HSBC 2009 Annual Report Download - page 37

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reduction in liabilities to policyholders on unit-
linked and, to a certain extent, participating policies.
The decline arising from market value
movements was partially offset by an increase in
claims incurred and movement in liabilities to
policyholders driven by new business growth, most
significantly in France, the UK and Hong Kong. In
addition, 2007 was affected by the implementation
of an FSA regulatory change, which led to lower
gross liability valuations in that year, along with a
reduction in the corresponding reinsurers’ share.
A significant increase in the reinsurers’ share
of claims incurred and movement in liabilities to
policyholders was primarily driven by the above
regulatory change plus an increase in a reserve
provision on a unit-linked product in Hong Kong,
which was fully reinsured. In addition, a significant
one-off reinsurance transaction was undertaken in
France during 2008.
Loan impairment charges and other credit risk provisions
2009
US$m
2008
US$m
2007
US$m
Loan impairment charges
New allowances net of allowance releases ......................................................... 25,832 24,965 18,182
Recoveries of amounts previously written off .................................................... (890) (834) (1,005)
24,942 24,131 17,177
Individually assessed allowances ............................................................................ 4,458 2,064 796
Collectively assessed allowances ............................................................................ 20,484 22,067 16,381
Impairment of available-for-sale debt securities ..................................................... 1,474 737 44
Other credit risk provisions ..................................................................................... 72 69 21
Loan impairment charges and other credit risk provisions ..................................... 26,488 24,937 17,242
% % %
As a percentage of net operating income excluding the effect of fair value
movements in respect of credit spread on own debt and before loan
impairment charges and other credit risk provisions .......................................... 36.4 33.2 22.7
Impairment charges on loans and advances to customers as a percentage of
gross average loans and advances to customers ................................................. 2.8 2.5 2.0
US$m US$m US$m
Customer impaired loans ......................................................................................... 30,606 25,352 19,582
Customer loan impairment allowances ................................................................... 25,542 23,909 19,205
2009 compared with 2008
Reported loan impairment charges and other credit
risk provisions were US$26.5 billion in 2009, an
increase of 6 per cent over 2008, 9 per cent on an
underlying basis. Within this, collectively assessed
allowances declined while individually assessed
impairment allowances continued to increase.
HSBC’s aggregate outstanding customer loan
impairment allowances at 31 December 2009 of
US$25.5 billion represented 3 per cent of gross
customer advances (net of reverse repos and
settlement accounts), compared with 2.6 per cent at
the end of 2008.
Loan impairment charges declined in certain
businesses, notably Personal Financial Services in
North America and Commercial Banking in Hong
Kong, but this was more than offset by increases
elsewhere, primarily on individually significant
loans within Global Banking and Markets and more
broadly on Commercial Banking exposures outside
Hong Kong as the global economic downturn
adversely affected the ability of many customers to
service their loan commitments. As a consequence,
loan impairment charges rose despite an underlying
9 per cent decline in gross loans and advances to
customers which was driven mainly by the run-off
of the US consumer finance portfolios.
In the US Personal Financial Services business,
loan impairment charges declined by 11 per cent to
US$14.2 billion, as additional delinquencies due to
the continued deterioration in the US economy were
more than offset by the effect of lower balances in
the run-off portfolios in HSBC Finance.
In HSBC Finance, loan impairment charges
decreased by 12 per cent. The reduction arose in
most portfolios, but mainly in Mortgage Services as
the portfolio continued to run off. In Consumer
Lending, loan impairment charges increased,
particularly in the unsecured personal lending
portfolio, due to a deterioration in the 2006 and 2007
vintages and, to a lesser extent, first lien real estate
secured loans, which was partly offset by lower loan