Barclays 2007 Annual Report Download - page 92

Risk management
Credit risk management
90 Barclays PLC Annual Report 2007
Credit risk management
Credit risk is the risk of suffering financial loss should any
of the Group’s customers, clients or market counterparties
fail to fulfil their contractual obligations to the Group.
Credit risk may also arise where the downgrading of an
entity’s credit rating causes the fair value of the Group’s
investment in that entity’s financial instruments to fall.
The credit risk that the Group faces arises mainly from
commercial and consumer loans and advances, including
credit card lending.
The granting of credit is one of the Group’s major sources of income and
as its most significant risk, the Group dedicates considerable resources
to controlling it. The importance of credit risk is illustrated by noting that
two-thirds of risk-based economic capital is allocated to credit risk. Credit
exposures arise principally in loans and advances.
In managing credit risk, the Group applies the five-step risk management
process and internal control framework described previously (page 82).
Specific credit risk management objectives are:
– To gain a clear and accurate understanding and assessment of credit
risk across the business, from the level of individual facilities up to the
total portfolio.
– To control and plan the taking of credit risk, ensuring it is coherently
priced across the business and avoiding undesirable concentrations.
– To support strategic growth and decision-making based on sound
credit risk management principles and a pro-active approach to
identifying and measuring new risks.
– To ensure a robust framework for the creation, use and ongoing
monitoring of the Group’s credit risk measurement models.
– To ensure that our balance sheet correctly reflects the value of our
assets in accordance with accounting principles.
Organisation and structure
Barclays has structured the responsibilities of credit risk management
so that decisions are taken as close as possible to the business, whilst
ensuring robust review and challenge of performance, risk infrastructure
and strategic plans.
The credit risk management teams in each business are accountable to
the Business Risk Directors in those businesses who, in turn, report to the
heads of their businesses and also to the Risk Director.
These credit risk management teams assist Group Risk in the formulation
of Group Risk policy and its implementation across the businesses.
Examples include:
– maximum exposure guidelines to limit the exposures to an individual
customer or counterparty
– country risk policies to specify risk appetite by country and avoid
excessive concentration of credit risk in individual countries
– policies to limit lending to certain industrial sectors
– underwriting criteria for personal loans and maximum loan-to-value
ratios for home loans
Within Group Risk, the Credit Risk function provides Group-wide direction
of credit risk-taking. This functional team manages the resolution of all
significant credit policy issues and runs the Credit Committee, which
approves major credit decisions.
The principal Committees that review credit risk management, formulate
overall Group credit policy and resolve all significant credit policy issues
are the Group Wholesale Credit Risk Management Committee, the Group
Retail Credit Risk Management Committee, the Risk Oversight Committee
and the Board Risk Committee (see page 84 for more details of this
Committee). The Board Audit Committee also reviews the impairment
allowance as part of financial reporting.