Barclays 2008 Annual Report Download - page 49

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Business review
Barclays PLC Annual Report 2008 47
Operating expenses increased 2% (£49m) to £2,519m (2007:
£2,470m) reflecting reduced gains from the sale of property of £75m
(2007: £193m). Continued strong and active management of expense
lines, including back-office consolidation and process efficiencies, funded
increased investment in product development and distribution channels.
The cost:income ratio improved one percentage point to 56%
(2007: 57%).
2007/06
UK Retail Banking profit before tax increased 8% (£94m) to £1,275m
(2006: £1,181m) due to reduced costs and a strong improvement in
impairment.
Income grew 2% (£67m) before the impact of settlements on
overdraft fees in relation to prior years (£116m). This was driven by very
strong growth in Personal Customer retail savings and good growth in
Personal Customer current accounts, Home Finance and Local Business.
Including the impact of settlements on overdraft fees, income decreased
£49m to £4,297m (2006: £4,346m).
Net interest income increased 3% (£93m) to £2,858m (2006:
£2,765m). Growth was driven by a higher contribution from deposits,
through a combination of good balance sheet growth and an increased
liability margin. Total average customer deposit balances increased 7% to
£81.9bn (2006: £76.5bn), supported by the launch of new products.
Mortgage volumes increased significantly, driven by an improved mix
of longer term value products for customers, higher levels of retention and
continuing improvements in processing capability. Mortgage balances
were £69.8bn at the end of the period (2006: £61.7bn), an approximate
market share of 6% (2006: 6%). Gross advances were 25% higher at
£23.0bn (2006: £18.4bn). Net lending was £8.0bn (2006: £2.4bn),
representing market share of 8% (2006: 2%). The average loan to value
ratio of the residential mortgage book on a current valuation basis was
33%. The average loan to value ratio of new residential mortgage lending
in 2007 was 54%. Consumer Lending balances decreased 4% to £7.9bn
(2006: £8.2bn), reflecting the impact of tighter lending criteria.
Overall asset margins decreased as a result of the increased
proportion of mortgages and contraction in unsecured loans.
Net fee and commission income reduced 4% (£49m) to £1,183m
(2006: £1,232m). There was strong Current Account income growth in
Personal Customers and good growth within Local Business. This was
more than offset by settlements on overdraft fees.
Net premiums from insurance underwriting activities reduced 26%
(£90m) to £252m (2006: £342m), as there continued to be lower
customer take-up of loan protection insurance. Net claims and benefits
on insurance contracts increased to £43m (2006: £35m).
Impairment charges decreased 12% (£76m) to £559m (2006:
£635m) reflecting lower charges in unsecured Consumer Lending and
Local Business. This was driven by improvements in the collection process
which led to reduced flows into delinquency, lower levels of arrears and
stable charge-offs. Mortgage impairment charges remained negligible.
Operating expenses reduced 2% (£62m) to £2,470m (2006:
£2,532m), reflecting strong and active management of all expense lines,
targeted processing improvements and back-office consolidation. Gains
from the sale of property were £193m (2006: £253m). Increased
investment was focused on improving the overall customer experience
through converting and improving the branch network; revitalising the
product offering; increasing operational and process efficiency; and
meeting regulatory requirements.
The cost:income ratio improved one percentage point to 57%.
Excluding the impact of settlements on overdraft fees, the cost:income
ratio improved two percentage points to 56%.
UK Retail Banking
2008 2007 2006
£m £m £m
Income statement information
Net interest income 2,996 2,858 2,765
Net fee and commission income 1,299 1,183 1,232
Net premiums from insurance contracts 205 252 342
Other income 17 47 42
Total income 4,517 4,340 4,381
Net claims and benefits on insurance contracts (35) (43) (35)
Total income net of insurance claims 4,482 4,297 4,346
Impairment charges (602) (559) (635)
Net income 3,880 3,738 3,711
Operating expenses excluding amortisation of intangible assets (2,499) (2,461) (2,531)
Amortisation of intangible assets (20) (9) (1)
Operating expenses (2,519) (2,470) (2,532)
Share of post-tax results of associates and joint ventures 872
Profit before tax 1,369 1,275 1,181
Balance sheet information
Loans and advances to customers £94.4bn £82.0bn £74.7bn
Customer accounts £89.6bn £87.1bn £82.3bn
Total assets £101.4bn £88.5bn £81.7bn
Performance ratios
Return on average economic capital 27% 28% 28%
Cost:income ratio 56% 57% 58%
Cost:net income ratio 65% 66% 68%
Other financial measures
Risk tendency £520m £470m £500m
Economic profit £633m £617m £590m
Risk weighted assetsa£30.5bn £31.5bn £43.0bn
Note
aRisk weighted assets for 2008 and 2007 are calculated under Basel II. 2006 is calculated under Basel I.