Barclays 2007 Annual Report Download - page 99

1
Business review
Barclays PLC Annual Report 2007 97
Barclays risk is therefore spread across a large number of industries and
customers and in the case of home loans, for example, well secured.
These classifications have been prepared at the level of the borrowing
entity. This means that a loan to the subsidiary of a major corporation is
classified by the industry in which the subsidiary operates, even through
the parent’s predominant sphere of activity may be in a different industry.
UK exposure to home loans accounts for just over 60 per cent of the
Group’s total home loans exposure. The loan-to-value ratios (LTV) on
the Group’s UK home loan portfolio are shown in figure 4. The valuations
in the chart are those which applied at the last credit decision on each
loan, i.e. when the customer last requested an increase in the limit or,
if there has been no increase, at inception of the loan. Business flows
(new business versus loans redeemed) have not materially changed
the risk profile of the portfolio.
The impact of house price inflation will result in a reduction in LTV ratios
within the mortgage book on a current valuation basis. On this basis, LTV
on the residential mortgage book averaged 33% at the end of 2007
(2006: 34%). This ratio is a point-in-time analysis of the stock with LTV
updated to current house prices by reference to an external price index
and as a result may be influenced by external market conditions as well
as changes in the stock of loans.
Barclays also actively monitors the risk profile of its loans and advances
to customers, with a view to the early detection of any concentrations in
higher risk segments. Figure 5 depicts Barclays wholesale loan profile by
existing risk grade (see page 82 for a description of the rating system).
The majority of Barclays exposure is to the higher quality names with
just under 70% of exposure to customers with a DG of 10 or better. It is
important to note that Barclays prices loans to risk. Thus, higher risk loans
will usually have higher interest rates or fees or both. The profitability of a
higher risk portfolio may, therefore, equal or exceed that of a lower-risk
portfolio.
Barclays also actively monitors exposure and concentrations to sub-
investment grade countries (see country risk policy, page 81). Details
of the 15 largest sub-investment grade countries, by limit, are shown
in figure 6.
Contractual maturity represents a further area of potential concentration.
The analysis shown in figure 7 indicates that just over 40% of loans to
customers have a maturity of more than five years; the majority of this
segment comprises secured home loans.
0 5 10 15 50
Fig. 5: Loans and advances, balances and limits to wholesale
customers by internal risk rating %
Loan balances by internal rating –
% of Total
Loan limits by internal rating –
% of Total
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Improving credit quality
10 15
06
07
Fig. 6: Credit exposure to sub-investment grade countries £m
Egypt
Brazil
Kenya
Tanzania
Morocco
Colombia
Bolivia
Ukraine
Peru
Turkey
Philippines
Uganda
Indonesia
Ghana
Zambia
0 500 1,000 1,500 2,000 2,500 3,000
06 07
1 On demand
2 Not more than
three months
3 Over three
months but
not more than
one year
4 Over one year
but not more
than five years
5 Over five years
Fig. 7: Maturity analysis of loans and advances to customers %
1
2
3
4
5
1
2
3
4
5