HSBC 2012 Annual Report Download - page 166

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Collateral
164
for these larger, more complex, geographically
distributed customer groups. While the principal
form of risk management continues to be at the
point of exposure origination, through the lending
decision-making process, Global Banking also
utilises loan sales and credit default swap (‘CDS’)
hedges to manage concentrations and reduce risk.
These transactions are the responsibility of a
dedicated Global Banking portfolio management
team. Hedging activity is carried out within agreed
credit parameters, and is subject to market risk limits
and a robust governance structure. CDS mitigants
are held at portfolio level and are not reported in the
presentation below.
Personal lending
Residential mortgage loans 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 2012
Fully collateralised ..................... 141,673 53,478 43,662 2,106 59,799 5,193 305,911
Loan to value (‘LTV’) ratio:
– less than 25% ....................... 11,733 8,090 4,438 125 3,703 319 28,408
– 25% to 50% ......................... 36,038 30,155 12,752 623 10,934 1,522 92,022
– 51% to 75% ......................... 60,395 12,770 19,625 1,001 26,582 2,295 122,668
– 76% to 90% ......................... 27,118 1,931 6,195 189 12,307 871 48,611
– 91% to 100% ....................... 6,389 532 652 168 6,273 186 14,200
Partially collateralised:
– greater than 100% LTV ....... 2,967 2 376 85 10,210 16 13,656
– collateral value .................... 2,565 1323 76 8,684 12 11,661
Total residential mortgages ......... 144,640 53,480 44,038 2,191 70,009 5,209 319,567
At 31 December 2011
Fully collateralised ..................... 125,702 46,532 38,381 1,761 60,794 4,891 278,061
LTV ratio:
– less than 25% ...................... 9,898 5,364 2,383 58 3,576 282 21,561
– 25% to 50% ......................... 31,601 19,643 9,978 336 10,593 1,350 73,501
– 51% to 75% ......................... 52,656 17,748 18,006 895 25,138 2,221 116,664
– 76% to 90% ......................... 23,919 2,884 7,624 304 13,590 876 49,197
– 91% to 100% ....................... 7,628 893 390 168 7,897 162 17,138
Partially collateralised:
– greater than 100% LTV ....... 3,275 484 295 174 12,503 102 16,833
– collateral value .................... 2,821 466 37 135 10,566 24 14,049
Total residential mortgages ......... 128,977 47,016 38,676 1,935 73,297 4,993 294,894
The above table shows residential mortgage lending
including off-balance sheet loan commitments by
level of collateral. Off-balance sheet commitments
include loans that have been approved but which the
customer has not yet drawn, and the undrawn portion
of loans that have a flexible drawdown facility such
as the offset mortgage product. The collateral
included in the table above consists of first charges
on real estate.
The LTV ratio is calculated as the gross on-
balance sheet carrying amount of the loan and any
off-balance sheet loan commitment at the balance
sheet date divided by the value of collateral. The
methodologies for obtaining residential property
collateral values vary throughout the Group, but
are typically determined through a combination
of professional appraisals, house price indices or
statistical analysis. Valuations must be updated on
a regular basis and, as a minimum, at intervals of
every three years. Valuations are conducted more
frequently when market conditions or portfolio
performance are subject to significant change or
when a loan is identified and assessed as impaired.
The LTV ratio bandings are consistent with
our internal risk management reporting. While we
do have mortgages in the higher LTV bands, our
appetite for such lending is restricted and the larger
portion of our portfolio is concentrated in the lower
risk LTV bandings of 75% and below.
Other personal lending
Other personal lending consists primarily of
overdrafts, credit cards and second lien mortgage
portfolios. Second lien lending is supported by