Barclays 2008 Annual Report Download - page 91

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Business review
Barclays PLC Annual Report 2008 89
Risk management
Credit risk management
Loans and advances
As the granting of credit is one of the Group’s major sources of income and
its most significant risk, the Group dedicates considerable resources to
gaining a clear and accurate understanding of credit risk across the business
and ensuring that its balance sheet correctly reflects the value of the assets
in accordance with applicable accounting principles. This process can be
summarised in the following broad stages:
– Measuring exposures and concentrations
– Monitoring weakness in exposures
– Identifying potential problem loans and credit risk loans (collectively
known as potential credit risk loans or PCRLs)
– Raising allowances for impaired loans
– Writing off assets when the whole or part of a debt is considered
irrecoverable
Measuring exposures and concentrations
Loans and advances to customers provide the principal source of credit risk to
the Group although Barclays can also be exposed to other forms of credit risk
through loans to banks, loan commitments, contingent liabilities and debt
securities . The value of outstanding loans and advances balances, their risk
profile, and potential concentrations within them can therefore have a
considerable influence on the level of credit risk in the Group.
As at 31st December 2008, total loans and advances to customers and
banks net of impairment allowance were £542,118m (2007: £410,789m),
a rise of 32% on the previous year. Loans and advances at amortised cost
were £509,522m (2007: £385,518m) and loans and advances at fair value
were £32,596m (2007: £25,271m). Loans and advances were well
distributed across the retail and wholesale portfolios.
Loans and advances were also well spread across industry
classifications. Barclays largest sectoral exposure is to home loans which,
combined with other personal and business services sectors ,comprise
48% of total loans and advances (2007: 53%). These categories are
generally comprised of small loans, have low volatility of credit risk
outcomes, and are intrinsically highly diversified. Growth in loans and
advances to the financial services sector reflected an increased client base in
the fund management business and increases in cash collateral. Loans and
advances are further diversified across a number of geographical regions,
Table 1:Loans and advances at amortised cost
Gross Loans and CRLs%of
loans and Impairment advances net Credit risk gross loans Impairment Loan loss
advances allowance of impairment loans and advances charge rates
Asat 31st December 2008 £m £m £m £m %£m basis points
Wholesale – customers 266,750 2,784 263,966 8,144 3.1 2,540 95
Wholesale – banks 47,758 51 47,707 48 0.1 40 8
Total wholesale 314,508 2,835 311,673 8,192 2.6 2,580 82
Retail – customers 201,588 3,739 197,849 7,508 3.7 2,333 116
Total retail 201,588 3,739 197,849 7,508 3.7 2,333 116
Total 516,096 6,574 509,522 15,700 3.0 4,913 95
Asat 31st December 2007
Wholesale – customers 187,086 1,309 185,777 5,157 2.8 1,190 64
Wholesale – banks 40,123 3 40,120 ––(13) (3)
Total wholesale 227,209 1,312 225,897 5,157 2.3 1,177 52
Retail – customers 162,081 2,460 159,621 4,484 2.8 1,605 99
Total retail 162,081 2,460 159,621 4,484 2.8 1,605 99
Total 389,290 3,772 385,518 9,641 2.5 2,782 71
Fig. 1:Loans and advances to customers by industry %
454035302520151050
08
07
Financial services
Other personal
Business and other services
Wholesale and retail trade,
distribution and leisure
Finance lease receivables
Transport
Postal and Communication
Home loans
Property
Energy and water
Manufacturing
Construction
Agriculture, forestry
and fishing
Government
Fig. 2:Geographical analysis of loans and advances to customers %
1
2
3
45
1
2
3
45
1UK
2Other European
Union
3United States
4Africa
5Rest of the World
20072008