Barclays 2012 Annual Report Download - page 282

27 Provisions continued
These assumptions remain subjective, in particular the uncertainty associated with future claims levels. Therefore, it is possible that the eventual
outcome may materially differ from current estimates, resulting in an increase or decrease to the required provision. The following table details,
by key assumption, actual data through to 31 December 2012, forecast assumptions used in the provision calculation and sensitivity analysis
illustrating the impact on the provision if the future expected assumptions prove too high or too low:
Assumption
Cumulative
actual to
31.12.12
Future
Expected
Sensitivity Analysis
increase/decrease
in provision
Customer initiated claimsa 1,100k 450k 50k = £44m
Proactive mailing 100k 650k
Response rate to proactive mailing 27% 29% 1% = £9m
Average uphold rate per claimb39% 53% 1% = £11m
Average redress per valid claimb£2,750 £2,000 £100 = £41m
Interest Rate Hedging Product Redress
On 29 June 2012, the FSA announced that it had reached agreement with a number of UK banks, including Barclays, in relation to a review and
redress exercise to be carried out in respect of interest rate hedging products sold to small and medium sized enterprises. During the second half
of 2012, Barclays completed a pilot review of a sample of individual cases. On 31 January 2013, the FSA issued a report on the findings of the pilot,
along with those conducted by a number of other banks. The report included a number of changes and clarifications to the requirements under
which the main review and redress exercise should be conducted. Barclays has agreed to conduct the exercise in line with the approach set out
in this report and will commence shortly. Our current analysis suggests that there are approximately 4,000 private or retail classified customers
to which interest rate hedging products were sold within the relevant timeframe, of which approximately 3,000 are likely to be categorised as
non-sophisticated under the terms of the agreement.
As at 30 June 2012, a provision of £450m was recognised, reflecting management’s initial estimate of future redress to customers categorised as
non-sophisticated and related costs. As at 31 December 2012, an additional provision of £400m has been recognised, reflecting the results of the
pilot review, an updated estimate of administrative costs and the greater clarity afforded by the implementation requirements agreed with the FSA.
The provision recognised in the balance sheet as at 31 December 2012 is £814m, after utilisation of £36m during 2012, primarily related to
administrative costs.
The pilot exercise provides the best currently available information upon which to base an estimate. However, the ultimate cost of the exercise
will depend on the extent and nature of redress payable across the impacted population. This will be impacted by a number of factors, including:
 The number of customers for which Barclays is deemed not to have complied with relevant regulatory requirements at the time of sale;
 The nature of any redress offered by Barclays, in particular whether existing products are terminated or replaced with alternative products; and
 The level of reasonably foreseeable consequential loss payable.
The appropriate provision level will be kept under ongoing review as the main redress and review exercise progresses.
28 Contingent liabilities and commitments
Accounting for contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events, and present obligations where
the transfer of economic resources is uncertain or cannot be reliably measured. Contingent liabilities are not recognised on the balance sheet
but are disclosed unless the outflow of economic resources is remote.
The following table summarises the nominal principal amount of contingent liabilities and commitments which are not recorded on balance sheet:
2012
£m
2011
£m
Securities lending arrangements – 35,996
Guarantees and letters of credit pledged as collateral security 15,855 14,181
Performance guarantees, acceptances and endorsements 6,406 8,706
Contingent liabilities 22,261 58,883
Documentary credits and other short term trade related transactions 1,027 1,358
Standby facilities, credit lines and other commitments 247,816 240,282
Notes
a Total claims received to date including those for which no PPI policy exists and excluding responses to proactive mailing.
b Claims include both customer initiated and proactive mailings.
barclays.com/annualreport280 I Barclays PLC Annual Report 2012
Notes to the financial statements
For the year ended 31 December 2012 continued