Credit risk HSBC Unit

Credit risk HSBC Unit

CREDIT RISK

Creditrisk: HSBC

Unit

HSBC

HSBC is one of thelargest banks in the US and globally with a total asset base of $2.63trillion (2014) and a market capitalization of $167.7 Billion (2015)(Forbes, 2015).

Retail creditrisks

Failure to honorloans/mortgages

Failure to honorcredit/debit card loans

Prematurely closingtransactions

Bankruptcy

Individual creditvs institutional credit

Institutional creditrisk, which is basically credit to institutions such as corporatecard services, merchant services, network services, and corporateinvestments, is characterized by a lower default frequency but higherseverity in form of the monetary value of potential loss. The risk ininstitutional credit is also considerably lower compared toindividual credit (HSBC, 2015).

Retail bankingservices provided at HSBC

  1. Personal banking (deposits, withdrawals, ATM services etc)

  2. Credit cards

  3. Wealth management- includes financial planning and advice, markets insight and updates, as well as tailored products in other sectors including investments, deposits, insurance, financing and foreign exchange.

  4. Asset management

  5. Insurance cover (HSBC insurance)

Institutionalbanking services

  1. Securities services- Clearings services to foreign institutional investors

  2. Investment banking- Liaises with corporate investment institutions investments

  3. Structured and transaction baking.

  4. Global payment and cash management services

Credit riskmanagement

HSBC recognizescredit risk as the largest regulatory capital requirement. This callsfor close credit risk management procedures. To evaluate risks, thebank uses the internal-based-ratings (IRB) approach to assess risks.In case a borrower qualifies for exemption from IRB, an externalstandardized risk assessment tool prepared by the External CreditAssessment Institutions (ECAI) is used (HSBC, 2012). Credit risk isalso weighted based on various factors such as industry oroccupation.

HSBC identifiesthree major functions of credit risk management as:

  1. Maintain a strong culture of responsible lending policies and control framework.

  2. To collaborate with clients (both institutional and personal) to define and re-evaluate credit risks in dynamic market conditions.

  3. Provide an avenue for independent and expert scrutiny of crest risks and their mitigation.

The general riskmitigation of credit risks policy seeks to justify commercialprudence and promote good practice in addition to attain capitalefficiency (HSBC, 2012).

References

Forbes (2015). Moreon HSBC Holdings. Retrieved from

http://www.forbes.com/companies/hsbc-holdings/

HSBC (2012). HSBCHoldings plc Capital and Risk Management Pillar 3 Disclosures at 31

December 2012. Retrieved fromhttp://www.hsbc.com/~/media/HSBC-com/InvestorRelationsAssets/annual-results/pdfs/130304_pillar3_2012.ashx

HSBC (2015). Aboutus. Retrieved from http://www.hsbc.com/

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