Barclays 2011 Annual Report Download - page 249

29 Provisions continued
There are a large number of inter-dependent assumptions under-pinning the PPI provision. Many of those assumptions remain highly subjective, and
trends have been difficult to ascertain across all portfolios. Therefore, it is possible that the eventual outcome could differ from current management
estimates, resulting in a material change to the amounts provided in the 2011 financial statements.
When considering the key assumptions independently, the most significant driver of the provision is complaint flow. If the level of complaints were 10%
higher (lower) than the estimated level for all policies, assuming no change in other assumptions, then the provision would have increased (decreased)
by approximately £100m.
The Group will re-evaluate the assumptions underlying its analysis at each reporting date as more information becomes available.
30 Contingent liabilities and commitments
Accounting for contingent liabilities and commitments
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events, and present obligations where the
transfer of economic resources is uncertain or cannot be reliably measured, are not recognised but are disclosed unless they are remote.
The following table summarises the nominal principal amount of contingent liabilities and commitments which are not recorded on balance sheet:
2011
£m
2010
£m
Securities lending arrangements 35,996 27,672
Guarantees and letters of credit pledged as collateral security 14,181 13,783
Performance guarantees, acceptances and endorsements 8,706 9,175
Contingent liabilities 58,883 50,630
Documentary credits and other short-term trade related transactions 1,358 1,194
Standby facilities, credit lines and other commitments 240,282 222,963
In common with other banks, the Group conducts business involving acceptances, performance bonds and indemnities. The majority of these facilities
are offset by corresponding obligations of third parties.
Contingent liabilities
Up to the disposal of Barclays Global Investors on 1 December 2009, the Group facilitated securities lending arrangements for its managed investment
funds whereby securities held by funds under management were lent to third parties. Borrowers provided cash or investment grade assets as collateral
equal to 100% of the market value of the securities lent plus a margin of 2% -10%. The Group agreed with BlackRock, Inc. to continue to provide
indemnities to support these arrangements for three years following the disposal. As at 31 December 2011 the fair value of collateral held was
£37,072m (2010: £28,465m) compared to the fair value of stock lent of £35,996m (2010: £27,672m).
Guarantees and letters of credit are given as security to support the performance of a customer to third parties. In addition, the Group issues
guarantees on its own behalf. The main types of guarantees provided are: financial guarantees given to banks and financial institutions on behalf of
customers to secure loans; overdrafts; and other banking facilities, including stock borrowing indemnities and standby letters of credit. Other
guarantees provided include performance guarantees, advance payment guarantees, tender guarantees, guarantees to Her Majesty’s Revenue and
Customs and retention guarantees. As the Group will only be required to meet these obligations in the event of the customer’s default, the cash
requirements of these instruments are expected to be considerably below their nominal amounts.
Performance guarantees are generally, short-term commitments to third parties which are not directly dependent on the customer’s creditworthiness.
An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Group expects most acceptances to be presented, but
reimbursement by the customer is normally immediate. Endorsements are residual liabilities of the Group in respect of bills of exchange, which have
been paid and subsequently rediscounted.
Documentary credits and other short-term trade related transactions
Documentary credits commit the Group to make payments to third parties, on production of documents, which are usually reimbursed immediately by
customers.
Standby facilities, credit lines and other commitments
Standby facilities, credit lines and other commitments to lend are agreements to lend to a customer in the future, subject to certain conditions. Such
commitments are either made for a fixed period, or have no specific maturity but are cancellable by the lender subject to notice requirements.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 247
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