Barclays 2009 Annual Report Download - page 277

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47 Credit risk continued
Loans and advances
Credit risk management
Governance and responsibilities
The credit risk management teams in each business are accountable to the Business Risk Directors in those businesses who, in turn, report to the heads
of their businesses and also to the Chief Risk Officer.
The credit risk function provides Group-wide direction of credit risk-taking. The teams within this function manage the resolution of all significant credit
policy issues and run the Credit Committee, which approves major credit decisions. Each business segment has an embedded credit risk management
team. These teams assist Group Risk in the formulation of Group Risk policy and its implementation across the businesses.
The principal committees that review credit risk management, formulate overall Group credit policy and resolve all significant credit policy issues are the Board
Risk Committee, the Group Risk Oversight Committee, the Wholesale Credit Risk Management Committee and the Retail Credit Risk Management Committee.
The Wholesale Credit Risk Management Committee (WCRMC) oversees wholesale exposures, comprising lending to businesses, banks and other financial
institutions. The WCRMC monitors exposure by country, industry sector, individual large exposures and exposures to sub-investment grade countries.
The Retail Credit Risk Management Committee (RCRMC) oversees exposures, which comprise unsecured personal lending (including small businesses),
mortgages and credit cards. The RCRMC monitors the risk profile and performance of the retail portfolios by receipt of key risk measures and indicators at
an individual portfolio level, ensuring mitigating actions taken to address performance are appropriate and timely. Metrics reviewed will consider portfolio
composition and both an overall stock and new flow level.
The monthly Wholesale and Retail Credit Risk Management Committees exercise oversight through review and challenge of the size and constitution of the
portfolios when viewed against Group Risk Appetite for wholesale and retail credit risks. They are chaired by the Wholesale and Retail Credit Risk Directors.
Credit monitoring
Wholesale and corporate loans which are deemed to contain heightened levels of risk are recorded on early-warning or watch lists. These lists are graded in line
with the perceived severity of the risk attached to the lending and its probability of default. The lists are updated on a monthly basis and are closely monitored.
Regardless of whether they are recorded on early-warning or watch lists, all wholesale and corporate loans are subject to a full review of all facilities on,
at least, an annual basis. More frequent interim reviews may be undertaken should circumstances dictate.
Retail loans (which tend to comprise homogeneous assets) are monitored on a portfolio basis.
Credit risk measurement
Barclays uses statistical modelling techniques throughout its business in its credit rating systems. They enable a coherent approach to risk measurement
across all credit exposures, retail and wholesale. The key building blocks in the measurement system are the probability of customer default (PD), exposure
in the event of default (EAD), and severity of loss-given-default (LGD). The models are reviewed regularly to monitor their robustness relative to actual
performance and amended as necessary to optimise their effectiveness.
For wholesale and corporate lending, Barclays assesses the credit quality of borrowers and other counterparties and assigns them an internal risk rating.
Barclays credit rating contains 21 grades, representing the Group’s best estimate of credit risk for a counterparty based on current economic conditions.
Retail customers are not all assigned internal risk ratings in this way for account management purposes, therefore their probability of default is considered.
The Group considers Credit Risk Loans (defined as all customers overdue by 90 days or more, and/or individually impaired or restructured) and loan loss
rates when assessing the credit performance of its loan portfolios, other than those held at fair value. For the purposes of historical and business unit
comparison, loan loss rates are defined as total annualised credit impairment charge (excluding available for sale assets and reverse repurchase agreements)
divided by gross loans and advances to customers and banks (at amortised cost).
Credit risk mitigation
Where appropriate, the Group takes action to mitigate credit risk such as reducing amounts outstanding (in discussion with the customers, clients
or counterparties if appropriate), using credit derivatives, securitising assets, and disposals.
Diversification to avoid unwanted credit risk concentrations is achieved through setting maximum exposure guidelines to individual counterparties.
Excesses are reported to the Board Risk Committee and the Group Risk Oversight Committee. Mandate and scale limits are used to limit the stock of
current exposures in a loan portfolio and the flow of new exposures into a loan portfolio. Limits are typically based on the tenor and nature of the lending.
Collateral and security
The Group routinely obtains collateral and security to mitigate credit risk.
The Group ensures that any collateral held is sufficiently liquid, legally effective, enforceable and regularly reassessed. Before attaching value to collateral,
businesses holding specific, agreed classes of collateral must ensure that they are holding a correctly perfected charge.
Before reliance is placed on third party protection in the form of bank, government or corporate guarantees or credit derivative protection from financial
intermediary counterparties, a credit assessment is undertaken.
Security structures and legal covenants are subject to regular review, at least annually, to ensure that they remain fit for purpose and remain consistent
with accepted local market practice.