Barclays 2007 Annual Report Download - page 59

1
Business review
Capital ratios
Basel II Basel I Basel I Basel I
2007 2007 2006 2005
Barclays Barclays Barclays Barclays Barclays Barclays Barclays
PLC PLC Bank PLC PLC Bank PLC PLC Bank PLC
Group Group Group Group Group Group Group
Capital ratios %%%%%%%
Tier 1 ratio 7.6 7.8 7.5 7.7 7.5 7.0 6.9
Risk asset ratio 11.2 12.1 11.8 11.7 11.5 11.3 11.2
Risk weighted assets £m £m £m £m £m £m £m
Banking book
on-balance sheet n/a 231,496 231,491 197,979 197,979 180,808 180,808
off-balance sheet n/a 32,620 32,620 33,821 33,821 31,351 31,351
Associates and joint ventures n/a 1,354 1,354 2,072 2,072 3,914 3,914
Total banking book 244,474 265,470 265,465 233,872 233,872 216,073 216,073
Trading book
Market risks 39,812 36,265 36,265 30,291 30,291 23,216 23,216
Counterparty and settlement risks 41,203 51,741 51,741 33,670 33,670 29,859 29,859
Total trading book 81,015 88,006 88,006 63,961 63,961 53,075 53,075
Operational risk 28,389 n/a n/a n/a n/a n/a n/a
Total risk weighted assets 353,878 353,476 353,471 297,833 297,833 269,148 269,148
Minimum requirements under the FSA’s Basel rules are expressed as a ratio of capital resources to risk weighted assets (Risk Asset Ratio). Risk weighted
assets are a function of risk weights applied to the Group’s assets using calculations developed by the Basel Committee on Banking Supervision.
Basel I
At 31st December 2007, the Tier 1 capital ratio was 7.8% and the risk asset ratio was 12.1%. From 31st December 2006, total net capital resources rose
£7.9bn and risk weighted assets increased £55.6bn.
Tier 1 capital rose £4.4bn, including £2.3bn arising from profits attributable to equity holders of the parent net of dividends paid. Minority interests
within Tier 1 capital increased £2.7bn primarily due to the issuance of reserve capital instruments and preference shares. The deduction for goodwill
and intangible assets increased by £1.1bn. Tier 2 capital increased £3.1bn mainly as a result of an increase of £3.0bn of dated loan capital.
Basel II
Under Basel II, effective from 1st January 2008, the Group has been granted approval by the FSA to adopt the advanced approaches to credit and
operational risk management. Pillar 1 risk weighted assets will be generated using the Group’s risk models. Pillar 1 minimum capital requirements under
Basel II are Pillar 1 risk weighted assets multiplied by 8%, the internationally agreed minimum ratio.
Under Pillar 2 of Basel II, the Group is subject to an overall regulatory capital requirement (expressed in £ terms) based on individual capital guidance
(‘ICG’) received from the FSA. The ICG imposes additional capital requirements in excess of Pillar 1 minimum capital requirements. Barclays received its
ICG from the FSA in December 2007.
Risk weighted assets calculated on a Basel II basis are broadly in line with risk weighted assets calculated on a Basel I basis. A reduction in credit and
counterparty risk weighted assets of £31.5bn more than offset the identification of capital equivalent risk weighted assets of £28.4bn attributable
to operational risk. The reduced risk weighted assets attributable to credit risk were mainly driven by recognition of the low risk profile of first charge
residential mortgages in UK Retail Banking and Absa and the use of internal models to assess exposures to counterparty risk in the trading book.
These were partially offset by higher counterparty risk weightings in emerging markets and greater recognition of undrawn commitments.
Compared to Basel I, deductions from Tier 1 and Tier 2 capital under Basel II include additional amounts relating to expected loss and securitisations. For
advanced portfolios, any excess of expected loss over impairment allowances is deducted half from Tier 1 and half from Tier 2 capital. Deductions relating
to securitisation transactions, which are made from total capital under Basel I, are deducted half from Tier 1 and half from Tier 2 capital under Basel II.
For portfolios treated under the standardised approach, the inclusion of collectively assessed impairment allowances in Tier 2 capital remains the same
under Basel II. Collectively assessed impairment allowances against exposures treated under Basel II advanced approaches are not eligible for direct
inclusion in Tier 2 capital.
Barclays PLC Annual Report 2007 57