HSBC 2004 Annual Report Download - page 164

HSBC HOLDINGS PLC
Financial Review (continued)
162
with 2.8 per cent at 31 December 2003. At constant
exchange rates, non-performing loans decreased by
US$2.3 billion, or 15 per cent. Improved economic
conditions in most geographical regions were the
main driver for the fall in non-performing loans.
Across Europe, at constant exchange rates, non-
performing loans declined marginally with
underlying credit quality in the UK and France
remaining stable. In the UK, releases and recoveries
in the corporate sector, primarily as a result of the
restructuring of a number of non-performing loans,
were partly offset by a rise in delinquencies across
most unsecured personal loan products, in line with
the broader target markets now being served.
In Hong Kong, non-performing loans decreased
by US$0.9 billion, or 54 per cent, during 2004 due to
the improved economic climate and rising real estate
prices. These factors enabled certain corporate
customers to increase repayments through the
disposal of assets or improved debt servicing.
In the rest of Asia-Pacific, non-performing loans
fell by US$0.4 billion, or 23 per cent, during the
year, as a general improvement in the economic
environment across the region was reflected in a rise
in recoveries and releases of provisions.
The level of non-performing loans in North
America decreased by US$0.9 billion, in line with
the continued improvement in economic conditions;
HSBC Finance’ s business particularly benefited
from a continued improvement in delinquencies and
default trends. In Mexico, there were further write-
offs of US$285 million during 2004 in the
commercial and consumer loan books, as
management continued to reduce the acquired
workout portfolio.
South America experienced a modest reduction
in non-performing loans in 2004 arising mainly in
Argentina as credit quality improved in line with a
general upturn in the local economy.
Troubled debt restructurings
US GAAP requires separate disclosure of any loans
where terms have been modified to grant
concessions other than warranted by market
conditions due to problems with the borrower. These
are classified as ‘troubled debt restructurings’ and
are distinct from the normal restructuring activities
described above. Disclosure of troubled debt
restructurings may be discontinued after the first
year if the debt is performing in accordance with the
new terms.
Troubled debt restructurings decreased
significantly in Europe where a number of corporate
exposures were regularised, in Hong Kong where
balances were repaid on certain restructured
borrowings, and in South America.
Accruing loans past due 90 days or more
Accruing loans past due 90 days decreased as the
overall credit environment improved, particularly in
Hong Kong and the US. HSBC Finance’ s business
benefited from a continued improvement in
delinquency and default trends as the US economy
recovered. In common with other card issuers,
including other parts of HSBC, HSBC Finance
continues to accrue interest on credit cards past
90 days until charged off at 180 days past due.
Appropriate provisions are raised against the
proportion judged to be irrecoverable.
Potential problem loans
Credit risk elements also cover potential problem
loans. These are loans where information about
borrowers’ possible credit problems causes
management serious doubts about the borrowers’
ability to comply with the loan repayment terms.
There are no potential problem loans other than
those identified in the table of risk elements set out
below.
Risk elements
The following table provides an analysis of risk
elements in the loan portfolios at 31 December for
the past five years: