Barclays 2005 Annual Report Download - page 64

Barclays PLC
Annual Report 2005
62
In addition to drawn loans and advances, Barclays is exposed
to other credit risks 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 42 to
the accounts.
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 away 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.
Risk management
Other credit risks
Table A: Other commercial commitments
Amount of commitment expiration per period
Between Between Total
Less than one to three to After amounts
one year three years five years five years committed
£m £m £m £m £m
Acceptances and endorsements 283–––283
Guarantees and assets pledged as collateral security 28,871 2,761 4,046 2,357 38,035
Other contingent liabilities 5,935 1,070 359 1,461 8,825
Documentary credits and other short-term trade related transactions 301 25 – 54 380
Forward asset purchases and forward deposits placed 43–––43
Undrawn formal standby facilities, credit lines and other commitments to lend 151,929 16,696 25,303 9,434 203,362
Table B: Contractual obligations
Payments due by period
Between Between
Less than one to three to After
one year three years five years five years Total
£m £m £m £m £m
Long-term debt 77,792 8,795 3,156 21,651 111,394
Operating lease obligations 305 546 448 1,672 2,971
Purchase obligations 277 361 198 40 876
Total 78,374 9,702 3,802 23,363 115,241
Further information on the contractual maturity of the Group’s assets and liabilities is given in Note 59.