Barclays 2005 Annual Report Download - page 226

56 Credit risk
The Group’s objectives and policies in managing the credit risks that arise in connection with the use of financial instruments and other credit
exposures are set out in Note 54 under the heading ‘Credit Risk Management’.
A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar economic characteristics
that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Barclays has three significant concentrations of exposures to credit risk: the UK economy, home loans, and banks.
Credit exposure is concentrated in the UK where the majority of the Group’s activities are conducted. Gross credit exposure to borrowers in the UK
(based on the location of the customer) was £163.8bn at 31st December 2005 (2004: £146.2bn). In the UK, the Group’s collateral policy differs by
line of business and product but is broadly consistent with UK market practice. Netting agreements are made with wholesale counterparties
whenever practical and to the extent that such agreements are legally enforceable.
Lending in respect of home loans totalled £89.5bn at 31st December 2005 (2004: £80.9bn). This represents 33% (2004: 31%) of loans to
customers. As collateral, Barclays requires a first mortgage over the residential property for the acquisition of which the loan is made.
Within the overall exposure, the Group maintains relationships with some 2,592 banking groups in countries all over the world.
As an active participant in the international financial markets, the Group has significant credit exposure to banks and other financial institutions.
The maximum credit exposure to banks resulting from loans and advances at 31st December 2005 was £31.1bn (2004: £80.6bn). The Group is also
exposed to credit risk with banks on other financial assets including derivatives and also on letters of credit and guarantees. The Group may require
collateral before entering into a credit commitment with another bank, depending on the type of the financial product and the counterparty
involved. Netting agreements are secured whenever possible and to the extent that such agreements are legally enforceable.
Outside the UK, the Group’s geographical spread ensures a wide variety of counterparties in the main areas of operation in Europe, the United States
and other areas of the world.
The concentrations of credit exposure described above are not proportionally related to credit loss. Some segments of the Group’s portfolio have
and are expected to have proportionally higher credit charges in relation to the exposure than others. Moreover, the volatility of credit loss is
different in different parts of the portfolio. Thus comparatively large credit charges could arise in parts of the portfolio not mentioned above.
Notes to the accounts
For the year ended 31st December 2005
Barclays PLC
Annual Report 2005
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