Barclays 2006 Annual Report Download - page 49

Barclays PLC
Annual Report 2006 45
Operating review
1
Notes
(a) Does not include IAS 32, IAS 39 or IFRS 4 which became effective from 1st January 2005.
(b) For 2005, this reflects the period from 27th July until 31st December 2005.
Reconciliation of business interest
income to Group net interest income
2006 2005 2004(a)
£m £m £m
Business net interest income 7,412 6,314 5,358
Other:
– Barclays Capital 1,158 1,065 1,068
– Barclays Global Investors 10 15 5
– Other 563 681 402
Group net interest income 9,143 8,075 6,833
Business net interest income is derived from the interest rate earned on
average assets or paid on average liabilities relative to the average Bank
of England base rate, local equivalents for international businesses or
the rate managed by the bank using derivatives. The margin is
expressed as annualised business interest income over the relevant
average balance. Asset and liability margins cannot be added together
as they are relative to the average Bank of England base rate, local
equivalent for international businesses or the rate managed by the bank
using derivatives. The benefit of capital attributed to these businesses is
excluded from the calculation of business margins and business net
interest income.
Average balances are calculated on daily averages for most UK banking
operations and monthly averages elsewhere.
Within the reconciliation of Group net interest income, there is an
amount captured as Other. This relates to: benefit of capital excluded
from the business margin calculation, Head office functions and other
operations; net funding on non-customer assets and liabilities; and
Barclays Wealth – closed life assurance activities.
2006/05
UK Retail Banking assets margin decreased 8 basis points to 0.84%
(2005: 0.92%). The mortgage margin has been impacted by changed
assumptions used in the calculation of effective interest rates, a higher
proportion of new mortgages and base rate changes. This was partially
offset by increased contributions from non-mortgage assets. UK Retail
Banking liabilities margin was stable at 2.01% (2005: 1.99%).
UK Business Banking assets margin improved to 1.92% (2005: 1.87%).
UK Business Banking liabilities margin was stable at 1.46% (2005: 1.46%).
Barclaycard margins in credit cards improved to 8.73% (2005: 7.96%)
due to the impact of increased card rates and a reduced proportion of
promotional rate balances in the UK. Margins in consumer lending fell to
4.11% (2005: 4.96%) due to a higher proportion of secured lending and
continued competitive pressure.
International Retail and Commercial Banking – excluding Absa assets
margin decreased 8 basis points to 1.28% (2005: 1.36%) partly
reflecting a greater share of mortgage assets as a proportion of the
total book in continental Europe.
International Retail and Commercial Banking – Absa assets margin
decreased 57 basis points to 2.95% (2005(b): annualised 3.52%)
reflecting a higher proportion of mortgage assets and competitive
pressures in mortgages and asset finance. The liabilities margin
decreased 10 basis points to 2.29% (2005(b): annualised 2.39%). The
Absa Group Limited net interest margin remained stable compared to
the year to 31st December 2005 as the asset margin decrease was
offset by the benefit of higher returns on free funds and a higher
proportion of preference share capital in the funding mix.
Barclays Wealth assets margin increased 12 basis points to 1.11%
(2005: 0.99%) largely reflecting higher margins on new lending
business and a small increase in mortgage margins. The liabilities
margin increased 7 basis points to 1.11% (2005: 1.04%) principally
due to a slight increase in currency deposit spreads.
2005/04
In 2005, UK Retail Banking assets margin increased 14 basis points to
0.92% (2004: 0.78%) due to improved mortgage margins and higher
contributions from Personal Customer overdrafts and Local Business
loans. The UK Retail Banking liabilities margin decreased by 15 basis
points to 1.99% (2004: 2.14%), reflecting the reduced contribution
from the structural hedge, and competition for retail savings and
deposits. The movements in both the assets and liabilities partly reflect
changes in UK base rates.
UK Business Banking assets margin increased 31 basis points to 1.87%
(2004: 1.56%). Excluding the impact of IAS 32 and IAS 39 the asset
margin was broadly stable. UK Business Banking liabilities margin
decreased 12 basis points to 1.46% (2004: 1.58%), principally reflecting
the reduced contribution from the structural hedge.
Barclaycard cards margin increased 62 basis points to 7.96% (2004:
7.34%) principally reflecting the impact of increased card rates and a
reduced proportion of total balances on promotional offers. Barclaycard
loans margin decreased 131 basis points to 4.96% (2004: 6.27%), due
to the impact of IAS 32 and IAS 39, competitive pressure and a change
in the product mix with a higher weighting to secured loans.
International Retail and Commercial Banking – excluding Absa assets
margin decreased 20 basis points to 1.36% (2004: 1.56%) reflecting the
impact of a change in mix as a result of growth in mortgage assets in
Europe and competitive pressures. International Retail and Commercial
Banking – excluding Absa liabilities margin was broadly stable at 2.02%
(2004: 2.06%).
International Retail and Commercial Banking – Absa assets margin of
3.52% (2005(b): annualised) for the period since acquisition reflected
the impact of competitive pressure. The liabilities margin of 2.39%
benefited from an increasing interest rate cycle.
Barclays Wealth assets margin increased slightly by 2 basis points to
0.99% (2004: 0.97%). The application of IAS 32 and IAS 39 did not
impact the assets margin. Barclays Wealth liabilities margin decreased
modestly by 3 basis points to 1.04% (2004: 1.07%). Excluding the
reduced contribution from the structural hedge, underlying margins
were firmer.