Barclays 2006 Annual Report Download - page 51

Barclays PLC
Annual Report 2006 47
Operating review
1
Following the application of IAS 39 at 1st January 2005, certain assets
and liabilities were designated at fair value. Fair value movements on
these items were reported within net trading income or within net
investment income depending on the nature of the transaction.
Fair value movements on insurance assets included within net
investment income contributed £317m.
From 1st January 2005, investment and insurance contracts are
separately accounted for in accordance with IAS 39 and IFRS 4. This
has resulted in investment income and the corresponding movement
in investment contract liabilities being presented on a net basis within
other income. In 2004, all contracts were accounted for as insurance
contracts and the gross income relating to these contracts was reported
as income from assets backing insurance policies.
Other income
2006 2005 2004(a)
£m £m £m
Increase in fair value of assets held
in respect of linked liabilities to
customers under investment
contracts 7,417 9,234 n/a
Increase in liabilities to customers
under investment contracts (7,417) (9,234) n/a
Property rentals 55 54 46
Other income 159 93 85
Other income 214 147 131
Certain asset management products offered to institutional clients by
Barclays Global Investors are recognised as investment contracts.
Accordingly the invested assets and the related liabilities to investors
are held at fair value and changes in those fair values are reported
within other income.
Impairment charges
2006 2005 2004(a)
£m £m £m
Impairment charge on loans
and advances 2,074 1,574 n/a
Specific provision charge n/a n/a 1,310
General provision release n/a n/a (206)
2,074 1,574 1,104
Other credit provisions (6) (7) (11)
Impairment charges on loans and
advances and other credit
provisions 2,068 1,567 1,093
Impairment on available for sale
assets 86 4 n/a
Impairment charges 2,154 1,571 1,093
2006/05
Total impairment charges increased 37% (£583m) to £2,154m
(2005: £1,571m).
Impairment charges on loans and advances and other
credit provisions
Impairment charges on loans and advances and other credit provisions
increased 32% (£501m) to £2,068m (2005: £1,567m). Excluding Absa,
the increase was 26% (£395m) and largely reflected the continued
challenging credit environment in UK unsecured retail lending through
2006. The wholesale and corporate sectors remained stable with a low
level of defaults.
The Group impairment charges on loans and advances and other credit
provisions as a percentage of year-end total loans and advances of
£316,561m (2005: £303,451m) increased to 0.65% (2005: 0.52%).
Retail impairment charges on loans and advances and other credit
provisions increased to £1,809m (2005: £1,254m), including £99m
(2005(b): £10m) in respect of Absa. Retail impairment charges on loans
and advances amounted to 1.30% (2005(c): 0.93%) as a percentage of
year-end total loans and advances of £139,350m (2005(c): £134,420m),
including balances in Absa of £20,090m (2005: £20,836m).
In the UK retail businesses, household cash flows remained under
pressure leading to a deterioration in consumer credit quality. High debt
levels and changing social attitudes to bankruptcy and debt default
contributed to higher levels of insolvency and increased impairment
charges. In UK cards and unsecured consumer lending, the flows of new
delinquencies and the levels of arrears balances declined in the second
half of 2006, reflecting more selective customer recruitment, limit
management and improved collections.
In UK Home Finance, delinquencies were flat and amounts charged-off
remained low. The weaker external environment led to increased credit
delinquency in Local Business, where there were both higher balances
on caution status and higher flows into delinquency, which both
stabilised towards the year end.
In the wholesale and corporate businesses, impairment charges on
loans and advances and other credit provisions decreased to £259m
(2005: £313m), including £27m (2005(b): £10m) in respect of Absa.
The fall was due mainly to recoveries in Barclays Capital as a result of
the benign wholesale credit environment. This was partially offset by an
increase in UK Business Banking, reflecting higher charges in Medium
Business and growth in lending balances.
The wholesale and corporate impairment charge was 0.15% (2005(c):
0.19%) as a percentage of year-end total loans and advances to banks
and to customers of £177,211m (2005(c): £169,031m), including
balances in Absa of £9,299m (2005: £9,731m).
In Absa, impairment charges increased to £126m (2005(b): £20m)
reflecting a full year of business and normalisation of credit conditions
in South Africa following a period of low interest rates.
Impairment on available for sale assets
The total impairment charges in Barclays Capital included losses of
£83m (2005: £nil) on an available for sale portfolio where an intention
to sell caused the losses to be viewed as other than temporary in nature.
These losses in 2006 were primarily due to interest rate movements,
rather than credit deterioration, with a corresponding gain arising on
offsetting derivatives recognised in net trading income.
Notes
(a) Does not reflect the application of IAS 32, IAS 39 and IFRS 4 which became effective from 1st January 2005.
(b) For 2005, this reflects the period from 27th July until 31st December 2005.
(c) Prior year analysis of loans and advances to customers between retail business and wholesale and corporate business has been reclassified to reflect enhanced
methodology implemented in the current year (see page 95).