Barclays 2007 Annual Report Download - page 103

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Business review
Barclays PLC Annual Report 2007 101
GCRIC has delegated the detailed review of loan impairment in the
businesses to the Retail and Wholesale Credit Risk Management
Committees.
In 2007, total impairment charges on loans and advances and other
credit provisions increased 30% (£641m) to £2,795m (2006: £2,154m)
reflecting charges of £782m against ABS CDO Super Senior and other
credit market positions.
Impairment charges on loans and advances and other credit provisions
as a percentage of Group total loans and advances rose to 0.71%
(2006: 0.65%); total loans and advances grew by 23% to £389,290m
(2006: £316,561m).
Retail impairment charges on loans and advances fell 11% (£204m) to
£1,605m (2006: £1,809m). Retail impairment charges as a percentage of
period-end total loans and advances reduced to 0.98% (2006: 1.30%); total
retail loans and advances rose by 18% to £164,062m (2006: £139,350m).
Barclaycard impairment charges improved £229m (21%) to £838 (2006:
£1,067m) reflecting reduce flows into delinquency, lower levels of arrears
and lower charge-offs in UK Cards. We made changes to our impairment
methodologies to standardise our approach and in anticipation of Basel II.
The net positive impact of these changes in methodology was offset by
the increase in impairment charges in Barclaycard International and
secured consumer lending.
Impairment charges in UK Retail Bank decreased by £76m (12%) to
£559m (2006: £635m), reflecting lower charges in unsecured Consumer
Lending and Local Business driven by improved collection processes,
reduced flows into delinquency, lower trends of arrears and stable charge-
offs. In UK Home Finance, asset quality remained strong and mortgage
charges remained negligible. Mortgage delinquencies as a percentage
of outstandings remained stable and amounts charged-off were low.
Impairment charges in International Retail and Commercial Banking –
excluding Absa rose by £38m (93%) to £79m (2006: £41m) reflecting
very strong balance sheet growth in 2006 and 2007 and the impact of
lower releases in 2007.
Arrears in some of International Retail and Commercial Banking – Absa’s
key retail portfolios deteriorated in 2007, driven by interest rate increases
in 2006 and 2007 resulting in pressure on collections.
Wholesale and corporate impairment charges on loans and advances
increased £436m to £701m (2006: £265m). Wholesale and corporate
impairment charges as a percentage of period-end total loans and
advances increased to 0.31% (2006: 0.15%); total loans and advances
grew by 27% to £225,228m (2006: £177,211m).
Barclays Capital impairment charges and other credit provisions of £846m
included a charge of £782m against ABS CDO Super Senior and other credit
market exposure and £58m relating to drawn leveraged finance positions.
The impairment charge in Barclays Commercial Bank increased by
£38m (15%) to £290m (2006: £252m), primarily due to higher gross
impairment charges in Larger Business, partially offset by a lower charge
in Medium Business due to a tightening of the lending criteria.
Writing-off of assets
After an advance has been identified as impaired and is subject to an
impairment allowance, the stage may be reached whereby it is concluded
that there is no realistic prospect of further recovery. Write-off will occur,
when, and to the extent that, the whole or part of a debt is considered
irrecoverable.
The timing and extent of write-offs may involve some element of
subjective judgement. Nevertheless, a write-off will often be prompted by
a specific event, such as the inception of insolvency proceedings or other
formal recovery action, which makes it possible to establish that some or
the entire advance is beyond realistic prospect of recovery. In any event,
the position of impaired loans is reviewed at least quarterly to ensure that
irrecoverable advances are being written off in a prompt and orderly
manner and in compliance with any local regulations.
Such assets are only written off once all the necessary procedures have
been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off are written back
and hence decrease the amount of the reported loan impairment charge
in the income statement.
Total write-offs of impaired financial assets decreased by £211m to £1,963m
(2006: £2,174m).
UK GAAP IFRS
03 04 a 07
06
05
1,474
1,587
2,174
1,963
1,582
Fig. 18: Total write-offs of impaired financial assets £m
Note
aDoes not reflect the application of IAS 32, IAS 39 and IFRS 4 which became effective
from 1st January 2005.