Barclays 2008 Annual Report Download - page 99

1
Business review
Barclays PLC Annual Report 2008 97
CRLsand PPLsas a percentage of Loans and Advances
Fig. 7: CRLs/Loans and Advances Ratio %Fig. 8:PPLs/Loans and Advances Ratio %
1.8
1.7
1.6
2.5
3.0
04a05b06 07 08
0.4
0.3
0.2
0.5
0.5
04a05b06 07 08
Potential credit risk loans
In line with disclosure requirements from the Securities Exchange
Commission (SEC) in the US, if the credit quality of a loan on an early
warning or watch list deteriorates to the highest category, consideration is
given to including it within the Potential Problem Loan (PPL) list. PPLs are
loans where payment of principal and interest is up to date but where
serious doubt exists as to the ability of the borrowers to continue to
comply with repayment terms in the near future.
Should further evidence of deterioration be observed, a loan may
move to the Credit Risk Loan (CRL) category as required by the SEC.
Events that would trigger the transfer of a loan from the PPL to the CRL
category could include a missed payment or a breach of covenant.
CRLs comprise three classes of loans:
– ‘Impaired loans’ comprise loans where individual identified impairment
allowance has been raised and also include loans which are fully
collateralised or where indebtedness has already been written down to
the expected realisable value. The impaired loan category may include
loans, which, while impaired, are still performing.
– The category ‘accruing past due 90 days or more’ comprises loans that
are 90 days or more past due as to principal or interest. An impairment
allowance will be raised against these loans if the expected cash flows
discounted at the effective interest rate are less than the carrying value.
– The category ‘impaired and restructured loans’ comprises loans not
included above where, for economic or legal reasons related to the
debtor’s financial difficulties, a concession has been granted to the
debtor that would not otherwise be considered. Where the concession
results in the expected cash flows discounted at the effective interest
rate being less than the loan’s carrying value, an impairment allowance
will be raised.
In 2007, the term Credit Risk Loans replaced the term Non-Performing
Loans (NPLs) as the collective term for the total of these three classes to
recognise the fact that the impaired loan category may include loans
which, while impaired, are still performing. This category includes drawn
ABS CDO Super Senior positions.
Potential Credit Risk Loans (PCRLs) comprise PPLs and CRLs. Figures
5 and 6 show CRL and PPL balances by UK and non-UK. The amounts are
shown before deduction of value of security held, impairment allowances
(from 2005 onwards) and provisions or interest suspense (2004), all of
which might reduce the impact of an eventual loss, should it occur. The
significant increase to non-UK CRL and PPL balances, in 2007 and 2008,
is principally due to the inclusion of US-located ABS CDO Super Senior
positions and other credit market exposures.
Credit Risk Loans
In 2008, CRLs rose 63% to £15,700m (2007: £9,641m). Balances were
higher in all businesses as credit conditions deteriorated across Barclays
areas of operations and total loans and advances grew. The most notable
increases were in Barclays Capital and the non-UK businesses in Global
Retail and Commercial Banking.
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.