HSBC 2008 Annual Report Download - page 202

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Credit risk > Credit exposure > Concentration > 2008
200
ISDA Master Agreement. Under a CSA, collateral is
passed between the parties to mitigate the market-
contingent counterparty risk inherent in the
outstanding positions.
Loans and advances
It is HSBC’s policy, when lending, to do so on the
basis of the customer’s capacity to repay, rather than
rely primarily on the value of security offered.
Depending on the customer’s standing and the type
of product, facilities may be provided unsecured.
Whenever available, collateral can be an important
mitigant of credit risk.
The guidelines applied by operating companies
in respect of the acceptability of specific classes
of collateral or credit risk mitigation, and the
determination of valuation parameters are subject to
regular review to ensure that they are supported by
empirical evidence and continue to fulfil their
intended purpose. The principal collateral types
employed by HSBC are as follows:
• in the personal sector, mortgages over
residential properties;
• in the commercial and industrial sector, charges
over business assets such as premises, stock and
debtors;
• in the commercial real estate sector, charges
over the properties being financed; and
• in the financial sector, charges over financial
instruments such as cash, debt securities and
equities in support of trading facilities.
In addition, credit derivatives, including credit
default swaps and structured credit notes, and
securitisation structures are used to manage credit
risk in the Group’s loan portfolio.
HSBC does not disclose the fair value of
collateral held as security or other credit
enhancements on loans and advances past due but
not impaired, or on individually assessed impaired
loans and advances, as it is not practicable to do so.
Concentration of exposure
(Audited)
Concentrations of credit risk arise when a number
of counterparties or exposures have comparable
economic characteristics, or such counterparties are
engaged in similar activities or operate in the same
geographical areas or industry sectors, so that their
collective ability to meet contractual obligations is
uniformly affected by changes in economic, political
or other conditions.
Securities held for trading
(Unaudited)
Total securities held for trading within trading assets
were US$254 billion at 31 December 2008 (2007:
US$247 billion). The largest concentration of these
assets was government and government agency
securities, which amounted to US$143 billion, or
56 per cent of overall trading securities (2007:
US$115 billion, 46 per cent). This included
US$32 billion (2007: US$16 billion) of treasury and
other eligible bills. Corporate debt and other
securities were US$82 billion or 32 per cent of
overall trading securities, 8 percentage points higher
than 2007’s level of 24 per cent at US$60 billion.
Included within total securities held for trading were
US$50 billion (2007: US$70 billion) of debt
securities issued by banks and other financial
institutions.
A more detailed analysis of securities held for
trading is set out in Note 16 on the Financial
Statements and an analysis of credit quality is
provided on page 218.
Debt securities, treasury and other eligible bills
(Unaudited)
At US$293 billion, total financial investments
excluding equity securities were 8 per cent higher at
31 December 2008 than at the end of 2007. Debt
securities, at US$252 billion, represented the largest
concentration of financial investments at 86 per cent
of the total, compared with US$240 billion (89 per
cent) at 31 December 2007. HSBC’s holdings of
corporate debt, ABSs and other securities were
spread across a wide range of issuers and
geographical regions, with 48 per cent invested in
securities issued by banks and other financial
institutions. In total, holdings in ABSs decreased by
US$24 billion due to a combination of movements in
fair values, principal amortisations and write-downs.
Investments in securities of governments and
government agencies of US$114 billion were 38 per
cent of overall financial investments, 5 percentage
points higher than in 2007. US$41 billion of these
investments comprised treasury and other eligible
bills.
A more detailed analysis of financial
investments is set out in Note 19 on the Financial
Statements and an analysis by credit quality is
provided on page 218.
The insurance businesses held diversified
portfolios of debt and equity securities designated
at fair value (2008: US$20 billion; 2007:
US$34 billion) and debt securities classified as
financial investments (2008: US$28 billion; 2007: