Barclays 2007 Annual Report Download - page 101

1
Business review
Barclays PLC Annual Report 2007 99
– The category ‘accruing past due 90 days or more’ comprises loans
that are 90 days or more past due as to principal or interest where there
is no expectation of ultimate write-off (whether in part or full) of the
principal owed. Impairment allowance will be raised against these loans
if the expected cash flows discounted at the effective interest rate is
less than the carrying value.
– The category ‘impaired and restructured loans’ comprises loans not
included above where, for economic or legal reasons related to the
debtor’s financial difficulties, a concession has been granted to the
debtor that it would not otherwise be considered. Where the concession
results in the expected cash flows discounted at the effective interest
rate being less than the loan’s carrying value, an impairment allowance
will be raised.
The term Credit Risk Loans has replaced the term Non-Performing Loans
(NPLs) as the collective term for the total of these three classes since it
recognises the fact that the impaired loan category may include loans,
which, while impaired, are still performing. This category includes drawn
ABS CDO Super Senior positions.
Potential Credit Risk Loans (PCRLs) comprise potential problem loans
(PPLs) and credit risk loans (CRLs). Figures 8 and 9 show CRL and PPL
balances by geography. The amounts are shown before deduction of
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 significant
increase to non-UK CRL and PPL balances is principally due to the
inclusion of US-located ABS CDO Super Senior positions and other
credit market exposures.
Figures 12 and 13 show impairment allowances as a percentage of
CRLs and PCRLs. Including the drawn ABS CDO Super Senior positions,
allowance coverage of CRLs and PCRLs decreased to 39.1% (31st December
2006: 65.6%) and 33.0% (31st December 2006: 57.0%), respectively.
These movements reflect the fact that allowance coverage of ABS CDO
Super Senior credit risk loans was low relative to allowance coverage of
other credit risk loans since substantial protection against loss is also
provided by subordination and hedges. On ABS CDO Super Senior
exposures, the combination of subordination, hedges and write-downs
provided protection against loss levels to 72% on US sub-prime collateral
as at 31st December 2007.
Figures 14 and 15 show allowance coverage of CRLs and PCRLs
excluding the drawn ABS CDO Super Senior positions decreased to 55.6%
(31st December 2006: 65.6%) and 49.0% (31st December 2006: 57.0%),
respectively. The decrease in these ratios reflected a change in the mix of
CRLs and PCRLs. Unsecured retail exposures, where the recovery outlook
is low, decreased as a proportion of the total as the collections and
underwriting processes were improved. Secured retail and wholesale
and corporate exposures, where the recovery outlook is relatively high,
increased as a proportion of PCRLs.
03
a04
b07
06
05
71.5
66.2
65.6
55.6
66.9
Fig. 14: Impairment/provisions coverage of CRLs %
(excluding drawn ABS CDO Super Senior positions)
UK GAAP IFRS
03
a04
b07
06
05
71.5
66.2
65.6
39.1
66.9
Fig. 12: Impairment/provisions coverage of CRLs %
(including drawn ABS CDO Super Senior positions)
UK GAAP IFRS
03
a04
b07
06
05
54.6
56.2
57.0
49.0
56.0
Fig. 15: Impairment/provisions coverage of PCRLs %
(excluding drawn ABS CDO Super Senior positions)
UK GAAP IFRS
03
a04
b07
06
05
54.6
56.2
57.0
33.0
56.0
Fig. 13: Impairment/provisions coverage of PCRLs %
(including drawn ABS CDO Super Senior positions)
UK GAAP IFRS
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.