Barclays 2004 Annual Report Download - page 46

Risk management
Risk management and control – overview
44
Introduction
At Barclays the identification and management of risk is a high priority
and is integral to the execution of our banking activity and strategy.
Our approach is built on formal governance processes, relies on
individual responsibility and collective oversight, uses advanced
analyses, and is informed by comprehensive reporting.
Responsibility for risk resides at all levels of management, from the
Board down through the organisation to individuals in offices around
the world. Each business manager is accountable for managing risk in
his or her business area, assisted, where appropriate, by risk specialists.
We measure the key risks and understand the viability of transactions
after taking risk into account. There are defined appetites for the most
important risks and we consider the risk and return on individual
transactions as well as their effect on the Bank’s overall portfolio.
From a credit risk perspective, 2004 was a benign year, without the
large corporate defaults of the recent past. In our consumer portfolios,
the growth in credit losses was consistent with our portfolio growth
and risk appetite. Risk taking in our trading activities remained within
our Group market risk parameters at all times.
These favourable conditions are reflected in the provisions for bad
and doubtful debts which declined from a peak of £1,484m in 2002
to £1,091m, a decline over two years of 26%. During the same period,
our portfolio increased by 24%. This good outcome benefited from
amuch lower corporate provisions charge as well as some recovery
of amounts written-off in earlier years, trends that are characteristic
of the recovery phase of a credit cycle.
Barclays is growing in our product breadth, our client base and in
our domestic and international markets. With this growth and with
regulatory changes upon us – the US Sarbanes-Oxley Act, the Basel II
Accord and the new International Financial Reporting Standards – we
are making continued, significant investments in risk management and
risk systems.
In 2004 we further developed our methodology for defining and
setting our risk appetite, introducing new formal measurements
and governance which are described later in this section. We also
strengthened risk management and governance by implementing an
enhanced Group Internal Control and Assurance Framework, which
provides definitive guidance on governance requirements throughout
the Group. Both of these were evolutionary improvements of already
sound risk management.
Our aim will continue to be to grow shareholder value through taking
risks that are consistent with our risk appetite and commensurate with
the associated returns.
Robert Le Blanc
Risk Director
Risk Management
The pages that follow describe our approach to risk management.
This first section deals with the overall approach – applicable to all
risks. It is followed by material covering individual types of risk.
The narrative contains quantitative information mainly in graphical
format. In most cases the same data appear in tables in a statistical
section beginning on page 72.
Risk Management Process
Barclays applies a five-step approach to risk management.
Responsibilities
Direct •Understand the principal risks to achieving
Group strategy.
•Establish risk appetite.
•Establish and communicate the risk management
framework including responsibilities, authorities
and key controls.
Assess •Establish the process for identifying and
analysing business-level risks.
•Agree and implement measurement and
reporting standards and methodologies.
Control •Establish key control processes and practices,
including limit structures, provisioning criteria
and reporting requirements.
•Monitor the operation of the controls and
adherence to risk direction and limits.
•Provide early warning of control or appetite
breaches.
•Ensure that risk management practices are
appropriate for the control environment.
Report •Interpret and report on risk exposures,
concentrations and risk-taking outcomes.
•Interpret and report on sensitivities and Key
Risk Indicators.
•Communicate with external parties.
Manage and •Review and challenge all aspects of the Group’s
Challenge risk profile.
•Assess new risk-return opportunities.
•Advise on optimising the Group’s risk profile.
•Review and challenge risk management practices.