HSBC 2003 Annual Report Download - page 53

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US$351 million in 2002. In Household and HSBC
Mexico, general provisions were augmented by
US$191 million due to growth in personal lending.
Excluding this, the net release of general provisions
of US$312 million was in line with that of 2002.
This reflected improved underlying economic
conditions, and progress made with refinancing and
restructuring problem credits.
The aggregate customer bad and doubtful debt
provisions at 31 December 2003 of US$13.7 billion
represented 2.66 per cent of gross customer advances
(net of suspended interest, reverse repos and
settlement accounts) compared with 2.68 per cent at
31 December 2002. As in 2003, HSBC cross-border
exposures did not necessitate significant provisions.
Non-performing loans (net of suspended
interest) of US$15 billion at 31 December 2003
included US$5 billion relating to Household’s loan
book. Excluding Household, and at constant
exchange rates, there was a decrease in the level of
non-performing loans (net of suspended interest) in
2003 compared with 2002 mainly as a result of the
write-off of loans from the legacy portfolio acquired
on the acquisition of HSBC Mexico.
Year ended 31 December 2002 compared with
year ended 31 December 2001
HSBC’ s customer loan portfolio continued to be
well-spread both geographically and across personal
and industrial sectors during 2002. The loan portfolio
at constant exchange rates and excluding loans to the
financial sector, grew by US$31.5 billion, or 11 per
cent, during 2002 of which US$9.4 billion, or 3 per
cent, arose from the acquisition of HSBC Mexico.
The personal loan sector of the Group’ s loan
portfolio increased to 42 per cent of the aggregate at
the end of 2002 compared with 40 per cent at the end
of 2001. At constant exchange rates, there was
growth of US$19.5 billion, mainly in Europe, North
America and Asia. Of this increase, US$14.2 billion
arose from residential mortgage lending.
Changes in the concentration risk and asset
quality of HSBC’s loan portfolio arose from the
incorporation of the domestic loan book of HSBC
Mexico. 13 per cent of HSBC Mexico’s loan book of
US$9.7 billion was non-performing, including
significant proportions of residential mortgage loans
and unsecured personal loans. These assets became
impaired during the Mexican economic crisis in the
late 1990s. In addition, approximately 40 per cent of
HSBC Mexico’s loan exposure was peso-
denominated Mexican Government risk. HSBC
Mexico also had impaired assets in the agricultural
and other government-supported sectors. These loan
assets were critically reviewed and provisions
restated where necessary to conform with the
requirements of both UK GAAP and US GAAP
during the fair value exercise undertaken as at the
date of acquisition of HSBC Mexico.
Excluding HSBC Mexico, there was a decrease
in the level of non-performing loans during 2002 of
US$350 million. This was due to a combination of
write-offs, recoveries and upgradings in Hong Kong
and a number of other Asian countries, partly offset
by a rise of US$813 million in non-performing loans
in Europe. The European increase came primarily
from a small number of individual corporate loans in
the telecommunications, private healthcare, leisure
and manufacturing sectors and was not indicative of
a general trend. Importantly, credit quality on
consumer lending remained stable. In South
America, in local currency terms, there was a sharp
increase in the level of individual Argentinian non-
performing loans as the effects of the economic crisis
manifested themselves. By the end of 2002, almost
three-quarters of the non-government loan book was
classified as non-performing. The impact of this was
recognised in the general provision established at the
end of 2001.
Aggregate customer bad and doubtful debt
provisions at 31 December 2002 of US$9.1 billion
represented 2.52 per cent of gross customer advances
compared with 2.57 per cent at 31 December 2001.
As in 2001, HSBC’s cross-border exposures did
not necessitate significant provisions.
There were no significant changes to the
Group’s procedures for determining the various
components of the provision for bad and doubtful
debts.