Barclays 2008 Annual Report Download - page 97

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Business review
Barclays PLC Annual Report 2008 95
HomeLoans
The Group’s principal home loans portfolios continue to be in the
UK Retail Banking Home Finance business (61% of the Group’s total),
GRCB – Western Europe (25%) primarily Spain, and South Africa (14%).
During the year, the Group managed the risk profile of these portfolios by
strengthening underwriting criteria and reducing the maximum loan to
value (LTV) ratios, with greater discrimination between purchases and
remortgages and, within the UK buy to let (BTL) segment, between
portfolio customers and single property investors.
Credit quality of the principal home loan portfolios reflected relatively
low levels of high LTV lending. The LTVs on the Group’s principal home
loan portfolios are shown in table 9. Using recent valuations, the LTV of the
portfolios as at 31st December 2008 was 40% for UK Retail Banking’s
mortgage business, 48% for the Spanish mortgage portfolio within GRCB
– Western Europe and 41% for GRCB – Absa’s mortgage portfolio in South
Africa. The average LTV for new mortgage business during 2008 at
origination for these portfolios was 47% for the UK, 63% for Spain and
58% for South Africa. The percentage of balances with an LTV of over
85% based on current values was 10% for the UK, 5% for Spain and
25% for South Africa. In the UK, BTL mortgages comprised 6.8% the
total stock.
Impairment charges rose across the home loan portfolios, reflecting
the impact of lower house prices as well as some increase in arrears rates.
Three-month arrears as at 31st December 2008 were 0.91% for UK
mortgages, 0.76% for Spain and 2.11% for South Africa. To support the
Group’s risk profile, we increased collections staff across the businesses
and improved operational practices to boost effectiveness.
Credit Cards and Unsecured Loans
The Group’s largest card and unsecured loan portfolios are in the UK (47%
of Group total). The US accounts for 19%, where Barclaycard’s portfolio is
largely Prime credit quality (FICO score of 660 or more). To address the
impact of economic deterioration and the impact of weaker labour
markets on the unsecured portfolios in 2008, the Group used a range
of measures to improve new customer quality and control the risk profile
of existing customers.
In the UK Cards portfolio, initial credit lines were made more
conservative, followed by selective credit limit increases using more
accurately assessed customer behaviour. The overall number of credit
limit increases were reduced by strengthening qualification criteria and a
proportion of higher-risk dormant accounts were closed. Arrears rates in
the UK Cards portfolio fell slightly during the year, reflecting measures
taken to improve customer quality in 2007 and 2008. Repayment Plan
balances grew to support government initiatives to supply relief to
customers experiencing financial difficulty. Payment rates in repayment
plans remained relatively stable.
As a percentage of the portfolio, three-month arrears rates rose during
2008 to 1.87% for UK Loans and 2.15% for US Cards. The rate reduced to
1.28% for UK Cards.
Table 9:Home loans – distribution of balances by loan to value (mark to market)a
UK Spain South Africa
2008 2007 2008 2007 2008 2007
%%%%%%
<= 75% 78.2 90.1 86.7 92.2 60.5 68.6
> 75% and <= 80% 6.1 4.7 4.8 4.2 7.5 7.2
> 80% and <= 85% 5.5 2.5 3.7 1.6 7.2 7.1
> 85% and <= 90% 4.5 1.5 1.6 0.7 7.6 5.9
> 90% and <= 95% 2.5 0.9 1.3 0.6 6.7 6.1
> 95% 3.1 0.3 1.9 0.7 10.5 5.1
Portfolio loan-to-value (mark to market) 40 34 48 45 41 38
Average loan-to-value on new mortgages during the year 47 49 63 63 58 59
Note
aBased on the following portfolios: UK: UKRB Residential Mortgage and Buy to Let
portfolios; Spain: GRCB – Western Europe Spanish retail home finance portfolio;
South Africa: GRCB – Absa retail home finance portfolio.
bDefined as total 90 day + delinquent balances as a percentage of outstandings.
cDefined as total 90 day + delinquent balances as a percentage of outstandings. Excludes
legal and repayment plans. UK Cards based on Barclaycard Branded Cards, excluding
Goldfish. UK Loans based on Barclayloan. US cards excludes Business Card and US
Airways portfolios.
Table 10:Home loans three-month arrearsa,b
Asat As at As at
31.12.08 30.06.08 31.12.07
%%%
UK 0.91 0.70 0.63
Spain 0.76 0.46 0.24
South Africa 2.11 0.96 0.25
Table 11:Unsecured lending three-month arrearsc
Asat As at As at
31.12.08 30.06.08 31.12.07
%%%
UK Cards 1.28 1.36 1.36
UK Loans 1.87 1.40 1.35
US Cards 2.15 2.08 1.83