Barclays 2008 Annual Report Download - page 277

3
Financial statements
47 Credit risk (continued)
Renegotiated loans and advances
Loans and advances 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 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.
Collateral and other credit enhancements held
Financial assets that are past due or individually assessed as impaired may be partially or fully collateralised or subject to other forms of credit enhancement.
Assets in these categories subject to collateralisation are mainly corporate loans, residential mortgage loans and finance lease receivables. Credit card
receivables and other personal lending are generally unsecured (although in some instances a charge over the borrowers property of other assets may
be sought).
Corporate loans
Security is usually taken in the form of a fixed charge over the borrower’s property or a floating charge over the assets of the borrower. Loan covenants
may be put in place to safeguard the Group’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.
For these and other reasons collateral given is only accurately valued on origination of the loan or in the course of enforcement actions and as a result it is
not practicable to estimate the fair value of the collateral held.
Residential mortgage loans
These are secured by a fixed charge over the property.
A description and the estimated fair value of collateral held in respect of residential mortgage loans that are past due or individually assessed as impaired
is as follows:
Nature of assets
2008 2007
Fair value Fair value
£m £m
Residential property 7,264 6,488
Collateral included in the above table reflects the Group’s interest in the property in the event of default. That held in the form of charges against
residential property in the UK is restricted to the outstanding loan balance. In other territories, where the Group is not obliged to return any sale proceeds
to the mortgagee, the full estimated fair value has been included.
Finance lease receivables
The net investment in the lease is secured through retention of legal title to the leased assets.
Collateral and other credit enhancements obtained
The carrying value of assets held by the Group as at 31st December 2008 as a result of the enforcement of collateral was as follows:
Nature of assets
2008 2007
Carrying Carrying
amount amount
£m £m
Residential property 171 34
Commercial and industrial property 21
Other credit enhancements 61 –
Total 234 35
Any properties repossessed are made available for sale in an orderly and timely fashion, with any proceeds realised being used to reduce or repay the
outstanding loan. For business customers, in some circumstances, where excess funds are available after repayment in full of the outstanding loan,
they are offered to any other, lower ranked, secured lenders. Any additional funds are returned to the customer. Barclays does not, as a rule, occupy
repossessed properties for its business use.
The Group does not use assets obtained in its operations. Assets obtained are normally sold, generally at auction, or realised in an orderly manner for
the maximum benefit of the Group, the borrower and the borrower’s other creditors in accordance with the relevant insolvency regulations.
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