Barclays 2008 Annual Report Download - page 266

Notes to the accounts
For the year ended 31st December 2008
264 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
46 Financial risks
Financial risk management
Barclays PLC is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth
management and investment management services. Financial instruments are fundamental to the Group’s business and managing financial risks,
especially credit risk, is a fundamental part of its business activity.
Barclays risk management policies and processes are designed to identify and analyse risk, to set appropriate risk appetite, limits, and controls, and to
monitor the risks and adherence to limits by means of reliable and up-to-date data. Risk management policies, models and systems are regularly reviewed
to reflect changes to markets, products and best market practice.
Risk responsibilities
The Board approves risk appetite and the Board Risk Committee monitors the Group’s risk profile against this appetite:
– The Group Risk Director, under delegated authority from the Group Chief Executive and Group Finance Director, has responsibility for ensuring
effective risk management and control;
– Business Heads are responsible for the identification and management of risk in their businesses;
– Business risk teams, each under the management of a Business Risk Director, are responsible for assisting Business Heads in the identification and
management of their business risk profiles for implementing appropriate controls. These risk management teams also assist Group Risk in the
formulation of Group Risk policy and the implementation of it across the businesses;
– Within Group Risk, Risk-Type Heads and their teams are responsible for establishing a risk control framework and risk oversight; and
– Internal Audit is responsible for the independent review of risk management and the control environment.
Oversight of risk management is exercised by the Risk Oversight Committee which is chaired by the Group Risk Director under authority delegated by the
Group Finance Director. The Risk Oversight Committee oversees management of the Group’s risk profile, exercised through the setting, review and
challenge of the size and constitution of the profile when viewed against the Group risk appetite.
The Executive Committee monitors and manages risk-adjusted performance of businesses and receives a regular update on forward risk trends and the
Group Risk Profile Report.
The Board Risk Committee (BRC) reviews the Group risk profile, approves the Group Control Framework and approves minimum control requirements for
principal risks.
The Board Audit Committee (BAC) considers the adequacy and effectiveness of the Group Control Framework and receives quarterly reports on control
issues of significance and half-yearly reports on impairment allowances and regulatory reports.
Both BRC and BAC also receive reports dealing in more depth with specific issues relevant at the time. The proceedings of both Committees are reported
to the full Board. The Board approves the overall Group risk appetite.
The Risk Oversight Committee is chaired by the Group Risk Director and oversees the management of the Group’s risk profile and all of its significant risks.
Oversight is exercised through the setting, review and challenge of the size and constitution of the profile when viewed against the Group’s risk appetite.
It has delegated and apportioned responsibility for credit risk management to the Retail and Wholesale Credit Risk Management Committees.
The main financial risks affecting the Group are discussed in Notes 47 to 49.
47 Credit risk
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 arises mainly from commercial and consumer loans and advances, credit cards, and loan commitments arising from
such lending activities, but can also arise from credit enhancement provided, such as financial guarantees, letters of credit, endorsements and
acceptances.
Barclays is also exposed to other credit risks arising from investments in debt securities and other exposures arising from its trading activities
(‘trading exposures’) including, non-equity trading portfolio assets, derivatives as well as settlement balances with market counterparties and reverse
repurchase loans.
Losses arising from exposures held for trading (derivatives, debt securities) are accounted for as trading losses, rather than impairment charges, even
though the fall in value causing the loss may be attributable to credit deterioration.
Maximum exposure to credit risk before collateral held or other credit enhancements
The following table presents the maximum exposure at 31st December 2008 and 2007 to credit risk of balance sheet and off balance sheet financial
instruments, before taking account of any collateral held or other credit enhancements and after allowance for impairment and netting where appropriate.
For financial assets recognised on the balance sheet, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the
maximum exposure to credit risk is the maximum amount that Barclays would have to pay if the guarantees were to be called upon. For loan
commitments and other credit related commitments that are irrevocable over the life of the respective facilities, the maximum exposure to credit risk is
the full amount of the committed facilities.
This analysis and all subsequent analyses of credit risk include only financial assets subject to credit risk. They exclude other financial assets, mainly equity
securities held in trading portfolio or available for sale as well as non-financial assets. The nominal value of off-balance sheet credit related instruments are
also shown, where appropriate.
Financial assets designated at fair value held in respect of linked liabilities to customers under investment contracts have not been included as the Group
is not exposed to credit risk on these assets. Credit losses in these portfolios, if any, would lead to a reduction in the linked liabilities and result in no direct
loss to the Group.