Barclays 2012 Annual Report Download - page 156

Exposure to Eurozone residential property sector
Barclays risk exposure and impairment in Spain and Portugal has been and will be affected by the housing sector in those countries as a result
of changes to the bank’s risk appetite in a declining housing sector, where the desired level of new business has been reduced, and with it,
the total exposure.
Falls in property prices have led to higher credit risk and higher impairment charges. The 2012 impairment charge to our residential mortgage
book in Spain was £72m (2011: £38m) and in Portugal was £24m (2011: £9m). These increases were principally driven by:
(i) Negative house price movements: this has reduced market demand and also mortgage supply with the result that a customer’s ability to sell
has reduced and the likelihood of repossessions has increased. Impairment charges have risen, given a loss event as the loss on default has
increased due to lower amounts realised from the sale of properties in a distressed market; and
(ii) Customers’ behaviour and a reduced willingness to pay as a result of their perception of a lower equity stake.
For information on our exposures to home loans in Spain and Portugal see pages 131-132.
Eurozone balance sheet redenomination risk
Redenomination risk is the risk of financial loss to the Group should one or more countries exit the Euro, leading to a potentially different valuation
of local balance sheet assets and liabilities. The Group is directly exposed to redenomination risk where there could be a different value for locally
denominated assets and liabilities.
Within Barclays, retail banking, corporate banking and wealth management activities in the Eurozone are generally booked locally within each
country. Locally booked customer assets and liabilities, primarily loans and advances to customers and customer deposits, are predominantly
denominated in Euros. The remaining funding need is met through local funding secured against customer loans and advances, with any residual
need funded through the Group.
During 2012, a series of mitigating actions was taken to reduce local net funding mismatches primarily by raising local liabilities in Spain, Portugal
and Italy. These actions included the drawdown of €8.2bn in the European Central Bank’s three year Long Term Refinancing Operation (LTRO) in
Spain and Portugal. As a result of these mitigating actions the Group reduced the aggregate net funding mismatch in local balance sheets from
£12.1bn to a £1.9bn surplus in Spain, from £6.9bn to £3.3bn in Portugal and from £12.0bn to £9.6bn in Italy.
Barclays continues to monitor the potential impact of the Eurozone volatility on local balance sheet funding and will consider actions as
appropriate to manage the risk. Direct exposure to Greece is very small with negligible net funding required from Group. For Ireland there is no
local balance sheet funding requirement by the Group as total liabilities in this country exceed total assets.
barclays.com/annualreport154 I Barclays PLC Annual Report 2012
Risk review
Credit risk continued