HSBC 2008 Annual Report Download - page 220

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Credit risk > Credit quality > Risk ratings / Past due but not impaired
218
• ‘Impaired’: exposures have been assessed,
individually or collectively, as impaired.
Risk rating scales
Compared with previous years, the basis of reporting
has been changed to replace the former uniform
seven-grade portfolio quality scale, in order both to
extend the range of financial instruments covered in
the presentation of portfolio quality and to reflect the
more risk-sensitive rating systems introduced under
the Group’s Basel II programme.
The Customer Risk Rating (‘CRR’) 10-grade
scale above summarises a more granular underlying
22-grade scale of obligor probability of default
(‘PD’). All distinct customers Group-wide are rated
using one of these two PD scales, depending on the
degree of sophistication of the Basel II approach
adopted for the exposure.
The Expected Loss (‘EL’) 10-grade scale for
retail business summarises a more granular
underlying EL scale for these customer segments;
this combines obligor and facility/product risk
factors in a composite measure.
For debt securities and certain other financial
instruments, external ratings have been aligned to the
four quality classifications. The ratings of Standard
& Poor’s are cited, with those of other agencies
being treated equivalently. Debt securities with
short-term issue ratings are reported against the
long-term rating of the issuer of those securities. If
major rating agencies have different ratings for the
same debt securities, a prudent rating selection is
made in line with regulatory requirements.
Additional credit quality information in respect
of HSBC’s consolidated holdings of ABSs and
assets held in consolidated SIVs and conduits is
provided on pages 153 to 158 and 175 to 176,
respectively.
For the purpose of the following disclosure,
retail loans which are past due up to 89 days and are
not otherwise classified as EL9 or EL10, are
separately classified as past due but not impaired.
The following tables set out the Group’s
distribution of financial instruments by measures of
credit quality:
Distribution of financial instruments by credit quality
(Audited)
Neither past due nor impaired Past due Impair-
Strong Medium
Sub-
standard
but not
impaired4 Impaired4
ment
allowances3 Tota l
US$m US$m US$m US$m US$m US$m US$m
At 31 December 2008
Items in the course of collection from other
banks ........................................................... 4,541 1,396 – 66 – 6,003
Trading assets ................................................. 303,307 98,977 3,167 405,451
– treasury and other eligible bills1 .............. 32,314 92 52 32,458
– debt securities1 ......................................... 175,681 22,841 1,097 199,619
– loans and advances to banks ................... 60,400 12,514 141 73,055
– loans and advances to customers ............ 34,912 63,530 1,877 100,319
Financial assets designated at fair value ........ 5,288 11,434 818 17,540
– treasury and other eligible bills1 .............. 204 31 – 235
– debt securities1 ......................................... 4,129 11,402 818 16,349
– loans and advances to banks ................... 230 – – 230
– loans and advances to customers ............ 725 1 – 726
Derivatives ...................................................... 383,393 106,348 5,135 494,876
Loans and advances held at amortised cost .... 565,542 427,788 43,432 48,422 25,422 (23,972) 1,086,634
– loans and advances to banks ................... 118,684 33,766 1,268 41 70 (63) 153,766
– loans and advances to customers2 ........... 446,858 394,022 42,164 48,381 25,352 (23,909) 932,868
Financial investments ..................................... 257,435 32,889 1,382 32 1,246 292,984
– treasury and other similar bills ................ 37,932 2,927 168 – – 41,027
– debt securities .......................................... 219,503 29,962 1,214 32 1,246 251,957
Other assets ..................................................... 11,959 26,517 1,747 219 417 40,859
– endorsements and acceptances ................ 1,851 7,793 805 30 3 10,482
– accrued income and other ....................... 10,108 18,724 942 189 414 30,377