Last checked at 18 Mar 2016 16:42
Europe | Asia | MENA | North America | Latin America | Total | |||||||
$m | $m | $m | $m | $m | $m | |||||||
| ||||||||||||
Individually assessed impairment allowances | 617 | 351 | 32 | 190 | 590 | 1,780 | ||||||
- new allowances | 1,112 | 542 | 134 | 298 | 738 | 2,824 | ||||||
- release of allowances no longer required | (486) | (171) | (95) | (88) | (90) | (930) | ||||||
- recoveries of amounts previously written off | (9) | (20) | (7) | (20) | (58) | (114) | ||||||
Collectively assessed impairment allowances10 | 462 | 293 | (33) | 110 | 1,443 | 2,275 | ||||||
- new allowances net of allowance releases | 757 | 426 | 2 | 205 | 1,726 | 3,116 | ||||||
- recoveries of amounts previously written off | (295) | (133) | (35) | (95) | (283) | (841) | ||||||
Total loan impairment charge for the year ended31 December 2014 | 1,079 | 644 | (1) | 300 | 2,033 | 4,055 |
For footnote, see page 191.
On a reported basis, loan impairment charges of $3.6bn were $0.5bn lower than in 2014, primarily due to favourable currency translation in Latin America and Europe.
The commentary that follows is on a constant currency basis, while tables are presented on a reported basis.
Loan impairment charges increased by $219m compared with 2014. Notably, in the fourth quarter of 2015, our loan impairment charges increased compared with the third quarter following a rise in individually assessed loan impairment charges in a small number of countries. This was reflective of specific circumstances associated with those countries with no common underlying theme. In addition, we increased our collectively assessed loan impairment allowances on exposures related to the oil and gas industry by $0.2bn. This was primarily in North America, Middle East and North Africa, and Asia.
The commentary that follows sets out in more detail the factors that have contributed to movements in loan impairment charges compared with 2014.
Collectively assessed loan impairment allowances rose by $221m, mainly in Middle East and North Africa, North America and Asia, partly offset in Europe. It arose from the following:
· in Middle East and North Africa (up by $167m), this was mainly in the UAE and reflected increased impairment allowances on our residential mortgage book following a review of the quality and value of collateral. In addition, loan impairment allowances increased on our corporate and commercial exposures, notably in the oil and foodstuffs industries;
· in North America (up by $132m) and Asia (up by $108m), the increase was in the 'other commercial' sector. This reflected an increase in allowances against our oil and gas exposures in the regions. In our US CML portfolio, loan impairment allowances on residential mortgages were higher than in 2014 following lower favourable market value adjustments of underlying properties as improvements in housing market conditions were less pronounced in 2015.
· in Europe, collectively assessed loan impairment allowances were $192m lower as 2014 included additional impairment charges from revisions to certain estimates used in our corporate collective loan impairment calculation.
Individually assessed loan impairment allowances were broadly unchanged from 2014. This reflected decreases in Latin America, Europe and Asia which were offset by increases in Middle East and North Africa and in North America. This included the following:
· in Latin America (down by $95m), Europe (down by $44m) and Asia (down by $44m), we saw reductions in individually assessed loan impairment allowances as 2014 included significant impairment charges related to corporate and commercial exposures in our respective regions. In Asia, the reduction was partly offset by an increase in loan impairment allowances against a small number of customers in Indonesia; and
· in Middle East and North Africa (up by $134m) and North America (up by $47m), individually assessed loan impairment allowances increased. In the former, this primarily related to higher loan impairment allowances on food wholesalers, while in North America the rise was in the oil and gas sector.
Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region
Europe | Asia | MENA | North America | Latin America | Total | |||||||
% | % | % | % | % | % | |||||||
New allowances net of allowance releases | 0.31 | 0.23 | 1.07 | 0.41 | 5.37 | 0.48 | ||||||
Recoveries | (0.11) | (0.05) | (0.11) | (0.06) | (0.50) | (0.09) | ||||||
Total charge for impairment losses at 31 December 2015 | 0.20 | 0.18 | 0.96 | 0.35 | 4.87 | 0.39 | ||||||
Amount written off net of recoveries | 0.25 | 0.12 | 0.97 | 0.45 | 3.94 | 0.37 | ||||||
New allowances net of allowance releases | 0.37 | 0.22 | 0.14 | 0.32 | 5.00 | 0.53 | ||||||
Recoveries | (0.08) | (0.04) | (0.14) | (0.09) | (0.72) | (0.10) | ||||||
Total charge for impairment losses at 31 December 2014 | 0.29 | 0.18 | - | 0.23 | 4.28 | 0.43 | ||||||
Amount written off net of recoveries | 0.49 | 0.13 | 0.58 | 0.97 | 3.59 | 0.58 |
Movement in impairment allowances by industry sector and by geographical region
Europe | Asia | MENA | North America | Latin America | Total | |||||||
$m | $m | $m | $m | $m | $m | |||||||
Impairment allowances at 1 January 2015 | 4,455 | 1,356 | 1,406 | 2,640 | 2,529 | 12,386 | ||||||
Amounts written off | ||||||||||||
Personal | (627) | (416) | (114) | (554) | (996) | (2,707) | ||||||
- first lien residential mortgages | (12) | (6) | (1) | (344) | (24) | (387) | ||||||
- other personal3 | (615) | (410) | (113) | (210) | (972) | (2,320) | ||||||
Corporate and commercial | (657) | (179) | (222) | (106) | (309) | (1,473) | ||||||
- manufacturing and international trade and services | (234) | (149) | (214) | (28) | (213) | (838) | ||||||
- commercial real estate and other property-related | (244) | (5) | (8) | (57) | (30) | (344) | ||||||
- other commercial4 | (179) | (25) | - | (21) | (66) | (291) | ||||||
Financial | (12) | - | - | (2) | - | (14) | ||||||
Total amounts written off | (1,296) | (595) | (336) | (662) | (1,305) | (4,194) | ||||||
Recoveries of amounts written off in previous years | ||||||||||||
Personal | 340 | 135 | 30 | 57 | 119 | 681 | ||||||
- first lien residential mortgages | 6 | 4 | - | 26 | (17) | 19 | ||||||
- other personal3 | 334 | 131 | 30 | 31 | 136 | 662 | ||||||
Corporate and commercial | 46 | 30 | 3 | 18 | 27 | 124 | ||||||
- manufacturing and international trade and services | 16 | 20 | 2 | 8 | 15 | 61 | ||||||
- commercial real estate and other property-related | 24 | 5 | - | 5 | 2 | 36 | ||||||
- other commercial4 | 6 | 5 | 1 | 5 | 10 | 27 | ||||||
Financial | 2 | - | - | 1 | - | 3 | ||||||
Total recoveries of amounts written off in previous years | 388 | 165 | 33 | 76 | 146 | 808 | ||||||
Charge to income statement | 709 | 681 | 299 | 469 | 1,434 | 3,592 | ||||||
Exchange and other movements11 | (387) | (82) | 16 | (482) | (2,084) | (3,019) | ||||||
Impairment allowances at 31 December 2015 | 3,869 | 1,525 | 1,418 | 2,041 | 720 | 9,573 | ||||||
Impairment allowances against banks: | ||||||||||||
- individually assessed | - | - | 18 | - | - | 18 | ||||||
Impairment allowances against customers: | ||||||||||||
- individually assessed | 2,661 | 908 | 1,068 | 327 | 438 | 5,402 | ||||||
- collectively assessed10 | 1,208 | 617 | 332 | 1,714 | 282 | 4,153 | ||||||
Impairment allowances at 31 December 2015 | 3,869 | 1,525 | 1,418 | 2,041 | 720 | 9,573 | ||||||
Impairment allowances at 1 January 2014 | 5,598 | 1,214 | 1,583 | 4,242 | 2,564 | 15,201 | ||||||
Amounts written off | ||||||||||||
Personal | (724) | (463) | (157) | (1,030) | (1,359) | (3,733) | ||||||
- first lien residential mortgages | (21) | (17) | (4) | (731) | (40) | (813) | ||||||
- other personal3 | (703) | (446) | (153) | (299) | (1,319) | (2,920) | ||||||
Corporate and commercial | (1,202) | (146) | (47) | (346) | (684) | (2,425) | ||||||
- manufacturing and international trade and services | (732) | (86) | (41) | (81) | (428) | (1,368) | ||||||
- commercial real estate and other property-related | (342) | (53) | (6) | (153) | (39) | (593) | ||||||
- other commercial4 | (128) | (7) | - | (112) | (217) | (464) | ||||||
Financial | (203) | - | (8) | (6) | (4) | (221) | ||||||
Total amounts written off | (2,129) | (609) | (212) | (1,382) | (2,047) | (6,379) | ||||||
Recoveries of amounts written off in previous years | ||||||||||||
Personal | 271 | 143 | 35 | 86 | 283 | 818 | ||||||
- first lien residential mortgages | 3 | 3 | - | 40 | 33 | 79 | ||||||
- other personal3 | 268 | 140 | 35 | 46 | 250 | 739 | ||||||
Corporate and commercial | 29 | 9 | 7 | 25 | 58 | 128 | ||||||
- manufacturing and international trade and services | 19 | 7 | 7 | 6 | 46 | 85 | ||||||
- commercial real estate and other property-related | 11 | - | - | 3 | 1 | 15 | ||||||
- other commercial4 | (1) | 2 | - | 16 | 11 | 28 | ||||||
Financial | 4 | 1 | - | 4 | - | 9 | ||||||
Total recoveries of amounts written off in previous years | 304 | 153 | 42 | 115 | 341 | 955 | ||||||
Charge to income statement | 1,079 | 644 | (1) | 300 | 2,033 | 4,055 | ||||||
Exchange and other movements11 | (397) | (46) | (6) | (635) | (362) | (1,446) | ||||||
Impairment allowances at 31 December 2014 | 4,455 | 1,356 | 1,406 | 2,640 | 2,529 | 12,386 | ||||||
Impairment allowances against banks: | ||||||||||||
- individually assessed | 31 | - | 18 | - | - | 49 | ||||||
Impairment allowances against customers: | ||||||||||||
- individually assessed | 2,981 | 812 | 1,110 | 276 | 1,016 | 6,195 | ||||||
- collectively assessed10 | 1,443 | 544 | 278 | 2,364 | 1,513 | 6,142 | ||||||
Impairment allowances at 31 December 2014 | 4,455 | 1,356 | 1,406 | 2,640 | 2,529 | 12,386 |
For footnotes, see page 191.
Movement in impairment allowances on loans and advances to customers and banks
(Audited)
Banks | Customers | |||||||
individually assessed | Individually assessed | Collectively assessed10 | Total | |||||
$m | $m | $m | $m | |||||
At 1 January 2015 | 49 | 6,195 | 6,142 | 12,386 | ||||
Amounts written off | - | (1,368) | (2,826) | (4,194) | ||||
Recoveries of loans and advances previously written off | - | 86 | 722 | 808 | ||||
Charge to income statement | (11) | 1,516 | 2,087 | 3,592 | ||||
Exchange and other movements11 | (20) | (1,027) | (1,972) | (3,019) | ||||
At 31 December 2015 | 18 | 5,402 | 4,153 | 9,573 | ||||
Impairment allowances: | ||||||||
on loans and advances to customers | 5,402 | 4,153 | 9,555 | |||||
- personal | 426 | 2,453 | 2,879 | |||||
- corporate and commercial | 4,800 | 1,635 | 6,435 | |||||
- non-bank financial institutions | 176 | 65 | 241 | |||||
% | % | % | % | |||||
as a percentage of loans and advances | - | 0.6 | 0.4 | 0.9 | ||||
$m | $m | $m | $m | |||||
At 1 January 2014 | 58 | 7,072 | 8,071 | 15,201 | ||||
Amounts written off | (6) | (2,313) | (4,060) | (6,379) | ||||
Recoveries of loans and advances previously written off | - | 114 | 841 | 955 | ||||
Charge to income statement | 4 | 1,776 | 2,275 | 4,055 | ||||
Exchange and other movements11 | (7) | (454) | (985) | (1,446) | ||||
At 31 December 2014 | 49 | 6,195 | 6,142 | 12,386 | ||||
Impairment allowances: | ||||||||
on loans and advances to customers | 6,195 | 6,142 | 12,337 | |||||
- personal | 468 | 4,132 | 4,600 | |||||
- corporate and commercial | 5,532 | 1,909 | 7,441 | |||||
- non-bank financial institutions | 195 | 101 | 296 | |||||
% | % | % | % | |||||
as a percentage of loans and advances | - | 0.6 | 0.6 | 1.1 | ||||
For footnotes, see page 191.
Wholesale lending
On a reported basis and excluding the effects of the Brazilian reclassification of loans and advances to 'Assets held for sale', gross loans decreased by $32bn, mainly due to adverse foreign exchange effects.
The commentary that follows is on a constant currency basis, while tables are presented on a reported basis.
Wholesale lending increased by $0.5bn in the year. However, in Asia it fell by $9.6bn, mainly in Hong Kong and, to a lesser extent, mainland China and Taiwan. In Asia, the fourth quarter of 2015 saw lower than expected credit growth with a continuation of the slowdown in trade, the repayment of some existing corporate loans and slower demand for new lending.
In Europe, lending increased by $3.2bn, mainly in the UK and Germany. In the UK it rose by $1.9bn with increases in 'financial' partly offset by decreases in 'corporate and commercial', mainly relating to corporate overdraft balances where a small number of clients benefit from the use of net interest arrangements between overdrafts and deposits.
In Middle East and North Africa, overall lending reduced by $1.2bn with decreases of $3.2bn in 'financial' offset by increases of $2.0bn in 'corporate and commercial'.
In North America, lending increased by $7.5bn, mainly comprising $3.7bn in the US and $4.9bn in Canada. The increase in Canada included: $3.8bn following a change in balance sheet presentation where certain bankers' acceptances previously disclosed under 'Trading assets' were included in 'Loans and advances'; and $1.0bn relating to corporate overdraft balances and the use of net interest arrangements between overdraft and deposits. Comparatives have not been restated.
Excluding the effects of the Brazilian reclassification, lending in Latin America increased by $0.6bn, mainly in Argentina.
Total wholesale lending
Europe | Asia | MENA | North America | Latin America | Total |
| |||||||
$m | $m | $m | $m | $m | $m |
| |||||||
| |||||||||||||
Corporate and commercial (A) | 191,765 | 211,224 | 22,268 | 62,882 | 11,374 | 499,513 |
| ||||||
- manufacturing | 39,003 | 34,272 | 2,504 | 17,507 | 2,572 | 95,858 |
| ||||||
- international trade and services | 62,667 | 72,199 | 9,552 | 11,505 | 3,096 | 159,019 |
| ||||||
- commercial real estate | 26,256 | 32,371 | 690 | 7,032 | 1,577 | 67,926 |
| ||||||
- other property-related | 7,323 | 35,206 | 1,908 | 8,982 | 45 | 53,464 |
| ||||||
- government | 3,653 | 1,132 | 1,695 | 203 | 772 | 7,455 |
| ||||||
- other commercial4 | 52,863 | 36,044 | 5,919 | 17,653 | 3,312 | 115,791 |
| ||||||
| |||||||||||||
Financial | 51,969 | 68,321 | 10,239 | 16,308 | 3,996 | 150,833 |
| ||||||
- non-bank financial institutions (B) | 33,621 | 13,969 | 2,321 | 9,822 | 681 | 60,414 |
| ||||||
- banks (C) | 18,348 | 54,352 | 7,918 | 6,486 | 3,315 | 90,419 |
| ||||||
| |||||||||||||
| |||||||||||||
Gross loans at 31 December 2015 (D) | 243,734 | 279,545 | 32,507 | 79,190 | 15,370 | 650,346 |
| ||||||
Impairment allowances on wholesale lending | |||||||||||||
Corporate and commercial (a) | 2,735 | 1,256 | 1,157 | 777 | 510 | 6,435 | |||||||
- manufacturing | 528 | 254 | 135 | 140 | 49 | 1,106 | |||||||
- international trade and services | 813 | 599 | 439 | 123 | 48 | 2,022 | |||||||
- commercial real estate | 613 | 35 | 145 | 76 | 343 | 1,212 | |||||||
- other property-related | 237 | 72 | 267 | 55 | 1 | 632 | |||||||
- government | 6 | - | - | - | 2 | 8 | |||||||
- other commercial | 538 | 296 | 171 | 383 | 67 | 1,455 | |||||||
Financial | 194 | 13 | 22 | 30 | - | 259 | |||||||
- non-bank financial institutions (b) | 194 | 13 | 4 | 30 | - | 241 | |||||||
- banks (c) | - | - | 18 | - | - | 18 | |||||||
Impairment allowances at 31 December 2015 (d) | 2,929 | 1,269 | 1,179 | 807 | 510 | 6,694 | |||||||
% | % | % | % | % | % | ||||||||
(a) as a percentage of (A) | 1.4 | 0.6 | 5.2 | 1.2 | 4.5 | 1.3 | |||||||
(b) as a percentage of (B) | 0.6 | 0.1 | 0.2 | 0.3 | - | 0.4 | |||||||
(c) as a percentage of (C) | - | - | 0.2 | - | - | - | |||||||
(d) as a percentage of (D) | 1.2 | 0.5 | 3.6 | 1.0 | 3.3 | 1.0 | |||||||
| |||||||||||||
$m | $m | $m | $m | $m | $m | ||||||||
Corporate and commercial (E) | 212,523 | 220,799 | 20,588 | 57,993 | 30,722 | 542,625 |
| ||||||
- manufacturing | 39,456 | 37,767 | 2,413 | 15,299 | 12,051 | 106,986 |
| ||||||
- international trade and services | 76,629 | 72,814 | 9,675 | 13,484 | 8,189 | 180,791 |
| ||||||
- commercial real estate | 28,187 | 35,678 | 579 | 6,558 | 2,291 | 73,293 |
| ||||||
- other property-related | 7,126 | 34,379 | 1,667 | 8,934 | 281 | 52,387 |
| ||||||
- government | 2,264 | 1,195 | 1,552 | 164 | 968 | 6,143 |
| ||||||
- other commercial4 | 58,861 | 38,966 | 4,702 | 13,554 | 6,942 | 123,025 |
| ||||||
| |||||||||||||
Financial | 45,081 | 76,957 | 13,786 | 16,439 | 10,753 | 163,016 |
| ||||||
- non-bank financial institutions (F) | 23,103 | 13,997 | 3,291 | 9,034 | 1,393 | 50,818 |
| ||||||
- banks (G) | 21,978 | 62,960 | 10,495 | 7,405 | 9,360 | 112,198 |
| ||||||
| |||||||||||||
| |||||||||||||
Gross loans at 31 December 2014 (H) | 257,604 | 297,756 | 34,374 | 74,432 | 41,475 | 705,641 |
| ||||||
| |||||||||||||
Impairment allowances on wholesale lending |
| ||||||||||||
Corporate and commercial (e) | 3,112 | 1,089 | 1,171 | 608 | 1,461 | 7,441 |
| ||||||
- manufacturing | 529 | 242 | 141 | 152 | 348 | 1,412 |
| ||||||
- international trade and services | 877 | 533 | 536 | 157 | 237 | 2,340 |
| ||||||
- commercial real estate | 909 | 44 | 147 | 101 | 476 | 1,677 |
| ||||||
- other property-related | 203 | 55 | 219 | 57 | 12 | 546 |
| ||||||
- government | 4 | - | 1 | - | - | 5 |
| ||||||
- other commercial | 590 | 215 | 127 | 141 | 388 | 1,461 |
| ||||||
| |||||||||||||
Financial | 252 | 13 | 39 | 39 | 2 | 345 |
| ||||||
- non-bank financial institutions (f) | 221 | 13 | 21 | 39 | 2 | 296 |
| ||||||
- banks (g) | 31 | - | 18 | - | - | 49 |
| ||||||
| |||||||||||||
| |||||||||||||
Impairment allowances at 31 December 2014 (h) | 3,364 | 1,102 | 1,210 | 647 | 1,463 | 7,786 |
| ||||||
| |||||||||||||
% | % | % | % | % | % |
| |||||||
| |||||||||||||
(e) as a percentage of (E) | 1.5 | 0.5 | 5.7 | 1.0 | 4.8 | 1.4 |
| ||||||
(f) as a percentage of (F) | 0.9 | 0.1 | 0.6 | 0.4 | 0.1 | 0.6 |
| ||||||
(g) as a percentage of (G) | 0.1 | - | 0.2 | - | - | - |
| ||||||
(h) as a percentage of (H) | 1.3 | 0.4 | 3.5 | 0.9 | 3.5 | 1.1 |
| ||||||
For footnote, see page 191.
Commercial real estate
Commercial real estate lending
Europe | Asia | MENA | North America | Latin America | Total | |||||||
$m | $m | $m | $m | $m | $m | |||||||
Neither past due nor impaired | 24,533 | 32,182 | 466 | 6,659 | 1,086 | 64,926 | ||||||
Past due but not impaired | 89 | 119 | 25 | 212 | 9 | 454 | ||||||
Impaired loans | 1,634 | 70 | 199 | 161 | 482 | 2,546 | ||||||
Total gross loans and advances at 31 December 2015 | 26,256 | 32,371 | 690 | 7,032 | 1,577 | 67,926 | ||||||
Of which: | ||||||||||||
- renegotiated loans12 | 1,586 | 6 | 182 | 150 | 210 | 2,134 | ||||||
Impairment allowances | 613 | 35 | 145 | 76 | 343 | 1,212 | ||||||
Neither past due nor impaired | 25,860 | 35,430 | 333 | 6,136 | 1,535 | 69,294 | ||||||
Past due but not impaired | 18 | 170 | 47 | 100 | 28 | 363 | ||||||
Impaired loans | 2,309 | 78 | 199 | 322 | 728 | 3,636 | ||||||
Total gross loans and advances at 31 December 2014 | 28,187 | 35,678 | 579 | 6,558 | 2,291 | 73,293 | ||||||
Of which: | ||||||||||||
- renegotiated loans12 | 1,954 | 19 | 183 | 191 | 377 | 2,724 | ||||||
Impairment allowances | 909 | 44 | 147 | 101 | 476 | 1,677 |
For footnote, see page 191.
Commercial real estate lending includes the financing of corporate, institutional and high net worth individuals who are investing primarily in income-producing assets and, to a lesser extent, in their construction and development. The business focuses mainly on traditional core asset classes such as retail, offices, light industrial and residential building projects. The portfolio is globally diversified with larger concentrations in Hong Kong, the UK, the US and Canada.
In more developed markets, our exposure mainly comprises the financing of investment assets, the redevelopment of existing stock and the augmentation of both commercial and residential markets to support economic and population growth. In lesser developed commercial real estate markets our exposures comprise lending for development assets on relatively short tenors with a particular focus on supporting the larger, better capitalised developers involved in residential construction or in assets supporting economic expansion.
Our global exposure is centred largely on cities representing key locations of economic, political or cultural significance. In many lesser developed markets, industry is evolving to move away from the development and rapid construction of recent years to increasingly focus on investment stock consistent with more developed markets.
Excluding the effects of the Brazilian reclassification, commercial real estate lending was lower by $4.5bn including decreases of $3.2bn relating to adverse foreign exchange movements.
The commentary that follows is on a constant currency basis, while tables are presented on a reported basis.
The commercial real estate lending was lower by $1.3bn, largely due to a decrease of $2.6bn in Asia, mainly in Hong Kong and, to a lesser extent, mainland China and Singapore. The decrease in Asia was mainly due to the repayment and maturity of loans and was partly offset by increases of $1.0bn in North America and $0.4bn in Mexico. Europe and Middle East and Africa remained largely unchanged.
Refinance risk in commercial real estateCommercial real estate lending tends to require the repayment of a significant proportion of the principal at maturity. Typically, a customer will arrange repayment through the acquisition of a new loan to settle the existing debt. Refinance risk is the risk that a customer, being unable to repay the debt on maturity, fails to refinance it at commercial rates. We monitor our commercial real estate portfolio closely, assessing those drivers that may indicate potential issues with refinancing. The principal driver is the vintage of the loan, when origination reflected previous market norms which do not apply in the current market. Examples might be higher loan-to-value ('LTV') ratios and/or lower interest cover ratios. The range of refinancing sources in the local market is also an important consideration, with risk increasing when lenders are restricted to banks and when bank liquidity is limited. In addition, underlying fundamentals such as the reliability of tenants, the ability to let and the condition of the property are important as they influence property values.
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 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.
Commercial real estate loans and advances including loan commitments by level of collateral
(Audited)
Europe | Asia | MENA | North America | Latin America | Total | |||||||
$m | $m | $m | $m | $m | $m | |||||||
Rated CRR/EL 1 to 7 | ||||||||||||
Not collateralised | 4,498 | 12,329 | 499 | 8 | 500 | 17,834 | ||||||
Fully collateralised | 25,773 | 26,270 | 36 | 9,997 | 542 | 62,618 | ||||||
Partially collateralised (A) | 3,025 | 1,924 | - | 1,264 | 52 | 6,265 | ||||||
- collateral value on A | 2,106 | 1,175 | - | 981 | 8 | 4,270 | ||||||
33,296 | 40,523 | 535 | 11,269 | 1,094 | 86,717 | |||||||
Rated CRR/EL 8 | ||||||||||||
Not collateralised | 28 | - | - | - | - | 28 | ||||||
Fully collateralised | 668 | 4 | - | 9 | 1 | 682 | ||||||
LTV ratio: | ||||||||||||
- less than 50% | 86 | - | - | 5 | 1 | 92 | ||||||
- 51% to 75% | 377 | 4 | - | 4 | - | 385 | ||||||
- 76% to 90% | 174 | - | - | - | - | 174 | ||||||
- 91% to 100% | 31 | - | - | - | - | 31 | ||||||
Partially collateralised (B) | 120 | 1 | - | 1 | - | 122 | ||||||
- collateral value on B | 87 | - | - | - | - | 87 | ||||||
816 | 5 | - | 10 | 1 | 832 | |||||||
Rated CRR/EL 9 to 10 | ||||||||||||
Not collateralised | 65 | 51 | 5 | 2 | 299 | 422 | ||||||
Fully collateralised | 900 | 18 | 7 | 76 | 123 | 1,124 | ||||||
LTV ratio: | ||||||||||||
- less than 50% | 174 | 10 | 7 | 15 | 15 | 221 | ||||||
- 51% to 75% | 425 | 2 | - | 27 | 59 | 513 | ||||||
- 76% to 90% | 140 | 2 | - | 10 | 4 | 156 | ||||||
- 91% to 100% | 161 | 4 | - | 24 | 45 | 234 | ||||||
Partially collateralised (C) | 716 | 5 | 181 | 66 | 64 | 1,032 | ||||||
- collateral value on C | 397 | 3 | 89 | 35 | 31 | 555 | ||||||
1,681 | 74 | 193 | 144 | 486 | 2,578 | |||||||
At 31 December 2015 | 35,793 | 40,602 | 728 | 11,423 | 1,581 | 90,127 | ||||||
Rated CRR/EL 1 to 7 | ||||||||||||
Not collateralised | 5,351 | 16,132 | 361 | 87 | 1,719 | 23,650 | ||||||
Fully collateralised | 25,873 | 26,323 | 23 | 9,093 | 556 | 61,868 | ||||||
Partially collateralised (D) | 1,384 | 1,599 | - | 1,819 | 152 | 4,954 | ||||||
- collateral value on D | 1,032 | 901 | - | 1,199 | 47 | 3,179 | ||||||
32,608 | 44,054 | 384 | 10,999 | 2,427 | 90,472 | |||||||
Rated CRR/EL 8 | ||||||||||||
Not collateralised | 34 | 7 | - | 9 | 2 | 52 | ||||||
Fully collateralised | 568 | 23 | - | 30 | 1 | 622 | ||||||
LTV ratio: | ||||||||||||
- less than 50% | 64 | - | - | 16 | 1 | 81 | ||||||
- 51% to 75% | 222 | 11 | - | 10 | - | 243 | ||||||
- 76% to 90% | 132 | 9 | - | 4 | - | 145 | ||||||
- 91% to 100% | 150 | 3 | - | - | - | 153 | ||||||
Partially collateralised (E) | 365 | - | - | 7 | - | 372 | ||||||
- collateral value on E | 296 | - | - | 2 | - | 298 | ||||||
967 | 30 | - | 46 | 3 | 1,046 | |||||||
Rated CRR/EL 9 to 10 | ||||||||||||
Not collateralised | 369 | 48 | 6 | 1 | 499 | 923 | ||||||
Fully collateralised | 992 | 15 | 7 | 166 | 178 | 1,358 | ||||||
LTV ratio: | ||||||||||||
- less than 50% | 78 | 6 | 7 | 28 | 10 | 129 | ||||||
- 51% to 75% | 593 | 2 | - | 91 | 43 | 729 | ||||||
- 76% to 90% | 167 | 2 | - | 17 | 53 | 239 | ||||||
- 91% to 100% | 154 | 5 | - | 30 | 72 | 261 | ||||||
Partially collateralised (F) | 1,085 | 15 | 181 | 37 | 50 | 1,368 | ||||||
- collateral value on F | 664 | 5 | 89 | 30 | 13 | 801 | ||||||
2,446 | 78 | 194 | 204 | 727 | 3,649 | |||||||
At 31 December 2014 | 36,021 | 44,162 | 578 | 11,249 | 3,157 | 95,167 |
Other corporate, commercial and financial (non-bank) loans are analysed separately below. For financing activities in other corporate and commercial lending, collateral value is not strongly correlated to principal repayment performance. Collateral values are generally refreshed when an obligor's general credit performance deteriorates and we have to assess the likely performance of secondary sources of repayment should it prove necessary to rely on them.
Accordingly, the table below reports values only for customers with CRR 8 to 10, recognising that these loans and advances generally have valuations which are comparatively recent.
Other corporate, commercial and non-bank financial institutions loans and advances including loan commitments by level of collateral rated CRR/EL 8 to 10 only
(Audited)
Europe | Asia | MENA | North America | Latin America | Total | |||||||
$m | $m | $m | $m | $m | $m | |||||||
Rated CRR/EL 8 | ||||||||||||
Not collateralised | 1,618 | 164 | 36 | 609 | 102 | 2,529 | ||||||
Fully collateralised | 434 | 41 | - | 454 | 1 | 930 | ||||||
LTV ratio: | ||||||||||||
- less than 50% | 65 | 13 | - | 95 | 1 | 174 | ||||||
- 51% to 75% | 337 | 8 | - | 85 | - | 430 | ||||||
- 76% to 90% | 28 | 18 | - | 168 | - | 214 | ||||||
- 91% to 100% | 4 | 2 | - | 106 | - | 112 | ||||||
Partially collateralised (A) | 109 | 47 | 1 | 179 | - | 336 | ||||||
- collateral value on A | 73 | 17 | - | 58 | - | 148 | ||||||
2,161 | 252 | 37 | 1,242 | 103 | 3,795 | |||||||
Rated CRR/EL 9 to 10 | ||||||||||||
Not collateralised | 2,850 | 889 | 814 | 80 | 244 | 4,877 | ||||||
Fully collateralised | 824 | 440 | 188 | 323 | 78 | 1,853 | ||||||
LTV ratio: | ||||||||||||
- less than 50% | 283 | 94 | 46 | 47 | 44 | 514 | ||||||
- 51% to 75% | 346 | 149 | 3 | 47 | 8 | 553 | ||||||
- 76% to 90% | 96 | 74 | 25 | 27 | 9 | 231 | ||||||
- 91% to 100% | 99 | 123 | 114 | 202 | 17 | 555 | ||||||
Partially collateralised (B) | 1,702 | 506 | 441 | 423 | 7 | 3,079 | ||||||
- collateral value on B | 795 | 236 | 55 | 283 | 5 | 1,374 | ||||||
5,376 | 1,835 | 1,443 | 826 | 329 | 9,809 | |||||||
At 31 December 2015 | 7,537 | 2,087 | 1,480 | 2,068 | 432 | 13,604 | ||||||
Rated CRR/EL 8 | ||||||||||||
Not collateralised | 2,051 | 237 | 15 | 320 | 227 | 2,850 | ||||||
Fully collateralised | 629 | 56 | 72 | 331 | 11 | 1,099 | ||||||
LTV ratio: | ||||||||||||
- less than 50% | 120 | 13 | - | 186 | 5 | 324 | ||||||
- 51% to 75% | 293 | - | - | 72 | 6 | 371 | ||||||
- 76% to 90% | 51 | 9 | 69 | 46 | - | 175 | ||||||
- 91% to 100% | 165 | 34 | 3 | 27 | - | 229 | ||||||
Partially collateralised (C) | 105 | 44 | 1 | 148 | 6 | 304 | ||||||
- collateral value on C | 46 | 17 | 1 | 68 | 4 | 136 | ||||||
68 | ||||||||||||
2,785 | 337 | 88 | 799 | 244 | 4,253 | |||||||
Rated CRR/EL 9 to 10 | ||||||||||||
Not collateralised | 4,185 | 939 | 813 | 62 | 1,420 | 7,419 | ||||||
Fully collateralised | 615 | 143 | 147 | 231 | 124 | 1,260 | ||||||
LTV ratio: | ||||||||||||
- less than 50% | 169 | 68 | 25 | 48 | 48 | 358 | ||||||
- 51% to 75% | 136 | 27 | 19 | 39 | 35 | 256 | ||||||
- 76% to 90% | 168 | 16 | 6 | 35 | 26 | 251 | ||||||
- 91% to 100% | 142 | 32 | 97 | 109 | 15 | 395 | ||||||
Partially collateralised (D) | 624 | 364 | 547 | 251 | 140 | 1,926 | ||||||
- collateral value on D | 341 | 169 | 92 | 141 | 46 | 789 | ||||||
5,424 | 1,446 | 1,507 | 544 | 1,684 | 10,605 | |||||||
At 31 December 2014 | 8,209 | 1,783 | 1,595 | 1,343 | 1,928 | 14,858 |
Other credit risk exposures
In addition to collateralised lending, other credit enhancements are employed and methods used to mitigate credit risk arising from financial assets. These are described in more detail below:
· some securities issued by governments, banks and other financial institutions benefit from additional credit enhancement provided by government guarantees that cover the assets.
· debt securities issued by banks and financial institutions include ABSs and similar instruments which are supported by underlying pools of financial assets. Credit risk associated with ABSs is reduced through the purchase of credit default swap ('CDS') protection.
Disclosure of the Group's holdings of ABSs and associated CDS protection is provided on page 153.
· trading assets include loans and advances held with trading intent. These mainly consist of cash collateral posted to satisfy margin requirements on derivatives, settlement accounts, reverse repos and stock borrowing. There is limited credit risk on cash collateral posted since in the event of default of the counterparty these would be set-off against the related liability. Reverse repos and stock borrowing are by their nature collateralised.
Collateral accepted as security that the Group is permitted to sell or repledge under these arrangements is described on page 162 on the Financial Statements.
· the Group's maximum exposure to credit risk includes financial guarantees and similar contracts granted, as well as loan and other credit-related commitments. Depending on the terms of the arrangement, we may have recourse to additional credit mitigation in the event that a guarantee is called upon or a loan commitment is drawn and subsequently defaults.
For further information on these arrangements, see Note 37 on the Financial Statements.
Derivatives
HSBC participates in transactions exposing us to counterparty credit risk. Counterparty credit risk is the risk of financial loss if the counterparty to a transaction defaults before satisfactorily settling it. It arises principally from OTC derivatives and securities financing transactions and is calculated in both the trading and non-trading books. Transactions vary in value by reference to a market factor such as interest rate, exchange rate or asset price.
The counterparty risk from derivative transactions is taken into account when reporting the fair value of derivative positions. The adjustment to the fair value is known as the credit value adjustment ('CVA').
For an analysis of CVA, see Note 13 on the Financial Statements.
The table below reflects by risk type the fair values and gross notional contract amounts of derivatives cleared through an exchange, central counterparty and non-central counterparty.