HSBC 2011 Annual Report Download - page 148

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Collateral
146
The collateral included in the table above
consists of fixed first charges on real estate and
charges over cash for the commercial real estate
sector.
Facilities are disclosed as not collateralised for
this sector if they are unsecured or benefit from
credit risk mitigation from guarantees, which are
not quantified for the purposes of this disclosure.
Lending to major property companies in Hong
Kong is, by market practice, typically secured by
guarantees or is unsecured. In Europe, facilities of
a working capital nature are generally not secured
by a first fixed charge and are therefore disclosed
as not collateralised.
The value of commercial real estate collateral is
determined through a combination of professional
and internal valuations and physical inspection.
Due to the complexity of collateral valuations for
commercial real estate, local valuation policies
determine the frequency of review based on local
market conditions. Revaluations are sought with
greater frequency where, as part of the regular credit
assessment of the obligor, material concerns arise in
relation to the transaction which may reflect on the
underlying performance of the collateral, or in
circumstances where an obligor’s credit quality
has declined sufficiently to cause concern that the
principal payment source may not fully meet the
obligation (i.e. the obligor’s credit quality
classification indicates it is at the lower end e.g.
sub-standard, or approaching impaired).
Other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level of
collateral
(Audited)
Europe
Hong
Kong
Rest of
Asia-Pacific MENA
North
America
Latin
America Total
US$m US$m US$m US$m US$m US$m US$m
At 31 December 2011
Rated CRR/EL 8 to 10 ................ 8,715 512 1,098 2,253 2,448 2,538 17,564
Not collateralised .................... 5,583 349 795 1,695 801 1,546 10,769
Fully collateralised ................. 1,765 63 147 60 441 602 3,078
Partially collateralised (A) ...... 1,367 100 156 498 1,206 390 3,717
– collateral value on A ........ 558 55 76 103 541 214 1,547
At 31 December 2010
Rated CRR/EL 8 to 10 ................ 11,962 675 1,256 2,336 2,947 1,902 21,078
Not collateralised .................... 8,363 489 933 1,779 1,059 843 13,466
Fully collateralised ................. 1,903 51 142 60 670 854 3,680
Partially collateralised (B)....... 1,696 135 181 497 1,218 205 3,932
– collateral value on B ....... 627 81 80 103 422 114 1,427
The collateral used in the assessment of the
above primarily includes first legal charges over real
estate and charges over cash in the commercial and
industrial sector, and charges over cash and
marketable financial instruments in the financial
sector. Government sector lending is generally
unsecured.
It should be noted that the table above excludes
other types of collateral which are commonly taken
for corporate and commercial lending such as
unsupported guarantees and floating charges over
the assets of a customer’s business. While such
mitigants have value, often providing rights in
insolvency, their assignable value is insufficiently
certain and they are assigned no value for disclosure
purposes.
As with commercial real estate, the value of
real estate collateral included in the table above is
generally determined through a combination of
professional and internal valuations and physical
inspection. The frequency of revaluation is
undertaken on a similar basis to commercial real
estate loans and advances; however, for financing
activities in corporate and commercial lending that
are not predominantly commercial real estate-
oriented, collateral value is not as strongly correlated
to principal repayment performance. Collateral
values will generally be refreshed when an obligor’s
general credit performance deteriorates and it is
necessary to assess the likely performance of
secondary sources of repayment should reliance
upon them prove necessary. For this reason, the table
above reports values only for customers with CRR 8
to 10, reflecting that these loans and advances
generally have valuations which are of comparatively
recent vintage. For the purposes of the table above,
cash is valued at its nominal value and marketable
securities at their fair value.
The difference between the collateral value and
the value of partially collateralised lending disclosed
in the tables above cannot be directly compared to