Barclays 2009 Annual Report Download - page 271

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 269
47 Credit risk
Credit risk is the risk of suffering financial loss, should any of the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations
to the Group. Credit risk arises mainly from commercial and consumer loans and advances, credit cards, and loan commitments arising from such lending
activities, but can also arise from credit enhancement provided, such as financial guarantees, letters of credit, endorsements and acceptances.
The Group is also exposed to other credit risks arising from investments in debt securities and other exposures arising from its trading activities
(‘trading exposures’) including, non-equity trading portfolio assets, derivatives as well as settlement balances with market counterparties and reverse
repurchase loans.
Losses arising from exposures held for trading (derivatives, debt securities) are accounted for as trading losses, rather than impairment charges, even
though the fall in value causing the loss may be attributable to credit deterioration.
Maximum exposure to credit risk before collateral held or other credit enhancements
The following table presents the maximum exposure at 31st December 2009 and 2008 to credit risk of balance sheet and off-balance sheet financial
instruments, before taking account of any collateral held or other credit enhancements and after allowance for impairment and netting where appropriate.
For financial assets recognised on the balance sheet, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the
maximum exposure to credit risk is the maximum amount that Barclays would have to pay if the guarantees were to be called upon. For loan commitments
and other credit related commitments that are irrevocable over the life of the respective facilities, the maximum exposure to credit risk is the full amount of
the committed facilities.
This analysis and all subsequent analyses of credit risk include only financial assets subject to credit risk. They exclude other financial assets, mainly equity
securities held in trading portfolio or available for sale as well as non-financial assets. The nominal value of off-balance sheet credit related instruments are
also shown, where appropriate.
Financial assets designated at fair value held in respect of linked liabilities to customers under investment contracts have not been included as the Group
is not exposed to credit risk on these assets. Credit losses in these portfolios, if any, would lead to a reduction in the linked liabilities and result in no direct
loss to the Group.
Whilst the Group’s maximum exposure to credit risk is the carrying value of the assets or, in the case of off-balance sheet items, the amount guaranteed,
committed, accepted or endorsed, in most cases the likely exposure is far less due to collateral, credit enhancements and other actions taken to mitigate
the Group’s exposure.