Barclays 2011 Annual Report Download - page 89

Credit risk management overview
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. The granting of credit is one of the Group’s major
sources of income and, as the most significant risk, the Group dedicates
considerable resources to its control. Mitigation techniques and
measurement and internal ratings are discussed in more detail in the
Basel 2 Pillar 3 Disclosures 2011.
A. Overview (audited)
The credit risk that the Group faces arises mainly from wholesale and
retail loans and advances together with the counterparty credit risk arising
from derivative contracts entered into with our clients. Other sources of
credit risk arise from trading activities, including debt securities,
settlement balances with market counterparties, available for sale assets
and reverse repurchase loans.
Credit risk management objectives are to:
– establish a framework of controls to ensure credit risk-taking is based
on sound credit risk management principles;
– identify, assess and measure credit risk clearly and accurately across
the Group and within each separate business, from the level of
individual facilities up to the total portfolio;
– control and plan credit risk-taking in line with external stakeholder
expectations and avoiding undesirable concentrations;
– monitor credit risk and adherence to agreed controls; and
– ensure that risk-reward objectives are met.
B. Organisation and structure
Barclays has structured the responsibilities of credit risk management
so that decisions are taken as close as possible to the business, whilst
ensuring robust review and challenge of performance, risk infrastructure
and strategic plans. The credit risk management teams in each business
are accountable to the business risk directors in those businesses who,
in turn, report to the heads of their businesses and also to the Chief Risk
Officer.
The role of the Group Risk function is to provide Group wide direction,
oversight and challenge of credit risk-taking. Group Risk sets the Credit
Risk Control Framework, which provides a structure within which credit
risk is managed together with supporting Group Credit Risk Policies.
Group Risk also provides technical support, review and validation of
credit risk measurement models across the Group.
C. Reporting
The Group dedicates considerable resources to gaining a clear and
accurate understanding of credit risk across the business and ensuring
that its balance sheet correctly reflects the value of the assets in
accordance with applicable accounting principles. This process can
be summarised in five broad stages:
– measuring exposures and concentrations;
– monitoring weaknesses in portfolios;
– identifying potential problem loans and credit risk loans (collectively
known as potential credit risk loans or PCRLs);
– raising allowances for impaired loans; and
– writing off assets when the whole or part of a debt is considered
irrecoverable.
D. Measuring exposures and concentrations
Loans and advances to customers provide the principal source of credit
risk to the Group although Barclays can also be exposed to other forms of
credit risk through, for example, loans to banks, loan commitments and
debt securities. Barclays risk management policies and processes are
designed to identify and analyse risk, to set appropriate risk appetite, limits
and controls, and to monitor the risks and adherence to limits by means of
reliable and timely data. One area of particular review is concentration risk.
A concentration of credit risk exists when a number of counterparties are
engaged in similar activities and have similar economic characteristics that
would cause their ability to meet contractual obligations to be similarly
affected by changes in economic and other conditions. As a result,
Barclays constantly reviews its concentration in a number of areas
including, for example, geography, maturity and industry (see pages 83
to 85 and 148 to 149).
Diversification is achieved through setting maximum exposure guidelines
to individual counterparties. Excesses are reported to the Financial Risk
Committee and the BRC. Mandate & Scale limits are used to limit the
stock of current exposures in a loan portfolio and the flow of new
exposures into a loan portfolio. Limits are typically based on the nature
of the lending and the amount of the portfolio meeting certain standards
of underwriting criteria.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 87
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