Barclays 2010 Annual Report Download - page 90

Credit Risk Management Overview
A. Overview (audited)
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 its control.
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. Other sources of
credit risk arise from trading activities, including debt securities, settlement
balances with market counterparties, available for sale assets and reverse
repurchase loans.
Credit risk management objectives are to:
– establish a framework of controls to ensure credit risk-taking is based
on sound credit risk management principles;
– 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;
– control and plan credit risk-taking in line with external stakeholder
expectations and avoiding undesirable concentrations;
– monitor credit risk and adherence to agreed controls; and
– ensure that risk-reward objectives are met.
In the review of Barclays credit risk management that follows, we explain
how the Group meets its credit risk management objectives through its
organisation, structure and governance, mitigation techniques,
measurement and reporting.
B. 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
Risk also provides technical support, review and validation of credit risk
measurement models across the Group.
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 approaches for the calculation of
the Group’s expected loss, i.e. 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 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.
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 in
impairment, 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 the Group’s position
relative to peer banks.
Risk management
Credit risk management continued
88 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10