HSBC 2015 Annual Report Download - page 140

Report of the Directors: Risk (continued)
Credit risk
HSBC HOLDINGS PLC
138
Commercial real estate loans and advances maturity analysis
Europe Asia MENA
North
America
Latin
America Total
$m $m $m $m $m $m
On demand, overdrafts or revolving
< 1 year13 6,830 8,811 252 2,992 694 19,579
1-2 years 4,367 5,934 66 939 102 11,408
2-5 years 11,459 11,399 235 2,037 138 25,268
> 5 years 3,600 6,227 137 1,064 643 11,671
At 31 December 2015 26,256 32,371 690 7,032 1,577 67,926
On demand, overdrafts or revolving
< 1 year13 7,382 9,810 264 1,855 1,325 20,636
1-2 years 4,643 6,689 24 1,158 205 12,719
2-5 years 11,686 12,156 156 2,131 320 26,449
> 5 years 4,476 7,023 135 1,414 441 13,489
At 31 December 2014 28,187 35,678 579 6,558 2,291 73,293
For footnote, see page 191.
Collateral on loans and advances
Collateral held is analysed separately below for commercial
real estate and for other corporate, commercial and
financial (non-bank) lending. This reflects the greater
correlation between collateral performance and principal
repayment in the commercial real estate sector than
applies to other lending. In each case, the analysis includes
off-balance sheet loan commitments, primarily undrawn
credit lines.
The collateral measured in the tables below consists of
fixed first charges on real estate and charges over cash and
marketable financial instruments. The values in the tables
represent the expected market value on an open market
basis; no adjustment has been made to the collateral for
any expected costs of recovery. Cash is valued at its
nominal value and marketable securities at their fair
value. The LTV ratios presented are calculated by directly
associating loans and advances with the collateral that
individually and uniquely supports each facility. When
collateral assets are shared by multiple loans and advances,
whether specifically or, more generally, by way of an all
monies charge, the collateral value is pro-rated across
the loans and advances protected by the collateral.
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 are not measured in the tables below.
While such mitigants have value, often providing rights in
insolvency, their assignable value is not sufficiently certain
and they are therefore assigned no value for disclosure
purposes.
For impaired loans the collateral values cannot be directly
compared with impairment allowances recognised. The LTV
tables below use open market values with no adjustments.
Impairment allowances are calculated on a different basis,
by considering other cash flows and adjusting collateral
values for costs of realising collateral as explained further
on page 202.
Commercial real estate loans and advances
The value of commercial real estate collateral is determined
by using a combination of professional and internal valuations
and physical inspections. Due to the complexity of valuing
collateral for commercial real estate, local valuation policies
determine the frequency of review on the basis of local market
conditions. Revaluations are sought with greater frequency as
concerns over the performance of the collateral or the direct
obligor increase. Revaluations may also be sought where
customers amend their banking requirements, resulting in
the Group extending further funds or other significant
rearrangements of exposure or collateral, which may change
the customer risk profile. As a result, the real estate collateral
values used for CRR1-7 might date back to the last point at
which such considerations applied. For CRR 8 and 9-10 almost
all collateral would have been revalued within the last
three years.
In Hong Kong, market practice is typically for lending
to major property companies to be either 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.