Barclays 2010 Annual Report Download - page 96

Risk management
Credit risk management continued
Total write offs of impaired financial assets
£m
1007
2,174 1,963
08
2,919
09
3,380
4,310
06
Appropriate coverage ratios will vary according to the type of product
but can be broadly bracketed under three categories: secured retail home
loans; credit cards, unsecured and other personal lending products; and
corporate facilities. Analysis and experience has indicated that, in general,
the severity rates for these types of products are typically within the
following ranges:
– Secured retail Home loans: 5%-20%;
– Credit cards, unsecured and other personal lending products:
65%-75%; and
– Corporate facilities: 30%-50%.
CRL coverage ratios would therefore be expected to be at or around
these levels over a defined period of time. In principle, a number of factors
may affect the Group’s coverage ratios, including:
– The mix of products within total CRL balances. Coverage ratios will
tend to be lower when there is a high proportion of secured retail and
corporate balances within total CRLs. This is due to the fact that the
recovery outlook on these types of exposures is typically higher than
retail unsecured products with the result that they will have lower
impairment requirements.
– The stage in the economic cycle. Coverage ratios will tend to be lower
in the earlier stages of deterioration in credit conditions. At this stage,
retail delinquent balances will be predominantly in the early delinquency
cycles and corporate names will have only recently moved to CRL
categories. As such balances attract a lower impairment requirement,
the CRL coverage ratio will be lower.
– The balance of PPLs to CRLs. The impairment requirements for PPLs
are lower than for CRLs, so the greater the proportion of PPLs, the lower
the PCRL coverage ratio.
– Write off policies. The speed with which defaulted assets are written off
will affect coverage ratios. The more quickly assets are written off, the
lower the ratios will be, since stock with 100% coverage will tend to roll
out of PCRL categories more quickly.
J. Writing off of assets
After an advance has been identified as impaired and is subject to an
impairment allowance, the stage may be reached whereby it is concluded
that there is no realistic prospect of further recovery. Write off will occur
when, and to the extent that, the whole or part of a debt is considered
irrecoverable. The timing and extent of write offs may involve some
element of subjective judgement. Nevertheless, a write off will often
be prompted by a specific event, such as the inception of insolvency
proceedings or other formal recovery action, which makes it possible to
establish that some or the entire advance is beyond realistic prospect of
recovery. In any event, the position of impaired loans is reviewed at least
quarterly to ensure that irrecoverable advances are being written off in a
prompt and orderly manner and in compliance with any local regulations.
Such assets are only written off once all the necessary procedures
have been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off are written back
and hence decrease the amount of the reported loan impairment charge
in the income statement. In 2010 total write offs of impaired financial
assets increased by £930m to £4,310m (2009: £3,380m).
94 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10