Barclays 2004 Annual Report Download - page 53

Barclays PLC Annual Report 2004
51
Credit Risk Mitigation
Barclays employs a range of policies and practices to mitigate credit
risk. The most traditional of these is the taking of security for funds
advanced which is common practice. See the discussion of loan-to-
value ratios for mortgages on page 54.
Barclays manages the diversification of its portfolio to avoid unwanted
credit risk concentrations. This takes several dimensions. Maximum
exposure guidelines are in place relating to the exposures to any
individual counterparty. These permit higher exposures to highly
rated borrowers than to lower rated borrowers. They also distinguish
between types of counterparty, for example between sovereign
governments, banks and corporations. Excesses are considered
individually at the time of credit sanctioning, are reviewed regularly,
and are reported to the Risk Oversight Committee and the Board Risk
Committee. Similarly the Country Risk policy specifies risk appetite by
country and avoids excessive concentrations of credits in individual
countries. Finally, there are policies that limit lending to certain
industries, for example commercial real estate.
Barclays actively manages its credit exposures. When weaknesses in
exposures are detected – either in individual exposures or in groups of
exposures – it takes action to mitigate the risks. These include steps to
reduce the amounts outstanding (in discussion with the customers, if
appropriate), the use of credit derivatives and, sometimes, the sale of
the loan assets. Credit derivatives are traded for profit and used for
managing non-trading credit exposures. Details of these activities may
be found in the statistical section (page 78) and Note 37 to the
Accounts (page 171).
The Group securitises loans such as credit card receivables. The
manner in which these transactions have been structured to date has
reduced credit risk only to a small degree because the motivation has
generally not been the mitigation of risk. Instead the transactions have
served other purposes, such as widening the Group’s sources of funds
and addressing regulatory capitalisation in specific geographies.
Securitisation remains an avenue of risk mitigation available to
Barclays.
The value of assets originated by the Group that were securitised in
2004 was £0.8bn (2003: £2.3bn).
UK Retail
Banking
£m
150 150
235 225
55
70 65
135
70
20 20
775
860
UK Business
Banking
Private
Clients
International Barclaycard Barclays
Capital
Transition
Businesses
900
800
700
600
500
400
300
200
100
0 2004
2003
Risk Tendency by Cluster