078
- non-bank financial institutions	35,298	16,058		7,906	513	337	302	60,414	(241)	60,173

Loans and advances to banks held at amortised cost	73,226	11,929		4,836	407	1	20	90,419	(18)	90,401
Reverse repurchase agreements - non-trading	108,238	16,552		20,931	46	-	488	146,255	-	146,255

Financial investments	382,328	18,600		16,341	4,525	-	1,326	423,120		423,120
- treasury and other similar bills	93,562	3,963		4,756	2,270	-	-	104,551		104,551
- debt securities	288,766	14,637		11,585	2,255	-	1,326	318,569		318,569

Assets held for sale	10,177	9,605		17,279	1,635	703	2,133	41,532	(1,454)	40,078
- disposal groups	10,149	8,815		16,213	1,567	701	2,085	39,530	(1,433)	38,097
- non-current assets held for sale	28	790		1,066	68	2	48	2,002	(21)	1,981

Other assets	8,306	5,688		10,204	632	147	333	25,310	-	25,310
- endorsements and acceptances	1,084	3,850		3,798	343	22	52	9,149		9,149
- accrued income and other	7,222	1,838		6,406	289	125	281	16,161		16,161


At 31 December 2015	1,553,830	331,141		293,178	26,199	13,030	28,058	2,245,436	(11,027)	2,234,409

	%	%		%	%	%	%	%

Percentage of total gross amount	69.2	14.7		13.1	1.2	0.6	1.2	100.0

Distribution of financial instruments by credit quality (continued)

	Neither past due nor impaired					Past due but not impaired	Impaired	Total gross amount		Total
	Strong	Good	Satisfactory		Sub- standard				Impairment allowances⁵
	Strong	Good	Satisfactory		Sub- standard				Impairment allowances⁵
	$m	$m		$m	$m	$m	$m	$m	$m	$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 assets⁶	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 value⁶	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	-	-		-	-			-		-

Derivatives⁶	269,490	58,596		15,962	960			345,008		345,008

Loans and advances to customers held at amortised cost⁷	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
- 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

Assets held for sale	802	43		79	-	2	465	1,391	(16)	1,375
- disposal groups	768	43		79	-	-	-	890	-	890
- non-current assets held for sale	34	-		-	-	2	465	501	(16)	485

Other assets	12,213	7,521		12,897	631	208	419	33,889		33,889
- 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

	%	%		%	%	%	%	%

Percentage of total gross amount	66.7	17.2		12.9	1.3	0.6	1.3	100.0

For footnotes, see page 191.

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 128.

In personal lending, past due but not impaired balances decreased, mainly due to the Brazilian reclassification and the continued run-off and loan sales in the CML portfolio.

Past due but not impaired gross financial instruments by geographical region

(Audited)

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m
Loans and advances to customers held at amortised cost	1,928	3,405	909	5,392	545	12,179
- personal	1,152	2,573	180	3,287	376	7,568
- corporate and commercial	762	790	710	1,843	169	4,274
- non-bank financial institutions	14	42	19	262	-	337

Assets held for sale	-	-	-	2	701	703
- disposal group	-	-	-	-	701	701
- non-current assets held for sale	-	-	-	2	-	2

Other financial instruments	10	39	15	80	4	148

At 31 December 2015	1,938	3,444	924	5,474	1,250	13,030

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
- non-bank financial institutions	6	278	14	252	9	559

Assets held for sale	-	-	-	2	-	2
- disposal group	-	-	-	-	-	-
- non-current assets held for sale	-	-	-	2	-	2

Other financial instruments	6	52	31	95	25	209

At 31 December 2014	2,415	4,312	735	4,731	1,375	13,568

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

Loans and advances to customers held at amortised cost	9,403	1,917	727	111	21	12,179
- personal	5,665	1,401	502	-	-	7,568
- corporate and commercial	3,432	505	225	93	19	4,274
- non-bank financial institutions	306	11	-	18	2	337

Assets held for sale	476	137	90	-	-	703
- disposal group	476	136	89	-	-	701
- non-current assets held for sale	-	1	1	-	-	2

Other financial instruments	80	35	14	10	9	148

At 31 December 2015	9,959	2,089	831	121	30	13,030

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
- non-bank financial institutions	533	12	11	1	2	559

Assets held for sale	-	-	-	1	1	2
- disposal group	-	-	-	-	-	-
- non-current assets held for sale	-	-	-	1	1	2

Other financial instruments	130	33	18	11	17	209

At 31 December 2014	10,557	2,090	819	66	36	13,568

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.

Movement in impaired loans by geographical region

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

Impaired loans at 1 January 2015		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
- financial		313	12	43	6	1	375
		313
Classified as impaired during the year		3,909	1,893	338	2,986	2,434	11,560
- personal		1,257	813	178	2,245	1,502	5,995
- corporate and commercial		2,567	1,079	159	740	924	5,469
- financial		85	1	1	1	8	96

Transferred from impaired to unimpaired during the year		(964)	(204)	(107)	(1,786)	(245)	(3,306)
- personal		(211)	(169)	(82)	(1,699)	(185)	(2,346)
- corporate and commercial		(734)	(35)	(6)	(87)	(60)	(922)
- financial		(19)	-	(19)	-	-	(38)

Amounts written off		(870)	(595)	(335)	(589)	(1,312)	(3,701)
- personal		(280)	(416)	(113)	(493)	(961)	(2,263)
- corporate and commercial		(577)	(179)	(222)	(95)	(351)	(1,424)
- financial		(13)	-	-	(1)	-	(14)

Net repayments and other		(2,640)	(767)	(111)	(3,375)	(3,212)	(10,105)
- personal		(780)	(203)	-	(2,885)	(1,171)	(5,039)
- corporate and commercial		(1,778)	(562)	(110)	(486)	(2,033)	(4,969)
- financial		(82)	(2)	(1)	(4)	(8)	(97)


Impaired loans at 31 December 2015		9,677	2,375	1,766	8,930	1,030	23,778
- personal		2,530	516	225	7,994	242	11,507
- corporate and commercial		6,863	1,848	1,517	934	787	11,949
- financial		284	11	24	2	1	322


		%	%	%	%	%	%

Impaired loans as a percentage of gross loans	%	2.3	0.6	4.5	6.5	4.8	2.3
- personal		1.5	0.4	3.4	13.7	4.1	3.1
- corporate and commercial		3.6	0.9	6.8	1.5	6.9	2.4
- financial		0.5	0.0	0.2	0.0	0.0	0.2

		Europe	Asia	MENA	North America	Latin America	Total
		$m	$m	$m	$m	$m	$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
- financial		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
- financial		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)
- financial		(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)
- financial		(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)
- financial		(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
- financial		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
- financial		0.7	0.0	0.3	0.0	0.0	0.2

At 31 December 2014, our Brazilian impaired loans were $1.4bn in corporate and commercial and $0.8bn in personal.

Excluding the Brazilian reclassification to 'Assets held for sale', corporate and commercial impaired loans decreased $0.4bn including the favourable effects of a $0.8bn foreign exchange reduction. In personal, the continued run-off of the US CML portfolio reduced collectively assessed impaired loan balances by a further $2.7bn. 'Net repayments and other' included $2.1bn of CML portfolio assets that were reclassified as held for sale or sold during the year. Whilst there was a reduction in total personal impaired loans, there was a marginal increase in the UK resulting from improved identification of impaired residential mortgages.

Renegotiated loans and forbearance

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 Corporation ('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, credit quality classification and by arrangement type.

Renegotiated loans and advances to customers by geographical region

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

First lien residential mortgages	1,461	68	36	10,680	37	12,282
- neither past due nor impaired	512	47	11	3,376	27	3,973
- past due but not impaired	174	5	4	1,567	3	1,753
- impaired	775	16	21	5,737	7	6,556

Other personal lending³	298	272	33	1,054	35	1,692
- neither past due nor impaired	131	141	24	410	10	716
- past due but not impaired	51	16	2	173	1	243
- impaired	116	115	7	471	24	733

Corporate and commercial	5,215	599	1,411	638	506	8,369
- neither past due nor impaired	1,467	119	343	93	130	2,152
- past due but not impaired	109	-	14	-	-	123
- impaired	3,639	480	1,054	545	376	6,094

Non-bank financial institutions	340	4	272	-	-	616
- neither past due nor impaired	143	-	248	-	-	391
- past due but not impaired	-	-	24	-	-	24
- impaired	197	4	-	-	-	201


Renegotiated loans at 31 December 2015	7,314	943	1,752	12,372	578	22,959
- neither past due nor impaired	2,253	307	626	3,879	167	7,232
- past due but not impaired	334	21	44	1,740	4	2,143
- impaired	4,727	615	1,082	6,753	407	13,584


Impairment allowances on renegotiated loans	1,402	193	575	1,014	155	3,339
- renegotiated loans as % of total gross loans	1.8%	0.3%	5.6%	9.5%	3.2%	2.5%

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 lending³	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

Non-bank financial institutions	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%

For footnote, see page 191.

The following table shows movements in renegotiated loans during the year. Renegotiated loans decreased by $4.5bn to $23bn in 2015, partly due to the Brazilian reclassification of $1bn. Renegotiated loans in personal lending reduced by $3.6bn. Included within 'other' movements is $2.1bn of CML portfolio assets that were transferred to 'Assets held for sale'. Write-offs reduced as a result of improvements in US economic conditions and housing market.

Movement in renegotiated loans and advances to customers by geographical region

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

Renegotiated loans at 1 January 2015	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
- non-bank financial institutions	413	4	323	1	1	742

Loans renegotiated in the year without derecognition	1,970	421	115	999	553	4,058
- personal	471	87	7	625	250	1,440
- corporate and commercial	1,494	334	89	374	303	2,594
- non-bank financial institutions	5	-	19	-	-	24

Loans renegotiated in the year resulting in recognition of a new loan	222	16	196	(1)	175	608
- personal	57	-	-	(1)	18	74
- corporate and commercial	156	16	4	-	157	333
- non-bank financial institutions	9	-	192	-	-	201

Repayments	(1,675)	(351)	(276)	(1,304)	(467)	(4,073)
- personal	(574)	(88)	(32)	(1,166)	(185)	(2,045)
- corporate and commercial	(1,054)	(263)	(159)	(138)	(282)	(1,896)
- non-bank financial institutions	(47)	-	(85)	-	-	(132)

Amounts written off	(294)	(52)	(11)	(254)	(290)	(901)
- personal	(45)	(24)	(5)	(241)	(139)	(454)
- corporate and commercial	(249)	(28)	(6)	(12)	(150)	(445)
- non-bank financial institutions	-	-	-	(1)	(1)	(2)

Other	(720)	18	(119)	(2,303)	(1,104)	(4,228)
- personal	(79)	(21)	14	(2,290)	(258)	(2,634)
- corporate and commercial	(601)	39	44	(13)	(846)	(1,377)
- non-bank financial institutions	(40)	-	(177)	-	-	(217)


At 31 December 2015	7,314	943	1,752	12,372	578	22,959
- personal	1,759	340	69	11,734	72	13,974
- corporate and commercial	5,215	599	1,411	638	506	8,369
- non-bank financial institutions	340	4	272	-	-	616


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
- non-bank financial institutions	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
- non-bank financial institutions	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
- non-bank financial institutions	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)
- non-bank financial institutions	(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)
- non-bank financial institutions	-	-	-	-	(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)
- non-bank financial institutions	(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
- non-bank financial institutions	413	4	323	1	1	742

A range of forbearance strategies are employed in order to improve the management of customer relationships, maximise collection opportunities and, if possible, avoid default, foreclosure or repossession.

The table below shows the arrangement type as a percentage of the total value of arrangements offered. Corporate renegotiated loans often require the granting of more than one arrangement type as part of an effective strategy. The

percentages reported in the table below includes the effect of loans being reported in more than one arrangement type.

Renegotiated loans by arrangement type: corporate and commercial and financial

	R	%

Maturity term extensions		42.4
Reductions in margin, principal forgiveness, debt equity swaps and interest, fees or penalty payment forgiveness		19.6
Other changes to repayment profile		14.1
Interest only conversion		13.9
Other		10.0

At 31 December 2015		100.0

In personal lending, renegotiated loans have been allocated to the single most dominant arrangement type.

Renegotiated loans by arrangement type: personal lending

		%
Personal
- interest rate and terms modifications		11.4
- payment concessions		6.0
- collection re-age⁸		35.0
- modification re-age⁹		42.9
- other		4.7

At 31 December 2015		100.0

For footnotes, see page 191.

Impairment of loans and advances

(Audited)

For an analysis of loan impairment charges and other credit risk provisions by global business, see page 65.

The tables below analyse the loan impairment charges for the year by industry sector, for impaired loans and advances that are either individually or collectively assessed, and collective impairment allowances on loans and advances that are classified as not impaired.

Loan impairment charge to the income statement by industry sector

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

Personal	263	309	122	157	983	1,834
- first lien residential mortgages	(7)	(1)	49	70	41	152
- other personal³	270	310	73	87	942	1,682

Corporate and commercial	432	372	195	319	451	1,769
- manufacturing and international trade and services	158	250	107	26	305	846
- commercial real estate and other property-related	33	18	49	24	47	171
- other commercial⁴	241	104	39	269	99	752

Financial	14	-	(18)	(7)	-	(11)

Total loan impairment charge for the year ended 31 December 2015	709	681	299	469	1,434	3,592

Personal	245	321	25	117	1,095	1,803
- first lien residential mortgages	(75)	6	(24)	26	15	(52)
- other personal³	320	315	49	91	1,080	1,855

Corporate and commercial	790	327	6	196	937	2,256
- manufacturing and international trade and services	520	197	36	116	382	1,251
- commercial real estate and other property-related	78	29	(28)	27	176	282
- other commercial⁴	192	101	(2)	53	379	723

Financial	44	(4)	(32)	(13)	1	(4)

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

For footnotes, see page 191.

Loan impairment charge to the income statement by assessment type

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

Individually assessed impairment allowances	495	300	161	227	322	1,505
- new allowances	991	518	216	290	401	2,416
- release of allowances no longer required	(455)	(179)	(52)	(46)	(93)	(825)
- recoveries of amounts previously written off	(41)	(39)	(3)	(17)	14	(86)

Collectively assessed impairment allowances¹⁰	214	381	138	242	1,112	2,087
- new allowances net of allowance releases	561	507	168	301	1,272	2,809
- recoveries of amounts previously written off	(347)	(126)	(30)	(59)	(160)	(722)


Total loan impairment charge for the year ended 31 December 2015	709	681	299	469	1,434	3,592

For footnote, see page 191.

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END

ACSUWAVRNNAOAAR

RNS metadata

Title: Annual Financial Report - 27 of 56
Time: 16:41:02
Date: 18 Mar 2016
Category: Results
ID: 6295S