Barclays 2014 Annual Report Download - page 148

146 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Risk performance
Credit risk
Risk review
The Group’s approach to manage and represent credit quality
Asset credit quality
All loans and advances are categorised as either ‘neither past due nor impaired’, ‘past due but not impaired’, or ‘past due and impaired’, which
includes restructured loans. For the purposes of the disclosures in the balance sheet credit quality section below and the analysis of loans and
advances and impairment section (page 148):
Q A loan is considered past due when the borrower has failed to make a payment when due under the terms of the loan contract
Q The impairment allowance includes allowances against financial assets that have been individually impaired and those subject to collective
impairment
Q Loans neither past due nor impaired consist predominantly of wholesale and retail loans that are performing. These loans, although unimpaired,
may carry an unidentified impairment
Q Loans that are past due but not impaired consist predominantly of wholesale loans that are past due but individually assessed as not being
impaired. These loans, although individually assessed as unimpaired, may carry an unidentified impairment provision
Q Impaired loans that are individually assessed consist predominantly of wholesale loans that are past due and for which an individual allowance
has been raised
Q Impaired loans that are collectively assessed consist predominantly of retail loans that are one day or more past due for which a collective
allowance is raised. Wholesale loans that are past due, individually assessed as unimpaired, but which carry an unidentified impairment
provision, are excluded from this category.
Home loans and credit card receivables that are subject to forbearance in the retail portfolios are included in the collectively assessed impaired
loans column in the tables in the analysis of loans and advances and impairment section (page 148). Included within wholesale loans that are
designated as neither past due nor impaired is a portion of loans that have been subject to forbearance or similar strategies as part of the Group’s
ongoing relationship with clients. The loans will have an internal rating reflective of the level of risk to which the Group is exposed, bearing in mind
the circumstances of the forbearance, the overall performance and prospects of the client. Loans on forbearance programmes will typically, but
not always, attract a higher risk rating than similar loans which are not. A portion of wholesale loans under forbearance is included in the past due
but not impaired column, although not all loans subject to forbearance are necessarily impaired or past due. Where wholesale loans under
forbearance have been impaired, these form part of individually assessed impaired loans.
The Group uses the following internal measures to determine credit quality for loans that are performing:
Default Grade
Retail lending
Probability of
default
Wholesale lending
Probability of
default
Credit Quality
Description
1-3 0.0-0.60% 0.0-0.05% Strong
4-5 0.05-0.15%
6-8 0.15-0.30%
9-11 0.30-0.60%
12-14 0.60-10.00% 0.60-2.15% Satisfactory
15-19 2.15-11.35%
20-21 10.00%+ 11.35%+ Higher Risk
For loans that are performing, these descriptions can be summarised as follows:
Strong: there is a very high likelihood of the asset being recovered in full.
Satisfactory: while there is a high likelihood that the asset will be recovered and therefore, of no cause for concern to the Group, the asset may not
be collateralised, or may relate to retail facilities, such as credit card balances and unsecured loans, which have been classified as satisfactory,
regardless of the fact that the output of internal grading models may have indicated a higher classification. At the lower end of this grade there are
customers that are being more carefully monitored, for example, corporate customers which are indicating some evidence of some deterioration,
mortgages with a high loan to value, and unsecured retail loans operating outside normal product guidelines.
Higher risk: there is concern over the obligor’s ability to make payments when due. However, these have not yet converted to actual delinquency.
There may also be doubts over value of collateral or security provided. However, the borrower or counterparty is continuing to make payments
when due and is expected to settle all outstanding amounts of principal and interest.
Loans that are past due are monitored closely, with impairment allowances raised as appropriate and in line with the Group’s impairment policies.
These loans are all considered higher risk for the purpose of this analysis of credit quality.
Debt securities
For assets held at fair value, the carrying value on the balance sheet will include, among other things, the credit risk of the issuer. Most listed and
some unlisted securities are rated by external rating agencies. The Group mainly uses external credit ratings provided by Standard & Poor’s or
Moody’s. Where such ratings are not available or are not current, the Group will use its own internal ratings for the securities.
Balance sheet credit quality
The following tables present the credit quality of Group assets exposed to credit risk.
Overview
As at 31 December 2014, the ratio of the Group’s assets classified as strong improved to 84% (2013: 83%) of total assets exposed to credit risk.
Traded assets remained mostly investment grade with the following proportions being categorised as strong; 94% (2013: 95%) of total derivative
financial instruments, 91% (2013: 95%) of debt securities held for trading and 98% (2013: 96%) of debt securities held as available for sale. The
credit quality of counterparties to reverse repurchase agreements held at amortised cost remained broadly stable at 78% (2013: 76%). The credit
risk of these assets is significantly reduced as balances are largely collateralised.