Barclays 2011 Annual Report Download - page 212

Notes to the financial statements
7 Credit impairment charges and impairment on available for sale assets
Accounting for the impairment of financial assets
Loans and other assets held at amortised cost
In accordance with IAS 39, the Group assesses at each balance sheet date whether there is objective evidence that loan assets or available for sale
financial investments (debt or equity) will not be recovered in full and, wherever necessary, recognises an impairment loss in the income statement.
An impairment loss is recognised if there is objective evidence of impairment as a result of events that have occurred and these have adversely
impacted the estimated future cash flows from the assets. These events include:
– becoming aware of significant financial difficulty of the issuer or obligor;
– a breach of contract, such as a default or delinquency in interest or principal payments;
– the Group, for economic or legal reasons relating to the borrower’s financial difficulty, grants a concession that it would not otherwise consider;
– it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
– the disappearance of an active market for that financial asset because of financial difficulties; and
– observable data at a portfolio level indicating that there is a measurable decrease in the estimated future cash flows, although the decrease
cannot yet be ascribed to individual financial assets in the portfolio – such as adverse changes in the payment status of borrowers in the portfolio
or national or local economic conditions that correlate with defaults on the assets in the portfolio.
Impairment assessments are conducted individually for significant assets, which comprise all wholesale customer loans and larger retail business
loans and collectively for smaller loans and for portfolio level risks, such as country or sectoral risks. For the purposes of the assessment, loans with
similar credit risk characteristics are grouped together – generally on the basis of their product type, industry, geographical location, collateral type,
past due status and other factors relevant to the evaluation of expected future cash flows.
The impairment assessment includes estimating the expected future cash flows from the asset or the group of assets, which are then discounted
using the original effective interest rate calculated for the asset. If this is lower than the carrying value of the asset or the portfolio, an impairment
allowance is raised.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal
is recognised in the income statement.
Following impairment, interest income continues to be recognised at the original effective interest rate on the restated carrying amount.
Uncollectable loans are written off against the related allowance for loan impairment on completion of the Group’s internal processes and all
recoverable amounts have been collected. Subsequent recoveries of amounts previously written off are credited to the income statement.
Available for sale financial assets
Impairment of available for sale debt instruments
Debt instruments are assessed for impairment in the same way as loans. If impairment is deemed to have accrued, the cumulative decline in the fair
value of the instrument that has previously been recognised in equity is removed from equity and recognised in the income statement. This may be
reversed if there is evidence that the circumstances of the issuer have improved.
Impairment of available for sale equity instruments
Where there has been a prolonged or significant decline in the fair value of an equity instrument below its acquisition cost, it is deemed to be
impaired. The cumulative net loss that has been previously recognised directly in equity is removed from equity and recognised in the income
statement.
Increases in the fair value of equity instruments after impairment are recognised directly in other comprehensive income. Further declines in the fair
value of equity instruments after impairment are recognised in the income statement.
2011
£m
2010
£m
2009
£m
Loan impairment 3,790 5,625 7,358
Available for sale assets (excluding BlackRock, Inc.) 60 51 670
Reverse repurchase agreements (48) (4) 43
Credit impairment charges and other provisions 3,802 5,672 8,071
Impairment of investment in BlackRock, Inc. 1,800 – –
More information on the impairment assessment and the measurement of credit losses is included on page 89-91. The movements on the impairment
allowance and the charge for the year is shown on page 94.
For the year ended 31 December 2011 continued
210 Barclays PLC Annual Report 2011 www.barclays.com/annualreport