Barclays 2012 Annual Report Download - page 329

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The following list is not exhaustive but provides some examples of
instances that would typically be considered to be evidence of
forbearance:
 a reduction of current contractual interest rate for the sole purpose
of maintaining performing debt status with no other improvement to
terms of benefit to the Bank;
 non-enforcement of a material covenant breach impacting the
borrower’s ability to repay;
 converting a fully or partially amortising facility to bullet repayment
at maturity with no other improvement to terms of benefit to the
Bank for the sole purpose of avoiding a payment default due to the
customer’s inability to meet amortisation;
 extension in maturity date for a Project Finance facility that gives an
effective contractual term longer than the underlying project contract
being financed; and
 any release of a material security interest without receiving
appropriate value by way of repayment/ alternate security offered or
other improvement in terms available to the Bank commensurate
with the value of the security released.
Where a concession is granted that is not a result of financial difficulty
and/ or is within our current market terms, the concession would not
amount to forbearance. For example, a commercially balanced
restructure within our current terms which involves Barclays granting
concessions and receiving risk mitigation/ structural enhancement of
benefit to Barclays would not be indicative of forbearance.
The following list (not exhaustive) gives some examples of instances
that would not typically be considered to be evidence of forbearance:
 temporary/permanent waivers/resets of covenants agreed in line
with our current terms;
 amending contractual maturity to meet current lending terms that
results in a previously amortising facility having a bullet repayment as
a consequence of shorter maturity date;
 equity/warrants taken to increase return to the Bank without
compromising contractual interest;
 extension of maturity date where the extension is within the normally
granted terms for the type of facility in question; and
 release of a material security interest where commensurate value is
received by way of repayment/other security offered.
Cases where a technical default may have occurred, the Bank has
decided to reserve its position but does not consider the default to be
sufficient to impact the borrower’s ability to pay, would not typically be
considered forbearance (as the borrower would continue to meet its
payment obligations under existing terms).
The Group Watch List/Early Warning List and Forbearance Policy
requires that a permanent record is retained of all individual cases of
forbearance, and upon granting forbearance the obligor is placed on
WL/EWL. The obligor then remains on WL/EWL and is flagged as being
in forbearance for a minimum of 12 months from the date forbearance
is applied. Obligors may be removed from WL/EWL status in less than
12 months in exceptional circumstances, e.g. full repayment of facilities
or significant restructuring. Obligors placed on WL/EWL status are
subject to increased levels of credit risk oversight.
Obligors who have been granted forbearance are classified as a Basel
‘unlikeliness’ to pay default for capital purposes with PD of 1 throughout
the period that they remain classified as being in forbearance. This is on
the basis that without intervention by Barclays the obligor is unlikely to
meet its obligations in full which would lead to default.
Impairment is assessed on an individual basis and recognised where
relevant impairment triggers have been reached including where
customers are in arrears and require renegotiation of terms.
Forbearance is considered to be an indicator that impairment may be
present and an impairment test is performed for all cases placed in
forbearance.
A control framework exists along with regular sampling to ensure
watch list and impairment policies are enforced as defined and to
ensure that all assets have suitable levels of impairment applied.
Portfolios are subject to independent assessment.
Aggregate data for wholesale forbearance cases is reviewed by the
Wholesale Credit Risk Management Committee.
Please see page 139 for details of loans currently in forbearance.
Retail re-aging activity
Re-aging refers to the placing of an account into an up-to-date position
without the requisite repayment of arrears. The re-age policy applies to
revolving products only. No reduction is made to the minimum due
payment amounts which are calculated, as a percentage of balance,
with any unpaid principal included in the calculation of the following
month’s minimum due payment.
The changes in timing of cash flows following re-aging do not result in
any additional cost to Barclays. The following are the conditions
required to be met before a re-age may occur:
 the account must not have been previously charged off or written off;
 the borrower cannot be bankrupt, subject to an Individual Voluntary
Arrangement (a UK contractual arrangement with creditors for
individuals wishing to avoid bankruptcy), a fraud or deceased;
 the borrower must show a renewed willingness and ability to repay
the debt. This will be achieved by the borrower making at least three
consecutive contractual monthly payments or the equivalent
cumulative amount. Contractual monthly payment is defined as the
contractual minimum due. Funds may not be advanced for any part
of this;
 the account must have been on book at least 9 months (i.e.
9 months prior to the 3 month qualification period); and
 no account should be re-aged more than once within any 12 month
period, or more than twice in a 5 year period.
We consider these assets as belonging to a separate ‘High Risk’ pool.
Under ‘High Risk’, the performance of the assets is a risk characteristic
and results in a higher probability of default being assigned to them in
our impairment models which meet the requirement of IAS 39,
AG87-88. This results in an appropriately higher impairment allowance
being recognised on the assets.
Retail small arrears capitalisation
Small Arrears Capitalisation is available for amortising products with
the exception of residential mortgages. This refers to the capitalisation
of small levels of arrears (up to 90 days past due), together with either
a corresponding term extension or increase to contractual monthly
payment without the requirement to classify the accounts as
forbearance. Contractual monthly payments must not be reduced. The
small arrears capitalisation activity is also subject to the conditions
outlined above under Retail re-aging activity, being met. Any
capitalisation event exceeding this must be executed under the
direction of the Forbearance policy.
barclays.com/annualreport Barclays PLC Annual Report 2012 I 327