Barclays 2007 Annual Report Download - page 100

Risk management
Credit risk management
98 Barclays PLC Annual Report 2007
Monitoring weaknesses in exposures
Barclays actively manages its credit exposures. Corporate accounts that
are deemed to contain heightened levels of risk are recorded on graded
early warning or watch lists comprising three categories of increasing
concern. These are updated monthly and circulated to the relevant risk
control points. Once listing has taken place, exposure is very carefully
monitored and, where appropriate, exposure reductions are effected.
Should an account become impaired, it will normally, but not necessarily,
have passed through all three categories, which reflect the need for ever-
increasing caution and control.
Where an obligor’s financial health gives grounds for concern, it is
immediately placed into the appropriate category. All obligors, regardless
of financial health, are subject to a full review of all facilities on, at least,
an annual basis. More frequent interim reviews may be undertaken
should circumstances dictate.
Within Local Business, accounts that are deemed to have a heightened
level of risk, or that exhibit some unsatisfactory features which could affect
viability in the short/medium term, are transferred to a separate ‘Caution’
stream. Accounts on the Caution stream are reviewed on at least a
quarterly basis at which time consideration is given to continuing with
the agreed strategy, returning the customer to a lower risk refer stream,
or instigating recovery/exit action.
Within the personal portfolios, which tend to comprise homogeneous
assets, statistical techniques more readily allow potential weaknesses
to be monitored on a portfolio basis. This applies in parts of UK Retail
Banking, Barclays Wealth, International Retail and Commercial Banking
and Barclaycard. The approach is consistent with the Group’s policy of
raising a collective impairment allowance as soon as objective evidence
of impairment is identified.
Potential credit risk loans
If the credit quality of a loan on an early warning or watch list deteriorates
to the highest category, consideration is given to including it within the
Potential Problem Loan (PPL) list. PPLs are loans where payment of
principal and interest is up to date but where serious doubt exists as to the
ability of the borrowers to continue to comply with repayment terms in the
near future.
Should further evidence of deterioration be observed, a loan may move to
the Credit Risk Loan (CRL) category. Events that would trigger the transfer
of a loan from the PPL to the CRL category could include a missed
payment or a breach of covenant. CRLs comprise three classes of loans:
– ‘Impaired loans’ comprise loans where individual impairment allowance
has been raised and also include loans which are fully collateralised or
where indebtedness has already been written down to the expected
realisable value. The impaired loan category may include loans, which,
while impaired, are still performing.
03
a04
b0706
05
c
0.7
0.3
0.2
0.5
0.4
Fig. 11: PPLs/Loans and Advances Ratio %
UK GAAP IFRS
UK
Non-UK
03
a04 b07
0605
c
1,327
929
761
1,797
798
Fig. 9: PPLs balances by geography £m
UK GAAP IFRS
cFrom 1st January 2005, the application of IAS 39 required interest to be recognised on
the remaining balance of an impaired financial asset (or 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’. In 2005, the Group replaced the ‘non-accrual’ category with
one termed ‘impaired loans’. The 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.
Notes
aIn 2003, credit risk loans and potential problem loans were disclosed based on
the location of the booking office. In 2004-2007 they were disclosed by location
of customers.
bDoes not reflect the application of IAS 32, IAS 39 and IFRS 4 which became effective
from 1st January 2005.
CRL and PPL balances by geography
CRLs and PPLs as a percentage of Loans and Advances
03
a04
b0706
05
c
2.3
1.7
1.6
2.5
1.8
Fig. 10: CRLs/Loans and Advances Ratio %
UK GAAP IFRS
UK
Non-UK
03
a04b0706
05
c
4,305
5,210
5,088
9,641
4,115
Fig. 8: CRLs balances by geography £m
UK GAAP IFRS