HSBC 2012 Annual Report Download - page 254

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Appendix – Risk policies and practices > Risk governance / Credit risk
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Appendix to Risk
Risk policies and practices
This appendix describes the significant policies and practices employed by HSBC in managing our credit risk, liquidity
and funding, market risk, operational risk (including compliance risk, legal risk and fiduciary risk), insurance risk,
reputational risk, pension risk and sustainability risk.
Risk governance
(Unaudited)
Our strong risk governance reflects the importance placed by the Board on shaping the Group’s risk strategy and
managing risks effectively. It is supported by a clear policy framework of risk ownership, by the cascading from
the Group Management Board (‘GMB’) of performance scorecards that align business and risk objectives, and
by the accountability of all staff for identifying, assessing and managing risks within the scope of their assigned
responsibilities. This personal accountability, reinforced by the governance structure, experience and mandatory
learning, helps to foster a disciplined and constructive culture of risk management and control throughout HSBC.
Credit risk
Credit risk management
(Audited)
The role of an independent credit control unit is fulfilled by the Global Risk function. Credit approval authorities
are delegated by the Board to certain executive officers of HSBC Holdings plc. Similar credit approval authorities
are delegated by the boards of subsidiary companies to executive officers of the relevant subsidiaries. In each
major subsidiary, a Chief Risk Officer reports to the local Chief Executive Officer on credit-related issues, while
maintaining a direct functional reporting line to the Group Chief Risk Officer in Global Risk. Details of the roles
and responsibilities of the credit risk management function and the policies and procedures for managing credit risk
are set out below. Apart from the creation of a new Group Models Oversight Committee and supportive framework
there were no significant changes in 2012.
The high-level oversight and management of credit risk provided globally by the Credit Risk function in Global Risk
• to formulate Group credit policy. Compliance, subject to approved dispensations, is mandatory for all operating companies which must
develop local credit policies consistent with Group policies;
• to guide operating companies on our appetite for credit risk exposure to specified market sectors, activities and banking products and
controlling exposures to certain higher-risk sectors;
• to undertake an independent review and objective assessment of risk. Global Risk assesses all commercial non-bank credit facilities and
exposures over designated limits, prior to the facilities being committed to customers or transactions being undertaken;
• to monitor the performance and management of portfolios across the Group;
• to control exposure to sovereign entities, banks and other financial institutions, as well as debt securities which are not held solely for the
purpose of trading;
• to set Group policy on large credit exposures, ensuring that concentrations of exposure by counterparty, sector or geography do not
become excessive in relation to our capital base, and remain within internal and regulatory limits;
• to control our cross-border exposures (see page 259);
• to maintain and develop our risk rating framework and systems, the governance of which is under the general oversight of the Group
Model Oversight Committee (‘MOC’). The Group MOC meets bi-monthly and reports to the Risk Management Meeting. It is chaired by
the risk function and its membership is drawn from Global Risk and global businesses;
• to report to the Risk Management Meeting, the Group Risk Committee and the Board on high risk portfolios, risk concentrations,
country limits and cross-border exposures, large impaired accounts, impairment allowances, stress testing results and recommendations
and retail portfolio performance; and
• to act on behalf of HSBC Holdings as the primary interface, for credit-related issues, with the Bank of England, the FSA, local
regulators, rating agencies, analysts and counterparts in major banks and non-bank financial institutions.