HSBC France € 20,000,000,000 Euro Medium Term Note Programme

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Guarantees received and other credit risk enhancements
Loans and advances
The Group entities are required to implement guidelines on the acceptability of specific classes of guarantees
received or credit risk mitigation, and determine valuation parameters. Such parameters are expected to be
conservative, reviewed regularly and be supported by empirical evidence. Security structures and legal covenants
are subject to regular review to ensure that they continue to fulfil their intended purpose and remain in line with
local market practice. While guarantees received are an important mitigant to credit risk, it is the Group’s policy
to establish that loans are within the customer’s capacity to repay rather than to over-rely on security. In certain
cases, depending on the customer’s standing and the type of product, facilities may be unsecured. The principal
collateral types are as follows:
- mortgages over residential properties in the personal sector;
- charges over business assets such as premises, stock and debtors being financed in the commercial and
industrial sector;
- charges over the properties being financed in the commercial real-estate sector;
- charges over financial instruments such as debt securities and equities in support of trading facilities in
the financial sector; and
- credit derivatives are also used to manage credit risk in the group’s loan portfolio.
The group does not disclose the fair value of collateral held as security or other credit enhancements on loans
and advances past due but not impaired or on individually assessed impaired loans and advances, as it is not
practicable to do so.
Other securities
Other securities held as guarantee for financial assets other than loans and advances is determined by the
structure of the instrument. Debt securities, treasury and other eligible bills are generally unsecured with the
exception of asset-backed securities and similar instruments, which are secured by pools of financial assets.
The ISDA Master Agreement is the group’s preferred agreement for documenting derivatives activity. It
provides the contractual framework within which dealing activity across a full range of over-the-counter
products is conducted, and contractually binds both parties to apply close-out netting across all outstanding
transactions covered by an agreement if either party defaults or other pre agreed termination events occur. It is
common, and the group’s preferred practice, for the parties to execute a Credit Support Annex (CSA) in
conjunction with the ISDA Master Agreement. Under a CSA, collateral is passed between the parties to mitigate
the market-contingent counterparty risk inherent in the outstanding positions.
Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation
of a corresponding receipt in cash, securities or equities. Daily settlement limits are established for each
counterparty to cover the aggregate of all settlement risk arising from the group’s investment banking and
markets transactions on any single day. Settlement risk on many transactions, particularly those involving
securities and equities, is substantially mitigated through being effected via assured payment systems, or on a
delivery versus payment basis.
The group provides a diverse range of financial services principally in France. Its portfolio of financial
instruments with credit risk is highly diversified with no exposures to individual industries or economic
groupings totalling more than 10 per cent of consolidated total assets, except as follows:
– the majority of the group’s exposure to credit risk is concentrated in France. Within France, the group’s
credit risk is diversified over a wide range of industrial and economic groupings; and
– the group’s position as part of a major international banking group means that it has a significant
concentration of exposure to banking counterparties. The majority of credit risk to the banking industry was
concentrated in Europe.
There are no special collateral requirements relating to industrial concentrations, with the exception of exposures
to the property sector. The majority of exposures to the property and construction industry and the residential
mortgage market are secured on the underlying property.