Barclays 2009 Annual Report Download - page 101

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 99
quarterly by an appropriate charge or release of the stock of impairment
allowances based on statistical analysis and management judgement.
Where appropriate, the accuracy of this analysis is periodically assessed
against actual losses (see Modelling Risk on page 92).
As one of the controls to ensure that adequate impairment allowances
are held, movements in impairment allowances to individual names with
total impairment of more than £10m are presented to the Credit Committee
for agreement.
Monitoring the loan loss rate (LLR) provides Barclays with one way of
measuring the trends in the quality of the loan portfolio at the Group,
business and product levels. At Barclays, the LLR represents the annualised
impairment charges on loans and advances to customers and banks and
other credit provisions as a percentage of the total, period-end loans and
advances to customers and banks, gross of impairment allowances.
The impairment allowance is the aggregate of the identified and
unidentified impairment balances. Impairment allowance coverage, or the
coverage ratio, is reported at two levels:
– Credit risk loans coverage ratio (Impairment allowances as a percentage
of CRL balances).
– Potential credit risk loans coverage ratio (Impairment allowances as a
percentage of total CRL & PPL balances).
Appropriate coverage ratios will vary according to the type of product but
can be broadly bracketed under three categories: secured retail home loans;
unsecured and other retail products; and corporate facilities. Analysis and
experience has indicated that, in general, the severity rates for these types of
products are typically within the following ranges:
– Secured retail home loans: 5%-20%.
– Unsecured and other retail products: 65%-75%.
– Corporate facilities: 30%-50%.
CRL coverage ratios would therefore be expected to be at or around these
levels over a defined period of time. In principal, a number of factors may
affect the Group’s coverage ratios, including:
– The mix of products within total CRL balances. Coverage ratios will tend to
be lower when there is a high proportion of secured retail and corporate
balances within total CRLs. This is due to the fact that the recovery outlook
on these types of exposures is typically higher than retail unsecured
products with the result that they will have lower impairment
requirements.
– The stage in the economic cycle. Coverage ratios will tend to be lower in
the earlier stages of deterioration in credit conditions. At this stage, retail
delinquent balances will be predominantly in the early delinquency cycles
and corporate names will have only recently moved to CRL categories. As
such balances attract a lower impairment requirement, the CRL coverage
ratio will be lower.
– The balance of PPLs to CRLs. The impairment requirements for PPLs are
lower than for CRLs, so the greater the proportion of PPLs, the lower the
PCRL coverage ratio.
– Write-off policies. The speed with which defaulted assets are written off
will affect coverage ratios. The more quickly assets are written off, the
lower the ratios will be, since stock with 100% coverage will tend to roll
out of PCRL categories more quickly.
Writing-off of assets
After an advance has been identified as impaired and is subject to an
impairment allowance, the stage may be reached whereby it is concluded
that there is no realistic prospect of further recovery. Write-off will occur when,
and to the extent that, the whole or part of a debt is considered irrecoverable.
The timing and extent of write-offs may involve some element of
subjective judgement. Nevertheless, a write-off will often be prompted by
a specific event, such as the inception of insolvency proceedings or other
formal recovery action, which makes it possible to establish that some or
the entire advance is beyond realistic prospect of recovery. In any event,
the position of impaired loans is reviewed at least quarterly to ensure that
irrecoverable advances are being written off in a prompt and orderly
manner and in compliance with any local regulations.
Such assets are only written off once all the necessary procedures
have been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off are written
back and hence decrease the amount of the reported loan impairment
charge in the income statement. In 2009 total write-offs of impaired
financial assets increased by £461m to £3,380m (2008: £2,919m).
1,963
2,174
1,587
07 08
09
05
06
2,919
3,380
Fig. 6: Total write-offs of impaired financial assets
£m