Barclays 2012 Annual Report Download - page 328

Forbearance
The Group offers forbearance 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.
In the retail portfolios, as part of the Group Risk Forbearance Policy,
solutions may take a number of forms depending on the extent of the
financial dislocation. Short term solutions normally focus on temporary
reductions to contractual payments and switches from capital and
interest payments to interest only. For customers with longer term
financial difficulties, term extensions may be offered, which may
include interest rate concessions and a switch to fully amortising
balances for card portfolios.
In the wholesale portfolios, Barclays will on occasion participate in
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 139.
Impairment of loans under forbearance
Loans under forbearance programmes are subject to Group
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 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.
Sustainability of loans under forbearance
The Group closely monitors the sustainability of loans for which
forbearance has been granted.
In the wholesale portfolios, customers that have been granted
forbearance are placed on WL/EWL and therefore subject to increased
levels of credit risk oversight. Obligors then remain on WL/EWL for a
minimum of 12 months from the date forbearance is applied until
satisfactory performance is evidenced. Obligors may only be removed
from WL/EWL status in less than 12 months in exceptional
circumstances, e.g. full repayment of facilities or significant
restructuring that materially improves credit quality.
In retail portfolios, the type of forbearance programme offered should
be appropriate to the nature and the expected duration of the
customer’s financial distress. It is imperative that the solution agreed is
both appropriate to that customer and sustainable, with a clear
demonstration from the customer of both willingness and ability to
repay. Before any programme of forbearance is granted, an affordability
assessment is undertaken to ensure suitability of the offer.
For further detail on the Group’s impairment policy and the way
loans are separated into pools reflecting similar risk characteristics,
see pages 323-325.
For disclosure on the Group’s accounting policy with respect to
impairment, see pages 245-246 and page 323.
Retail forbearance
Retail forbearance is available to customers experiencing financial
difficulties. Forbearance solutions take a number of forms depending
on individual customer circumstances. Short term solutions focus on
temporary reductions to contractual payments and may change from
capital and interest payments to interest only. For customers with
longer term financial difficulties, term extensions may be offered, which
may include interest rate concessions.
When an account is placed into a programme of forbearance, the asset
will be classified as such for the remainder of its term, unless after 12
months it qualifies for reclassification, upon which it will be returned to
the up to date book and classified as high risk for a further 12 month
period. When Barclays agrees to a forbearance programme with a
customer, the impairment allowance recognises the impact on cash-flows
of the agreement to receive less than the original contractual payments.
The Group Retail Impairment Policy prescribes the methodology for
impairment of forbearance assets, which is measured by comparing the
debt outstanding to the revised expected repayment. This results in
higher impairment than for fully performing assets, reflecting the
additional credit risk attached to loans subject to forbearance.
During 2012, Barclays continued to assist customers in financial
difficulty through the use of forbearance programmes. However, the
extent of forbearance offered by the Group to customers and clients
remains small in comparison to the overall size of the loan book.
Forbearance on the Group’s principal portfolios in US, UK and Europe
are presented on pages 134-135. In South Africa, forbearance balances
are not published as local practices are in the process of being aligned
to the Barclays Group policy.
The level of forbearance extended to customers in other retail
portfolios is not material and, typically, does not currently play a
significant part in the way customer relationships are managed.
However, additional portfolios will be added to this disclosure should
the forbearance in respect of such portfolios become material.
Barclays would not consider a retail loan to be renegotiated where the
amendment is at the request of the customer, there is no evidence of
actual or imminent financial difficulty and the amendment meets with
all Barclays underwriting criteria. In this case it would be treated as a
new loan. In the normal course of business, customers who are not in
financial difficulties frequently apply for new loan terms, for example to
take advantage of a lower interest rate or to secure a further advance on
a mortgage product. Where these applications meet our underwriting
criteria and the loan is made at market interest rates, the loan is not
classified as being in forbearance. Only in circumstances where a
customer has requested a term extension, interest rate reduction or
further advance and there is evidence of financial difficulty is the loan
classified as forbearance and included in our disclosures on forbearance.
Wholesale forbearance
Wholesale client relationships are individually managed with lending
decisions made with reference to specific circumstances and on
bespoke terms.
Forbearance occurs when Barclays, for reasons relating to the actual or
perceived financial difficulty of an obligor, grants a concession below
current Barclays standard rates (i.e. lending criteria below our current
lending terms), that would not otherwise be considered. This includes
all troubled debt restructures granted below our standard rates.
Forbearance would typically be evident where the concession(s) agreed
impact the ability to repay debt or avoid recognising a default with a
lack of appropriate commercial balance and risk mitigation/structural
enhancement of benefit to Barclays in return for concession(s).
barclays.com/annualreport326 I Barclays PLC Annual Report 2012
Risk management
Credit risk management continued