Barclays 2012 Annual Report Download - page 145

The strategic report Governance Risk review Financial review Financial statements Risk management Shareholder information
Exposures to Eurozone countries (audited)
Overview
The Group recognises the credit and market risk resulting from the ongoing volatility in the Eurozone and continues to monitor events closely
while taking coordinated steps to mitigate the risks associated with the challenging economic environment. Risks associated with a potential
partial break-up of the Euro area include:
 Direct risk arising from sovereign default of an exiting country and the impact on the economy of, and the Group’s counterparties in, that country;
 Indirect risk arising from the subsequent impact on the economy of, and the Group’s counterparties in, other Eurozone countries;
 Indirect risk arising from credit derivatives that reference Eurozone sovereign debt (see page 153); and
 Direct redenomination risk on the potential mismatch in the currency of the assets and liabilities on balance sheets of the Group’s local
operations in countries in the Eurozone (see page 154).
The Group has performed and continues to perform stress tests to model the event of a break-up of the Eurozone area. Contingency planning
has also been undertaken based on a series of potential scenarios that might arise from an escalation in the crisis. Multiple tests have been run to
establish the impact on customers, systems, processes and staff in the event of the most plausible scenarios. Where issues have been identified,
appropriate remedial actions have either been completed or are underway.
During 2012 the Group’s net on-balance sheet exposures to Spain, Italy, Portugal, Ireland, Cyprus and Greece reduced by 13% to £59.0bn.
Exposure to retail customers and corporate clients reduced 12% to £48.1bn, largely reflecting reduced lending in Spain, Italy and Portugal as
part of the active management to reduce redenomination risk. Sovereign exposure decreased 29% to £5.0bn, principally due to a reduction in
government bonds held as available for sale.
Basis of preparation
These disclosures are prepared on the same basis as the previous Annual Report and present the direct balance sheet exposure to credit and
market risk by country, with the totals reflecting allowance for impairment, netting and cash collateral held where appropriate.
Trading and derivatives balances relate to Investment Bank activities, principally as market-maker for government bond positions. Positions are
held at fair value, with daily movements taken through profit and loss:
 Trading assets and liabilities are presented by issuer type, whereby positions are netted to the extent allowable under IFRS. Where liability
positions exceed asset positions by counterparty type, exposures are presented as nil;
 Derivative assets and liabilities are presented by counterparty type, whereby positions are netted to the extent allowable under IFRS. Cash
collateral held is then added to give a net credit exposure. Where liability positions and collateral held exceed asset positions by counterparty
type, exposures are presented as nil; and
 Assets designated at fair value include debt and equity securities, loans and reverse repurchase agreements that have been designated at
fair value.
Available for sale assets are principally investments in government bonds and other debt securities. Balances are reported on a fair value basis,
with movements in fair value going through other comprehensive income (OCI).
Loans and advances held at amortised costa comprise: (i) retail lending portfolios, predominantly mortgages secured on residential property;
and (ii) corporate lending portfolios. Settlement balances and cash collateral are excluded from this analysis.
Sovereign exposures reflect direct exposures to central and local governmentsb, the majority of which are used for hedging interest rate risk and
liquidity purposes. The remaining portion is actively managed reflecting our role as a leading primary dealer, market maker and liquidity provider
to our clients. Financial institution and corporate exposures reflect the country of operations of the counterparty or issuer depending on the asset
class analysed (including foreign subsidiaries and without reference to cross-border guarantees). Retail exposures reflect the country of residence
for retail customers and country of operations for business banking customers. Off-balance sheet exposure consists primarily of undrawn
commitments and guarantees issued to third parties on behalf of our corporate clients.
Notes
a The Group also enters into reverse repurchase agreements and other similar secured lending, which are materially fully collateralised.
b In addition, the Group held cash with the central banks of these countries totalling £0.7bn as at 31 December 2012 (2011: £0.8bn). Other material balances with
central banks are classified within loans to financial institutions.
barclays.com/annualreport Barclays PLC Annual Report 2012 I 143