HSBC 2007 Annual Report Download - page 201

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concentrations of exposure by counterparty,
sector or geography do not become excessive in
relation to the Group’s capital base and remain
within internal and regulatory limits. The
approach is designed to be more conservative
than internationally accepted regulatory
standards. Group Risk also monitors HSBC’s
intra-Group exposures to ensure they are
maintained within regulatory limits. Plans
are well developed to adopt the FSA’s new
‘Integrated Groups’ regime in accordance with
the agreed transition timetable.
• Controlling cross-border exposures, through the
imposition of country limits with sub-limits by
maturity and type of business. Country limits
are determined by taking into account economic
and political factors, and applying local business
knowledge. Transactions with countries deemed
to be higher risk are considered on a case by
case basis.
• Maintaining and developing HSBC’s risk rating
framework and systems, to classify exposures
meaningfully and enable focused management
of the risks involved. The GCRO chairs the
Credit Risk Analytics Oversight Committee,
which reports to the RMM and oversees risk
rating model governance for both wholesale and
retail business. Rating methodologies are based
upon a wide range of analytics and market data-
based tools, which are core inputs to the
assessment of customer risk. For larger
facilities, while full use is made of automated
risk rating processes, the ultimate responsibility
for setting risk ratings rests with the final
approving executive. Details of HSBC’s
approach under Basel II to capital management
and allocation in relation to risk may be found
on page 284.
• Reporting on aspects of the HSBC credit risk
portfolio to the RMM, the Group Audit
Committee and the Board of Directors of HSBC
Holdings by way of a variety of regular and
ad hoc reports covering:
– risk concentrations;
– retail portfolio performance at Group entity,
regional and overall Group levels;
– specific higher-risk portfolio segments;
– individual large impaired accounts, and
impairment allowances/charges for all
customer segments;
– country limits, cross-border exposures and
related impairment allowances;
– portfolio and analytical model performance
data; and
– stress-testing results and recommendations.
• Managing and directing credit risk management
systems initiatives. HSBC has constructed a
centralised database covering substantially all
the Group’s direct lending exposures, to deliver
an increasingly granular level of management
reporting. An electronic credit application
process for banks is operational throughout the
Group and a similar corporate credit application
system covers almost all Group corporate
business by value.
• Providing advice and guidance to HSBC’s
operating companies, to promote best practice
throughout the Group on credit-related matters
such as sustainability risk, new products and
training.
• Acting on behalf of HSBC Holdings as the
primary interface, for credit-related issues, with
external parties including the Bank of England,
the FSA, rating agencies, corporate analysts,
trade associations and counterparts in the
world’s major banks and non-bank financial
institutions.
Each HSBC operating company is required to
implement credit policies, procedures and lending
guidelines that conform to Group standards, with
credit approval authorities delegated from the Board
of Directors of HSBC Holdings to the relevant Chief
Executive Officer. In each major subsidiary, a Chief
Risk Officer or Chief Credit Officer reports to the
local Chief Executive Officer or Chief Operating
Officer on credit-related issues, maintaining a strong
functional reporting line to the GCRO.
Each operating company is responsible for the
quality and performance of its credit portfolios and
for monitoring and controlling all credit risks in its
portfolios, including those subject to central
approval by Group Risk. This includes managing its
own risk concentrations by market sector, geography
and product. Local systems are in place throughout
the Group to enable operating companies to control
and monitor exposures by customer and retail
product segments.
Special attention is paid to problem exposures,
which are subject to more frequent and intensive
review and reporting, in order to accelerate remedial
action. Where appropriate, HSBC’s local operating
companies maintain or establish specialist units to
provide customers with support in order to help them
avoid default wherever possible.