Barclays 2012 Annual Report Download - page 160

Analysis of net interest income
2012
£m
2011
£m
Retail and Business Banking, Corporate Banking and Wealth and Investment Management customer
net interest income
Customer assets 6,723 6,983
Customer liabilities 3,093 2,866
Total customer net interest income 9,816 9,849
Retail and Business Banking, Corporate Banking and Wealth and Investment Management
non-customer net interest income
Product structural hedgea989 1,168
Equity structural hedgeb231 824
Other 118 148
Retail and Business Banking, Corporate Banking and Wealth and Investment Management net interest income 11,154 11,989
Investment Bank 619 1,177
Head Office and Other Operations (134) (965)
Group net interest income 11,639 12,201
Group net interest income decreased by £562m to £11,639m (2011: £12,201m) principally due to reduced contributions from structural hedges.
The overall contribution to Group income from structural hedges decreased by £1,540m to £1,737m. Of this decrease, £1,061m related to the
non-recurrence of gains from the sale of hedging instruments in the second half of 2011, which did not contribute to Group net interest income
in 2011 as it was recognised as non-interest income, but a proportion of which is reflected in the net interest income of Retail and Business
Banking, Corporate Banking and Wealth and Investment Management, shown above.
Retail and Business Banking, Corporate Banking and Wealth and Investment Management net interest income
Barclays distinguishes the relative net interest contribution from customer assets and customer liabilities, and separates this from the contribution
delivered by non-customer income, which principally arises from the Group hedging activities.
Customer net interest income
Customer net interest income decreased marginally to £9,816m (2011: £9,849m), principally due to reductions in the customer asset margin
across the majority of businesses partially offset by growth in average customer assets and liabilities.
The customer asset margin declined to 2.11% (2011: 2.19%), reflecting an increase in funding rates across Retail and Business Banking, Corporate
Banking and Wealth and Investment Management businesses. This was partially offset by a move towards higher margin business in Africa RBB.
The customer liability margin increased to 1.09% (2011: 1.06%) reflecting increased funding rates and therefore value generated from Retail and
Business Banking, Corporate Banking and Wealth and Investment Management customer liabilities.
Non-customer net interest income
Non-customer net interest income decreased 37% to £1,338m, reflecting a reduction in the benefits from Group hedging activities. Group hedging
activities utilise structural interest rate hedges to mitigate the impact of the low interest rate environment on customer liabilities and the Group’s
equity.
Product structural hedges generated a lower contribution of £989m (2011: £1,168m). Hedge durations were maintained throughout the period.
Based on current interest rate curves and the ongoing hedging strategy, fixed rate returns on product structural hedges are expected to continue
to make a significant but declining contribution in 2013.
The contribution from equity structural hedges in Retail and Business Banking, Corporate Banking and Wealth and Investment Management
decreased to £231m (2011: £824m) following the sale of hedging instruments in the second half of 2011 and the continued low interest rate
environment.
Other Group net interest income
Head Office and Other Operations net interest expense decreased to £134m (2011: £965m) principally reflecting the non-recurrence of a transfer
of gains from the sale of hedging instruments to businesses.
Investment Bank net interest income decreased 47% to £619m, due to a reduction in interest income from equity structural hedges and credit
market exposures.
Total Group income from equity structural hedges decreased to £748m (2011: £2,109m) including £517m (2011: £1,285m) that was allocated
to the Investment Bank and Head Office.
Notes
a Product structural hedges convert short term interest margin volatility on product balances (such as non-interest bearing current accounts and managed rate
deposits) into a more stable medium term rate and are built on a monthly basis to achieve a targeted maturity profile.
b Equity structural hedges are in place to manage the volatility in net earnings generated by businesses on the Group’s equity, with the impact allocated to businesses
in line with their economic capital usage.
barclays.com/annualreport158 I Barclays PLC Annual Report 2012
Risk review
Market risk continued