Barclays 2012 Annual Report Download - page 248

7 Credit impairment charges and impairment on available for sale assets continued
Critical accounting estimates and judgements
The calculation of the impairment allowance involves the use of judgement, based on the Group’s experience of managing credit risk.
Within the retail and small businesses portfolios, which comprise large numbers of small homogeneous assets with similar risk characteristics
where credit scoring techniques are generally used, statistical techniques are used to calculate impairment allowances on a portfolio basis,
based on historical recovery rates and assumed emergence periods. These statistical analyses use as primary inputs the extent to which
accounts in the portfolio are in arrears and historical information on the eventual losses encountered from such delinquent portfolios. There
are many such models in use, each tailored to a product, line of business or customer category. Judgement and knowledge is needed in
selecting the statistical methods to use when the models are developed or revised. The impairment allowance reflected in the financial
statements for these portfolios is therefore considered to be reasonable and supportable. The impairment charge reflected in the income
statement for these retail portfolios is £2,075m (2011: £2,477m; 2010: £3,379m) and amounts to 58% (2011: 65%; 2010: 60%) of the total
impairment charge on loans and advances.
For individually significant assets, impairment allowances are calculated on an individual basis and all relevant considerations that have a
bearing on the expected future cash flows are taken into account (for example, the business prospects for the customer, the realisable value
of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the
work-out process). The level of the impairment allowance is the difference between the value of the discounted expected future cash flows
(discounted at the loan’s original effective interest rate) and its carrying amount. Subjective judgements are made in the calculation of future
cash flows. Furthermore, judgements change with time as new information becomes available or as work-out strategies evolve, resulting in
frequent revisions to the impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the
allowances and have a direct impact on the impairment charge. The impairment charge reflected in the financial statements in relation to
wholesale portfolios is £1,484m (2011: £1,313m; 2010: £2,246m) and amounts to 42% (2011: 35%; 2010: 40%) of the total impairment charge
on loans and advances. Further information on impairment allowances and related credit information is set out within the Risk review.
2012
£m
2011
£m
2010
£m
New and increased impairment allowances 4,703 4,962 6,939
Releases (928) (931) (1,189)
Recoveries (212) (265) (201)
Impairment charges on loans and advances 3,563 3,766 5,549
(Releases)/charges in respect of provision for undrawn contractually committed facilities
and guarantees provided (4) 24 76
Loan impairment 3,559 3,790 5,625
Available for sale assets (excluding BlackRock, Inc.) 40 60 51
Reverse repurchase agreements (3) (48) (4)
Credit impairment charges and other provisions 3,596 3,802 5,672
Impairment of investment in BlackRock, Inc. –1,800 –
More information on the impairment assessment and the measurement of credit losses is included on pages 323-325. The movements on the
impairment allowance and the charge for the year is shown on page 127.
2012
Loan impairment fell 6% to £3,559m reflecting lower impairment in UKRBB, Barclaycard and Corporate Banking, partially offset by higher charges
in Europe and South Africa and a higher charge in the Investment Bank. The increase in the Investment Bank was primarily related to ABS CDO
Super Senior positions and losses on a small number of single name exposures. The prior year included a non-recurring release of £223m.
2011
Loan impairment fell 33% to £3,790m reflecting generally improving underlying trends across the majority of retail and wholesale businesses.
Retail impairment charges reduced 27%, principally relating to Barclaycard, UKRBB and Africa RBB. Wholesale impairment charges reduced 41%,
principally reflecting lower charges in Spain and in the Investment Bank, including a non-recurring release of £223m relating to the loan to
Protium which has now been repaid.
As at 30 September 2011, an impairment charge of £1,800m was recognised resulting from an assessment that there was objective evidence that
the Group’s investment in BlackRock, Inc. was impaired. The impairment reflects the recycling through the income statement of the cumulative
reduction in market value previously recognised in the available for sale reserve, since the Group’s acquisition of its holding in BlackRock, Inc.
as part of the sale of Barclays Global Investors on 1 December 2009.
Further analysis of the Group’s impairment charges is presented on pages 124-128.
barclays.com/annualreport246 I Barclays PLC Annual Report 2012
Notes to the financial statements
For the year ended 31 December 2012 continued