HSBC 2012 Annual Report Download - page 168

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Collateral / Impairment of loans and advances
166
purposes of this disclosure. In Hong Kong, market
practice is for lending to major property companies
to be typically secured by guarantees or 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 valuing collateral for
commercial real estate, local valuation policies
determine the frequency of review based on local
market conditions. Revaluations are sought with
greater frequency when, 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,
that is sub-standard, or approaching impaired).
Where such concerns exist the revaluation method
selected will depend upon the loan-to-value
relationship, the direction in which the local
commercial real estate market has moved since the
last valuation and, most importantly, the specific
characteristics of the underlying commercial real
estate which is of concern.
Other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level of
collateral rated CRR/EL 8 to 10 only
(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
Not collateralised ........................ 5,110 260 572 1,186 533 1,023 8,684
Fully collateralised ..................... 1,463 82 146 132 478 284 2,585
LTV ratio:
– less than 25% ....................... 77 3 11 –11 68 170
– 25% to 50% ......................... 192 4 62 6 49 84 397
– 51% to 75% ......................... 290 39 31 33 131 61 585
– 76% to 90% ......................... 196 24 11 18 96 17 362
– 91% to 100% ....................... 708 12 31 75 191 54 1,071
Partially collateralised (A)........... 1,106 84 251 828 753 273 3,295
– collateral value on A ................ 628 41 89 124 359 108 1,349
7,679 426 969 2,146 1,764 1,580 14,564
At 31 December 2011
Not collateralised ........................ 5,583 349 795 1,695 801 1,546 10,769
Fully collateralised ..................... 1,765 63 147 60 441 602 3,078
LTV ratio:
– less than 25% ....................... 173 4 10 3 16 106 312
– 25% to 50% ......................... 274 47 29 3 38 74 465
– 51% to 75% ......................... 587 11 32 31 51 96 808
– 76% to 90% ......................... 153 – 32 20 128 21 354
– 91% to 100% ....................... 578 1 44 3 208 305 1,139
Partially collateralised (B)........... 1,367 100 156 498 1,206 390 3,717
– collateral value on B ................ 558 55 76 103 541 214 1,547
8,715 512 1,098 2,253 2,448 2,538 17,564
The collateral used in the assessment of the
above lending 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