Barclays 2007 Annual Report Download - page 238

Notes to the accounts
For the year ended 31st December 2007
236 Barclays PLC Annual Report 2007
46 Market risk (continued)
Non-trading interest rate risk
Asset and liability market risk
Interest rate risk arises from the provision of retail and wholesale (non-trading) banking products and services, as well as foreign currency translational
exposures within the Group’s balance sheet.
The Group’s approach is to transfer risk from the businesses either into local treasuries or to Group Treasury using an internal transfer price or interest rate
swap. The methodology used to transfer this risk depends on whether the product contains yield curve risk, basis risk or customer optionality. Limits exist
to ensure there is no material risk retained within any business or product area.
Sensitivity analysis
Set out below are the impacts on net interest income and equity of a reasonably possible change in market rates of interest, based on the AEaR model
described above.
(a) Impact on net interest income
The sensitivity of the income statement is the effect of the assumed changes in interest rates on the net interest income for one year, based on the non-
trading financial assets and financial liabilities held at 31st December 2007, including the effect of hedging instruments.
The effect on net interest income, and therefore profit before tax, of a 50 basis points change would be as follows:
+50 basis –50 basis +50 basis –50 basis
points points points points
2007 2007 2006 2006
£m £m £m £m
GBP 19 (19) 11 (11)
USD (1) 1 (4) 4
EUR (11) 11 (9) 9
ZAR 9 (9) 12 (12)
Others 2 (2) 1 (1)
Total 18 (18) 11 (11)
As percentage of net interest income 0.19% (0.19%) 0.12% (0.12%)
Note: This table excludes exposures held or issued by Barclays Capital as these are measured and managed using DVaR.
(b) Impact on equity
Interest rate changes affect equity in the following three ways:
– Higher or lower profit after tax resulting from higher or lower net interest income
– Higher or lower available for sale reserves reflecting higher or lower fair values of available for sale financial instruments
– Higher or lower values of derivatives held in the cash flow hedging reserves
The sensitivities of equity shown below are based on scenarios constructed from actual exposures and consider the impact on the cash flow hedging
reserve and the available for sale reserve only. They are calculated by revaluing fixed rate available-for-sale financial assets, including the effect of any
associated hedges, and derivatives designated as cash flow hedges, for the effect of the assumed changes in interest rates. They are based on the
assumption that there are parallel shifts in the yield curve. The effects of taxation have been estimated using the Group’s effective tax rate of 28% (2006:
27%).
+50 basis –50 basis +50 basis –50 basis
points points points points
2007 2007 2006 2006
£m £m £m £m
Net interest income 18 (18) 11 (11)
Taxation effects on the above (5) 5 (3) 3
Effect on profit for the year 13 (13) 8 (8)
As percentage of net profit after tax 0.26% (0.26%) 0.15% (0.15%)
Effect on profit for year (per above) 13 (13) 8 (8)
Available for sale reserve (150) 150 (185) 185
Cashflow hedging reserve (225) 225 (304) 304
Taxation effects on the above 105 (105) 132 (132)
Effect on equity (257) 257 (349) 349
As a percentage of equity (0.79%) 0.79% (1.28%) 1.28%