Barclays 2011 Annual Report Download - page 93

H. Writing off of assets
After an advance has been identified as impaired and is subject to an
impairment allowance, the stage may be reached whereby it is concluded
that there is no realistic prospect of further recovery. Write off will occur
when, and to the extent that, the whole or part of a debt is considered
irrecoverable. The timing and extent of write offs may involve some
element of subjective judgement. Nevertheless, a write off will often be
prompted by a specific event, such as the inception of insolvency
proceedings or other formal recovery action, which makes it possible to
establish that some or the entire advance is beyond realistic prospect of
recovery. In any event, the position of impaired loans is reviewed at least
quarterly to ensure that irrecoverable advances are being written off in a
prompt and orderly manner and in compliance with any local regulations.
During 2011 there was a change in the period between charge-off and
write off from 18 months to 12 months across the majority of unsecured
retail portfolios.
Such assets are only written off once all the necessary procedures have
been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off are written back
and hence decrease the amount of the reported loan impairment charge
in the income statement. In 2011, total write offs of impaired financial
assets increased 20% to £5,165m.
I. Forbearance
The Group offers forbearance and similar programmes to assist customers
and clients in financial difficulty through agreements to accept less than
contractual amounts due where financial distress would otherwise prevent
satisfactory repayment within the original terms and conditions of the
contract. These agreements may be initiated by the customer, Barclays
or a third party. The primary aim of forbearance is to recover the customer
into a sustainable position on their obligations.
In the retail portfolios, as part of the Group Risk Forbearance Policy,
programmes offered to customers include approved debt counselling
plans, minimum due reductions, interest rate concessions, term
extensions and switches from capital and interest repayments to
interest-only payments either from a position of delinquency or to terms
and conditions which are outside current underwriting criteria. The
definition also extends to accounts that are partially rehabilitated. For
further detail, see pages 99 to 100.
In the wholesale portfolios, Barclays will on occasion participate in
debt-for-equity swaps, debt-for-asset swaps, debt standstills or debt
restructuring agreements as part of the business support process. Debt
restructuring agreements may include actions to improve security; such
as changing an overdraft to a factoring or invoice discounting facility or
moving debt to asset owning companies. Consideration is also given to
the waiving or relaxing of covenants where this is the optimum strategy
for the survival of the client’s business. For further detail, see page 103.
Impairment of loans under forbearance
Loans in forbearance programmes are subject to impairment in line
with normal impairment policy. In both retail and wholesale portfolios,
identified impairment is raised for such accounts, recognising the
agreement between the bank and customer to pay less than the original
contractual payment and is measured using a future discounted cash flow
approach comparing the debt outstanding to the expected repayment on
the debt. This usually results in higher impairment being held for loans
under forbearance than for fully performing assets, reflecting the
additional credit risk attached to loans subject to forbearance.
Where a retail account is in forbearance, the additional risk characteristics
are reflected by way of a management overlay as the only practical means
of factoring certain recent conditions into impairment calculations until
the Group’s models can be recalibrated. As more comprehensive data on
the performance of loans in forbearance is gathered the Group’s models
will be recalibrated.
Sustainability of loans under forbearance
The Group closely monitors the sustainability of loans for which
forbearance has been granted. In the retail portfolios, the Group Risk
Forbearance Policy prescribes that when a programme of forbearance
is offered to the customer, it is both appropriate and sustainable for that
customer. Sustainable terms are defined as revised contractual terms
where the asset can be fully serviced over its full life.
This is controlled through qualification criteria, which will include an
affordability assessment, minimum payment thresholds and previous
forbearance activity. Regular reviews for programmes of a temporary
nature are undertaken to reassess the customer’s financial circumstances
and continued appropriateness
For further detail on the Group’s impairment policy and the way loans
are separated into pools reflecting similar risk characteristics, see
pages 88 to 89.
For disclosure on the Group’s accounting policy with respect to
impairment, see pages 210 to 211. For further detail on the credit quality
of loans under forbearance, see pages 104 to 105.
1108
1,963
2,919
09
3,380
10
4,310
5,165
07
£m Total write offs of impaired financial assets
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 91
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