HSBC 2008 Annual Report Download - page 235

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All of the derivative transactions are with HSBC
undertakings which are banking counterparties
(2007: 100 per cent).
The credit quality of loans and advances to
HSBC undertakings is assessed as satisfactory risk,
with 100 per cent of the exposure being neither past
due nor impaired (2007: 100 per cent).
The long-term debt ratings of HSBC Group
issuers of financial investments are within the
Standard & Poor’s ratings range of AA– to AA+
(2007: AA– to AA+).
Risk elements in the loan portfolio
(Unaudited)
The disclosure of credit risk elements under the
following headings reflects US accounting practice
and classifications for publicly traded bank holding
companies:
• loans accounted for on a non-accrual basis;
• accruing loans contractually past due 90 days
or more as to interest or principal; and
• troubled debt restructurings not included in
the above.
Interest forgone on impaired loans
(Audited)
Interest income that would have been recognised
under the original terms of impaired and restructured
loans amounted to approximately US$1.9 billion
in 2008 (2007: US$1.1 billion). Interest income from
such loans of approximately US$702 million (2007:
US$374 million) was recorded in 2008.
Troubled debt restructurings
The SEC requires separate disclosure of any loans
whose terms have been modified because of
problems with the borrower to grant concessions
other than are warranted by market conditions. These
are classified as ‘troubled debt restructurings’
(TDRs). The definition of TDRs differs from the
‘Renegotiated loans that would otherwise be past
due or impaired’ quantified on page 216 insofar as
for TDRs the delinquency status of the loan
following restructuring may continue to be past due
not impaired or, where appropriate, impaired. In
addition, the classification of a loan as a TDR may
be discontinued after the first year if the debt
performs in accordance with the new terms.
Troubled debt restructurings increased by 47 per
cent in 2008, reflecting measures taken to mitigate
risk in the US consumer finance business in response
to the deterioration in mortgage loans.
Unimpaired loans past due 90 days or more
Unimpaired loans contractually past due 90 days or
more increased. Figures for 2004 to 2007 have been
restated due to the reclassification of an element of
the North America credit card portfolio as impaired.
There has been no effect on impairment allowances.
Impaired loans
In accordance with IFRSs, HSBC recognises interest
income on assets after they have been written down
as a result of an impairment loss. In the following
tables, HSBC represents information on its impaired
loans and advances in accordance with the disclosure
convention described on page 217.
Potential problem loans
Credit risk elements also cover potential problem
loans. These are loans where information on
possible credit problems among borrowers causes
management to seriously doubt their ability to
comply with the loan repayment terms. There are no
potential problem loans other than those identified in
the table of risk elements set out below, and as
discussed in ‘Areas of special interest’ on page 210.
‘Areas of special interest’ includes further disclosure
about certain homogeneous groups of loans which
are collectively assessed for impairment, and
represent the Group’s most significant exposures to
potential problem loans, including ARMs and stated-
income products. Collectively assessed loans and
advances, as set out on page 223, although not
classified as impaired until more than 90 days, are
assessed collectively for losses that have been
incurred but have not yet been individually
identified. This policy is further described on
page 196.
Risk elements
The following table provides an analysis of risk
elements in the loan portfolios at 31 December for
the past five years.