HSBC 2009 Annual Report Download - page 294

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Footnotes
292
14 HSBC Finance lending is shown on a management basis and includes loans transferred to HSBC USA Inc. which are managed by
HSBC Finance.
15 As discussed further under ‘Write-off of loans and advances’ on page 205, there was a change in the write-off policy in North America
during 2009. The effect of this change was a one-off acceleration of write-offs. Excluding this, HSBC Finance mortgage lending at
31 December 2009 totalled US$63,724 million, of which US$52,914 million was fixed rate, US$9,537 million was adjustable rate and
US$1,274 million was interest only. Of the total, US$55,625 million was first lien and US$8,098 million was second lien.
16 Stated income lending forms a subset of total mortgage services lending across all categories.
17 By states which individually account for 5 per cent or more of HSBC Finance’s US customer loan portfolio.
18 Percentages are expressed as a function of the relevant loans and receivables balance.
19 The average loss on sale of foreclosed properties is calculated as cash proceeds after deducting selling costs and commissions, minus
the book value of the property when it was moved to ‘Real estate owned’, divided by the book value of the property when it was moved
to ‘Real estate owned’.
20 The average total loss on foreclosed properties sold during each quarter includes both the loss on sale and the cumulative write-downs
recognised on the loans up to and upon classification as ‘Real estate owned’. This average total loss on foreclosed properties is
expressed as a percentage of the book value of the property prior to its transfer to ‘Real estate owners’.
21 HSBC observes the disclosure convention that, in addition to those classified as EL9 to EL10, retail accounts classified EL1 to EL8 that
are delinquent by 90 days or more are considered impaired, unless individually they have been assessed as not impaired (see page 229,
‘Past due but not impaired financial instruments’).
22 The EL percentage is derived through a combination of PD and LGD, and may exceed 100 per cent in circumstances where the LGD is
above 100 per cent reflecting the cost of recoveries.
23 Impairment allowances are not reported for financial instruments whereby the carrying amount is reduced directly for impairment and
not through the use of an allowance account.
24 Impairment is not measured for assets held in trading portfolios or designated at fair value as assets in such portfolios are managed
according to movements in fair value, and the fair value movement is taken directly to the income statement. Consequently, all such
balances are reported under ‘Neither past due nor impaired’.
25 Includes asset-backed securities that have been externally rated as strong (2009: US$5,707 million; 2008: US$7,991 million), medium-
good (2009: US$881 million; 2008: nil), medium-satisfactory (2009: US$311 million; 2008: nil), sub-standard (2009: US$468 million;
2008: nil) and impaired (2009: US$460 million; 2008: nil).
26 The balances reported at 31 December 2008 for individually and collectively assessed impaired loans and advances to customers have
been restated by US$1.0 billion as a result of a reclassification, for disclosure purposes, of an element of a mortgage portfolio. There
has been no change to total impaired loans or total impairment allowances.
27 Impaired loans and advances are those classified as CRR 9, CRR 10, EL 9 or EL 10 and all retail loans 90 days or more past due,
unless individually they have been assessed as not impaired (see page 229, ‘Past due but not impaired financial instruments’).
28 Collectively assessed loans and advances comprise homogeneous groups of loans that are not considered individually significant, and
loans subject to individual assessment where no impairment has been identified on an individual basis, but on which a collective
impairment allowance has been calculated to reflect losses which have been incurred but not yet identified.
29 Collectively assessed loans and advances not impaired are those classified as CRR1 to CRR8 and EL1 to EL8 but excluding retail loans
90 days past due.
30 The impairment allowances on loans and advances to banks relate to the geographical regions, Europe and Middle East.
31 Net of reverse repo transactions, settlement accounts and stock borrowings.
32 As a percentage of loans and advances to banks and loans and advances to customers, as applicable.
33 Includes movement in impairment allowances against banks.
34 See table below ‘Net loan impairment charge to the income statement by geographical region’.
35 Collectively assessed impairment allowances are allocated to geographical segments based on the location of the office booking the
allowances or provisions. Consequently, the collectively assessed impairment allowances booked in Hong Kong may cover assets
booked in branches located outside Hong Kong, principally in Rest of Asia-Pacific, as well as those booked in Hong Kong.
36 Ratio excludes trading loans classified as in default.
Liquidity and funding
37 This comprises the Group’s other main banking subsidiaries and, as such, includes businesses spread across a range of locations, in
many of which HSBC may require a higher ratio of net liquid assets to customer liabilities to reflect local market conditions.
38 Unused committed sources of secured funding for which eligible assets were held.
39 Client-originated asset exposures relate to consolidated multi-seller conduits (see page 191). These vehicles provide funding to Group
customers by issuing debt secured by a diversified pool of customer-originated assets.
40 HSBC-managed asset exposures relate to consolidated securities investment conduits, primarily Solitaire and Mazarin (see page 191).
These vehicles issue debt secured by ABSs which are managed by HSBC. Of the total contingent liquidity risk under this category,
US$18.7 billion was already funded on-balance sheet at 31 December 2009 (2008: US$25.3 billion) leaving a net contingent exposure
of US$10.4 billion (2008: US$9.5 billion).
41 Other conduit exposures relate to third-party sponsored conduits (see page 194).
42 The five largest committed liquidity facilities provided to customers other than those facilities to conduits.
43 The total of all committed liquidity facilities provided to the largest market sector, other than those facilities to conduits.
Market risk
44 The structural foreign exchange risk is monitored using sensitivity analysis (see page 455). The reporting of commodity risk is
consolidated with foreign exchange risk and is not applicable to non-trading portfolios.
45 The interest rate risk on the fixed-rate securities issued by HSBC Holdings is not included in the Group VAR. The management of this
risk is described on page 258.
46 Credit spread sensitivity is reported separately for insurance operations (see page 277).
47 The effect of any month-end adjustments, not attributable to a specific daily market move, is spread evenly over the days in the month in
question.
48 The total VAR is non-additive across risk types due to diversification effects.