Barclays 2006 Annual Report Download - page 63

Barclays PLC
Annual Report 2006 59
Operating review
1
Capital ratios
Capital adequacy and the use of regulatory capital are monitored by the Group, employing techniques based on the guidelines developed by the
Basel Committee on Banking Supervision (the Basel Committee) and European Union Directives, as implemented by the Financial Services Authority
(FSA) for supervisory purposes.
These techniques include the risk asset ratio calculation, which the FSA regards as a key supervisory tool. The FSA sets ratio requirements for
individual banks in the UK at or above the internationally agreed minimum of 8%. The ratio calculation involves the application of designated risk
weightings to reflect an estimate of credit, market and other risks associated with broad categories of transactions and counterparties. Regulatory
guidelines define three ‘Tiers’ of capital resources. Tier 1 capital, comprising mainly shareholders’ funds and including Reserve Capital Instruments
and Tier One Notes, is the highest tier and can be used to meet trading and banking activity requirements. Tier 2 includes perpetual, medium-term
and long-term subordinated debt and collectively assessed impairment allowances. Tier 2 capital can also be used to support both trading and
banking activities. Tier 3 capital also comprises short-term subordinated debt with a minimum original maturity of two years. The use of tier 3 capital
is restricted to trading activities only and it is not eligible to support counterparty or settlement risk. The aggregate of Tiers 2 and 3 capital included in
the risk asset ratio calculation may not exceed Tier 1 capital.
IFRS UK GAAP
2006 2005 2004(a)
Barclays Barclays Barclays Barclays Barclays Barclays
PLC Bank PLC PLC Bank PLC PLC Bank PLC
Group Group Group Group Group Group
Capital ratios %%%%%%
Tier 1 ratio 7.7 7.5 7.0 6.9 7.6 7.6
Risk asset ratio 11.7 11.5 11.3 11.2 11.5 11.5
Risk weighted assets £m £m £m £m £m £m
Banking book
on-balance sheet 197,979 197,979 180,808 180,808 148,621 148,621
off-balance sheet 33,821 33,821 31,351 31,351 26,741 26,741
Associates and joint ventures 2,072 2,072 3,914 3,914 3,020 3,020
Total banking book 233,872 233,872 216,073 216,073 178,382 178,382
Trading book
Market risks 30,291 30,291 23,216 23,216 22,106 22,106
Counterparty and settlement risks 33,670 33,670 29,859 29,859 18,113 18,113
Total trading book 63,961 63,961 53,075 53,075 40,219 40,219
Total risk weighted assets 297,833 297,833 269,148 269,148 218,601 218,601
At 31st December 2006, the Barclays PLC Group Tier 1 capital ratio was 7.7% and the Risk asset ratio was 11.7%. From 31st December 2005, total
net capital resources rose £4.2bn and risk weighted assets increased £28.7bn.
Tier 1 capital rose £4.1bn, including £2.8bn arising from profits attributable to equity shareholders net of dividends paid. Minority interests within
Tier 1 capital increased £1.3bn primarily due to the issuance of £1.2bn of Reserve Capital Instruments and £0.7bn of Preference Shares partially
offset by a decrease in regulatory associates of £0.4bn driven by the sale of FirstCaribbean International Bank and exchange rate movements of
£0.5bn. Tier 2 capital increased £0.7bn mainly as a result of the issuance of £1.5bn of loan capital partially offset by exchange rate movements of
£0.6bn and redemptions of £0.4bn.
Similar movements are reflected in the risk weighted assets and total net capital resources of Barclays Bank PLC Group, however the retention by
Barclays PLC of dividends paid by Barclays Bank PLC gave rise to a reduction in the capital of Barclays Bank PLC Group relative to that of Barclays PLC
Group, resulting in Tier 1 and total capital ratios of 7.5% and 11.5% respectively.
The weakening of the Rand against Sterling had a positive impact on capital ratios in 2006.
Note
(a) Regulatory capital, risk weighted assets and resultant capital ratios for 2004 are based on UK GAAP and have not been restated as these remain as reported to the FSA.
As at 1st January 2005, for Barclays PLC Group and Barclays Bank PLC Group the tier 1 ratio was 7.1% and the risk asset ratio was 11.8% reflecting the impact of
IFRS including the adoption of IAS 32, IAS 39 and IFRS 4.