Barclays 2014 Annual Report Download - page 271

barclays.com/annualreport Barclays PLC Annual Report 2014 I 269
7 Credit impairment charges and other provisions continued
Critical accounting estimates and judgements
The calculation of impairment involves the use of judgement, based on the Group’s experience of managing credit risk.
Within the retail and small businesses portfolios, which comprise large numbers of small homogeneous assets with similar risk characteristics
where credit scoring techniques are generally used, statistical techniques are used to calculate impairment allowances on a portfolio basis,
based on historical recovery rates and assumed emergence periods. These statistical analyses use as primary inputs the extent to which
accounts in the portfolio are in arrears and historical information on the eventual losses encountered from such delinquent portfolios. There are
many such models in use, each tailored to a product, line of business or customer category. Judgement and knowledge is needed in selecting
the statistical methods to use when the models are developed or revised. The impairment allowance reflected in the financial statements for
these portfolios is therefore considered to be reasonable and supportable. The impairment charge reflected in the income statement for retail
portfolios is £1,892m (2013: £2,161m; 2012: £2,075m) and amounts to 86% (2013: 71%; 2012: 63%) of the total impairment charge on loans
and advances.
For individually significant assets, impairment allowances are calculated on an individual basis and all relevant considerations that have a
bearing on the expected future cash flows are taken into account (for example, the business prospects for the customer, the realisable value of
collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the
work-out process). The level of the impairment allowance is the difference between the value of the discounted expected future cash flows
(discounted at the loan’s original effective interest rate), and its carrying amount. Subjective judgements are made in the calculation of future
cash flows. Furthermore, judgements change with time as new information becomes available or as work-out strategies evolve, resulting in
frequent revisions to the impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the
allowances and have a direct impact on the impairment charge. The impairment charge reflected in the financial statements in relation to
wholesale portfolios is £312m (2013: £901m; 2012: £1,228m) and amounts to 14% (2013: 29%; 2012: 37%) of the total impairment charge on
loans and advances. Further information on impairment allowances and related credit information is set out within the Risk review.
2014
£m
2013
£m
2012
£m
New and increased impairment allowances 3,230 3,929 4,447
Releases (809) (683) (928)
Recoveries (221) (201) (212)
Impairment charges on loans and advances 2,200 3,045 3,307
Provision charges/(releases) for undrawn contractually committed facilities and guarantees provided 4 17 (4)
Loan impairment 2,204 3,062 3,303
Available for sale investment (31) 1 40
Reverse repurchase agreements (5) 8 (3)
Credit impairment charges and other provisions 2,168 3,071 3,340
More information on the impairment assessment and the measurement of credit losses is included on pages 115 to 118 in Barclays PLC 2014
Pillar 3 report. The movements on the impairment allowance is shown on page 173.
2014
Loan impairment fell 28% to £2,204m, reflecting lower impairment in BNC, PCB, and Africa Banking partially offset by higher charges in
Barclaycard.
2013
Loan impairment fell 7% to £3,062m, reflecting lower impairment in Africa Banking and BNC, partially offset by higher charges in Barclaycard.
The Strategic Report Governance Risk review Financial review Financial statements Shareholder information