Barclays 2003 Annual Report Download - page 68

Risk Management
Treasury Asset and Liability Management
66
Group Treasury actively manages the financial risks
relating to the Group’s assets and liabilities, which
comprise liquidity, funding and funding concentration
risks, structural interest rate risks and exchange rate risks.
Group Treasury policies are set by the Group Treasury Committee which
is chaired by the Group Finance Director. Group policy is to centralise
retail asset and liability management within Group Treasury to minimise
earnings volatility and meet Group control standards. The Group
Treasury Committee sanctions Liquidity and Structural Interest Rate risk
limits across the Group and ensures compliance via a limit and control
monitoring structure in collaboration with the local Asset and Liability
Committees (ALCOs).
Liquidity risk management
Liquidity risk is the risk that the Group is unable to meet its payment
obligations when they fall due and to replace funds when they are
withdrawn; the consequence of which may be the failure to meet
obligations to repay depositors and fulfil commitments to lend.
Group Treasury is responsible for the Group’s overall liquidity policy and
control which is managed to ensure that the Group can meet its current
and future re-financing needs at all times and at acceptable costs. The
Group’s liquidity position was strong at 31st December 2003.
Liquidity management within the Group has two main strands. The first
is day to day funding, managed by monitoring future cash flows to
ensure that requirements can be met. This includes replenishment of
existing funds as they mature or are withdrawn to satisfy demands for
additional borrowings by customers. The second is maintaining a
portfolio of highly marketable assets that can easily be liquidated as
protection against any unforeseen interruption to cash flow.
Monitoring and reporting take the form of cash flow measurement and
projections for the next day, week and month as these are key periods
for liquidity management. This is based on principles agreed by the UK
Financial Services Authority. Each operation is required to maintain
sufficient access to funds, in terms of maturing assets and proven
capacity to borrow in the money markets.
Additionally, in evaluating the Group’s liquidity position, Group Treasury
monitors unmatched medium-term assets and the level and type of
undrawn lending commitments, the usage of overdraft facilities and the
impact of contingent liabilities such as standby letters of credit and
guarantees.
An important source of liquidity is our core UK retail deposits, mainly
current accounts and savings accounts. Although current accounts are
repayable on demand and savings accounts are repayable at short
notice, maintaining a broad base of customers, both numerically and
by depositor type, helps to protect against unexpected fluctuations.
Such accounts form a stable deposit base for the Group’s operations
and liquidity needs.
In order to avoid reliance on a particular group of customers or market
sectors, the distribution of sources and maturity profile of deposits are
also carefully managed. Important factors in assuring liquidity are
competitive rates and the maintenance of depositors’ confidence.
Such confidence is based on a number of factors including the Group’s
reputation, the strength of earnings and the Group’s financial position.
In overseas markets, day to day liquidity is the responsibility of local
treasury management in each territory within the parameters set by
Group Treasury and subject to regular reports to Group Treasury in
order to maximise the benefits of knowledge gained. Local asset and
liability management committees comprising senior local executives
and Group Treasury representatives also review liquidity management
depending on the size and complexity of the treasury operation.
Sources of liquidity are regularly reviewed to maintain a wide
diversification by currency, geography, provider and product. Whilst
2003 saw a relatively stable situation, with no notable consequences
for the Group’s liquidity, significant market events over recent years
including corporate scandals all resulted in a short-term flight to quality
in financial markets from which Barclays benefited.
The ability to raise funds is in part dependent on maintaining the
Group’s credit rating, although, except at extremes, a credit downgrade
is likely to affect only the price at which funding is available rather than
the volume that can be raised.
Many factors contribute to the credit rating process including
assessment of management capability, and the quality of the corporate
governance and risk management processes. The Group considers one
of the most important factors in preserving its strong credit rating,
which is a core objective, is maintaining a strong capital base and
strong capital ratios.
For further details see contractual cash obligations and commercial
commitments of the Group on page 69.