Barclays 2009 Annual Report Download - page 93

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 91
Risk Appetite is prepared for the Board, as part of the formal planning
process. The Board requires credible plans that show the Executive is aware
of risk sensitivities and potential downside cases, and is investing capital into
sustainable businesses over an economic cycle. The Chief Risk Officer leads
the discussion at the Executive and Board levels. If the projections entail too
high a level of risk, management will challenge each area to find new ways
to rebalance the business mix to incur less overall risk. Performance against
Risk Appetite is measured and reported to the Executive and Board regularly
throughout the year.
As well as credit risk, the Risk Appetite framework also considers market
and operational risks.
Barclays uses Risk Appetite to:
– improve management confidence and debate regarding our risk profile;
– give executives greater control and co-ordination of risk-taking across
businesses;
– re-balance the risk profile of the medium-term plan to achieve a superior
risk-return profile; and
– identify unused risk capacity.
There is a second element to Risk Appetite setting in Barclays: the extensive
system of Mandate and Scale limits, which are set by the independent
Group Risk function, formally monitored each month and subject to Board-
level oversight.
The framework operates through limits and triggers, which work in
tandem with clearly defined lending criteria for specific sectors, industries
and products, in order to maintain asset quality.
For example, in the UK mortgage business a series of explicit mandate
and scale limits have kept the average loan to value of the portfolio at
conservative levels, set an upper boundary on the proportion of buy-to-let
customers, and set at ‘zero’ our appetite to offer self-certified mortgages.
In our commercial property finance portfolios, a comprehensive series
of limits are in place to control exposure within each business and
geographic market. To ensure that limits are aligned to the underlying risk
characteristics, the Mandate and Scale limits differentiate between types of
exposure. There are, for example, individual limits for property investment
and property development and for senior and subordinated lending. Since
the onset of the global economic downturn, these limits have been reduced
significantly and the frequency of review has been increased.
Barclays uses the Mandate and Scale framework to:
– limit concentration risk;
– keep business activities within Group and individual business mandate;
– ensure activities remain of an appropriate scale relative to the underlying
risk and reward; and
– ensure risk-taking is supported by appropriate expertise and capabilities.
As well as Group-level Mandate and Scale limits, further limits are set by risk
managers within each business unit, covering particular portfolios. Taken as
a whole, the Risk Appetite framework provides a basis for the allocation of
risk capacity across the Barclays Group.