Barclays 2014 Annual Report Download - page 183

barclays.com/annualreport Barclays PLC Annual Report 2014 I 181
Economic Capital for non-traded risk by business unit
As at 31 December 2014
Personal &
Corporate
Banking
£m
Barclaycard
£m
Africa
Banking
£m
BNCa
£m
Total
£m
Prepayment risk 32 15 – – 47
Recruitment risk 148 1 – – 149
Residual riska 12 3 34 16 65
Total 192 19 34 16 261
As at 31 December 2013
Prepayment risk 31 10 – – 41
Recruitment risk 112 2 – – 114
Residual risk 10 4 38 13 65
Total 153 16 38 13 220
Total EC has increased 19% to £261m, primarily due to an increase in recruitment risk in PCB. This is due to the increase in mortgage and fixed
rate savings product pipelines for which pre-hedges are in place.
Analysis of equity sensitivity
The table below measures the overall impact of a +/- 100bps movement in interest rates on available for sale and cash flow hedge reserves. This
data is captured using PV01 which is an indicator of the shift in asset value for a 1 basis point shift in the yield curve. Note that in 2014 the
methodology used to estimate the impact of the negative movement applied a 0% floor to interest rates.
Analysis of equity sensitivity
As at 31 December 2014 2013
+100 basis
points
£m
-100 basis
points
£m
+100 basis
points
£m
-100 basis
points
£m
Net interest income 170 (384) 110 (243)
Taxation effects on the above (41) 92 (27) 61
Effect on profit for the year 129 (292) 83 (182)
As percentage of net profit after tax 15.27% (34.56)% 6.40% (14.03)%
Effect on profit for the year (per above) 129 (292) 83 (182)
Available for sale reserve (698) 845 (861) 861
Cash flow hedge reserve (3,058) 2,048 (2,831) 2,808
Taxation effects on the above 901 (694) 923 (917)
Effect on equity (2,726) 1,907 (2,686) 2,570
As percentage of equity (4.13)% 2.89% (4.20)% 4.02%
As discussed in relation to the net interest income sensitivity table on page 180, the impact of a 100bps movement in rates is largely driven by
PCB. The movement in the AFS reserve shows lower sensitivity in 2014 due to the disposal of large debt security positions in Treasury. Note that
the movement in the AFS reserve would impact CRD IV fully loaded CET1 capital, but the movement in the cash flow hedge reserve would not
impact CET1 capital.
Foreign exchange risk
The Group is exposed to two sources of foreign exchange risk:
i)Transactional foreign currency exposure
Transactional foreign exchange exposures represent exposure on banking assets and liabilities, denominated in currencies other than the
functional currency of the transacting entity.
The Group’s risk management policies prevent the holding of significant open positions in foreign currencies outside the trading portfolio
managed by the Investment Bank which is monitored through DVaR.
Banking book transactional foreign exchange risk outside of the Investment Bank is monitored on a daily basis by the market risk functions and
minimised by the businesses.
ii) Translational foreign exchange exposure
The Group’s investments in overseas subsidiaries and branches create capital resources denominated in foreign currencies principally US Dollar,
Euro and South African Rand. Changes in the GBP value of the net investments due to foreign currency movements are captured in the currency
translation reserve, resulting in a movement in CET1 capital.
The Group’s strategy is to minimise the volatility of the capital ratios caused by foreign exchange movements, by using the CET1 capital
movements to broadly match the revaluation of the Group’s foreign currency RWA exposures.
The economic hedges primarily represent the US Dollar and Euro preference shares and Additional Tier 1 instruments that are held as equity,
accounted for at historic cost under IFRS and do not qualify as hedges for accounting purposes.
Note
a Only the retail exposures within Non-Core are captured in the measure.
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