HSBC 2009 Annual Report Download - page 242

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Credit risk > Impaired loans > 2008 // HSBC Holdings / Risk elements
240
environment which particularly affected the business
banking and mid-market business segments.
Releases and recoveries in Latin America
increased by 56 per cent to US$391 million at
31 December 2009.
For an analysis of loan impairment charges and
other credit risk provisions by customer group, see
page 35.
2008 compared with 2007
(Unaudited)
Loan impairment charges increased by 40 per cent to
US$24.1 billion from US$17.2 billion in 2007. The
commentary that follows is on a constant currency
basis.
New allowances for loan impairment charges
rose by 37 per cent compared with 2007. Releases
and recoveries of allowances declined by 10 per cent
to US$1.4 billion. Impaired loans were 3 per cent of
customer loans and advances at 31 December 2008,
compared with 2 per cent at 31 December 2007.
In Europe, new loan impairment charges were
US$4.0 billion, a rise of 24 per cent compared with
2007. Impaired loans increased by 32 per cent to
US$6.8 billion at 31 December 2008.
Loan impairment charges increased in Global
Banking and Markets following a significant charge
against a single European commercial real estate
corporate customer. Impairment charges against
banks rose in the UK due to exposure to the
Icelandic banks in 2008. New loan impairment
charges rose in Turkey as delinquency rates
increased across credit cards, personal loans and
corporate lending in light of the deteriorating
economic environment. Elsewhere, impairment
charges on the commercial portfolio rose in the UK,
particularly in the final quarter of 2008 as the
weakening property market led to higher impairment
charges against construction companies and
businesses dependent upon the real estate sector. In
France, the impact of declining commercial credit
quality more than offset lower balances. Impairment
allowances against firms in the financial sector rose
due to exposure to a single asset management firm in
the UK. Credit quality in the UK personal lending
portfolio remained broadly stable, reflecting the
strength of HSBC’s loan book in a period of
significant economic uncertainty. Mortgage lending
in the UK remained well secured as actions taken
since 2006 reduced risk exposure. Credit quality in
the unsecured portfolios of M&S Money, HSBC
Bank and Partnership Cards deteriorated slightly in
2008, particularly in the second half of the year, due
to the weakening UK economy.
Releases and recoveries in Europe declined by
27 per cent, driven by the deterioration in economic
conditions.
In Hong Kong, new loan impairment charges
more than doubled from a low base, driven by
deterioration in credit quality in the commercial
portfolio in the second half of the year as the
economy and trade flows weakened. Residential
mortgage lending continued to be well secured, as
regulatory restrictions constrained origination loan-
to-value ratios to below 70 per cent. Impaired loans
increased from a low base to US$852 million at
31 December 2008.
In Rest of Asia-Pacific, new loan impairment
charges rose to US$975 million, primarily in India
due to a combination of rising delinquency rates in
consumer lending as credit conditions deteriorated,
and increased lending.
In the Middle East, new loan impairment
charges rose from a low base to US$340 million, due
to rising delinquencies as growth rates declined and
the property market slowed as economic conditions
weakened because of lower oil and gas prices.
New loan impairment charges in North America
rose by 37 per cent to US$16.8 billion, driven by the
continued deterioration in credit quality in the HSBC
Finance loan portfolio and, to a lesser extent, in
HSBC USA. Impaired loans increased by 49 per cent
to US$14.3 billion at 31 December 2008.
US credit quality showed significant
deterioration across the portfolio, driven by the
continued weakness of the US economy. The reasons
behind the deterioration in US credit quality, the
effects on the US personal lending portfolio and
actions taken as a result are discussed in more detail
on page 221. Partly offsetting the effect of the
deterioration was a reduction in overall lending as
HSBC continued to reduce its exposure in the US.
In Commercial Banking, impairment charges
rose from a low base driven by deterioration in the
commercial real estate loan book in the US, and
higher impairment charges against firms in the
manufacturing, export and commercial real estate
sectors in Canada. Higher impairment charges in
Global Banking and Markets reflected weaker credit
fundamentals in the US in 2008. Impairment
allowances against firms in the financial sector rose
due to rising delinquencies, despite government
intervention.
Releases and recoveries in North America rose
by 55 per cent to US$180 million.
In Latin America, new loan impairment
charges rose by 37 per cent to US$2.8 billion.