Credit quality of loans and advances (audited)

All loans and advances are categorised as neither past due nor impaired, past due but not impaired, or impaired. Impaired loans include restructured loans. For the purposes of these disclosures:

• A loan is considered past due when the borrower has failed to make a payment when due under the terms of the loan contract;
• The impairment allowance includes allowances both against financial assets that have been individually impaired and those subject to collective impairment;
• Loans neither past due nor impaired consist predominantly of wholesale and retail loans that are performing. These loans, although unimpaired, may carry an unidentified impairment allowance;
• Loans that are past due but not impaired consist predominantly of wholesale loans that are past due but individually assessed as not being impaired. These loans, although individually assessed as unimpaired, may carry an unidentified impairment allowance;
• Impaired loans that are individually assessed for impairment consist predominantly of wholesale loans that are past due and for which an individual allowance has been raised; and
• Impaired loans that are collectively assessed for impairment consist predominantly of retail loans that are 1 day or more past due for which a collective allowance is raised. Wholesale loans that are past due, individually assessed as unimpaired, but which carry an unidentified impairment allowance, are excluded from this category. (Refer for further detail on the Group’s impairment policy.)

Home loans and credit cards, unsecured and other retail lending are subject to forbearance in the retail portfolios and are included in the collectively assessed impaired loans column in the table below. Included within wholesale loans that are neither past due nor impaired are a portion of loans that have been subject to forbearance or similar strategies as part of the Group’s ongoing relationship with customers. The loans will have an internal rating reflective of the level of risk to which the Group is exposed, bearing in mind the circumstances of the forbearance and the overall performance and prospects of the customer. Loans on forbearance programmes will typically, but not always, attract a higher risk rating than similar loans which are not. A portion of wholesale loans under forbearance is included in the past due but not impaired column, although not all loans subject to forbearance are necessarily impaired or past due. Where wholesale loans under forbearance have been impaired, these form part of individually assessed impaired loans.

For the purposes of the analysis of credit quality, the following internal measures of credit quality have been used:

Financial statement descriptions can be summarised as follows:

• Strong – there is a very high likelihood of the asset being recovered in full.
• Satisfactory – whilst there is a high likelihood that the asset will be recovered and therefore, of no cause for concern to the Group, the asset may not be collateralised, or may relate to retail facilities, such as credit card balances and unsecured loans, which have been classified as satisfactory, regardless of the fact that the output of internal grading models may have indicated a higher classification. At the lower end of this grade there are customers that are being more carefully monitored, for example, corporate customers which are indicating some evidence of some deterioration, mortgages with a high loan to value ratio, and unsecured retail loans operating outside normal product guidelines.
• Higher risk – there is concern over the obligor’s ability to make payments when due. However, these have not yet converted to actual delinquency. There may also be doubts over value of collateral or security provided. However, the borrower or counterparty is continuing to make payments when due and is expected to settle all outstanding amounts of principal and interest.

An age analysis of loans and advances that are past due but not impaired is set out below.