HSBC 2008 Annual Report Download - page 195

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dedicated to monitoring and managing risk from
such activities.
The credit risk governance structures and
control frameworks implemented by the Group are
designed for all stages of economic and financial
cycles, including the current economic environment.
No material changes were initiated to HSBC’s risk
management objectives, policies or procedures as a
direct result of market turmoil. Certain measures
already undertaken, however, are helping the Group
to manage the effects of that turmoil. Such measures,
for example the reinforcement of central credit risk
oversight and independent review activities, continue
to be implemented within a common operating
model for the responsibilities and interaction of
GMO Risk, regionally integrated risk functions and
country-based management. In addition, certain
operational processes have been invoked and applied
in order to manage risks more intensively.
Credit Risk is part of the Global Risk function,
and the heads of its Retail and Wholesale risk
disciplines within GMO, as well as regional Chief
Risk Officers, certain country Chief Credit Officers
and the Head of Risk Strategy, report to the GCRO.
The regional governance bodies for key risk matters
reflect those in place at the centre. Functional units
at the entity and regional levels report to GMO
Risk. GMO helps build the Group’s credit risk
management capacity through staff selection,
training, development, performance assessment and
remuneration – the GCRO is jointly responsible with
business heads for setting the performance goals of
senior Global Risk officers.
Across the Group, Credit Risk fulfils the role of
an independent credit control unit, while engaging
in dialogue with business teams to set priorities,
refine risk appetite, and monitor and report higher-
risk exposures. Credit risk and risk capital
management policies and methodologies, including
analytical model development/review and
management information, are enhanced in the light
of experience gained, for instance through the roll-
out of the Group’s advanced internal ratings-based
(‘IRB’) approach to Basel II. See also ‘Capital
Management’ on page 274.
The Credit Risk function within GMO provides
high-level oversight and management of credit risk
for HSBC worldwide. Its responsibilities include:
• Formulating Group credit policy. Compliance,
subject to approved dispensations, is mandatory
for all HSBC’s operating companies, which
must develop and record in local instruction
manuals their detailed credit policies and
procedures, consistent with Group policy.
• Guiding HSBC’s operating companies on the
Group’s appetite for credit risk exposure to
specified market sectors, activities and banking
products. GMO Risk controls exposures to
certain higher-risk sectors and closely monitors
exposure to others, including real estate, the
automotive sector, certain non-bank financial
institutions, structured products and leveraged
finance transactions. When necessary,
restrictions are imposed on new business or
exposures, which may be capped at Group
and/or entity level.
• Undertaking independent review and objective
assessment of risk. GMO Risk assesses all
commercial non-bank credit facilities and
exposures – including those embedded in
derivatives – that are originated or renewed by
HSBC’s operating companies over designated
limits, prior to the facilities being committed to
customers or transactions being undertaken.
Operating companies may not confirm credit
approval without this concurrence.
• Monitoring the performance and management of
retail portfolios across the Group. GMO Risk
tracks emerging trends and conducts in-depth
portfolio reviews, overseeing the effective
management of any adverse characteristics.
• Controlling centrally exposures to sovereign
entities, banks and other financial institutions.
HSBC’s credit and settlement risk limits to
counterparties in these sectors are approved and
managed by GMO Risk to optimise the use of
credit availability and avoid excessive risk
concentration.
• Controlling exposure for all debt securities held;
where a security is not held solely for the
purpose of trading, a formal issuer risk limit is
established.
• Establishing and maintaining HSBC’s policy on
large credit exposures, ensuring that
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. GMO Risk also monitors HSBC’s
intra-Group exposures to ensure they are
maintained within regulatory limits. Plans are
being developed to adopt the FSA’s new
‘Integrated Groups’ regime in accordance with
the published transition timetable.