Barclays 2008 Annual Report Download - page 98

96 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
Monitoring weaknesses in exposures
Barclays actively manages its credit exposures. When weaknesses
in exposures are detected – either in individual exposures or in groups
of exposures – the Group takes action to mitigate the risks. Such
actions may, for example, include: reducing the amounts outstanding
(in discussion with the customers, clients or counterparties if
appropriate); using credit derivatives securitising the assets; and, on
occasion, selling them.
Corporate accounts that are deemed to contain heightened levels of
risk are recorded on graded early warning or watch lists comprising three
categories graded in line with the perceived severity of the risk attached to
the lending, and its probability of default. These are updated monthly and
circulated to the relevant risk control points. Once listing has taken place,
exposure is very carefully monitored and, where appropriate, exposure
reductions are effected.
Should an account become impaired, it will normally, but not
necessarily, have passed through all three categories, which reflect the
need for ever-increasing caution and control. Where an obligor’s financial
health gives grounds for concern, it is immediately placed into the
appropriate category. All obligors, regardless of financial health, are subject
to a full review of all facilities on, at least, an annual basis. More frequent
interim reviews may be undertaken should circumstances dictate.
Warning list balances rose throughout the year as wholesale credit
conditions deteriorated across the regions in which Barclays operates.
Within Local Business, accounts that are deemed to have a
heightened level of risk, or that exhibit some unsatisfactory features which
could affect viability in the short/medium term, are transferred to a
separate ‘Caution’ stream. Accounts on the Caution stream are reviewed
on at least a quarterly basis, at which time consideration is given to
continuing with the agreed strategy, returning the customer to a lower risk
refer stream, or instigating recovery/exit action.
Within the personal portfolios, which tend to comprise homogeneous
assets, statistical techniques more readily allow potential weaknesses
to be monitored on a portfolio basis. This applies in parts of UK Retail
Banking, Barclays Wealth, GRCB’s international retail portfolios and
Barclaycard. The approach is consistent with the Group’s policy of raising
a collective impairment allowance as soon as objective evidence of
impairment is identified.
Risk management
Credit risk management
Loans and advances
CRLsand PPLsbalances by UK and non-UK
Fig. 5: CRLsbalances by UK and non-UK £m
4,115
5,210
5,088
9,641
15,700
04a05b06 07 08
UK
Non-UK
Fig. 6:PPLsbalances by UK and non-UK £m
798
929
761
1,797
2,456
04a05b06 07 08
UK
Non-UK
Notes
aDoes not reflect the application of IAS 32, IAS 39 and IFRS 4 which became effective
from 1st January 2005.
bFrom 1st January 2005, the application of IAS 39 required interest to be recognised on
the remaining balance of an impaired financial asset (or group of financial assets) at the
effective interest rate for that asset. As a result, interest is credited to the income statement
in relation to impaired loans; therefore these loans technically are not classified
as ‘non-accrual’. In 2005, the Group replaced the ‘non-accrual’ category with one
termed ‘impaired loans’. The SEC requires loans to be classified, where applicable,
as non-accrual, accruing past due 90 days or more, ‘troubled debt restructurings’
and potential problem loans.