Barclays 2007 Annual Report Download - page 248

Notes to the accounts
For the year ended 31st December 2007
47 Credit risk (continued)
Whilst the Group’s maximum exposure to credit risk is the carrying value of the assets, or, in the case of off-balance sheet items the amount guaranteed,
committed, accepted or endorsed, in most cases the likely exposure is far less due to collateral, credit enhancements and other actions taken to mitigate
the Group’s exposure, described below for each class of financial instrument:
Asset Nature of collateral obtained or other credit risk mitigation
Cash with central banks, items Due to the nature of the counterparties, collateral is generally not sought on these balances which are
in the course of collection, and considered to be low risk.
loans and advances to banks
Trading portfolio The credit risk of these assets is reflected in their fair values. No collateral or enhancements are obtained
directly from the issuer or counterparty but may be implicit in the terms of the instrument.
Financial assets designated at fair value The credit risk of these assets is reflected in their fair values. Debt securities may be collateralised, according to
held on own account their terms. Loans and advances included in this category may be collateralised.
Derivatives Credit risk is also minimised where possible through netting agreements whereby derivative assets and
liabilities with the same counterparty can be offset. Collateral will also be sought, depending on the
creditworthiness of the counterparty and/or nature of the transaction.
Loans and advances to customers
– Residential mortgage loans These are secured by a fixed charge over the property. In addition, portfolios may be securitised.
– Credit card receivables This lending is generally unsecured. Balances may be securitised.
– Other personal lending In general this is unsecured. For certain personal lending, a charge over the borrower’s property or other
assets may be sought.
– Wholesale and corporate loans Various forms of collateral may be sought for these loans, often in the form of a fixed charge over the
and advances borrower’s property and a floating charge over the current assets of a corporate borrower. Loan covenants
may be put in place to safeguard the bank’s financial position. If the exposure is sufficiently large, either
individually or at the portfolio level, credit protection in the form of guarantees, credit derivatives or
insurance may be taken out.
– Finance lease receivables The net investment in the lease is secured through retention of legal title to the leased assets.
Available for sale assets No collateral or enhancements are obtained although collateral may be inherent in the structure of the asset.
Reverse repurchase agreements and These loans are fully collateralised with the securities legally transferred to the Group. The level of collateral
cash collateral on securities borrowed is monitored daily and further collateral calls made when required.
Off balance sheet The Group applies the same risk management policies for off balance sheet risks as it does for its on balance
sheet risks. Collateral may be sought, depending on the strength of the counterparty and/or nature of
the transaction.
Acceptances and endorsements Amounts paid are normally repaid by the customer on presentation.
Guarantees and letters of credit The Group is only required to meet its obligations should the customer default, in which case the Group will
pledged as security generally have recourse to the customer.
Commitments These are commitments to future lending and are subject to the Group’s normal lending policies including
taking collateral depending on the customers’ circumstances.
Financial assets that would be past due or impaired had their terms not been renegotiated
Financial assets are generally renegotiated either as part of an ongoing customer relationship or in response to an adverse change in the circumstances of
the borrower. In the latter case renegotiation can result in an extension of the due date of payment or repayment plans under which the Group offers a
concessionary rate of interest to genuinely distressed borrowers. This will result in the asset continuing to be overdue (delinquent) and will be individually
impaired where the renegotiated payments of interest and principal will not recover the original carrying amount of the asset. In other cases, renegotiation
will lead to a new agreement, which is treated as a new loan.
Credit risk concentrations
A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar economic characteristics that
would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
The analyses of credit risk concentrations presented below are based on the location of the counterparty or customer or the industry in which they are
engaged, otherwise, the product type in accordance with the manner in which the Group manages credit risk.
246 Barclays PLC Annual Report 2007