Barclays 2011 Annual Report Download - page 128

Risk management
Market risk continued
Margins and Balances
Analysis of net interest income 2011
£m
2010
£m
Retail and Business Banking, Corporate and Wealth customer interest income
– Customer assets 6,983 6,956
– Customer liabilities 2,866 2,167
9,849 9,123
Retail and Business Banking, Corporate and Wealth non-customer interest income
– Product structural hedgea 1,168 1,403
– Equity structural hedgeb 824 731
– Other 148 116
Total Retail and Business Banking, Corporate and Wealth net interest income 11,989 11,373
Barclays Capitalc 1,177 1,121
Head Office and Investment Managementc(965) 29
Group net interest income 12,201 12,523
Retail and Business Banking, Corporate and Wealth Net Interest Income
Barclays distinguishes the relative net interest contribution from each of customer assets and customer liabilities, and separates this from the
contribution delivered by non-customer net interest income, which principally arises from the Group hedging activities.
Customer interest income
Customer net interest income increased 8% to £9,849m, driven by increases in the customer liability margin and growth in average customer asset
and liability balances. Retail customer liabilities grew principally due to demand for savings products in the UK.
The customer asset margin declined to 2.20% (2010: 2.25%), reflecting an increase in the cost of funds across each of the individual RBB, Corporate
and Wealth businesses. This was partially offset by increased customer pricing across most of the businesses.
The customer liability margin increased to 1.06% (2010: 0.86%) reflecting the increase in the cost of funds and therefore value generated from RBB,
Corporate and Wealth customer liabilities.
Non-customer interest income
Non-customer net interest income decreased 5% to £2,140m, reflecting a 7% reduction in the benefits from Group hedging activities to £1,992m.
Group hedging activities utilise structural interest rate hedges to mitigate the impact of the low interest rate environment on customer liabilities and the
Group’s equity.
Product structural hedges generated a lower contribution of £1,168m (2010: £1,403m), as hedges were maintained at lower market interest rates. The
extended duration profile constructed in H1 2011 continues to moderate this impact. Based on the market curve as at the end of 2011 and the on-going
hedging strategy, fixed rate returns on product structural hedges are expected to continue to make a significant but declining contribution in 2012.
The contribution from equity structural hedges in RBB, Corporate and Wealth increased to £824m (2010: £731m) including a £216m increase in gains
on sale of hedging instruments.
Other Group Net Interest Income
Barclays Capital net interest income increased 5% to £1,177m, including a £247m increase in gains on sale of hedging instruments.
Head Office and Investment Management net interest expense of £965m (2010: £29m income) principally reflects a reduction in income which is
transferred from trading income within Head Office relating to interest rate swaps used for hedge accounting purposes, together with an increase
in amounts transferred to businesses relating to gains arising from the sale of hedging instruments.
Notes
a Product structural hedges convert short term interest margin volatility on product balances (such as non-interest bearing current accounts and managed rate deposits) into a more stable
medium term rate and are built on a monthly basis to achieve a targeted maturity profile.
b Equity structural hedges are in place to manage the volatility in net earnings generated by businesses on the Group’s equity, with the impact allocated to businesses in line with their
economic capital usage.
c Includes contribution from equity structural hedging. Total Group income from equity structural hedges increased to £2,109m (2010: £1,788m) including £1,285m (2010: £1,057m) that
was allocated to Barclays Capital and Head Office, primarily due to increased gains on sale of hedging instruments partially offset by a decline in ongoing hedging contribution.
126 Barclays PLC Annual Report 2011 www.barclays.com/annualreport