HSBC 2002 Annual Report Download - page 49

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Year ended 31 December 2002 compared with
year ended 31 December 2001
HSBC’s customer loan portfolio continued to be
well-spread both geographically and across personal
and industrial sectors during 2002. The loan portfolio
at constant exchange rates and excluding loans to the
financial sector, grew by US$31.5 billion, or 11 per
cent, during 2002 of which US$9.4 billion, or 3 per
cent, arose from the acquisition of GFBital in
Mexico. The personal loan sector of the Group’s loan
portfolio increased to 42 per cent of the aggregate at
the end of 2002 compared to 40 per cent at the end of
2001. At constant exchange rates, there was growth
of US$19.5 billion mainly in Europe, North America
and Asia. Of this increase, US$14.2 billion arose
from residential mortgage lending.
The other main change in HSBC’s loan portfolio
in terms of concentration risk and asset quality
related to incorporating the domestic Mexican loan
book of GFBital. 13 per cent of GFBital’s loan book
of US$9.7 billion is non-performing including a
significant proportion of residential mortgage loans
and unsecured personal loans. These assets became
impaired during the Mexican economic crisis in the
late 1990s. In addition, approximately 40 per cent of
GFBital’s loan exposures are peso-denominated
Mexican Government risk. GFBital also has
impaired assets in the agriculture and other
government-supported sectors. As part of the fair
value exercise carried out as at the date of acquisition
of GFBital, these loan assets were critically reviewed
and restated where necessary to conform with the
requirements of both UK GAAP and US GAAP.
Excluding GFBital, there was a decrease in the
level of non-performing loans during 2002 of
US$350 million due to a combination of write-offs,
recoveries and upgradings in Hong Kong and a
number of other Asian countries. This was partly
offset by a rise of US$813 million in non-performing
loans in Europe. This related primarily to a small
number of individual corporate loans in the
telecommunications, private healthcare, leisure and
manufacturing sectors and was not indicative of a
general trend. Importantly, credit quality on
consumer lending remained stable. In South
America, in local currency terms there was a sharp
increase in the level of non-performing loans in
Argentina as individual accounts migrated to non-
performing status as the economic crisis deepened.
Almost three-quarters of the non-government loan
book is now classified as non-performing. The
impact of this migration was recognised in the
general provision established at the end of 2001
within which the deterioration noted was covered.
Aggregate customer bad and doubtful debt
provisions at 31 December 2002 of US$9.1 billion
represented 2.52 per cent of gross customer advances
compared with 2.57 per cent at 31 December 2001.
As in 2001, HSBC’s cross-border exposures did
not necessitate significant provisions.
There were no significant changes to the
Group’s procedures for determining the various
components of the provision for bad and doubtful
debts.
The main components of the decrease in the
customer loans bad debt charge were:
• New specific provisions increased by US$112
million, or 4 per cent, principally driven by:
i. new provisions in Europe which were US$161
million higher than in 2001, reflecting an
increase in non-performing loans in the UK. In
UK Banking, there was an increase in specific
provisions relating to a small number of
corporate exposures in the telecommunications,
private healthcare, leisure and manufacturing
sectors. These provisions are assessed on a case-
by-case basis. By contrast, provisions for UK
personal customers were lower than in 2001 as
credit quality remained stable and increased debt
counselling services proved effective.
Provisioning against such unsecured loans is
determined on a formula based, inter alia, on the
number of days delinquent. There were no major
changes made during the year to the
assumptions used. The level of new specific
provisions against residential mortgages in
Europe remained very low.
ii. new specific provisions in the rest of Asia-
Pacific decreased by US$177 million compared
with 2001 reflecting the fall in non-performing
loans. In Indonesia and Malaysia, significantly
lower new provisions were raised, particularly
against commercial and corporate borrowers, as
the economic conditions in these countries
improved. In the Middle East, new provisions
required on the corporate loan book were lower
following economic growth in the UAE and
strengthened credit control systems. These
factors helped reduce delinquencies and as a
result the level of new provisions on consumer
lending.