Barclays 2003 Annual Report Download - page 205

Barclays PLC Annual Report 2003 203
63 Regulatory capital requirements
Capital adequacy and the use of regulatory capital are monitored by the Group, employing techniques based on the guidelines developed by the
Basel Committee on Banking Regulations and Supervisory Practices (the Basel Committee) and European Community Directives, as implemented
by the Financial Services Authority (FSA) for supervisory purposes. The FSA regards the risk asset ratio calculation, originally developed by the
Basel Committee, as a key supervisory tool and sets individual minimum ratio requirements for banks in the UK at or above the minimum of 8%.
The concept of risk weighting and the basis for calculating eligible capital resources are described under capital ratios on page 100.
The following tables summarises capital resources and capital ratios, as defined for supervisory purposes:
Barclays PLC Group and Barclays Bank PLC Group
Amount Ratio
As at 31st December 2003 £m %
Total net capital resources 24,223 12.8
Tier 1 capital resources 14,994 7.9
Amount Ratio
As at 31st December 2002 £m %
Total net capital resources 22,191 12.8
Tier 1 capital resources 14,204 8.2
64 Significant Group concentration of credit risk
A concentration of credit risk is defined as existing when a number of counterparties are engaged in similar activities and have similar economic
characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Barclays has three significant concentrations of exposures to credit risk: to the UK economy, to home loans, and to banks and other financial
institutions.
Credit exposure is concentrated in the UK where the majority of the Group’s activities are conducted. Gross credit exposure to borrowers on the
banking book in the UK (based on the location of the office recording the transaction) was £143,809m at 31st December 2003 (2002: £135,900m).
In the UK the Group’s collateral policy differs by line of business and product, but is broadly in line with UK market practice (see also below). It enters
into netting agreements with counterparties in wholesale markets whenever practical and to the extent that such agreements are enforceable in law.
Lending in respect of home loans to customers in the UK and the rest of Europe totalled £72,159m at 31st December 2003 (2002: £64,679m). This
represents 42% (2002: 40%) of the total banking book lending to customers. Elsewhere they were insignificant. As collateral, Barclays requires a first
mortgage over the residential property for the acquisition of which the loan is made.
As an active participant in the international banking markets, the Group has significant credit exposure to banks and other financial institutions. In
total, credit risk exposure to financial institutions at 31st December 2003 was estimated to have amounted to £87bn (2002: £87bn) of which £62bn
(2002: £60bn) consisted of loans and advances to banks and £9bn (2002: £10bn) of mark to market balances in respect of derivatives. The remaining
credit risk exposure is largely related to letters of credit and guarantees. The Group may require collateral before entering into exposure to a bank,
depending on the nature of the product or type of exposure and the bank involved. The Group’s policy is to enter into netting agreements with other
banks whenever possible and to the extent that such agreements are enforceable in law.
The concentrations of credit exposure described above are not proportionally related to credit loss. Some segments of the Group’s portfolio have and
are expected to have proportionally higher credit charges in relation to the exposure than others. Moreover, the volatility of credit loss is different in
different parts of the portfolio. Thus it is possible that comparatively large credit charges could arise in parts of the portfolio not mentioned above.