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Interim Report - 15 of 24

26 Aug 2015 16:29

RNS Number : 2028X

HSBC Holdings PLC

26 August 2015

Credit risk

Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises principally from direct lending, trade finance and leasing business, but also from certain other products such as guarantees and credit derivatives and from holding assets in the form of debt securities.

There have been no material changes to the policies and practices for the management of credit risk summarised in the credit risk section on page 127 and the Appendix to Risk on page 206 of the Annual Report and Accounts 2014.

Credit risk in the first half of 2015

An update on the effect of oil and gas prices is provided in 'Areas of special interest' on page 59, and our exposures to Greece are set out on page 74.

Reported gross loans and advances declined by $26bn. During 1H15, the assets of our Brazilian operations were reclassified as 'Assets held for sale' (see Note 12 on the Financial Statements), which reduced reported gross loans and advances by $31bn as detailed on page 62. Foreign exchange differences reduced reported gross loans and advances by a further $11bn. Excluding these adjustments, lending grew in both wholesale and personal lending.

Loan impairment charges reduced by 25% compared with 1H14 with notable decreases in Latin America, North America and Europe.

Information on constant currency movements is provided on page 71. The commentary that follows is on a constant currency basis, while tables are presented on a reported basis.

Excluding the Brazilian reclassification, wholesale gross loans grew by $13bn. Balances in Asia grew by $12bn, mainly in other property and international trade and services, and in North America by $5.6bn, mainly in manufacturing and commercial real estate, though this growth was partly offset by a $4.0bn reduction in Europe.

Excluding the Brazilian reclassification and the ongoingrun-off of the US CML portfolio, personal lending balances grew by $4.5bn in 1H15. This was mainly due to increased mortgage and other lending in Asia, other personal lending in Mexico and growth in the Premier mortgage portfolio in the US.

Summary of credit risk

	30 Jun 2015	30 Jun 2014	31 Dec 2014
	$bn	$bn	$bn
At end of period
Maximum exposure to credit risk
- total assets subject tocredit risk	2,373	2,546	2,434
- off-balance sheetcommitments subjectto credit risk1	699	688	699

	3,072	3,234	3,133

Gross loans and advances
- personal lending	385	416	393
- wholesale lending	688	773	706

	1,073	1,189	1,099

Impaired loans
- personal lending	13	18	15
- wholesale lending	12	16	14

	25	34	29

Impaired loans as a % of gross loans and advances
- personal lending	3.4%	4.2%	3.9%
- wholesale lending	1.7%	2.1%	2.0%
- total	2.3%	2.9%	2.7%

	$bn	$bn	$bn
Impairment allowances
- personal lending	3.3	5.9	4.6
- wholesale lending	6.4	8.1	7.8

	9.7	14.0	12.4

Loans and advances net of impairment allowances	1,063	1,175	1,087

For the period ended
Loan impairment charges
- personal lending	0.9	1.2	0.6
- wholesale lending	0.6	0.8	1.5

	1.5	2.0	2.1

For footnote, see page 86.

Loans and advances

The following table analyses loans and advances by industry sector and by the location of the principal operations of the lending subsidiary or, in the case of the operations of The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the lending branch. The distribution of loans across geographical regions and industries remained similar to last year.

Gross loans and advances by industry sector and by geographical region

	Europe	Asia	MENA	North America	Latin America	Total	As a % of total gross
	$m	$m	$m	$m	$m	$m	loans
At 30 June 2015
Personal	177,311	132,375	6,648	62,990	5,976	385,300	35.9
- first lien residential mortgages	130,909	95,176	2,642	53,995	2,031	284,753	26.5
- other personal	46,402	37,199	4,006	8,995	3,945	100,547	9.4

Wholesale
Corporate and commercial	200,188	225,249	22,833	63,524	12,413	524,207	48.9
- manufacturing	43,465	35,599	2,570	17,392	3,072	102,098	9.5
- international trade and services	65,459	76,683	10,109	13,720	3,508	169,479	15.8
- commercial real estate	26,925	34,249	721	7,444	1,418	70,757	6.6
- other property-related	8,209	39,518	1,691	9,652	39	59,109	5.5
- government	2,260	1,117	1,552	164	947	6,040	0.6
- other commercial2	53,870	38,083	6,190	15,152	3,429	116,724	10.9

Financial	27,163	15,413	2,896	8,055	691	54,218	5.0

Banks	23,460	66,286	9,014	7,372	3,311	109,443	10.2

Total gross loans and advances	428,122	439,323	41,391	141,941	22,391	1,073,168	100.0

Percentage of total	39.9%	40.9%	3.9%	13.2%	2.1%	100.0%

At 30 June 2014
Personal	194,898	129,680	6,553	69,573	15,048	415,752	35.0
- first lien residential mortgages	144,225	95,489	2,543	58,677	4,501	305,435	25.7
- other personal	50,673	34,191	4,010	10,896	10,547	110,317	9.3

Wholesale
Corporate and commercial	260,097	221,852	20,983	56,054	32,965	591,951	49.8
- manufacturing	65,374	35,210	2,445	12,941	14,196	130,166	10.9
- international trade and services	79,981	80,574	10,072	13,087	8,534	192,248	16.2
- commercial real estate	30,935	34,727	434	6,677	2,492	75,265	6.3
- other property-related	7,444	32,730	1,593	8,644	348	50,759	4.3
- government	2,404	1,082	1,696	568	1,007	6,757	0.6
- other commercial2	73,959	37,529	4,743	14,137	6,388	136,756	11.5

Financial	29,603	12,091	2,838	7,579	1,397	53,508	4.5

Banks	27,763	72,222	8,644	6,252	12,569	127,450	10.7

Total gross loans and advances	512,361	435,845	39,018	139,458	61,979	1,188,661	100.0
Percentage of total	43.1%	36.7%	3.3%	11.7%	5.2%	100.0%

At 31 December 2014
Personal	178,531	129,515	6,571	65,400	13,537	393,554	35.8
- first lien residential mortgages	131,000	93,147	2,647	55,577	4,153	286,524	26.1
- other personal	47,531	36,368	3,924	9,823	9,384	107,030	9.7

Wholesale
Corporate and commercial	212,523	220,799	20,588	57,993	30,722	542,625	49.4
- manufacturing	39,456	37,767	2,413	15,299	12,051	106,986	9.7
- international trade and services	76,629	72,814	9,675	13,484	8,189	180,791	16.4
- commercial real estate	28,187	35,678	579	6,558	2,291	73,293	6.7
- other property-related	7,126	34,379	1,667	8,934	281	52,387	4.8
- government	2,264	1,195	1,552	164	968	6,143	0.6
- other commercial2	58,861	38,966	4,702	13,554	6,942	123,025	11.2

Financial	23,103	13,997	3,291	9,034	1,393	50,818	4.6

Banks	21,978	62,960	10,495	7,405	9,360	112,198	10.2

Total gross loans and advances	436,135	427,271	40,945	139,832	55,012	1,099,195	100.0

Percentage of total	39.7%	38.9%	3.7%	12.7%	5.0%	100.0%

For footnote, see page 86.

Assets held for sale

During 1H15, gross loans and advances and related impairment allowances arising in our Brazilian operations were reclassified from 'Loans and advances to customers' and 'Loans and advances to banks' to 'Assets held for sale' in the balance sheet. There was no separate income statement reclassification. As a result, charges for loan impairment losses shown in the credit risk disclosures include loan impairment charges relating to financial assets classified as 'Assets held for sale'.

Loans and advances to banks and customers measured at amortised cost

	Total gross loans and advances	Impairment allowances on loans and advances
	$m	$m

As reported	1,073,168	(9,778)
Reported in 'Assets held for sale'	26,883	(1,666)

At 30 June 2015	1,100,051	(11,444)

At 31 December 2014, the gross loans and advances and related impairment allowances of our Brazilian operations were $31bn and $1.7bn, respectively. Gross loans and advances reduced by $4.3bn mainly as a result of foreign exchange movements.

Gross loans and impairment allowances on loans and advances to customers and banks reported in 'Assets held for sale'

	Brazil	Other	Total
	$m	$m	$m
Gross loans
Loans and advances to customers	22,460	230	22,690
- personal	6,749	182	6,931
- corporate and commercial	15,403	48	15,451
- financial	308	-	308

Loans and advances to banks	4,193	-	4,193

At 30 June 2015	26,653	230	26,883

Impairment allowances
Loans and advances to customers	(1,632)	(34)	(1,666)
- personal	(713)	(16)	(729)
- corporate and commercial	(918)	(18)	(936)
- financial	(1)	-	(1)

Loans and advances to banks	-	-	-

At 30 June 2015	(1,632)	(34)	(1,666)

The table below analyses the amount of LICs arising from assets held for sale. They primarily relate to the Brazilian operations.

Loan impairment charges and other credit risk provisions

		Total
		$m
LICs arising from:
- assets held for sale		478
- assets not held for sale		961

Half-year to 30 June 2015		1,439

Credit quality of financial instruments

We assess credit quality on all financial instruments which bear credit risk. The distribution of financial instruments by credit quality is tabulated below.

Distribution of total financial instruments exposed to credit risk by credit quality

	Neither past due nor impaired
	Strong	Good	Satis-factory	Sub-standard	Past due but not impaired	Impaired	Total gross amount	Impairment allowances	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m

At 30 June 2015	1,599,418	410,280	303,630	28,141	13,282	29,569	2,384,320	(11,445)	2,372,875
At 30 June 2014	1,677,301	456,507	335,139	40,041	14,163	37,112	2,560,263	(14,109)	2,546,154
At 31 December 2014	1,631,391	421,563	315,958	31,530	13,568	32,492	2,446,502	(12,402)	2,434,100

	%	%	%	%	%	%	%

At 30 June 2015	67.1	17.2	12.7	1.2	0.6	1.2	100.0
At 30 June 2014	65.5	17.8	13.1	1.6	0.6	1.4	100.0
At 31 December 2014	66.7	17.2	12.9	1.3	0.6	1.3	100.0

This table shows the credit quality distribution for all assets exposed to credit risk, including the balances relating to our Brazilian operations. Within past due but not impaired amounts at 30 June 2015, 99% were less than 90 days past due in line with previous periods.

Distribution of loans and advances held at amortised cost by credit quality

	Neither past due nor impaired
	Strong	Good	Satis-factory	Sub-standard	Past due but not impaired	Impaired	Total gross amount	Impairment allowances	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m
At 30 June 2015
Loans and advances to customers3	478,003	234,178	196,723	17,463	12,248	25,110	963,725	(9,740)	953,985
- personal	316,984	31,572	14,715	975	7,817	13,237	385,300	(3,339)	381,961
- corporate and commercial	133,683	186,759	172,404	15,960	3,834	11,567	524,207	(6,127)	518,080
- financial	27,336	15,847	9,604	528	597	306	54,218	(274)	53,944

Loans and advances to banks	86,768	17,655	4,571	404	1	44	109,443	(38)	109,405

At 30 June 2014
Loans and advances to customers3	501,162	274,776	212,714	24,712	13,967	33,880	1,061,211	(13,970)	1,047,241
- personal	332,045	38,673	16,847	1,366	9,283	17,538	415,752	(5,906)	409,846
- corporate and commercial	140,941	222,982	185,541	22,450	4,327	15,710	591,951	(7,686)	584,265
- financial	28,176	13,121	10,326	896	357	632	53,508	(378)	53,130

Loans and advances to banks	96,849	21,948	6,986	1,599	12	56	127,450	(63)	127,387

At 31 December 2014
Loans and advances to customers3	487,734	239,136	196,685	20,802	13,357	29,283	986,997	(12,337)	974,660
- personal	320,678	32,601	15,109	1,130	8,876	15,160	393,554	(4,600)	388,954
- corporate and commercial	141,375	192,799	171,748	18,986	3,922	13,795	542,625	(7,441)	535,184
- financial	25,681	13,736	9,828	686	559	328	50,818	(296)	50,522

Loans and advances to banks	83,766	19,525	7,945	914	1	47	112,198	(49)	112,149

For footnote, see page 86.

This table shows loans and advances held at amortised cost by credit quality distribution. Assets of our Brazilian operations are not included in the 30 June 2015 balances following their classification as 'Assets held for sale'.

Impaired loans

Impaired gross loans and advances to customers and banks by industry sector

	Impaired loans and advancesat 30 June 2015			Impaired loans and advancesat 30 June 2014			Impaired loans and advancesat 31 December 2014
	Individ- ually assessed	Collect- ively assessed	Total	Individ- ually assessed	Collect- ively assessed	Total	Individ- ually assessed	Collect- ively assessed	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m

Banks	44	-	44	56	-	56	47	-	47

Customers	14,122	10,988	25,110	18,076	15,804	33,880	15,879	13,404	29,283
- personal	2,334	10,903	13,237	2,171	15,367	17,538	2,096	13,064	15,160
- corporate and commercial	11,482	85	11,567	15,274	436	15,710	13,456	339	13,795
- financial	306	-	306	631	1	632	327	1	328


	14,166	10,988	25,154	18,132	15,804	33,936	15,926	13,404	29,330

On a reported basis, during 1H15 impaired gross loans and advances declined by $4.2bn. The classification of the assets of our Brazilian operations as 'Assets held for sale' reduced personal collectively assessed impaired loan balances by $0.7bn. The continued run-off of the US CML portfolio reduced personal collectively assessed impaired loan balances by a further $0.9bn. Personal individually assessed impaired loans increased, largely due to enhancements to the identification of impaired UK residential mortgages and the calculation of allowances on individual loans rather than on a collective basis. Corporate and commercial impaired loans reduced by $2.2bn mainly due to the Brazilian reclassification. Corporate and commercial impaired loans also decreased as a result of write-offs in Europe and Middle East and North Africa.

Renegotiated loans and forbearance

The most significant portfolio of renegotiated loans remained in North America, substantially all of which were personal loans held by HSBC Finance Corporation ('HSBC Finance'). On a reported basis, during 1H15, total renegotiated loans decreased by $1.9bn to $25.6bn. The Brazilian reclassification reduced reported renegotiated loans by $1.0bn. The ongoing run-off of the US CML portfolio reduced renegotiated loans by a further $0.9bn, and new renegotiated loans and delinquency in the US CML portfolio diminished as a result of improvements in the US housing market and economic conditions.

The following tables show the gross carrying amounts of the Group's holdings of renegotiated loans and advances to customers by industry sector, geography and credit quality classification.

Renegotiated loans and advances to customers by geographical region

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

First lien residential mortgages	1,586	82	49	12,828	44	14,589
- neither past due nor impaired	568	55	26	3,680	28	4,357
- past due but not impaired	213	6	1	1,822	6	2,048
- impaired	805	21	22	7,326	10	8,184

Other personal lending	318	280	23	1,166	41	1,828
- neither past due nor impaired	183	160	14	446	13	816
- past due but not impaired	39	18	4	198	1	260
- impaired	96	102	5	522	27	752

Corporate and commercial4	5,468	471	1,394	430	648	8,411
- neither past due nor impaired	1,290	76	344	39	262	2,011
- past due but not impaired	42	1	24	-	4	71
- impaired	4,136	394	1,026	391	382	6,329

Financial5	444	4	282	-	-	730
- neither past due nor impaired	222	-	282	-	-	504
- past due but not impaired	-	-	-	-	-	-
- impaired	222	4	-	-	-	226


Renegotiated loans at 30 June 2015	7,816	837	1,748	14,424	733	25,558
- neither past due nor impaired	2,263	291	666	4,165	303	7,688
- past due but not impaired	294	25	29	2,020	11	2,379
- impaired	5,259	521	1,053	8,239	419	15,491


Impairment allowances on renegotiated loans	1,458	158	513	1,246	146	3,521
- renegotiated loans as % of total gross loans	1.9%	0.2%	5.4%	10.7%	3.8%	2.7%

First lien residential mortgages	1,743	107	69	15,034	74	17,027
- neither past due nor impaired	593	72	22	3,827	36	4,550
- past due but not impaired	296	13	10	2,032	5	2,356
- impaired	854	22	37	9,175	33	10,121

Other personal lending	423	311	54	1,376	457	2,621
- neither past due nor impaired	287	201	31	468	15	1,002
- past due but not impaired	28	24	17	234	2	305
- impaired	108	86	6	674	440	1,314

Corporate and commercial4	7,064	454	1,579	508	2,024	11,629
- neither past due nor impaired	1,559	124	689	41	436	2,849
- past due but not impaired	145	2	95	2	35	279
- impaired	5,360	328	795	465	1,553	8,501

Financial5	287	5	356	1	1	650
- neither past due nor impaired	93	-	265	-	-	358
- past due but not impaired	-	-	-	-	-	-
- impaired	194	5	91	1	1	292


Renegotiated loans at 30 June 2014	9,517	877	2,058	16,919	2,556	31,927
- neither past due nor impaired	2,532	396	1,007	4,336	488	8,759
- past due but not impaired	470	39	121	2,268	42	2,940
- impaired	6,515	442	930	10,315	2,026	20,228


Impairment allowances on renegotiated loans	1,355	73	436	2,025	893	4,782
- renegotiated loans as % of total gross loans	2.0%	0.2%	6.8%	12.7%	5.2%	3.0%

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

First lien residential mortgages	1,605	94	58	13,540	60	15,357
- neither past due nor impaired	529	63	19	3,695	32	4,338
- past due but not impaired	221	8	1	1,894	5	2,129
- impaired	855	23	38	7,951	23	8,890

Other personal lending	324	292	27	1,267	326	2,236
- neither past due nor impaired	184	173	16	453	14	840
- past due but not impaired	40	22	5	214	1	282
- impaired	100	97	6	600	311	1,114

Corporate and commercial4	5,469	501	1,439	427	1,324	9,160
- neither past due nor impaired	1,383	102	483	36	303	2,307
- past due but not impaired	68	-	31	1	1	101
- impaired	4,018	399	925	390	1,020	6,752

Financial5	413	4	323	1	1	742
- neither past due nor impaired	219	-	305	-	-	524
- past due but not impaired	-	-	-	-	-	-
- impaired	194	4	18	1	1	218


Renegotiated loans at 31 December 2014	7,811	891	1,847	15,235	1,711	27,495
- neither past due nor impaired	2,315	338	823	4,184	349	8,009
- past due but not impaired	329	30	37	2,109	7	2,512
- impaired	5,167	523	987	8,942	1,355	16,974


Impairment allowances on renegotiated loans	1,458	170	458	1,499	704	4,289
- renegotiated loans as % of total gross loans	1.9%	0.2%	6.1%	11.5%	3.7%	2.8%

For footnotes, see page 86.

Loan impairment in the first half of 2015

On a reported basis, loan impairment charges of $1.4bn were $578m lower than in 1H14, in part reflecting the favourable effect of foreign currency movements of $282m, mainly in Latin America and, to a lesser extent, in Europe.

The following commentary is on a constant currency basis. Loan impairment charges decreased by $296m or 17%, primarily in North America, Europe and Latin America partly offset in Middle East and North Africa.

In North America, loan impairment charges decreased for both personal and corporate and commercial lending. The decrease in corporate and commercial lending impairment charges mainly reflected charges recorded in 1H14 following a revision to certain estimates used in our corporate loan impairment calculation. Personal lending loan impairment charges fell mainly due to lower collectively assessed charges on first lien mortgages, primarily in the US CML portfolio. This decline reflected reduced levels of delinquency and lower new impaired loans in addition to lower lending balances from the continued run-off and loan sales. These factors were partly offset by lower favourable market value adjustments of underlying properties as improvements in housing market conditions were less pronounced in 1H15 than in 1H14.

In Europe, the reduction was driven by lower impairment charges on corporate and commercial lending. This primarily reflected the lower individually assessed loan impairment charge in the UK in 1H14, partly offset by $92m of loan impairments charges relating to Greek exposures during 1H15. An additional $19m of other credit risk provisions were taken in relation to off-balance sheet exposures to Greece.

In Latin America, loan impairment charges decreased by $88m, primarily in personal lending in Brazil due to the non-recurrence of loan impairment charges from refinements made in 1H14 to the impairment model for non-restructured loan portfolios, and in Mexico, reflecting lower delinquency rates on personal lending, payroll and card portfolios.

These factors were partly offset in Middle East and North Africa, reflecting higher individually assessed loan impairment charges in 1H15 compared with a net release in 1H14, primarily on commercial exposures in the UAE.

Loan impairment charge to the income statement by industry sector

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

Personal	113	145	24	101	488	871
- first lien residential mortgages	(32)	2	(7)	68	33	64
- other personal	145	143	31	33	455	807

Corporate and commercial	214	97	21	50	216	598
- manufacturing and international trade and services	103	109	(11)	9	175	385
- commercial real estate and other property-related	(10)	13	25	1	17	46
- other commercial2	121	(25)	7	40	24	167

Financial5	(6)	-	(12)	(3)	(1)	(22)

Total loan impairment charge for the half-year to 30 June 2015	321	242	33	148	703	1,447

Personal	122	155	15	225	701	1,218
- first lien residential mortgages	(37)	(2)	(5)	168	12	136
- other personal	159	157	20	57	689	1,082
Corporate and commercial	329	63	(44)	141	290	779
- manufacturing and international trade and services	291	61	(8)	79	141	564
- commercial real estate and other property-related	(17)	(9)	(30)	23	59	26
- other commercial2	55	11	(6)	39	90	189

Financial5	28	(2)	(28)	29	1	28

Total loan impairment charge for the half-year to30 June 2014	479	216	(57)	395	992	2,025

Personal	123	166	10	(108)	394	585
- first lien residential mortgages	(38)	8	(19)	(142)	3	(188)
- other personal	161	158	29	34	391	773

Corporate and commercial	461	264	50	55	647	1,477
- manufacturing and international trade and services	229	136	44	37	241	687
- commercial real estate and other property-related	95	38	2	4	117	256
- other commercial2	137	90	4	14	289	534

Financial5	16	(2)	(4)	(42)	-	(32)

Total loan impairment charge for the half-year to 31 December 2014	600	428	56	(95)	1,041	2,030

For footnotes, see page 86.

Movement in impairment allowances on loans and advances to customers and banks

	Banks	Customers
	individually assessed	Individually assessed	Collectively assessed	Total
	$m	$m	$m	$m

At 1 January 2015	49	6,195	6,142	12,386
Amounts written off	-	(727)	(1,463)	(2,190)
Recoveries of loans and advances previously written off	-	23	327	350
Charge to income statement	(8)	488	967	1,447
Reclassified to held for sale	-	(656)	(1,047)	(1,703)
Exchange and other movements	(3)	(124)	(385)	(512)

At 30 June 2015	38	5,199	4,541	9,778

Impairment allowances:
on loans and advances to customers		5,199	4,541	9,740
- personal		425	2,914	3,339
- corporate and commercial		4,587	1,540	6,127
- financial		187	87	274

as a percentage of gross loans and advances	0.04%	0.54%	0.47%	0.92%

	Banks	Customers
	individually assessed	Individually assessed	Collectively assessed	Total
	$m	$m	$m	$m


At 1 January 2014	58	7,072	8,071	15,201
Amounts written off	(6)	(1,276)	(2,288)	(3,570)
Recoveries of loans and advances previously written off	-	74	483	557
Charge to income statement	10	548	1,467	2,025
Reclassified to held for sale	-	-	(160)	(160)
Exchange and other movements	1	73	(94)	(20)

At 30 June 2014	63	6,491	7,479	14,033

Impairment allowances:
on loans and advances to customers		6,491	7,479	13,970
- personal		534	5,372	5,906
- corporate and commercial		5,708	1,978	7,686
- financial		249	129	378

as a percentage of gross loans and advances	0.05%	0.61%	0.71%	1.19%

At 1 July 2014	63	6,491	7,479	14,033
Amounts written off	-	(1,037)	(1,772)	(2,809)
Recoveries of loans and advances previously written off	-	40	358	398
Charge to income statement	(6)	1,228	808	2,030
Reclassified to held for sale	-	(50)	(144)	(194)
Exchange and other movements	(8)	(477)	(587)	(1,072)

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
- financial		195	101	296

as a percentage of gross loans and advances	0.04%	0.63%	0.62%	1.13%

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
	%	%	%	%	%	%
Half-year to 30 June 2015
New allowances net of allowance releases	0.27	0.18	0.32	0.29	3.65	0.39
Recoveries	(0.09)	(0.04)	(0.11)	(0.06)	(0.30)	(0.08)

Total charge for impairment losses	0.18	0.14	0.21	0.23	3.35	0.31

Amount written off net of recoveries	0.22	0.09	1.67	0.57	3.19	0.40

Half-year to 30 June 2014
New allowances net of allowance releases	0.39	0.17	(0.23)	0.71	4.72	0.55
Recoveries	(0.15)	(0.04)	(0.17)	(0.10)	(0.49)	(0.12)

Total charge for impairment losses	0.24	0.13	(0.40)	0.61	4.23	0.43

Amount written off net of recoveries	0.61	0.11	0.38	1.11	3.74	0.65

Half-year to 31 December 2014
New allowances net of allowance releases	0.34	0.29	0.51	(0.07)	5.38	0.52
Recoveries	(0.02)	(0.04)	(0.12)	(0.07)	(0.96)	(0.09)

Total charge for impairment losses	0.32	0.25	0.39	(0.14)	4.42	0.43

Amount written off net of recoveries	0.36	0.15	0.79	0.83	3.52	0.52

Wholesale lending

Wholesale lending covers the range of credit facilities granted to sovereign borrowers, banks, non-bank financial institutions, corporate entities and commercial borrowers.

Total wholesale lending

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

Corporate and commercial	200,188	225,249	22,833	63,524	12,413	524,207
- manufacturing	43,465	35,599	2,570	17,392	3,072	102,098
- international trade and services	65,459	76,683	10,109	13,720	3,508	169,479
- commercial real estate	26,925	34,249	721	7,444	1,418	70,757
- other property-related	8,209	39,518	1,691	9,652	39	59,109
- government	2,260	1,117	1,552	164	947	6,040
- other commercial2	53,870	38,083	6,190	15,152	3,429	116,724

Financial	27,163	15,413	2,896	8,055	691	54,218

Loans and advances to banks	23,460	66,286	9,014	7,372	3,311	109,443

Gross loans at 30 June 2015	250,811	306,948	34,743	78,951	16,415	687,868

Impairment allowances on wholesale lending
Corporate and commercial	2,927	1,138	983	561	518	6,127
- manufacturing	563	266	134	134	50	1,147
- international trade and services	823	589	330	139	48	1,929
- commercial real estate	819	33	146	92	364	1,454
- other property-related	151	71	236	34	1	493
- government	7	-	-	1	-	8
- other commercial	564	179	137	161	55	1,096

Financial	216	13	10	35	-	274

Loans and advances to banks	20	-	18	-	-	38

Impairment allowances at 30 June 2015	3,163	1,151	1,011	596	518	6,439

Corporate and commercial	260,097	221,852	20,983	56,054	32,965	591,951
- manufacturing	65,374	35,210	2,445	12,941	14,196	130,166
- international trade and services	79,981	80,574	10,072	13,087	8,534	192,248
- commercial real estate	30,935	34,727	434	6,677	2,492	75,265
- other property-related	7,444	32,730	1,593	8,644	348	50,759
- government	2,404	1,082	1,696	568	1,007	6,757
- other commercial2	73,959	37,529	4,743	14,137	6,388	136,756

Financial	29,603	12,091	2,838	7,579	1,397	53,508

Loans and advances to banks	27,763	72,222	8,644	6,252	12,569	127,450

Gross loans at 30 June 2014	317,463	306,165	32,465	69,885	46,931	772,909

Impairment allowances on wholesale lending
Corporate and commercial	3,355	951	1,161	817	1,402	7,686
- manufacturing	526	252	162	148	372	1,460
- international trade and services	961	458	490	187	257	2,353
- commercial real estate	1,062	19	147	178	454	1,860
- other property-related	257	99	239	89	7	691
- government	3	-	4	1	-	8
- other commercial	546	123	119	214	312	1,314

Financial	250	15	30	81	2	378

Loans and advances to banks	45	-	18	-	-	63

Impairment allowances at 30 June 2014	3,650	966	1,209	898	1,404	8,127

Corporate and commercial	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 commercial2	58,861	38,966	4,702	13,554	6,942	123,025

Financial	23,103	13,997	3,291	9,034	1,393	50,818

Loans and advances to banks	21,978	62,960	10,495	7,405	9,360	112,198

Gross loans at 31 December 2014	257,604	297,756	34,374	74,432	41,475	705,641

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m
Impairment allowances on wholesale lending
Corporate and commercial	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	221	13	21	39	2	296

Loans and advances to banks	31	-	18	-	-	49

Impairment allowances at 31 December 2014	3,364	1,102	1,210	647	1,463	7,786

For footnote, see page 86.

On a reported basis, gross loans decreased by $18bn, mainly due to the classification of the assets of our Brazilian operations as 'Assets held for sale' of $23bn and adverse foreign exchange movements of $7.9bn.

Loan impairment allowances reduced by $1.3bn, mainly due to the Brazilian reclassification.

The commentary that follows is on a constant currency basis.

Excluding the Brazilian reclassification, gross loans increased by $13bn.

In Asia, balances grew by $12bn, mainly in other property and international trade and services. In North America, we experienced growth of $5.6bn mainly in manufacturing and commercial real estate. In Europe, balances reduced by $4.0bn mainly due to corporate and commercial lending balances reducing by $10bn which was partly offset by increases in financial and banks. The corporate and commercial lending reduction was mainly in the UK,in international trade and service and other commercial balances which was partially offset by increases in manufacturing balances. These movements are mainly related to corporate overdraft balances where a small number of clients benefit from the use of net interest arrangements across overdraft and deposits. As a result, while net risk exposures are generally stable, gross balances can be volatile. In Middle East and North Africa, balances increased by $0.8bn, mainly due to an increase in corporate and commercial lending of $2.5bn partially offset by decreases in loans and advances to banks of $1.2bn.

Personal lending

We provide a broad range of secured and unsecured personal lending products to meet customer needs. Personal lending includes loans secured on assets such as first liens on residential property, and unsecured lending products such as overdrafts, credit cards and payroll loans.

Total personal lending

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

First lien residential mortgages	130,909	95,176	2,642	53,995	2,031	284,753
Of which:
- interest only (including offset)	43,541	887	-	227	-	44,655
- affordability (including ARMs)	340	4,984	-	16,899	-	22,223

Other personal lending	46,402	37,199	4,006	8,995	3,945	100,547
- motor vehicle finance	5	264	377	16	408	1,070
- credit cards	12,559	9,760	859	999	1,934	26,111
- second lien residential mortgages	-	43	2	4,089	-	4,134
- other	33,838	27,132	2,768	3,891	1,603	69,232


Total gross loans at 30 June 2015	177,311	132,375	6,648	62,990	5,976	385,300

Impairment allowances on personal lending
First lien residential mortgages	271	43	88	1,362	23	1,787
Other personal lending	792	205	87	276	192	1,552
- motor vehicle finance	1	1	5	-	4	11
- credit cards	354	114	30	30	117	645
- second lien residential mortgages	-	-	-	210	-	210
- other	437	90	52	36	71	686


Total impairment allowances at 30 June 2015	1,063	248	175	1,638	215	3,339

Total personal lending (continued)

	Europe	Asia	MENA	North America	Latin America	Total
	$m	$m	$m	$m	$m	$m

First lien residential mortgages	144,225	95,489	2,543	58,677	4,501	305,435
Of which:
- interest only (including offset)	50,339	1,138	18	332	-	51,827
- affordability (including ARMs)	350	5,532	-	15,950	-	21,832

Other personal lending	50,673	34,191	4,010	10,896	10,547	110,317
- motor vehicle finance	9	407	379	28	1,568	2,391
- credit cards	14,019	9,681	905	1,084	3,515	29,204
- second lien residential mortgages	-	80	3	4,879	-	4,962
- other	36,645	24,023	2,723	4,905	5,464	73,760


Total gross loans at 30 June 2014	194,898	129,680	6,553	69,573	15,048	415,752

Impairment allowances on personal lending
First lien residential mortgages	398	52	110	2,254	39	2,853
Other personal lending	925	218	163	434	1,313	3,053
- motor vehicle finance	4	2	5	-	106	117
- credit cards	417	125	61	37	298	938
- second lien residential mortgages	-	-	-	345	-	345
- other	504	91	97	52	909	1,653


Total impairment allowances at 30 June 2014	1,323	270	273	2,688	1,352	5,906


First lien residential mortgages	131,000	93,147	2,647	55,577	4,153	286,524
Of which:
- interest only (including offset)	44,163	956	-	276	-	45,395
- affordability (including ARMs)	337	5,248	-	16,452	-	22,037

Other personal lending	47,531	36,368	3,924	9,823	9,384	107,030
- motor vehicle finance	5	328	392	12	1,216	1,953
- credit cards	12,959	10,289	897	1,050	3,322	28,517
- second lien residential mortgages	-	56	2	4,433	-	4,491
- other	34,567	25,695	2,633	4,328	4,846	72,069


Total gross loans at 31 December 2014	178,531	129,515	6,571	65,400	13,537	393,554

Impairment allowances on personal lending
First lien residential mortgages	306	46	97	1,644	36	2,129
Other personal lending	786	208	97	350	1,030	2,471
- motor vehicle finance	1	2	5	-	60	68
- credit cards	347	119	33	36	298	833
- second lien residential mortgages	-	-	-	271	-	271
- other	438	87	59	43	672	1,299


Total impairment allowances at 31 December 2014	1,092	254	194	1,994	1,066	4,600

On a reported basis, total personal lending reduced by $8.3bn, mainly due to the classification of $7.6bn of assets of our Brazilian operations as 'Assets held for sale' and adverse foreign exchange movements of $3.3bn.

Loan impairment allowances reduced by $1.3bn, mainly due to the Brazilian reclassification.

Loan impairment charges were $0.9bn, $0.3bn less than in 1H14 due to reduced levels of lending balances and lower new impaired loans and delinquency in the US CML portfolio, reflecting the continued portfolio run-off and loan sales.

Excluding the Brazilian reclassification, personal lending grew by $2.7bn on a constant currency basis.

Mortgage lending

The commentary that follows is on a constant currency basis:

Excluding the effect of the reclassification of the assets of our Brazilian operations as 'Assets held for sale' and theUS CML run-off portfolio, mortgage lending increased by $3.4bn during 1H15. Mortgage lending balances in Asia grew by $3.1bn, primarily attributable to continued growth in Hong Kong ($2.2bn) due to increased promotional campaigns and, to a lesser extent, in Australia and mainland China ($1.0bn) as a result of strong demand and our competitive customer offerings. The quality of our Asian mortgage book remained high with negligible defaults and impairment allowances. The average loan to value ('LTV') ratio on new mortgage lending in Hong Kong was 44% compared with an estimated 27% for the overall portfolio.

In North America, our Canadian mortgage balances increased by $0.5bn during 1H15 a result of a spring mortgage campaign.

The Premier mortgage portfolio in the US also increased by $0.6bn as we continued to focus on growth in our core portfolios of higher credit quality mortgages. Collectively assessed impairment allowances reduced in 1H15 due to continued improvement in the credit quality of the mortgage portfolio. The US CML portfolio declined by $1.8bn, including second lien mortgages, in 1H15.

We classified mortgage lending balances of $1.9bn in Brazil as 'Assets held for sale'.

In Europe, there was a decline of $0.8bn or 0.6% in the mortgage portfolio due to decreased new mortgage lending and the effect of repayments, mainly in the UK, and a fall in impairment allowances due to reductions in receivables and defaulted loans.

The LTV ratio on new lending in the UK was 55.9% compared with an average of 42.5% for the total mortgage portfolio. The credit quality of our UK mortgage portfolio remained high and both loan impairment charges and delinquency levels declined in 1H15.

Other personal lending

The commentary that follows is on a constant currency basis:

Excluding the effect of the Brazilian reclassification and the US CML run-off portfolio, other personal lending increased by $1.0bn during 1H15. This was driven by strong growth in personal loans in Hong Kong ($1.5bn) and an increase in other lending in France ($0.4bn).

These increases were partially offset by reductions in credit card lending of $0.2bn in the UK and $0.3bn in Hong Kong. Other personal lending in North America declined by $0.6bn, of which $0.3bn was a reduction in second lien mortgage balances during 1H15.

HSBC Finance

Lending in HSBC Finance for residential mortgages, including second lien mortgages, decreased by $1.8bn to $21.8bn at 30 June 2015. Of the mortgage lending in HSBC Finance 90% consisted of first lien residential mortgages and 10% of second lien mortgages. In addition to the continued loan sales in the CML portfolio, we transferred a further $0.4bn to 'Assets held for sale' during 1H15, and these loans were mainly sold in May 2015. The average gain on sale of foreclosed properties that arose after we took title to the property was 1%.

The decrease in impairment allowances from $1.7bn at 31 December 2014 to $1.3bn at 30 June 2015 reflected reduced levels of delinquency and lower newly impaired loans and loan balances outstanding as a result of continued sale and liquidation of the portfolio.

Across the first and second lien residential mortgages in our CML portfolio, two months and over delinquent balances reduced by $0.5bn to $1.8bn during 1H15, reflecting the continued portfolio run-off and loan sales.

At 30 June 2015, renegotiated real estate secured accounts in HSBC Finance represented 92% (December 2014: 93%) of North America's total renegotiated loans. $7bn of renegotiated real estate secured loans were classified as impaired (31 December 2014: $8bn). During 1H15, the aggregate number of renegotiated loans in HSBC Finance reduced due to portfolio run-off and further loan sales in the CML portfolio.

HSBC Bank USA

In HSBC Bank USA, mortgage balances grew by $0.6bn to $17.4bn during 1H15 as we continued to implement our strategy to grow the HSBC Premier and Advance customer base. We continued to sell all agency eligible new originations in the secondary market.

Supplementary information

Reconciliation of reported and constant currency changes impaired loans and allowances by geographical region

	31 December 2014 as reported	Currency translation adjustment6	31 December 2014 at 30 June 2015 exchange rates	Movement on a constant currency basis	30 June 2015 as reported	Reported change7	Constant currency change7
	$m	$m	$m	$m	$m	%	%
Impaired loans
Europe	10,242	(231)	10,011	(491)	9,520	(7)	(5)
Asia	2,048	(56)	1,992	159	2,151	5	8
Middle East and North Africa	1,981	(13)	1,968	(264)	1,704	(14)	(13)
North America	11,694	(30)	11,664	(1,029)	10,635	(9)	(9)
Latin America	3,365	(383)	2,982	(1,838)	1,144	(66)	(62)

	29,330	(713)	28,617	(3,463)	25,154	(14)	(12)

Impairment allowances
Europe	4,455	(133)	4,322	(94)	4,228	(5)	(2)
Asia	1,356	(25)	1,331	67	1,398	3	5
Middle East and North Africa	1,406	(7)	1,399	(212)	1,187	(16)	(15)
North America	2,640	(21)	2,619	(388)	2,231	(15)	(15)
Latin America	2,529	(293)	2,236	(1,502)	734	(71)	(67)

	12,386	(479)	11,907	(2,129)	9,778	(21)	(18)

For footnotes, see page 86.

Gross loans and advances by industry sector

	At 31 December 2014	Currency effect	Movement	At 30 June 2015
	$m	$m	$m	$m

Personal	393,554	(3,933)	(4,321)	385,300
- first lien residential mortgages	286,524	(1,895)	124	284,753
- other personal	107,030	(2,038)	(4,445)	100,547

Corporate and commercial	542,625	(8,345)	(10,073)	524,207
- manufacturing	106,986	(2,467)	(2,421)	102,098
- international trade and services	180,791	(2,651)	(8,661)	169,479
- commercial real estate	73,293	(993)	(1,543)	70,757
- other property-related	52,387	(326)	7,048	59,109
- government	6,143	(128)	25	6,040
- other commercial2	123,025	(1,780)	(4,521)	116,724

Financial	50,818	(357)	3,757	54,218

Total gross loans and advances to customers (A)	986,997	(12,635)	(10,637)	963,725

Gross loans and advances to banks	112,198	(2,471)	(284)	109,443
		(15,106)
Total gross loans and advances	1,099,195	(15,106)	(10,921)	1,073,168

Impaired loans and advances to customers	29,283	(713)	(3,460)	25,110
- as a percentage of (A)	3.0%			2.6%

Impairment allowances on loans and advances to customers	12,337	(480)	(2,117)	9,740
- as a percentage of (A)	1.2%			1.0%

For footnote, see page 86.

The currency effect on personal lending gross loans and advances of $3.9bn was made up as follows: Asia $1.4bn, North America $1.4bn, Latin America $1.0bn and Europe $0.1bn. The currency effect on wholesale lending grossloans and advances of $11.2bn was made up as follows: Latin America $4.4bn, Europe $2.8bn, Asia $2.4bn, North America $1.1bn and Middle East and North Africa $0.5bn.

Gross loans and advances to customers by country

	First lien residential mortgages $m	Other personal $m	Property- related $m	Commercial, international trade and other $m		Total $m

Europe	130,909	46,402	35,134		192,217	404,662
- UK	124,001	21,221	26,303		148,414	319,939
- France	2,342	12,248	6,811		21,028	42,429
- Germany	5	216	364		7,933	8,518
- Switzerland	346	8,266	235		841	9,688
- other	4,215	4,451	1,421		14,001	24,088

Asia	95,176	37,199	73,767		166,895	373,037
- Hong Kong	58,884	24,380	55,627		84,411	223,302
- Australia	9,079	709	1,837		6,457	18,082
- India	1,357	287	630		6,189	8,463
- Indonesia	58	380	84		5,706	6,228
- Mainland China	4,823	1,908	6,992		25,224	38,947
- Malaysia	4,945	1,576	2,000		5,446	13,967
- Singapore	8,942	5,707	4,146		12,137	30,932
- Taiwan	4,099	689	119		5,903	10,810
- other	2,989	1,563	2,332		15,422	22,306

Middle East and North Africa (excluding Saudi Arabia)	2,642	4,006	2,412		23,317	32,377
- Egypt	1	515	124		2,414	3,054
- UAE	2,248	1,866	1,650		14,935	20,699
- other	393	1,625	638		5,968	8,624

North America	53,995	8,995	17,096		54,483	134,569
- US	36,952	5,088	12,964		41,812	96,816
- Canada	15,679	3,654	3,807		11,618	34,758
- other	1,364	253	325		1,053	2,995

Latin America	2,031	3,945	1,457		11,647	19,080
- Mexico	1,919	2,630	1,296		8,435	14,280
- other	112	1,315	161		3,212	4,800


At 30 June 2015	284,753	100,547	129,866		448,559	963,725

	First lien residential mortgages $m	Other personal $m	Property- related $m	Commercial, international trade and other $m		Total $m

Europe	144,225	50,673	38,379		251,321	484,598
- UK	135,701	22,121	28,124		204,624	390,570
- France	3,131	14,177	8,322		23,292	48,922
- Germany	6	205	146		8,080	8,437
- Switzerland	352	8,189	248		461	9,250
- other	5,035	5,981	1,539		14,864	27,419

Asia	95,489	34,191	67,457		166,486	363,623
- Hong Kong	54,988	21,777	49,209		84,002	209,976
- Australia	10,214	915	2,805		7,135	21,069
- India	1,169	303	593		4,993	7,058
- Indonesia	70	469	75		5,632	6,246
- Mainland China	5,516	151	6,228		24,349	36,244
- Malaysia	5,463	1,892	1,988		5,181	14,524
- Singapore	10,330	6,118	4,351		12,803	33,602
- Taiwan	4,193	691	127		6,960	11,971
- other	3,546	1,875	2,081		15,431	22,933

Middle East and North Africa (excluding Saudi Arabia)	2,543	4,010	2,027		21,794	30,374
- Egypt	1	493	104		2,264	2,862
- UAE	2,168	1,815	1,314		13,379	18,676
- other	374	1,702	609		6,151	8,836

North America	58,677	10,896	15,321		48,312	133,206
- US	39,939	5,842	10,609		34,279	90,669
- Canada	17,174	4,769	4,210		13,064	39,217
- other	1,564	285	502		969	3,320

Latin America	4,501	10,547	2,840		31,522	49,410
- Mexico	2,155	2,987	1,428		9,128	15,698
- other	2,346	7,560	1,412		22,394	33,712
Included in other: Brazil	2,232	6,360	1,273		19,555	29,420

At 30 June 2014	305,435	110,317	126,024		519,435	1,061,211

Europe	131,000	47,531	35,313		200,313	414,157
- UK	123,239	21,023	25,927		156,577	326,766
- France	2,914	12,820	7,341		21,834	44,909
- Germany	6	212	304		7,275	7,797
- Switzerland	298	8,149	225		614	9,286
- other	4,543	5,327	1,516		14,013	25,399

Asia	93,147	36,368	70,057		164,739	364,311
- Hong Kong	56,656	22,891	52,208		82,362	214,117
- Australia	9,154	815	2,130		6,360	18,459
- India	1,235	285	613		5,099	7,232
- Indonesia	64	469	202		5,476	6,211
- Mainland China	4,238	1,981	6,606		24,875	37,700
- Malaysia	5,201	1,750	1,988		5,217	14,156
- Singapore	9,521	5,878	4,210		11,951	31,560
- Taiwan	3,920	626	118		7,057	11,721
- other	3,158	1,673	1,982		16,342	23,155

Middle East and North Africa (excluding Saudi Arabia)	2,647	3,924	2,246		21,633	30,450
- Egypt	1	510	98		2,272	2,881
- UAE	2,263	1,782	1,545		13,814	19,404
- other	383	1,632	603		5,547	8,165

North America	55,577	9,823	15,492		51,535	132,427
- US	37,937	5,482	11,461		38,632	93,512
- Canada	16,236	4,085	3,708		11,825	35,854
- other	1,404	256	323		1,078	3,061

Latin America	4,153	9,384	2,572		29,543	45,652
- Mexico	1,967	2,642	1,336		9,503	15,448
- other	2,186	6,742	1,236		20,040	30,204
Included in other: Brazil	2,067	5,531	1,077		16,814	25,489

At 31 December 2014	286,524	107,030	125,680		467,763	986,997

Greece

As a result of the unfolding crisis, we have raised additional loan impairment charges and other credit risk provisions amounting to $111m. The tables in this section summarise our Greek country exposures.

Exposures to banks, other financial corporations, non-financial corporations and households are based on the counterparty's country of domicile. We separately identify exposures to the shipping industry. These are denominated in US dollars and booked in the UK. We believe the shipping industry is less sensitive to the Greek economy as it is mainly dependent on international trade. The average LTV weighted by the value of loans of our residential mortgages is 66%. We have had restricted lending appetite in Greece for a number of years.

Summary of exposures to Greece

		$bn

On-balance sheet exposures
Loans and advances to customers		3.0
- other financial institutions and corporates		0.7
- shipping industry booked in UK		1.7
- personal - mortgages		0.6

Derivative assets		0.4

Gross balance sheet exposure before risk mitigation		3.4
Risk mitigation: collateral and derivative liabilities		(0.4)

Net on-balance sheet exposure		3.0

Off-balance sheet exposures
Gross off-balance sheet exposure to banks before risk mitigation		0.3
Risk mitigation: collateral and guarantees held onoff-balance sheet exposures to banks		(0.1)

Net off-balance sheet exposures to banks		0.2
Gross off-balance sheet exposures to customers		0.6

Net off-balance sheet exposures		0.8

Total net exposures at 30 June 2015		3.8

Basis of preparation

The gross exposure represents the on-balance sheet carrying amounts recorded in accordance with IFRSs and off-balance sheet exposures before risk mitigation.

The net exposure is stated after taking into account mitigating offsets that are incorporated into the risk management view of the exposure but do not meet accounting offset requirements. These risk mitigating offsets include:

· derivative liabilities for which a legally enforceable right of offset with derivative assets exists;

· collateral received on derivative assets; and

· cash collateral and guarantees received on off-balance sheet exposures.

Redenomination risk

There is the continuing possibility of Greece exiting the eurozone. There remains no established legal framework within the European treaties to facilitate such an event; consequently, it is not possible to accurately predict the course of events and legal consequences that would ensue.

Greece funding exposure

	Denominated in
	Euros	US dollars	Other currencies	Total
	$bn	$bn	$bn	$bn
At 30 June 2015
In-country assets	1.0	-	-	1.0
In-country liabilities	(0.8)	(0.3)	-	(1.1)

Net in-country funding exposure	0.2	(0.3)	-	(0.1)

Off-balance sheet exposure	-	-	-	-

Key risks associated with an exit by Greece include:

Foreign exchange losses: an exit would probably be accompanied by the passing of laws establishing a new local currency and providing for a redenomination of euro assets into the new local currency. The value of assets and liabilities in Greece would immediately fall assuming the value of the redenominated currency is less than the original euros when translated into the carrying amounts. It is not possible to predict what the total consequential loss might be as it is uncertain which assets and liabilities would be legally redenominated or the extent of the devaluation. These assets and liabilities predominantly comprise loans and deposits arising from our commercial banking operations in Greece, and the net assets represent our net funding exposure. The table above also identifies in-country off-balance sheet exposures as these are at risk of redenomination should they be called, giving rise to a balance sheet exposure.

External contracts redenomination risk: contracts entered into between HSBC businesses based outside Greece with in-country counterparties or those otherwise closely connected with Greece may be affected by redenomination. The effect remains subject to a high level of uncertainty. Factors such as the country law under which the contract is documented, the HSBC entity involved and the payment mechanism may all be relevant to this assessment, as will the precise exit scenario as the consequences for external contracts of a disorderly exit may differ from one sanctioned under EU law. In addition, capital controls could be introduced which may affect our ability to repatriate funds including currencies not affected by the redenomination event.

We continue to identify and monitor potential redenomination risks and, where possible, take steps to mitigate them and/or reduce our overall exposure to losses that might arise in the event of a redenomination. We recognise, however, that a euro exit could take different forms, depending on the scenario. These could have distinct legal consequences which could significantly alter the potential effectiveness of any mitigation initiatives, and it is accordingly not possible to predict how effective particular measures may be until they are tested against the precise circumstances of a redenomination event.

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR PKADKPBKDPFB

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