Barclays 2003 Annual Report Download - page 55

Barclays PLC Annual Report 2003 53
Risk Management
Provisions for Bad and Doubtful Debts
Provisions for Bad and Doubtful Debts
Barclays policy is to provide for credit losses when it
considers that recovery is doubtful. Risk managers
continuously review the quality of the exposures and
make provisions where necessary, based on their
knowledge of the customer or counterparty, and
developments in the industry and country of operation.
Provisioning approach
The estimation of potential credit losses is inherently uncertain and
depends upon many factors, including general economic conditions, loan
migration (i.e. deterioration in credit quality), structural changes within
industries that alter competitive positions, and other external factors
such as legal and regulatory requirements.
Total provisions are comprised of two components, specific provisions
and general provisions.
Specific provisions are raised when the Group considers that the
creditworthiness of a borrower has deteriorated such that recovery
of the whole or part of an outstanding advance is in serious doubt.
• Within the retail businesses, where the portfolio comprises large
numbers of homogeneous assets, statistical techniques are used
to raise specific provisions for each product portfolio, based on
delinquency data and historical recovery rates. These provisions
are updated monthly;
• Small business accounts with loans up to about £300,000 are similarly
treated on a product portfolio basis using statistical methods;
• For the larger business and wholesale accounts, specific provisioning
is done 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 of 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. These provisions are formally reviewed
quarterly and revised as new information becomes available in the
course of each work-out.
General provisions reflect losses that, although not specifically
identified, are known from experience to be present in the lending
portfolio at the balance sheet date. These provisions are adjusted at least
half yearly by an appropriate charge or release.
General provisions are also created with respect to the recoverability of
assets arising from off-balance sheet exposures and country transfer risk,
all prepared in a manner consistent with the general provisioning
methodology.
Write-off occurs immediately when, and to the extent that, the whole
or part of a debt is considered irrecoverable.
See also page 104 (Critical Accounting estimates) and page 115
(Accounting policies: loans and advances) for a description of relevant
terms and policies.
Provisions charge over ten years
Provisions charge over ten years as a percentage of the banking book
The provisions charge fell 9% (£137m) to £1,347m (2002: £1,484m).
Provisions excluding the impact of Transition Businesses, mainly
Argentina in 2002, fell 3% (£36m) to £1,324m (2002: £1,360m).
Business Banking provisions increased broadly in line with portfolio
growth. Provisions fell in Barclays Capital reflecting the ongoing
improvement in the loan book and the continued recovery in the large
corporate credit environment.
Provisions fell in Personal Financial Services with an improvement in
the quality of the loan portfolio and improved risk management.
The reduction occurred in the unsecured lending portfolio. Provisions
charges for mortgages remained at a very low rate. Barclaycard
provisions increased in line with continued portfolio growth.
Further details appear in the analysis of results by business starting
on page 90.
0
0.4
0.2
0.6
1994 1995 1996 1997%
1.0
0.8
0.60
0.41
0.23 0.23
1998
0.49
1999 2000 2001 2002
0.58
0.67 0.73
0.85
2003
0.73
0
600
300
900
1994 1995 1996 1997£m
1,500
1,200
602
396
215 227
1998
492
1999 2000 2001 2002
621
817
1,149
1,484
2003
1,347