Barclays 2011 Annual Report Download - page 115

Management and monitoring of country exposures
The management of country risk forms an integral part of the Group’s broader credit risk framework focusing on concentration risk. For further
information on the Group’s management of concentration risk, and the credit risk management framework more generally, refer to pages 87 to 91.
Stress testing
Barclays has a detailed and comprehensive stress testing framework applicable to both the Barclays Group as well as on individual portfolios and asset
classes. The Group’s macroeconomic stress test scenarios are designed to be both severe and plausible. Specific scenarios are also considered as part
of reverse stress testing, for example, a Euro break-up scenario. Data gained from the tests is used to initiate management actions to mitigate the risks
to the Group of a deterioration in economic and trading conditions within the Eurozone. For further information on the Group’s stress testing, refer to
page 72.
In July 2011 the European Banking Authority (EBA) published the results of their macroeconomic stress scenario for the 90 selected banks who
participated in the European stress test which included a Eurozone sovereign specific component. In December 2011, the EBA published the results
of the bank recapitalisation plan which included a capital buffer against sovereign debt exposures. Barclays uses stress tests and Mandate and Scale
to ensure its risk profile remains appropriate and this was confirmed by passing both EBA tests.
Basis of preparation
The following analysis presents the maximum direct balance sheet exposure to credit risk by selected Eurozone country, with the totals reflecting
allowance for impairment, netting and cash collateral held where appropriate, including:
– Trading and derivatives balances relate to investment banking activities, principally as market-maker for government bond positions. Positions are
held at fair value, with daily movements taken through profit and loss;
– Available for sale assets are principally investments in government bonds and other debt securities held for the purposes of interest rate hedging
and liquidity for local banking activities. Balances are reported on a fair value basis, with movements in fair value going through equity;
– Loans and advances held at amortised cost comprise: (i) retail lending portfolios, predominantly mortgages secured on residential property; and (ii)
corporate lending portfolios, largely reflecting established corporate banking businesses in Spain, Italy and Portugal and investment banking services
provided to multinational and large national corporate clients. Settlement balances and cash collateral are excluded from this analysis;
– Sovereign exposures reflect direct exposures to central and local governmentsa, the majority of which are used for hedging interest rate risk relating
to local activities. These positions are being actively replaced by non-government instruments such as interest rate swaps. The remaining portion is
actively managed reflecting our role as leading primary dealer, market maker and liquidity provider to our clients;
– Financial institution and corporate exposures reflect the country of operations of the counterparty (including foreign subsidiaries and without
reference to cross-border guarantees);
– Retail exposures reflect the country of residence of retail customers; and
– Off-balance sheet exposure consists primarily of undrawn commitments and guarantees issued to third parties on behalf of corporate clients.
Information on the terms and potential limitations of such facilities is presented on pages 141 and 248.
The Group enters into credit mitigation arrangements for which the reference asset is government debt. The selected countries pages 114 to 119
include only credit mitigation arrangements with counterparties in the relevant country. The analysis of credit derivatives referencing sovereign debt
reflects derivative counterparty netting and includes all credit derivatives, regardless of counterparty location.
Note
a In addition, the Group held cash with the central banks of these countries totalling £0.8bn as at 31 December 2011. Other immaterial balances with central banks are classified within loans
to financial institutions.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 113
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