Barclays 2009 Annual Report Download - page 96

94 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Risk managementRisk management
Credit risk management
Credit risk is the risk of suffering financial loss should any of the
Group’s customers, clients or market counterparties fail to fulfil their
contractual obligations to the Group.
The granting of credit is one of the Group’s major sources of income and,
as the most significant risk, the Group dedicates considerable resources
to controlling it.
The credit risk that the Group faces arises mainly from wholesale and
retail loans and advances together with the counterparty credit risk arising
from derivative contracts entered into with our clients.
Barclays is also exposed to other credit risks arising from its trading
activities, including debt securities, settlement balances with market
counterparties, available for sale assets and reverse repurchase loans.
In managing credit risk, the Group applies the five-step risk
management process. Credit risk management objectives are:
– To establish a framework of controls to ensure credit risk-taking is based
on sound credit risk management principles.
– To identify, assess and measure credit risk clearly and accurately across
the Group and within each separate business, from the level of individual
facilities up to the total portfolio.
– To control and plan credit risk-taking in line with external stakeholder
expectations and avoiding undesirable concentrations.
– To monitor credit risk and adherence to agreed controls.
– To ensure that risk-reward objectives are met.
In the review of Barclays credit risk management that follows, we first
explain how the Group meets its credit risk management objectives through
its organisation, structure and governance, measurement, reporting and
system of internal ratings.
We then provide a summary of the Group’s total assets, including the
asset types which give rise to credit risk and counterparty credit risk, namely:
loans and advances, debt securities and derivatives.
On pages 96 to 107, we set out a detailed analysis of the Group’s loans
and advances across a number of asset classes and businesses referencing
significant portfolios and including summary measures of asset quality.
We provide disclosures and analyses of the credit risk profiles of these
asset categories, beginning with Barclays Capital’s credit market exposures
by asset class, covering current exposures, losses during 2009, sales and
paydowns, foreign exchange movements and, where appropriate, details
of collateral held, geographic spread, vintage and credit quality. These are
given on pages 109 to 118.
Finally, additional analysis of debt securities and derivatives is provided
on pages 119 to 121.
Organisation and structure
Barclays has structured the responsibilities of credit risk management so
that decisions are taken as close as possible to the business, whilst ensuring
robust review and challenge of performance, risk infrastructure and
strategic plans.
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 role of the Group Risk function is to provide Group-wide direction,
oversight and challenge of credit risk-taking. Group Risk sets the Credit Risk
Control Framework, which provides a structure within which credit risk is
managed together with supporting Group Credit Risk Policies.
Group Credit Risk Policies currently in force include:
– Maximum Exposure Guidelines to limit the exposures to an individual
customer or counterparty;
– Country risk policies to specify Risk Appetite by country and avoid
excessive concentration of credit risk in individual countries;
– Aggregation policy to set out the circumstances in which counterparties
should be grouped together for credit risk purposes;
– Expected loss policies to set out the Group approaches for the calculation
of expected loss, i.e. Group measure of anticipated loss for exposures;
– Repayment plans policy for setting the standards for repayment plans and
restructures within retail portfolios; and
– Impairment and provisioning policies to ensure that measurement of
impairment accurately reflects incurred losses and that clear governance
procedures are in place for the calculation and approval of impairment
allowances.
The largest credit exposures are approved at the Group Credit Committee
which is managed by Group Risk. Group Risk also manages and approves
the Mandate and Scale limits and triggers which mitigate concentration risk
and define appetite in risk sensitive areas of the portfolio such as
commercial property finance (see page 91).
Group Risk also provides technical support, review and validation of
credit risk measurement models across the Group.
The principal Committees that review credit risk management, approve
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. Senior Group and business risk management are
represented on the Group Risk Oversight Committee, the Wholesale Credit
Risk Management Committee and the Retail Credit Risk Management
Committee.
On a semi-annual basis, the Credit Risk Impairment Committee (CRIC)
obtains assurance on behalf of the Group that all businesses are recognising
impairment in their portfolios accurately, promptly and in accordance with
policy, accounting standards and established governance.
CRIC is chaired by the Credit Risk Director and reviews the movements
to impairment in the businesses, including those already agreed at Credit
Committee, as well as potential credit risk loans, loan loss rates, asset quality
metrics and impairment coverage ratios.
CRIC makes twice-yearly recommendations to the Board Audit
Committee on the adequacy of Group impairment allowances. Impairment
allowances are reviewed relative to the risk in the portfolio, business and
economic trends, current policies and methodologies, and our position
relative to peer banks.