HSBC 2010 Annual Report Download - page 116

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Credit risk > Areas of special interest > Forbearance strategies / Collateral // Credit quality > Financial instruments
114
Renegotiated loans totalled US$35bn at
31 December 2010 (2009: US$39bn). The largest
concentration was in the US and amounted to
US$28bn (2009: US$33bn) or 82% (2009: 86%) of
our total renegotiated loans, substantially all of
which was held by HSBC Finance.
HSBC Finance loan modifications and re-ageing
(Unaudited)
HSBC Finance continued to refine its customer
account management policies and practices, including
account modification and re-age programmes.
Modification occurs when the terms of a loan are
modified either temporarily or permanently.
Modification may also lead to a re-ageing of the
account. In 2010, HSBC Finance modified
42,500 loans with an aggregate balance of US$6.0bn
in Consumer Lending and Mortgage Services through
the foreclosure avoidance and account modification
programmes.
At 31 December 2010, the total balance
outstanding on HSBC Finance real estate secured
accounts which have been re-aged or modified was
US$26.7bn, compared with US$30.2bn at the end of
2009. US$10.6bn relates to loans that had been
re-aged without modification to the terms (2009:
US$11.1bn), and US$13.9bn relates to loans whose
terms have been modified and have been re-aged
(2009: US$15.7bn). These amounts are included in
the renegotiated loans balance disclosed above. In
addition, US$2.2bn of loans have been modified but
not re-aged (2009: US$3.4bn) and as such do not
meet the definition of a renegotiated loan as the
impairment or past-due status of the loans did not
change on modification. At 31 December 2010,
62% of modified or re-aged real estate loans
remained up-to-date or past due less than 30 days
(2009: 61%) and 26% were two or more months
delinquent (2009: 26%).
Collateral and other credit enhancements
obtained
(Audited)
We obtained assets by taking possession of collateral
held as security, or calling upon other credit
enhancements, as follows:
Carrying amount
obtained in:
2010 2009
US$m US$m
Nature of assets
Residential property ..................... 2,052 1,587
Commercial and industrial
property .................................... 61 93
Other ............................................ 119 355
2,232 2,035
We make repossessed properties available for
sale in an orderly fashion, with the proceeds used to
reduce or repay the outstanding indebtedness. If
excess funds arise after the debt has been repaid,
they are made available either to repay other secured
lenders with lower priority or are returned to the
customer. We do not generally occupy repossessed
properties for our business use.
Credit quality of financial instruments
(Audited)
The five credit quality classifications defined below
each encompass a range of more granular internal
credit rating grades assigned to wholesale and retail
lending business, as well as the external ratings
attributed by external agencies to debt securities.
There is no direct correlation between the internal
and external ratings at a granular level, except to
the extent each falls within a single quality
classification.
Risk rating scales
Credit quality classification
(Unaudited)
Debt securities
and other bills Wholesale lending and derivatives Retail lending
Quality
classification
External
credit rating Internal credit rating
Probability of
default %
Internal
credit rating25 Expected loss %
Strong ................................. A– and above CRR1 to CRR2 0 – 0.169 EL1 to EL2 0 – 0.999
Good .................................. BBB+ to BBB– CRR3 0.170 – 0.740 EL3 1.000 – 4.999
Satisfactory ........................ BB+ to B+
and unrated CRR4 to CRR5 0.741 – 4.914 EL4 to EL5 5.000– 19.999
Sub-standard ...................... B and below CRR6 to CRR8 4.915 – 99.999 EL6 to EL8 20.000 – 99.999
Impaired ............................. Impaired CRR9 to CRR10 100 EL9 to EL10 100+ or defaulted26
For footnotes, see page 174.