Barclays 2003 Annual Report Download - page 155

44 Contingent liabilities and commitments
In common with other banks, the Group conducts business involving acceptances, guarantees, performance bonds and indemnities. The majority of
these facilities are offset by corresponding obligations of third parties. In addition, there are other off balance sheet financial instruments, including
swaps, futures, forwards and option contracts or combinations thereof (all commonly known as derivatives), the nominal amounts of which are not
reflected in the consolidated balance sheet.
Following internationally accepted banking supervisory practice for the calculation of the credit risk associated with such non-derivative off balance
sheet items, for the purpose of this Note the contract or underlying principal amounts are either recognised at face value or converted to credit risk
equivalents by applying specified conversion factors.
Nature of instruments
For a description of the nature of derivative financial instruments, see page 65.
An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Group expects most acceptances to be presented, but
reimbursement by the customer is normally immediate. Endorsements are residual liabilities of the Group in respect of bills of exchange which have
been paid and subsequently rediscounted.
Guarantees and assets pledged as collateral security are generally written by a bank to support the performance of a customer to third parties. As the
Group will only be required to meet these obligations in the event of the customer’s default, the cash requirements of these instruments are expected
to be considerably below their nominal amounts.
Other contingent liabilities include transaction related customs and performance bonds and are, generally, short-term commitments to third parties
which are not directly dependent on the customer’s creditworthiness.
Commitments to lend are agreements to lend to a customer in the future, subject to certain conditions. Such commitments are either made for a
fixed period, or have no specific maturity but are cancellable by the lender subject to notice requirements.
Documentary credits commit the Group to make payments to third parties on production of documents, which are usually reimbursed immediately
by customers.
The following table summarises the nominal principal amount of contingent liabilities and commitments with off balance sheet risk as at
31st December 2003.
2003 2002
Contract or Contract or
underlying underlying
principal principal
amount amount
£m £m
Contingent liabilities
Acceptances and endorsements 671 2,589
Guarantees and assets pledged as collateral security 24,596 16,043
Other contingent liabilities 8,427 7,914
Off-balance sheet credit risk 33,694 26,546
Commitments
Other commitments:
Documentary credits and other short-term trade related transactions 359 340
Forward asset purchases and forward forward deposits placed 88 20
Undrawn formal standby facilities, credit lines and other commitments to lend:
Over one year 27,160 22,809
In one year or less 87,240 78,209
Off-balance sheet credit risk 114,847 101,378
As an active participant in international banking markets, the Group has a significant concentration of off balance sheet items with financial
institutions, as shown in Note 64.
For a further description of the nature and management of credit risks and market risks, see pages 41 to 62 of the Risk Management section.
UK Obligations to purchase goods and services
The table below gives details of the Group’s obligations to purchase goods and services at 31st December 2003:
2003 2002
£m £m
Obligations payable
less than one year 273 176
over one year but not more than three years 377 312
over three years but not more than five years 123 76
over five years 73 61
846 625
The obligations mainly relate to contracts for the provision of services such as office supplies, telecommunications, maintenance and sponsorship agreements.
Barclays PLC Annual Report 2003 153