Barclays 2004 Annual Report Download - page 57
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Risk management
Other credit risks
55
Barclays PLC Annual Report 2004
In addition to drawn loans and advances, Barclays is exposed
to other credit risks as indicated in the chart on page 49 at the
beginning of the discussion on credit risk. These exposures comprise
loan commitments, contingent liabilities, debt securities and other
exposures arising in the course of trading activities. The risks are
managed in a similar way as those in Loans and Advances, and are
subject to the same or similar approval and governance processes.
The nature of the credit risks among these exposures differ
considerably.
•Loan commitments may become loans and the risks are thus
similar to loans.
•Contingent liabilities (guarantees, assets pledged as security,
acceptances and endorsements, etc) historically experience low
loss rates.
•Losses arising from exposures held for trading (derivatives, debt
securities) are accounted for as trading losses, rather than credit
charges, even though the fall in value causing the loss may be
attributable to credit deterioration.
Further details of these exposures are shown in Note 36 to the
Accounts (page 169).
Barclays is also exposed to settlement risk in its dealings with other
financial institutions. These risks arise for example in foreign exchange
transactions when Barclays pays its side of the transaction to another
bank or other counterparty before receiving payment from the other
side. The risk is that the counterparty may not meet its obligation.
While these exposures are of short duration, they can be large. In
recent years settlement risk has been reduced by several industry
initiatives that have enabled simultaneous and final settlement of
transactions to be made (such as payment-versus-payment through
Continuous Linked Settlement and delivery-versus-payment in central
bank money). Barclays has worked with its peers in the development
of these arrangements. Increasingly the majority of high value
transactions are settled by such mechanisms. Where these
mechanisms are not available, the risk is further reduced by dealing
predominantly with highly rated counterparties, holding collateral and
limiting the size of the exposures according to the rating of the
counterparty, with smaller exposures to those of higher risk.