HSBC 2003 Annual Report Download - page 143

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recover specific provisions and then suspended
interest.
Charge-offs
Loans (and the related provisions) are normally
charged off, either partially or in full, when there is
no realistic prospect of recovery of these amounts
and when the proceeds from the realisation of
security have been received. Unsecured consumer
facilities are charged off between 150 and 210 days
overdue. In the case of Household, this period is
generally extended to 300 days overdue (270 days
for secured products) and collections can continue
for up to 360 days post default where it is expected
to improve recovery rates. In the case of bankruptcy,
charge-off can occur earlier.
US banks typically write off problem lending
more quickly than is the practice in the UK. This
approach means that HSBC’s reported level of credit
risk elements and associated provisions are likely to
be higher than for comparable US banks.
Restructuring of loans
Restructuring activity is designed to maximise cash
recovery on accounts which are overdue, by slowing
down the formal steps in collection management to
allow qualifying customers to repair or renegotiate
satisfactory maintenance of their accounts. This will
normally involve resetting an overdue consumer
account to current status following an agreed
restructuring. Restructuring is typically utilised to
assist customers who have suffered from a lifestyle
event such as redundancy, divorce or illness, to
manage their obligations while they adjust to their
new circumstances. Restructuring policies and
practices are based on indicators, or criteria, which,
in the judgement of local management, evidence
continued payment probability. These policies are
continually reviewed and their application varies
depending upon the nature of the market, the product
and the availability of empirically based data. Where
empirical evidence indicates an increased propensity
to default on restructured accounts, and roll rate
methodologies are deployed in the calculation of
provisions, the provisioning methodology reflects the
increased propensity of such accounts to default.
Restructuring activity is used most commonly
within consumer finance portfolios. The largest
concentration is domiciled in the US in Household.
The majority of restructured amounts related to
secured lending.
In addition to restructuring, HSBC’s consumer
lending businesses, principally Household, use other
account management techniques on a more limited
basis, such as extended payment arrangements,
approved external debt management plans, deferring
foreclosure, modification, loan rewrites and/or
deferral of payments pending a change in
circumstances. When using such techniques,
accounts may be treated as current, although if
payment difficulties are subsequently experienced,
they will be redesignated as delinquent. At
31 December 2003, the total value of accounts which
have been either restructured or subject to other
account management techniques was US$18 billion
or some 15 per cent of the Household loan book.
Assets acquired
Assets acquired in exchange for advances in order to
achieve an orderly realisation continue to be reported
as advances. The asset acquired is recorded at the
carrying value of the advance disposed of at the date
of the exchange and subsequent provisions are based
on any further deterioration in value.
Loan portfolio
Loans and advances to customers are well spread
across the various industrial sectors, as well as
geographically.
At constant exchange rates, loans and advances
to customers (excluding the finance sector and
settlement accounts) grew by US$145 billion, or
41 per cent, during 2003 of which US$108 billion, or
31 per cent, related to the acquisition of Household.
As a result, personal lending comprised 56 per cent
of HSBC’s loan portfolio and over 90 per cent of the
growth in loans in 2003 (excluding the financial
sector) related to personal and consumer lending.