Become a Member

Track your favourite stocks
Create & monitor portfolios
Daily portfolio value

Company	Chg	Chg %
Quickpicks
£	%
Add shares to your quickpicks to display them here!

Interim Report - 16 of 28

16th Aug 2013 16:30

RNS Number : 9057L

HSBC Holdings PLC

16 August 2013

reduction in the US run-off portfolio and the reclassification of loan balances to 'Assets held for sale' in our non-strategic operations in Latin America, Europe and, to a lesser extent, North America. This was partly offset by a modest increase in residential mortgage balances in Rest of Asia‑Pacific, primarily in mainland China and Australia, Hong Kong and the UK.

Total wholesale lending increased to US$776bn at 30 June 2013 from US$729bn at the end of 2012, due to a rise in lending to banks, largely in Europe, and increased international trade and services lending to corporate and commercial customers in Hong Kong. This was partly offset by a decline in Latin America, where we reclassified lending balances relating to the planned disposal of our non‑strategic businesses to 'Assets held for sale'.

At 30 June 2013, impairment allowances as a percentage of gross loans and advances decreased to 1.33% from 1.39% at the end of 2012 as a result of a reduction in loan impairment charges (as described below) and an increase in wholesale lending.

Loan impairment charges in the first half of 2013 decreased to US$3.2bn from US$4.4bn in the first half of 2012 and US$3.5bn in the second half of 2012. The reduction was primarily in RBWM in North America due to significant favourable market value adjustments in the value of the underlying properties reflecting improvements in the housing sector, lower delinquency levels, the continued run-off of the CML portfolio and the sale of the CRS business in 2012. This decline was partly offset by increases in Latin America due to higher collective impairment provisions in RBWM and CMB as a result of impairment model changes and assumption revisions in Brazil and increases in Mexico reflecting higher lending balances, a revision to the assumptions used in our collective assessment models in the first half of 2013 and the non‑recurrence of a provision release in the first half of 2012. In addition, individually assessed impairment provisions increased in Mexico in CMB and GB&M and in the UK in CMB.

Credit exposure

Maximum exposure to credit risk

The table on page 115 provides information on balance sheet items, offsets and loan and other credit-related commitments. Commentary on the balance sheet movements is provided on page 38.

Derivatives

The derivatives offset amount in the table below relates to exposures where the counterparty has an offsetting derivative exposure with HSBC, a master netting arrangement is in place and the credit risk exposure is managed on a net basis, or the position is specifically collateralised, normally in the form of cash. At 30 June 2013, the total amount of such offsets was US$254bn (30 June 2012: US$340bn; 31 December 2012: US$311bn), of which US$213bn (30 June 2012: US$301bn; 31 December 2012: US$270bn) were offsets under a master netting arrangement, US$36bn (30 June 2012: US$38bn; 31 December 2012: US$39bn) was collateral received in cash and US$6bn (30 June 2012: US$1.1bn; 31 December 2012: US$1.8bn) was other collateral. The decline in the total offset reflects the reduction in the fair value of derivative contracts in the period. These amounts do not qualify for offset for accounting purposes as settlement is not intended to be made on a net basis.

Loan and other credit-related commitments

Loan and other credit-related commitments largely consist of corporate and commercial off-balance sheet commitments, including term and trade-related lending balances and overdrafts, retail off-balance sheet commitments including overdrafts, residential mortgages and personal loans and credit card balances. Loan and other credit-related commitments rose marginally, driven by an increase in North America, reflecting our focus on growing in target commercial segments in the US, and a rise in term and trade-related commitments in Hong Kong and mainland China. This was partly offset by a decline in the Middle East and North Africa as a result of drawdowns by wholesale customers in the UAE and a reduction in our exposure to Egypt.

Other credit risk mitigants

While not disclosed as an offset in the maximum exposure to credit risk table, other arrangements are in place which reduce our maximum exposure to credit risk. These include short positions in securities and financial assets held as part of linked insurance/ investment contracts where the risk is predominantly borne by the policyholder. In addition, we hold collateral in respect of individual loans and advances.

Maximum exposure to credit risk1

	At 30 June 2013			At 30 June 2012			At 31 December 2012
	Maximum exposure	Offset	Exposure to credit risk (net)	Maximum exposure	Offset	Exposure to credit risk (net)	Maximum exposure	Offset	Exposure to credit risk (net)
	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m
Cash and balances atcentral banks .............	148,285	-	148,285	147,911	-	147,911	141,532	-	141,532
Items in the course of collection from other banks ........................	8,416	-	8,416	11,075	-	11,075	7,303	-	7,303
Hong Kong Government certificates of indebtedness ..............	24,275	-	24,275	21,283	-	21,283	22,743	-	22,743

Trading assets ..............	381,124	(8,557)	372,567	361,352	(12,665)	348,687	367,177	(19,700)	347,477
Treasury and othereligible bills .............	19,188	-	19,188	30,098	-	30,098	26,282	-	26,282
Debt securities ...........	147,568	-	147,568	131,563	-	131,563	144,677	-	144,677
Loans and advances:
- to banks ...............	96,748	-	96,748	94,830	-	94,830	78,271	-	78,271
- to customers ........	117,620	(8,557)	109,063	104,861	(12,665)	92,196	117,947	(19,700)	98,247

Financial assets designated at fair value ...............	12,548	-	12,548	14,535	-	14,535	12,714	-	12,714
Treasury and othereligible bills .............	99	-	99	91	-	91	54	-	54
Debt securities ...........	12,392	-	12,392	14,238	-	14,238	12,551	-	12,551
Loans and advances:
- to banks ...............	25	-	25	127	-	127	55	-	55
- to customers ........	32	-	32	79	-	79	54	-	54

Derivatives ..................	299,213	(254,077)	45,136	355,934	(340,442)	15,492	357,450	(310,859)	46,591

Loans and advances heldat amortised cost: ......	1,154,504	(94,670)	1,059,834	1,157,176	(93,044)	1,064,132	1,150,169	(95,578)	1,054,591
- to banks ...............	185,122	(6,296)	178,826	182,191	(7,092)	175,099	152,546	(3,732)	148,814
- to customers ........	969,382	(88,374)	881,008	974,985	(85,952)	889,033	997,623	(91,846)	905,777

Financial investments ..	394,846	-	394,846	387,050	-	387,050	415,312	-	415,312
Treasury and othersimilar bills .............	79,005	-	79,005	71,552	-	71,552	87,550	-	87,550
Debt securities ...........	315,841	-	315,841	315,498	-	315,498	327,762	-	327,762

Assets held for sale ......	18,690	(572)	18,118	10,541	(4)	10,537	9,292	(164)	9,128
- disposal groups .....	17,756	(572)	17,184	10,383	(4)	10,379	5,359	(164)	5,195
- non-current assets held for sale .........	934	-	934	158	-	158	3,933	-	3,933

Other assets	32,470	-	32,470	34,397	-	34,397	31,983	-	31,983
Endorsements and acceptances ............	11,329	-	11,329	12,782	-	12,782	12,032	-	12,032
Other ........................	21,141	-	21,141	21,615	-	21,615	19,951	-	19,951

Financial guarantees and similar contracts .......	43,783	-	43,783	39,190	-	39,190	44,993	-	44,993
Loan and other credit-related commitments2 ..................................	587,946	-	587,946	564,113	-	564,113	579,469	-	579,469

	3,106,100	(357,876)	2,748,224	3,104,557	(446,155)	2,658,402	3,140,137	(426,301)	2,713,836

For footnotes, see page 178.

Personal lending

Total personal lending was US$395bn at 30 June 2013, down from US$415bn at the end of 2012 (US$401bn on a constant currency basis). The decrease on a constant currency basis reflected the reclassification of loan balances to 'Assets held for sale' in our non-strategic operations in Latin America, Europe and, to a lesser extent, North America, and a decrease in lending in North America due to the repayments and write-offs in the US run-off portfolio. This was partly offset by an increase in mortgage lending in Rest of Asia-Pacific, Hong Kong and the UK.

Total personal lending

	UK	Rest of Europe	Hong Kong	US3	Rest of North America	Other regions3	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 30 June 2013
First lien residential mortgages (A) ..........	120,740	6,694	53,475	47,186	19,091	42,462	289,648
Other personal lending (B) .......................	20,395	25,441	18,813	6,805	5,877	27,530	104,861
- motor vehicle finance .......................	-	16	-	-	22	3,050	3,088
- credit cards ........................................	10,421	3,042	5,738	742	567	8,095	28,605
- second lien residential mortgages .......	-	-	-	5,483	295	103	5,881
- other .................................................	9,974	22,383	13,075	580	4,993	16,282	67,287


Total personal lending (C) .......................	141,135	32,135	72,288	53,991	24,968	69,992	394,509

Impairment allowances on personal lending
First lien residential mortgages (a) ........	(337)	(65)	-	(3,504)	(39)	(218)	(4,163)
Other personal lending (b) ....................	(488)	(474)	(76)	(554)	(75)	(1,554)	(3,221)
- motor vehicle finance .......................	-	(4)	-	-	(1)	(96)	(101)
- credit cards ........................................	(136)	(232)	(43)	(35)	(10)	(354)	(810)
- second lien residential mortgages .......	-	-	-	(512)	(5)	-	(517)
- other .................................................	(352)	(238)	(33)	(7)	(59)	(1,104)	(1,793)


Total (c) ..................................................	(825)	(539)	(76)	(4,058)	(114)	(1,772)	(7,384)

(a) as a percentage of (A) ........................	0.3%	1.0%	-	7.4%	0.2%	0.5%	1.4%
(b) as a percentage of (B) .........................	2.4%	1.9%	0.4%	8.1%	1.3%	5.6%	3.1%
(c) as a percentage of (C) .........................	0.6%	1.7%	0.1%	7.5%	0.5%	2.5%	1.9%

At 30 June 2012
First lien residential mortgages (D) ..........	116,949	8,780	48,951	50,773	20,809	40,518	286,780
Other personal lending (E) .......................	21,807	26,114	16,718	12,405	7,624	29,354	114,022
- motor vehicle finance .......................	-	29	-	15	24	3,852	3,920
- credit cards ........................................	10,961	2,640	5,174	791	1,188	8,369	29,123
- second lien residential mortgages .......	644	-	-	6,352	424	144	7,564
- other .................................................	10,202	23,445	11,544	5,247	5,988	16,989	73,415


Total personal lending (F) ........................	138,756	34,894	65,669	63,178	28,433	69,872	400,802

Impairment allowances on personal lending
First lien residential mortgages (d) ........	(441)	(59)	(7)	(4,463)	(38)	(241)	(5,249)

Other personal lending (e) ....................	(609)	(400)	(55)	(1,425)	(121)	(1,526)	(4,136)
- motor vehicle finance .......................	-	(4)	-	-	(1)	(166)	(171)
- credit cards ........................................	(165)	(189)	(25)	(35)	(33)	(392)	(839)
- second lien residential mortgages .......	(33)	-	-	(634)	(9)	-	(676)
- other .................................................	(411)	(207)	(30)	(756)	(78)	(968)	(2,450)


Total (f) ..................................................	(1,050)	(459)	(63)	(5,888)	(159)	(1,766)	(9,385)

(d) as a percentage of (D) ........................	0.4%	0.7%	-	8.8%	0.2%	0.6%	1.8%
(e) as a percentage of (E) .........................	2.8%	1.5%	0.3%	11.5%	1.6%	5.2%	3.6%
(f) as a percentage of (F) .........................	0.8%	1.3%	0.1%	9.3%	0.6%	2.5%	2.3%

	UK	Rest of Europe	Hong Kong	US3	Rest of North America	Other regions3	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 31 December 2012
First lien residential mortgages (G) ...	127,024	8,148	52,296	49,417	20,716	44,261	301,862
Other personal lending (H) ...............	23,446	27,656	18,045	7,382	6,839	29,863	113,231
- motor vehicle finance ................	-	24	-	-	20	3,871	3,915
- credit cards ................................	11,369	3,060	5,930	821	735	8,881	30,796
- second lien residential mortgages ......................................................	508	-	-	5,959	363	131	6,961
- other .........................................	11,569	24,572	12,115	602	5,721	16,980	71,559


Total personal lending (I) .................	150,470	35,804	70,341	56,799	27,555	74,124	415,093

Impairment allowances on personal lending
First lien residential mortgages (g)	(425)	(64)	(4)	(4,133)	(30)	(249)	(4,905)
Other personal lending (h) ............	(576)	(401)	(57)	(590)	(94)	(1,589)	(3,307)
- motor vehicle finance ................	-	(4)	-	-	(1)	(144)	(149)
- credit cards ................................	(150)	(184)	(28)	(40)	(14)	(385)	(801)
- second lien residential mortgages ......................................................	(44)	-	-	(542)	(6)	-	(592)
- other .........................................	(382)	(213)	(29)	(8)	(73)	(1,060)	(1,765)


Total (i) ...........................................	(1,001)	(465)	(61)	(4,723)	(124)	(1,838)	(8,212)

(g) as a percentage of (G) .................	0.3%	0.8%	-	8.4%	0.1%	0.6%	1.6%
(h) as a percentage of (H) .................	2.5%	1.4%	0.3%	8.0%	1.4%	5.3%	2.9%
(i) as a percentage of (I) ...................	0.7%	1.3%	0.1%	8.3%	0.5%	2.5%	2.0%

For footnote, see page 178.

Mortgage lending

The commentary that follows is on a constant currency basis.

At 30 June 2013, total mortgage lending was US$296bn, a marginal decline from 31 December 2012 which was due to the continued run-off of the CML portfolio in North America and the reclassification of balances to 'Assets held for sale' in Latin America and Europe. It was partly offset by increases in Rest of Asia-Pacific, reflecting our focus on secured lending supported by marketing campaigns; in Hong Kong, although the rate of growth began to slow; and in the UK, reflecting our competitive pricing.

Mortgage lending products

	UK	Rest of Europe	Hong Kong	US3	Restof North America	Other regions3	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 30 June 2013
First lien residential mortgages4 ................	120,740	6,694	53,475	47,186	19,091	42,462	289,648
Second lien residential mortgages .............	-	-	-	5,483	295	103	5,881

Total mortgage lending (A) .....................	120,740	6,694	53,475	52,669	19,386	42,565	295,529

Second lien as percentage of (A) ..............	-	-	-	10.4%	1.5%	0.2%	2.0%

Impairment allowances on mortgage lending .............................................................	(337)	(65)	-	(4,016)	(44)	(218)	(4,680)
First lien residential mortgages .............	(337)	(65)	-	(3,504)	(39)	(218)	(4,163)
Second lien residential mortgages .........	-	-	-	(512)	(5)	-	(517)

Interest-only (including offset) mortgages .............................................................	46,301	140	29	-	445	1,116	48,031
Affordability mortgages, including adjustable-rate mortgages ('ARM's) .....	2	453	17	18,007	-	5,535	24,014
Other .......................................................	89	-	-	-	-	175	264

Total interest-only, affordability mortgagesand other .............................................	46,392	593	46	18,007	445	6,826	72,309

- as a percentage of (A) .......................	38.4%	8.9%	0.1%	34.2%	2.3%	16.0%	24.5%

Mortgage lending products (continued)

	UK	Rest of Europe	Hong Kong	US3	Rest of North America	Other regions3	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 30 June 2012
First lien residential mortgages4 ...............	116,949	8,780	48,951	50,773	20,809	40,518	286,780
Second lien residential mortgages .............	644	-	-	6,352	424	144	7,564

Total mortgage lending (B) ......................	117,593	8,780	48,951	57,125	21,233	40,662	294,344

Second lien as percentage of (B) ..............	0.5%	-	-	11.1%	2.0%	0.4%	2.6%

Impairment allowances on mortgage lending.............................................................	(474)	(59)	(7)	(5,097)	(47)	(241)	(5,925)
First lien residential mortgages .............	(441)	(59)	-	(4,463)	(38)	-	(5,249)
Second lien residential mortgages .........	(33)	-	(7)	(634)	(9)	(241)	(676)

Interest-only (including offset) mortgages .............................................................	47,605	48	30	-	582	1,195	49,460
Affordability mortgages, including ARMs .	35	480	21	16,424	276	5,993	23,229
Other .......................................................	102	-	-	-	-	201	303

Total interest-only, affordability mortgagesand other .............................................	47,742	528	51	16,424	858	7,389	72,992

- as a percentage of (B) .......................	40.6%	6.0%	0.1%	28.8%	4.0%	18.2%	24.8%

At 31 December 2012
First lien residential mortgages4 ................	127,024	8,148	52,296	49,417	20,716	44,261	301,862
Second lien residential mortgages .............	508	-	-	5,959	363	131	6,961

Total mortgage lending (C) ......................	127,532	8,148	52,296	55,376	21,079	44,392	308,823

Second lien as percentage of (C) ..............	0.4%	-	0.0%	10.8%	1.7%	0.3%	2.3%

Impairment allowances on mortgage lending .............................................................	(469)	(64)	(4)	(4,675)	(36)	(249)	(5,497)
First lien residential mortgages .............	(425)	(64)	(4)	(4,133)	(30)	(249)	(4,905)
Second lien residential mortgages .........	(44)	-	-	(542)	(6)	-	(592)

Interest-only (including offset) mortgages .............................................................	49,650	52	30	-	531	1,146	51,409
Affordability mortgages, including ARMs .	6	532	19	18,456	-	5,135	24,148
Other .......................................................	99	-	-	-	-	204	303

Total interest-only, affordability mortgagesand other .............................................	49,755	584	49	18,456	531	6,485	75,860

- as a percentage of (C) .......................	39.0%	7.2%	0.1%	33.3%	2.5%	14.6%	24.6%

For footnotes, see page 178.

Mortgage lending in the US

In the US, total mortgage lending balances were US$53bn at 30 June 2013, a decrease of 5% compared with the end of 2012. Overall, US mortgage lending represented 13% of our total personal lending and 18% of our total mortgage lending, in line with 31 December 2012.

Mortgage lending balances at 30 June 2013 in HSBC Finance were US$36bn, a decrease of 8% compared with the end of 2012 due to the continued run-off of the CML portfolio. In HSBC Bank USA, mortgage lending balances were US$17bn at 30 June 2013, an increase of 3% from the end of 2012. This was driven, in part, by increased origination to our Premier customers, in line with our strategy to grow this customer base.

HSBC Finance US Consumer and Mortgage Lending5 - residential mortgages

	At 30 Jun 2013	At 30 Jun 2012	At 31 Dec 2012
	US$m	US$m	US$m
Residential mortgages
First lien .................	32,271	37,188	35,092
Second lien .............	3,328	4,042	3,651

Total (A) ................	35,599	41,230	38,743

Impairmentallowances ...........	3,789	4,884	4,480
- as a percentageof A ................	10.6%	11.8%	11.6%

For footnote, see page 178.

For first lien residential mortgages in our CML portfolio, two months and over delinquent balances were US$7.1bn at 30 June 2013, compared with

US$7.6bn at 31 December 2012. The decline mainly reflected the continued run-off of balances. In HSBC Bank USA, two months and over delinquent balances were broadly in line with the end of 2012, at US$1.4bn.

Second lien mortgage balances declined by 8% to US$5.5bn at 30 June 2013, representing 10% of the overall US mortgage lending portfolio, as a result of the continued run-off of the CML portfolio. Two months and over delinquent balances were US$401m at 30 June 2013 compared with US$477m at 31 December 2012.

Second lien mortgages in the US

The majority of second lien residential mortgages are taken up by customers who hold a first lien mortgage issued by a third party. Second lien residential mortgage loans have a risk profile characterised by higher loan-to-value ratios, because in the majority of cases the loans were taken out to complete the refinancing of properties. Loss severity on default of second liens has typically approached 100% of the amount outstanding, as any equity in the property is consumed through the repayment of the first lien loan.

Impairment allowances for these loans are determined by applying a roll-rate migration analysis which captures the propensity of these loans to default based on past experience. Once we believe that a second lien residential mortgage loan is likely to progress to write-off, the loss severity assumed in establishing our impairment allowance is close to 100% in the CML portfolios, and more than 80% in HSBC Bank USA.

HSBC Finance: foreclosed properties in the US

	Half-year to
	30 June	30 June	31 December
	2013	2012	2012

Number of foreclosed properties at end of period .........................................	4,068	2,836	2,973
Number of properties added to foreclosed inventory in the half-year ............	4,902	3,615	3,212
Average loss on sale of foreclosed properties6 ...............................................	2%	5%	5%
Average total loss on foreclosed properties7 .................................................	51%	55%	53%
Average time to sell foreclosed properties (days) ..........................................	155	179	166

For footnotes, see page 178.

The number of foreclosed properties at HSBC Finance at 30 June 2013 increased compared with the end of December 2012 as we work through the backlog in foreclosure activity which arose from the temporary suspension of foreclosures.

The average total loss on foreclosed properties and the average loss on sale of foreclosed properties decreased compared with the first half of 2012, reflecting improvements in home prices.

Valuation of foreclosed properties in the US

We obtain real estate by foreclosing on the collateral pledged as security for residential mortgages. Prior to foreclosure, carrying amounts of the loans in excess of fair value less costs to obtain and sell are written down to the discounted cash flows expected to be recovered, including from the sale of the property. Broker price opinions are obtained and updated every 180 days and real estate price trends are reviewed quarterly to reflect any improvement or additional deterioration. Our methodology is regularly validated by comparing the discounted cash flows expected to be recovered based on current market conditions (including estimated cash flows from the sale of the property) to the updated broker price opinion, adjusted for the estimated historical difference between interior and exterior appraisals. The fair values of foreclosed properties are initially determined based on broker price opinions. Within 90 days of foreclosure, a more detailed property valuation is performed reflecting information obtained from a physical interior inspection of the property and additional allowances or write-downs are recorded as appropriate. Updates to the valuation are performed no less than once every 45 days until the property is sold, with declines or increases recognised through changes to allowances.

Trends in two months and over contractual delinquency in the US

	At 30 June 2013	At 30 June 2012	At 31 December 2012
	US$m	US$m	US$m
In personal lending in the US
First lien residential mortgages .....................................................................	8,378	8,851	8,926
Consumer and Mortgage Lending ..............................................................	7,114	7,662	7,629
Other mortgage lending ............................................................................	1,264	1,189	1,297

Second lien residential mortgages ..................................................................	401	515	477
Consumer and Mortgage Lending ..............................................................	274	372	350
Other mortgage lending ............................................................................	127	143	127

Credit card ....................................................................................................	19	29	27
Personal non-credit card ...............................................................................	24	339	335

Total ............................................................................................................	8,822	9,734	9,765

	%	%	%
As a percentage of the relevant loans and receivables balances
First lien residential mortgages .....................................................................	17.6	17.4	18.1
Second lien residential mortgages ..................................................................	7.3	7.9	8.0
Credit card ....................................................................................................	2.5	3.7	3.3
Personal non-credit card ...............................................................................	4.1	6.3	7.4

Total ............................................................................................................	16.2	15.3	16.1

Non-US mortgage lending

The commentary that follows is on a constant currency basis.

Total non-US mortgage lending was US$243bn at 30 June 2013, broadly in line with the end of 2012. Our most significant concentrations of mortgage lending were in the UK and Hong Kong.

In the UK, mortgage lending was US$121bn at 30 June 2013, slightly higher than at 31 December 2012. This represented the Group's largest concentration of mortgage exposure. Interest only products made up US$46bn of total UK mortgage lending.

The credit quality of our UK mortgage portfolio remained high with impairment allowances at 0.3% of total gross mortgages as the effects of initiatives taken in previous years, including restricting certain types of lending, continued to be felt. During the first half of 2013, the average loan-to-value ('LTV') ratio for new business was 59% compared with 51% for the whole portfolio, a slight increase compared with the levels seen during 2012.

Mortgage lending in Hong Kong was US$53bn, an increase of 2% on the end of 2012 reflecting continued growth in the market during the first half of 2013, although the rate of growth began to slow at the end of the period. The quality of our mortgage book remained high with negligible impairment allowances. The average LTV ratio on new mortgage lending was 44% compared with an estimated 32% for the overall portfolio.

Mortgage lending in other regions remained broadly stable at US$69bn at 30 June 2013. Increases in Rest of Asia-Pacific derived from our focus on secured lending in mainland China and Australia were offset by decreases in Latin America due to the reclassification of balances to 'Assets held for sale'.

Other personal lending

Credit cards

Total credit card lending of US$29bn at 30 June 2013 was 3% below the end of 2012 due to subdued credit appetite and consumer de-leveraging, mainly in Europe, and the transfer of balances to 'Assets held for sale' in Latin America. This was partly offset by increased balances in Turkey from business expansion.

Personal non-credit card lending

Personal non-credit card lending balances fell by 4% to US$70bn at 30 June 2013, mainly in Europe and Latin America due to balances being transferred to 'Assets held for sale'.

Wholesale lending

On a reported basis, total wholesale lending increased by US$24bn from 31 December 2012 to US$776bn at 30 June 2013. On a constant currency basis, it rose by US$47bn due to higher lending to banks, largely in Europe, and an increase in international trade and services lending to corporate and commercial customers in Hong Kong. This was partly offset by a decline in Latin America where we reclassified lending balances relating to the planned disposal of our non-strategic businesses to 'Assets held for sale'.

Total wholesale lending

	Europe	Hong Kong	Rest of Asia- Pacific	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 30 June 2013
Corporate and commercial (A) .......	211,128	111,610	86,873	21,416	48,327	30,451	509,805
- manufacturing ..........................	46,202	10,944	19,300	3,409	9,609	12,128	101,592
- international trade and services	66,317	42,707	35,091	9,458	13,082	7,771	174,426
- commercial real estate .............	30,764	24,158	9,258	898	6,064	2,328	73,470
- other property-related .............	7,403	17,182	6,533	1,526	7,725	285	40,654
- government .............................	1,834	2,813	407	1,664	348	1,431	8,497
- other commercial8 ...................	58,608	13,806	16,284	4,461	11,499	6,508	111,166

Financial (non-bank financial institutions) (B) ..........................	51,060	6,168	4,630	1,822	12,103	1,380	77,163
Asset-backed securities reclassified...	3,319	-	-	-	147	-	3,466
Loans and advances to banks (C) ....	68,281	33,293	48,965	9,454	11,818	13,361	185,172

Total wholesale lending (D) ............	333,788	151,071	140,468	32,692	72,395	45,192	775,606

Impairment allowances on wholesale lending
Corporate and commercial (a) ........	3,708	334	506	1,264	827	1,071	7,710
- manufacturing ..........................	570	81	130	199	88	325	1,393
- international trade and services	1,116	207	174	523	207	346	2,573
- commercial real estate .............	1,036	4	24	158	156	231	1,609
- other property-related .............	213	17	81	241	139	13	704
- government .............................	2	-	-	31	2	-	35
- other commercial .....................	771	25	97	112	235	156	1,396

Financial (non-bank financial institutions) (b) ...........................	270	29	6	118	43	1	467
Loans and advances to banks (c) .....	33	-	-	17	-	-	50

Total (d) .........................................	4,011	363	512	1,399	870	1,072	8,227

(a) as a percentage of (A) ...............	1.76%	0.30%	0.58%	5.90%	1.71%	3.52%	1.51%
(b) as a percentage of (B) ................	0.53%	0.47%	0.13%	6.48%	0.36%	0.07%	0.61%
(c) as a percentage of (C) ................	0.05%	-	-	0.18%	-	-	0.03%
(d) as a percentage of (D) ...............	1.20%	0.24%	0.36%	4.28%	1.20%	2.37%	1.06%

Total wholesale lending (continued)

	Europe	Hong Kong	Rest of Asia- Pacific	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 30 June 2012
Corporate and commercial (E) ........	214,423	96,164	81,029	22,216	43,540	34,829	492,201
- manufacturing ..........................	55,245	10,235	17,550	3,888	8,594	12,538	108,050
- international trade and services	64,843	31,631	30,777	8,574	11,471	9,399	156,695
- commercial real estate .............	32,563	21,510	9,544	940	6,706	3,451	74,714
- other property-related .............	7,506	17,079	6,849	2,060	6,120	344	39,958
- government .............................	2,073	2,906	390	1,514	774	1,853	9,510
- other commercial8 ....................	52,193	12,803	15,919	5,240	9,875	7,244	103,274

Financial (non-bank financial institutions) (F) ...........................	58,322	3,907	3,897	1,438	25,237	1,754	94,555
Asset-backed securities reclassified ..	4,243	-	-	-	401	-	4,644
Loans and advances to banks (G) ....	58,652	29,673	50,228	9,512	14,528	19,654	182,247

Total wholesale lending (H) ............	335,640	129,744	135,154	33,166	83,706	56,237	773,647

Impairment allowances on wholesale lending
Corporate and commercial (e).........	3,270	445	641	1,276	718	800	7,150
- manufacturing ..........................	816	97	287	198	82	280	1,760
- international trade and services	947	276	168	418	153	320	2,282
- commercial real estate .............	864	4	47	158	233	85	1,391
- other property-related .............	170	20	66	155	127	12	550
- government .............................	4	-	-	38	1	-	43
- other commercial .....................	469	48	73	309	122	103	1,124

Financial (non-bank financial institutions) (f) ...........................	421	28	14	183	33	2	681
Loans and advances to banks (g) .....	39	-	-	17	-	-	56

Total (h) .........................................	3,730	473	655	1,476	751	802	7,887

(e) as a percentage of (E) ................	1.53%	0.46%	0.79%	5.74%	1.65%	2.30%	1.45%
(f) as a percentage of (F) ................	0.72%	0.72%	0.36%	12.73%	0.13%	0.11%	0.72%
(g) as a percentage of (G) ................	0.07%	-	-	0.18%	-	-	0.03%
(h) as a percentage of (H) ...............	1.11%	0.36%	0.48%	4.45%	0.90%	1.43%	1.02%

	Europe	Hong Kong	Rest of Asia- Pacific	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 31 December 2012
Corporate and commercial (I) .........	223,061	99,199	85,305	22,452	47,886	35,590	513,493
- manufacturing ..........................	56,690	10,354	19,213	3,373	9,731	12,788	112,149
- international trade and services	70,954	33,832	32,317	9,115	13,419	9,752	169,389
- commercial real estate .............	33,279	23,384	9,286	865	6,572	3,374	76,760
- other property-related .............	7,402	16,399	6,641	2,103	7,607	380	40,532
- government .............................	2,393	2,838	1,136	1,662	774	1,982	10,785
- other commercial8 ....................	52,343	12,392	16,712	5,334	9,783	7,314	103,878

Financial (non-bank financial institutions) (J) ...........................	55,732	4,546	4,255	1,196	13,935	1,594	81,258
Asset-backed securities reclassified ..	3,694	-	-	-	197	-	3,891
Loans and advances to banks (K) ....	45,320	23,500	44,592	9,198	13,465	16,528	152,603

Total wholesale lending (L) .............	327,807	127,245	134,152	32,846	75,483	53,712	751,245

Impairment allowances on wholesale lending
Corporate and commercial (i) .........	3,537	383	526	1,312	732	856	7,346
- manufacturing ..........................	611	86	129	210	84	287	1,407
- international trade and services	992	233	185	360	189	329	2,288
- commercial real estate .............	1,011	5	62	156	214	103	1,551
- other property-related .............	164	20	81	241	102	13	621
- government .............................	15	-	-	42	2	-	59
- other commercial .....................	744	39	69	303	141	124	1,420

Financial (non-bank financial institutions) (j) ............................	318	29	11	157	37	2	554
Loans and advances to banks (k) .....	40	-	-	17	-	-	57

Total (l) ..........................................	3,895	412	537	1,486	769	858	7,957

(i) as a percentage of (I) .................	1.59%	0.39%	0.62%	5.84%	1.53%	2.41%	1.43%
(j) as a percentage of (J) .................	0.57%	0.64%	0.26%	13.13%	0.27%	0.13%	0.68%
(k) as a percentage of (K) ...............	0.09%	-	-	0.18%	-	-	0.04%
(l) as a percentage of (L) ................	1.19%	0.32%	0.40%	4.52%	1.02%	1.60%	1.06%

For footnote, see page 178.

The commentary that follows is on a constant currency basis.

Corporate and commercial

Corporate and commercial lending, excluding commercial real estate and other property-related lending represented 40% of total gross loans and advances to customers compared with 39% at 31 December 2012. The increase of US$13bn, was driven by a rise in international trade and services lending balances in Hong Kong, mainland China and Singapore due to continued demand for financing, and other commercial balances in North America, from growth in lending to corporate customers, reflecting our focus on target segments in the US. This was partly offset by a decline in corporate and commercial lending balances, excluding commercial real estate and other property-related lending, in Latin America as a result of the re-classification of lending balances relating to the planned disposal of our non-strategic businesses to 'Assets held for sale'.

The aggregate of our commercial real estate and other property-related lending was US$114bn at 30 June 2013, in line with 31 December 2012, representing 12% of total loans and advances to customers. Commercial real estate and other property-related lending declined in Latin America due to the re-classification of lending balances to 'Assets held for sale', but was largely offset by growth in Hong Kong where demand for financing continued, although the rate of growth has begun to slow.

For information on refinancing in commercial real estate lending, see page 103.

Financial (non-bank)

Financial (non-bank) lending decreased from US$79bn at 31 December 2012 to US$77bn at 30 June 2013. This was mainly in Europe and North America due to a decline in reverse repo activity, partly offset by higher reverse repo balances in Hong Kong.

Loans and advances to banks

Loans and advances to banks increased from US$149bn at 31 December 2012 to US$185bn at 30 June 2013. This was driven by higher demand for reverse repo funding in Europe and a rise in placements with financial institutions in Hong Kong and Rest of Asia-Pacific.

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. The five classifications describing the credit quality of our lending, debt securities portfolios and derivatives are set out in the Appendix to Risk on page 253 of the Annual Report and Accounts 2012. Additional credit quality information in respect of our consolidated holdings of ABSs is provided on page 146.

Distribution of financial instruments by credit quality

	Neither past due nor impaired				Past due			Impair-
			Satis-	Sub-	but not			ment
	Strong	Good	factory	standard	impaired9	Impaired	allowances10		Total
	US$m	US$m	US$m	US$m	US$m	US$m		US$m	US$m

At 30 June 2013
Cash and balances at centralbanks ................................	145,666	2,084	156	379					148,285
Items in the course of collection from other banks ..........................................	7,992	117	215	92					8,416
Hong Kong Governmentcertificates of indebtedness	24,275	-	-	-					24,275

Trading assets11 .....................	238,433	60,246	77,818	4,627					381,124
- treasury and other eligible bills ..............................	14,827	3,569	758	34					19,188
- debt securities .................	115,007	15,430	16,333	798					147,568
- loans and advances:
to banks .......................	59,115	22,581	13,076	1,976					96,748
to customers ................	49,484	18,666	47,651	1,819					117,620

Financial assets designated atfair value11 ........................	6,016	5,417	1,024	91					12,548
- treasury and other eligible bills ..............................	99	-	-	-					99
- debt securities .................	5,916	5,385	1,010	81					12,392
- loans and advances:
to banks .......................	1	-	14	10					25
to customers ................	-	32	-	-					32

Derivatives11 .........................	228,458	44,137	24,808	1,810					299,213

Loans and advances held at amortised cost ...................	638,031	241,575	213,494	22,737	16,073	38,205		(15,611)	1,154,504
- to banks .........................	149,254	22,465	11,292	2,050	26	85		(50)	185,122
- to customers12 ................	488,777	219,110	202,202	20,687	16,047	38,120		(15,561)	969,382

Financial investments ...........	340,631	26,981	18,751	5,110	-	3,373			394,846
- treasury and other similar bills ..............................	72,441	3,424	2,056	1,078	-	6			79,005
- debt securities .................	268,190	23,557	16,695	4,032	-	3,367			315,841

Assets held for sale ...............	4,906	5,955	6,129	492	641	744		(177)	18,690
- disposal groups ...............	4,788	5,679	6,065	478	609	239		(102)	17,756
- non-current assets held for sale .............................	118	276	64	14	32	505		(75)	934

Other assets ..........................	11,146	6,530	12,627	1,532	193	442			32,470
- endorsements and acceptances ..................	1,880	4,506	4,367	543	31	2			11,329
- accrued income and other	9,266	2,024	8,260	989	162	440			21,141


	1,645,554	393,042	355,022	36,870	16,907	42,764		(15,788)	2,474,371

	Neither past due nor impaired								Past due				Impair-
					Satis-		Sub-		but not				ment
	Strong		Good		factory		standard		impaired9		Impaired	allowances10			Total
	US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m

At 30 June 2012
Cash and balances at centralbanks ...........................	146,337		1,364		210		-								147,911
Items in the course of collection from other banks ...........................	10,628		173		274		-								11,075
Hong Kong Governmentcertificates of indebtedness .................	21,283		-		-		-								21,283

Trading assets11................	242,618		68,646		49,377		711								361,352
- treasury and other eligible bills .............	26,256		2,726		1,116		-								30,098
- debt securities ...........	97,559		14,196		19,458		350								131,563
- loans and advances:
to banks .................	60,832		26,423		7,474		101								94,830
to customers ...........	57,971		25,301		21,329		260								104,861
	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Financial assets designated atfair value11 ...................	8,356		5,438		608		133								14,535
- treasury and other eligible bills .............	77		-		14		-								91
- debt securities ...........	8,228		5,359		520		131								14,238
- loans and advances:
to banks .................	51		-		74		2								127
to customers ...........	-		79		-		-								79
	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Derivatives11 ...................	271,850		53,347		27,875		2,862								355,934
	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Loans and advances held at amortised cost .............	611,942		259,989		217,188		26,981		17,517		40,832		(17,273)		1,157,176
- to banks ...................	142,693		28,284		10,531		639		12		88		(56)		182,191
- to customers12 ..........	469,249		231,705		206,657		26,342		17,505		40,744		(17,217)		974,985
	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Financial investments ......	330,781		27,343		23,265		3,456		-		2,205				387,050
- treasury and other similar bills .............	62,669		4,691		4,093		99		-		-				71,552
- debt securities ...........	268,112		22,652		19,172		3,357		-		2,205				315,498
	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Assets held for sale ..........	4,677		1,365		3,125		665		449		366		(106)		10,541
- disposal groups .........	4,632		1,365		3,125		665		447		255		(106)		10,383
- non-current assets held for sale ............	45		-		-		-		2		111		-		158

Other assets .....................	11,908		7,672		12,403		1,604		290		520				34,397
- endorsements and acceptances ............	2,172		4,807		4,849		945		5		4				12,782
- accrued income and other ...........................	9,736		2,865		7,554		659		285		516				21,615
	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-

	1,660,380		425,337		334,325		36,412		18,256		43,923		(17,379)		2,501,254

Distribution of financial instruments by credit quality (continued)

	Neither past due nor impaired				Past due			Impair-
			Satis-	Sub-	but not			ment
	Strong	Good	factory	standard	impaired9	Impaired	allowances10		Total
	US$m	US$m	US$m	US$m	US$m	US$m		US$m	US$m

At 31 December 2012
Cash and balances at central banks ...............................	138,124	3,235	147	26					141,532
Items in the course of collection from other banks .........................................	6,661	203	439	-					7,303
Hong Kong Government certificates of indebtedness	22,743	-	-	-					22,743

Trading assets11 ...................	237,078	60,100	66,537	3,462					367,177
- treasury and other eligible bills .............................	20,793	4,108	1,340	41					26,282
- debt securities ..............	106,453	16,685	20,931	608					144,677
- loans and advances:
to banks ......................	49,133	21,018	7,418	702					78,271
to customers ...............	60,699	18,289	36,848	2,111					117,947

Financial assets designated atfair value11 .......................	6,186	5,884	401	243					12,714
- treasury and other eligible bills .............................	54	-	-	-					54
- debt securities ...............	6,089	5,830	391	241					12,551
- loans and advances:
to banks ......................	43	-	10	2					55
to customers ...............	-	54	-	-					54

Derivatives11 .......................	284,115	46,214	24,877	2,244					357,450

Loans and advances held at amortised cost .................	625,091	246,323	213,241	23,996	18,911	38,776		(16,169)	1,150,169
- to banks ........................	117,220	23,921	10,575	772	10	105		(57)	152,546
- to customers12 ...............	507,871	222,402	202,666	23,224	18,901	38,671		(16,112)	997,623

Financial investments ..........	357,452	27,428	21,143	6,759	-	2,530			415,312
- treasury and other similar bills .............................	80,320	3,818	1,957	1,455	-	-			87,550
- debt securities ...............	277,132	23,610	19,186	5,304	-	2,530			327,762

Assets held for sale ..............	2,425	3,287	2,311	314	387	1,286		(718)	9,292
- disposal groups ..............	2,033	1,118	1,789	268	118	82		(49)	5,359
- non-current assets held for sale .............................	392	2,169	522	46	269	1,204		(669)	3,933

Other assets .........................	9,679	6,007	13,845	1,759	231	462			31,983
- endorsements and acceptances ................	1,995	4,344	5,195	483	7	8			12,032
- accrued income and other .........................................	7,684	1,663	8,650	1,276	224	454			19,951


	1,689,554	398,681	342,941	38,803	19,529	43,054		(16,887)	2,515,675

For footnotes, see page 178.

On a reported basis the balance of credit risk bearing financial instruments at 30 June 2013 was US$2,474bn, of which US$1,646bn or 67% were classified as 'strong' (31 December 2012: 67%). The proportion of financial instruments classified as 'good' and 'satisfactory' remained broadly stable at 16% and 14%, respectively. The proportion of 'sub-standard' financial instruments remained low at 1% at 30 June 2013.

Loans and advances held at amortised cost were US$1,155bn, similar to the US$1,150bn at 31 December 2012. At 30 June 2013, 76% of these balances were classified as either 'strong' or 'good', broadly in line with the end of 2012.

The majority of the Group's exposure to financial investments was in the form of available-for-sale debt securities issued by government and government agencies classified as 'strong' and this proportion was broadly unchanged in the first half of 2013 at 85%.

Trading assets on which credit quality has been assessed rose by 4% to US$381bn from 31 December 2012. However, the proportion of balances classified as 'strong' declined slightly from 65% at 31 December 2012 to 63% at 30 June 2013 despite an overall increase in total balances classified as 'strong'. This was due to a rise in the level of balances classified as 'satisfactory' as a result of an increase in settlement and reverse repo balances in Europe and higher balances in North America, reflecting increased lending to hedge funds.

The proportion of derivative assets classified as 'strong' fell from 79% at the end of 2012 to 76% at 30 June 2013 as a result of net downgrades in respect of individual corporate counterparties across a range of industries in Hong Kong and Mexico and a decrease in the mark‑to‑market value of interest rate derivatives classified as 'strong' in Europe. The proportion of 'satisfactory' balances remained broadly unchanged at 8%.

Cash and balances at central banks rose by 5% to US$148bn as a result of increases in North America due to sales and maturities of available- for-sale government debt securities. This was partly offset by a decrease in Hong Kong as liquidity was redeployed to support growth in lending. Substantially all of the Group's cash and balances at central banks were classified as 'strong', with the most significant concentrations in Europe and North America.

Past due but not impaired gross financial instruments

The definition of past due but not impaired loans is set out on page 156 of the Annual Report and Accounts 2012.

At 30 June 2013, US$16.1bn of loans and advances held at amortised cost were classified as past due but not impaired (31 December 2012: US$18.9bn; 30 June 2012: US$17.5bn). The largest concentration of these balances was in HSBC Finance where they decreased by 22% compared with the end of 2012 due to the decline in CML lending balances as the portfolio continued to run off.

Past due but not impaired loans and advances to customers and banks by geographical region

	Europe	Hong Kong	Rest of Asia- Pacific	MENA	North America	Latin America	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 30 June 2013
Banks ............................................	16	-	10	-	-	-	26

Customers ......................................	2,043	1,321	2,814	1,001	6,930	1,938	16,047
- personal .................................	1,210	751	1,897	227	4,585	1,298	9,968
- corporate and commercial .....	822	492	783	723	2,340	634	5,794
- financial (non-bank financialinstitutions) ...........................	11	78	134	51	5	6	285


	2,059	1,321	2,824	1,001	6,930	1,938	16,073

At 30 June 2012
Banks ............................................	-	2	10	-	-	-	12

Customers ......................................	2,259	1,082	2,538	980	7,874	2,772	17,505
- personal .................................	1,454	646	1,785	158	6,285	1,825	12,153
- corporate and commercial .....	785	417	708	818	1,337	946	5,011
- financial (non-bank financialinstitutions) ...........................	20	19	45	4	252	1	341


	2,259	1,084	2,548	980	7,874	2,772	17,517
At 31 December 2012
Banks ............................................	-	-	10	-	-	-	10

Customers ......................................	2,339	1,311	2,964	975	7,721	3,591	18,901
- personal .................................	1,416	638	1,961	248	5,806	2,198	12,267
- corporate and commercial .....	909	579	953	726	1,910	1,360	6,437
- financial (non-bank financialinstitutions) ...........................	14	94	50	1	5	33	197


	2,339	1,311	2,974	975	7,721	3,591	18,911

Ageing analysis of days past due but not impaired gross financial instruments

	Up to 29 days	30-59 days	60-89 days	90-179 days	180 days and over	Total
	US$m	US$m	US$m	US$m	US$m	US$m
At 30 June 2013
Loans and advances held at amortised cost ..	12,173	2,711	1,098	78	13	16,073
- to banks ................................................	26	−	−	−	−	26
- to customers .........................................	12,147	2,711	1,098	78	13	16,047

Assets held for sale ......................................	384	139	79	20	19	641
- disposal groups ......................................	361	133	76	20	19	609
- non-current assets held for sale .............	23	6	3	−	−	32

Other assets .................................................	111	42	19	12	9	193
- endorsements and acceptances ..............	20	5	2	3	1	31
- other ....................................................	91	37	17	9	8	162


	12,668	2,892	1,196	110	41	16,907

At 30 June 2012
Loans and advances held at amortised cost ..	13,137	2,903	1,307	79	91	17,517
- to banks ................................................	12	−	−	−	−	12
- to customers .........................................	13,125	2,903	1,307	79	91	17,505

Assets held for sale ......................................	270	116	50	6	7	449
- disposal groups ......................................	270	114	50	6	7	447
- non-current assets held for sale .............	−	2	−	−	−	2

Other assets .................................................	168	39	30	10	43	290
- endorsements and acceptances ..............	3	1	−	−	1	5
- other ....................................................	165	38	30	10	42	285


	13,575	3,058	1,387	95	141	18,256

At 31 December 2012
Loans and advances held at amortised cost ..	14,236	3,189	1,262	200	24	18,911
- to banks ................................................	10	-	-	-	-	10
- to customers .........................................	14,226	3,189	1,262	200	24	18,901

Assets held for sale ......................................	251	84	48	2	2	387
- disposal groups ......................................	87	17	11	1	2	118
- non-current assets held for sale .............	164	67	37	1	-	269

Other assets .................................................	122	37	24	12	36	231
- endorsements and acceptances ..............	6	1	-	-	-	7
- other ....................................................	116	36	24	12	36	224


	14,609	3,310	1,334	214	62	19,529

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR NKADBBBKDOFD

Related Shares:

FTSE 100 Latest

Value8,866.88

Change-18.04