HSBC 2011 Annual Report Download - page 122

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Areas of special interest > Personal lending
120
loans; and debt consolidation loans which may be
secured or unsecured.
Group credit policy prescribes the range of
acceptable residential property LTV thresholds with
the acceptable maximum upper limit for new loans
set between 75% and 95%. Specific LTV thresholds
and debt-to-income ratios are managed at regional
and country levels and, although such parameters
must adhere with Group policy, strategy and risk
appetite, they differ in the various locations in which
we operate in order to reflect different economic and
housing market conditions, regulations, portfolio
performance, pricing and other product features.
In 2011, credit quality in most personal lending
portfolios improved, reflecting a recovery of
economic conditions in many markets. Loan
impairment charges declined, particularly in those
countries which had previously been most affected
by rising unemployment and house price
depreciation.
In recent years, the Group has undertaken
a review of consumer finance activities and has
reduced the sale of consumer finance and higher-risk
personal lending products in favour of lower-risk
facilities and loans secured by owner-occupied
residential properties. Most notably, we have
curtailed the use of third party sales agents for
lending products and the sale of second lien
mortgages has been significantly restricted,
contributing to the balance reductions set out on
page 123. Individual businesses continue to monitor,
review and amend their debt-to-income ratios, LTV
thresholds and other lending criteria to reflect risk
appetite, portfolio performance and regulatory
requirements in different countries.
In the US, the origination of new personal
lending is extremely limited as we have
progressively closed the consumer finance
distribution network since 2007, completely
discontinuing all new consumer finance real estate
originations following the closure of the Consumer
Lending branch network at the beginning of 2009.
As a result, we are managing sizeable reductions in
customer balances across HSBC Finance portfolios
as detailed on page 122.
In the UK, we reduced our risk appetite.
Underwriting was enhanced across all UK
businesses, most notably through the use of
improved credit bureau information and the
centralisation of the approval process. A range of
account management tools were deployed with the
aim of identifying and supporting customers who
appear to be encountering financial hardship.
In Hong Kong, we adopted more conservative
LTV thresholds and debt-to-income ratios, partially
in response to regulatory requirements, and
increased our focus on offering lending products
to our existing customer base, particularly within
the higher quality Premier and Advance segments.
The commentary that follows is on a constant
currency basis.
At 31 December 2011, total personal lending
was US$394bn, 6% lower than at 31 December
2010. Excluding the reclassification of balances held
for sale, total personal lending grew, primarily in the
UK and Hong Kong residential mortgage segment.
Within our personal lending portfolios, total loan
impairment charges of US$9.3bn were 18% lower
than in 2010 with the most significant fall in the US
reflecting the continued run-off of the CML portfolio
and lower balances and improved delinquency rates
in our Card and Retail Services business.
Total personal lending in the UK increased by
4% from 31 December 2010 to US$133bn, due to an
increase in residential mortgage balances, driven by
successful marketing initiatives and competitive
pricing focused on our target customers. (UK
mortgage lending is discussed in greater detail on
page 122). This was partly offset by a 13% fall in
other personal lending balances, reflecting the
continued shift from unsecured products such as
credit cards and personal loans.
In Hong Kong, total personal lending grew by
10% to US$63bn, due to growth in residential
mortgage lending, mainly in the first half of 2011.
Personal lending balances in Rest of Asia-Pacific
also reflected a strong property sector with
residential mortgage lending growth of 13%, most
notably in Singapore and Australia.
Total personal lending in the US at 31 December
2011 was US$67bn, a decrease of 39% compared
with the end of 2010 reflecting the reclassification
of balances to held for sale and the run-off of the
CML portfolio.
For an analysis of loan impairment allowances
and impaired loans, see page 134.