Barclays 2004 Annual Report Download - page 99

97
Barclays PLC Annual Report 2004
Financial review
Results by nature of income and expense
Results by Nature of Income and Expense
Comparative figures have been restated as a result of the changes in
accounting policy and accounting presentation as set out on pages
129 and 131.
Net interest income
2004 2003 2002
£m £m £m
Interest receivable 13,665 12,427 12,044
Interest payable (6,823) (5,823) (5,839)
6,842 6,604 6,205
Group net interest margin(a)
2004 2003 2002
%%%
Group 2.59 2.61 2.75
Domestic 3.48 3.64 3.61
International 0.81 0.77 0.96
Note
(a) Domestic business is conducted primarily in the UK in Sterling. International
business is conducted primarily in foreign currencies. In addition to the
business carried out by overseas branches and subsidiaries, some
international business is transacted in the UK. Interest margin is net interest
income as a percentage of average interest earning assets.
The margins shown above exclude non-margin related items, including
profits and losses on the repurchase of loan capital and the unwinding of
the discount on vacant leasehold property provisions.
Group net interest income increased 4% (£238m) to £6,842m
(2003: £6,604m), reflecting growth in balances which more than
offset a 2 basis points fall in the Group net interest margin to 2.59%.
2002 2003 2004£bn
12.04
5.84
6.20
12.43
5.83
6.60
13.66
6.82
6.84
16
14
12
10
8
6
4
2
0 Net interest income
Interest payable
Interest receivable
Net interest income
The Group net interest margin of 2.59% (2003: 2.61%) includes 0.42%
(2003: 0.48%) arising from the benefit of free funds. A component of
the benefit of free funds is the structural hedge against short-term
interest rate movements. The contribution of the structural hedge has
decreased to 0.12% (2003: 0.19%) largely due to the impact of higher
short-term interest rates.
Group average interest earning assets increased £11bn to £264bn
(2003: £253bn). Domestic average interest earning assets increased
£14bn to £176bn (2003: £162bn). This reflected increases across the
businesses. International average interest earning assets remained
broadly stable at £88bn (2003: £90bn).
The domestic net interest margin fell 16 basis points to 3.48%
(2003: 3.64%). This was attributable to the margin pressure in the
mortgage business, the impact of base rate rises during the year,
higher funding costs, increased promotional balance transfer activity
in the cards business and the impact of the structural hedge. This was
partially offset by increased margins in retail savings, Business Banking
loans and Barclays Capital banking activities. Margins in other areas
remained broadly stable.
The international net interest margin increased by 4 basis points to
0.81% (2003: 0.77%) largely due to a change in the mix of both assets
and liabilities in Barclays Capital banking activities.
The Group net interest margin was impacted by the factors described
above with the reduction largely mitigated by an increase in the
proportion of domestic interest earning assets.
Net interest income in 2003 increased by 6% to £6,604m
(2002: £6,205), reflecting growth in the average interest earning assets
by 12% to £253bn. This was primarily due to a £4bn increase in UK
mortgage balances and £18bn increase in debt securities holdings.
In 2003, overall banking margins were 14 basis points down on 2002
to 2.61%. The adverse impact on the margin was largely due to an
increase in higher quality assets in Barclays Capital, the conversion to
associate status of the Caribbean business, a change in the currency
mix of the portfolio and the general fall in global interest rates.
Prevailing average interest rates
2004 2003 2002
%%%
United Kingdom:
Barclays Bank PLC base rate 4.38 3.69 4.00
London Inter-Bank Offered
Rate (LIBOR):
three-month Sterling 4.64 3.74 4.06
three-month US dollar 1.62 1.21 1.80
United States prime rate 4.34 4.12 4.68