Barclays 2014 Annual Report Download - page 297

barclays.com/annualreport Barclays PLC Annual Report 2014 I 295
18 Fair value of financial instruments continued
Financial assets
The carrying value of financial assets held at amortised cost (including loans and advances to banks and customers, and other lending such as
reverse repurchase agreements and cash collateral on securities borrowed) is determined in accordance with the relevant accounting policy noted
on pages 297 and 298.
Loans and advances to banks
The fair value of loans and advances, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that reflects the
current market price for lending to issuers of similar credit quality. Where market data or credit information on the underlying borrowers is
unavailable, a number of proxy/extrapolation techniques are employed to determine the appropriate discount rates.
There is minimal difference between the fair value and carrying amount due to the short term nature of the lending (i.e. predominantly overnight
deposits) and the high credit quality of counterparties.
Loans and advances to customers
The fair value of loans and advances to customers, for the purpose of this disclosure, is derived from discounting expected cash flows in a way
that reflects the current market price for lending to issuers of similar credit quality.
For retail lending (i.e. Home loans and Credit cards) tailored discounted cash flow models are used to estimate the fair value of different product
types. For example, for home loans different models are used to estimate fair values of tracker, offset and fixed rate mortgage products. Key inputs
to these models are the differentials between historic and current product margins and estimated prepayment rates.
The discount of fair value to carrying amount for home loans has reduced to 4.4% (2013: 5.0%) due to changes in product mix across the loan
portfolio and movements in product margins.
The fair value of Corporate loans is calculated by the use of discounted cash flow techniques where the gross loan values are discounted at a rate
of difference between contractual margins and hurdle rates or spreads where Barclays charges a margin over LIBOR depending on credit quality
and loss given default and years to maturity. The discount between the carrying and fair value has decreased to 1.5% (2013: 2.1%).
Reverse repurchase agreements
The fair value of reverse repurchase agreements approximates carrying amount as these balances are generally short dated and fully collateralised.
Financial liabilities
The carrying value of financial liabilities held at amortised cost (including customer accounts and other deposits such as repurchase agreements
and cash collateral on securities lent, debt securities in issue and subordinated liabilities) is determined in accordance with the accounting policy
noted on pages 298 and 315.
Deposits from banks and customer accounts
In many cases, the fair value disclosed approximates carrying value because the instruments are short term in nature or have interest rates that
re-price frequently such as customer accounts and other deposits and short term debt securities.
The fair value for deposits with longer term maturities such as time deposits, are estimated using discounted cash flows applying either market
rates or current rates for deposits of similar remaining maturities. Consequently the fair value discount is minimal.
Debt securities in issue
Fair values of other debt securities in issue are based on quoted prices where available, or where the instruments are short dated, carrying amount
approximates fair value. The fair value difference has increased to 1.7% (2013: 0.4%).
Repurchase agreements
The fair value of repurchase agreements approximates carrying amounts as these balances are generally short dated.
Subordinated liabilities
Fair values for dated and undated convertible and non-convertible loan capital are based on quoted market rates for the issue concerned or issues
with similar terms and conditions.
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