Barclays 2006 Annual Report Download - page 86

Barclays PLC
Annual Report 2006
82
Risk management
Potential credit risk loans
Potential credit risk loans
Non-performing loans and potential problem loans
Potential Credit Risk Loans (PCRLs) comprise Non-Performing Loans
(NPLs) and potential problem loans (PPLs). NPLs are loans where the
customers have failed to meet their repayment commitments, either in
part or in whole. PPLs are loans where payment of principal and interest
is up-to-date and the loans are therefore fully performing, but where
serious doubt exists as to the ability of the borrowers to continue to
comply with repayment terms in the near future.
The amounts are shown before deduction of the value of security held,
impairment allowances (from 2005 onwards) and provisions or interest
suspense (2004 and earlier), all of which might reduce the impact of an
eventual loss, should it occur.
The US Securities and Exchange Commission (SEC) requires loans to be
classified, where applicable, as non-accrual, accruing past due 90 days
or more, ‘troubled debt restructurings’ and potential problem loans.
Whilst the Group’s risk procedures do not include the classification of
loans along these lines, historically balances have been reported based
on the SEC categories but with additional categories reported to reflect
the particular circumstances pertaining to the UK market. With effect
from 1st January 2005, the application of IAS 39 required interest to be
recognised on the remaining balance of an impaired financial asset (or
a group of financial assets) at the effective interest rate for that asset.
As a result, interest is credited to the income statement in relation to
impaired loans, therefore these loans technically are not classified as
‘non-accrual’ but are, nonetheless, non-performing. In order to reflect
this treatment under IAS 39, in 2005 the Group replaced the ‘non-
accrual’ category with one termed ‘Impaired loans’. Impaired loans are
non-performing loans where, in general, an impairment allowance has
been raised. This category may also include non-performing loans
which are fully collateralised or where the indebtedness has already
been written down to the expected realisable value.
Since 31st December 2005, NPL balances fell by £122m (2%) to
£5,088m. In the retail portfolios, NPLs increased by £179m (5%),
primarily in the UK unsecured cards and loans portfolios, while those
in the wholesale portfolios (including transition balances) decreased
by £301m (18%) reflecting the divergent credit environments.
PPL balances decreased by £168m (18%) during 2006 to £761m. This
was primarily as a result of a fall in wholesale portfolios which decreased
by £202m to £404m reflecting the favourable credit environment.
As a result, overall PCRL balances fell by £288m (5%) to £5,850m, in line
with the 3% fall in impairment stocks (see page 85).
As a result, NPL and PCRL balances as a percentage of impairment stock
(coverage ratios) remained broadly stable (see page 83).
NPL and PPL balances by location
(See also Table 17 on page 102 and Table 18 on page 103).
NPLs and PPLs as a percentage of Loans and Advances
02 03 060504(b)
0.7
0.7
0.3
0.2
0.4
0
PPLs/Loans and Advances Ratio %
1.0
0.8
0.6
0.4
0.2
UK GAAP IFRS
02 03 060504(b)
2.7
2.3
1.7
1.6
1.8
0
NPLs/Loans and Advances Ratio %
3.0
2.5
2.0
1.5
1.0
0.5
UK GAAP IFRS
02 03 060504(b)
1,162
1,327
929
761
798
0
PPLs by location(a) £m
1,600
1,400
1,000
1,200
800
600
400
200
UK GAAP IFRS
UK
Non-UK
02 03 06
05
04(b)
4,668
4,305
5,210
5,088
4,115
0
NPLs by location(a) £m
6,000
5,000
4,000
3,000
2,000
1,000
UK GAAP IFRS
UK
Non-UK
Notes
(a) In 2002-2003, non-performing loans and potential problem loans were
disclosed, based on the location of the booking office. In 2004-2006 they were
disclosed by location of customers.
(b) Does not reflect the application of IAS 32, IAS 39 and IFRS 4 which became
effective from 1st January 2005.