Barclays 2012 Annual Report Download - page 281

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27 Provisions
Accounting for provisions
The Group applies IAS 37 Provisions, Contingent Liabilities and Contingent Assets in accounting for non-financial liabilities.
Provisions are recognised for present obligations arising as consequences of past events where it is more likely than not that a transfer
of economic benefit will be necessary to settle the obligation, which can be reliably estimated. Provision is made for the anticipated cost
of restructuring, including redundancy costs when an obligation exists; for example, when the Group has a detailed formal plan for
restructuring a business and has raised valid expectations in those affected by the restructuring by announcing its main features or starting to
implement the plan. Provision is made for undrawn loan commitments if it is probable that the facility will be drawn and result in the
recognition of an asset at an amount less than the amount advanced.
Onerous
contracts
£m
Redundancy
and
restructuring
£m
Undrawn
contractually
committed
facilities and
guarantees
provided
£m
Payment
Protection
Insurance
redress
£m
Interest rate
hedging
product
redress
£m
Litigation
£m
Sundry
provisions
£m
Total
£m
As at 1 January 2012 116 216 230 565 – 140 262 1,529
Additions 24 74 124 1,600 850 105 401 3,178
Amounts utilised (20) (136) (5) (1,179) (36) (35) (66) (1,477)
Unused amounts reversed (15) (73) (129) – – (11) (160) (388)
Exchange and other movements (1) (10) (61) – – 1 (5) (76)
As at 31 December 2012 104 71 159 986 814 200 432 2,766
As at 1 January 2011 74 177 229 – – 151 316 947
Additions 71 330 111 1,000 – 176 36 1,724
Amounts utilised (31) (257) (2) (435) – (104) (64) (893)
Unused amounts reversed – (31) (109) – – (73) (13) (226)
Exchange and other movements 2 (3) 1 – – (10) (13) (23)
As at 31 December 2011 116 216 230 565 – 140 262 1,529
Provisions expected to be recovered or settled within no more than 12 months after 31 December 2012 were £1,700m (2011: £1,260m).
Critical accounting estimates and judgements
Payment Protection Insurance Redress
Following the conclusion of the 2011 judicial review, a provision for PPI redress of £1.0bn was raised in May 2011 based on FSA guidelines and
historic industry experience in resolving similar claims. Subsequently, further provisions of £300m were raised in March 2012, £700m in
September 2012 and £600m in December 2012, bringing the total provision for PPI redress to £2.6bn. As at 31 December 2012 £1.6bn of the
provision has been utilised, including gesture of goodwill payments to customers with accrued claims at the conclusion of the judicial review,
leaving a residual provision of £1.0bn.
As of 31 December 2012, 1.1m customer initiated claimsa have been received and processed. The volume of claims received has declined since the
peak in May 2012, although the rate of decline has been lower than previously expected.
In addition to customer initiated claims, in August 2012, in accordance with regulatory standards, Barclays commenced proactive mailing of the
holders of approximately 750,000 policies. Of this population approximately 100,000 have been mailed as at 31 December and it is anticipated
that the remainder will be completed by June 2013.
To date Barclays has upheld on average 39% of claims received, excluding payment of gestures of goodwill and reflecting a high proportion of
claims for which no PPI policy exists. The average redress per valid claim to date is £2,750, comprising, where applicable, the refund of premium,
compound interest charged and interest of 8%.
The current provision is calculated based on a number of key assumptions which continue to involve significant management judgement:
 Customer initiated claim volumes – claims received not yet processed and an estimate of future claims initiated by customers where the volume
is anticipated to continue to decline over time;
 Proactive response rate – volume of claims in response to proactive mailing;
 Uphold rate – the percentage of claims that are upheld as being valid upon review; and
 Average claim redress – the expected average payment to customers for upheld claims based on the type and age of the policy/policies.
The provision also includes an estimate of the Group’s claims handling costs and those costs associated with claims that are subsequently referred
to the Financial Ombudsman Service.
Note
a Total claims received to date including those for which no PPI policy exists and excluding responses to proactive mailing.
barclays.com/annualreport Barclays PLC Annual Report 2012 I 279