Barclays 2012 Annual Report Download - page 326

is estimated to be 18 months, during which time Investment Bank is
exposed to losses on the portfolio. However, it is expected that incurred
losses would become apparent within 6 months, therefore the
Investment Bank use a 6-month emergence period.
For retail portfolios, minimum emergence periods and outcome periods
are defined at a product level. Emergence and outcome periods at
31 December 2012 for the main retail products were as shown in the
table on the previous page.
Outcome periods are tested periodically (at least annually) against the
actual time elapsing from the initial indication of potential default to
the loss event. When necessary, the outcome period is adjusted to
reflect our most up-to-date experience of customer behaviour.
This methodology ensures that the Group captures the loss incurred at
the correct balance sheet date. These impairment allowances are
reviewed and adjusted at least quarterly by an appropriate charge or
release of the stock of impairment allowances based on statistical
analysis and management judgement. Where appropriate, the accuracy
of this analysis is periodically assessed against actual losses (see
modelling of risk on pages 87-94 in 2012 Pillar 3 Report).
As one of the controls to ensure that adequate impairment allowances
are held, movements in impairment to individual names with a total
impairment allowance of £25m or more are presented to the Credit
Committee for agreement.
Returning assets to a performing status
In wholesale portfolios, an account may only be returned to a
performing status when it ceases to have any actual or perceived
financial stress and no longer meets any of the EWL/WL criteria, or
once facilities have been fully repaid or cancelled. Unless a facility is
fully repaid or cancelled, the decision in Corporate Banking to return an
account to performing status may only be taken by the Business Credit
Risk, while within the Investment Bank, the decision can only be taken
by the Investment Bank WatchList Committee.
A retail asset, pre point of charge-off may only be returned to a
performing status in the following circumstances:
1. All arrears (both capital and interest) have been cleared and
payments have returned to original contractual payments;
2. For revolving products, a re-age event has occurred, when the
customer is returned to an up-to-date status without having
cleared the requisite level of arrears;
3. For amortising products (excluding residential mortgages), a small
arrears capitalisation event has occurred, where the customer is
returned to an up-to-date status without having cleared the
requisite level of arrears;
4. For amortising products, which are performing on a programme of
Forbearance and meet the following criteria may be returned to the
performing book classified as High Riska:
(a) No interest rate concessions must have been granted;
(b) Restructure must remain within original product parameters
(original term + extension); and
(c) 12 consecutive payments at the revised contractual payment
amount must have been received post the Restructure event.
For residential mortgages, accounts may also be considered for
Rehabilitation post charge-off, where customer circumstances have
changed. The customer must clear all unpaid capital and interest and
confirm their ability to meet full payments going forward.
Writing off of assets
‘Write-off’ refers to the point where it is determined that the asset is
irrecoverable, or it is no longer considered economically viable to try
and recover the asset or it is deemed immaterial or full and final
settlement is reached and a shortfall remains. In the event of write-off,
the customer balance is removed from the balance sheet and the
impairment reserve held against the asset is released.
The timing and extent of write-offs may involve some element of
subjective judgement. Nevertheless, a write-off will often be prompted
by a specific event, such as the inception of insolvency proceedings or
other formal recovery action, which makes it possible to establish that
some or the entire advance is beyond realistic prospect of recovery. In
any event, the position of impaired loans is reviewed at least quarterly
to ensure that irrecoverable advances are being written off in a prompt
and orderly manner and in compliance with any local regulations.
£4,119m
£5,165m
£4,310m
£3,380m
£2,919m
2012
2011
2010
2009
2008
Total write-offs of impaired financial assets
For Retail portfolios the timings of the write-off points are established
based on the type of loan. For unsecured assets, write-off must occur
within 12 months after charge-off if no payment has been received for
12 months. For secured loans, the shortfall after the receipt of the
proceeds from the disposal of the collateral is written off within 3
months of that date if no repayment schedule has been agreed with
the borrower. Such assets are only written off once all the necessary
procedures have been completed and the amount of the loss has been
determined.
Subsequent recoveries of amounts previously written off are written
back and hence decrease the amount of the reported loan impairment
charge in the income statement. In 2012, total write-offs of impaired
financial assets decreased 20% to £4,119m (2011: £5,165m).
Identifying Potential Credit Risk Loans
In line with disclosure requirements from the SEC in the US, the Group
reports potentially and actually impaired loans as Potential Credit Risk
Loans (PCRLs). PCRLs comprise two categories of loans: Potential
Problem Loans (PPLs) and Credit Risk Loans (CRLs).
PPLs are loans that are currently complying with repayment terms but
where serious doubt exists as to the ability of the borrower to continue
to comply with such terms in the near future. If the credit quality of a
loan on an EWL or WL deteriorates to the highest category (wholesale)
or deteriorates to delinquency cycle 2 (retail), consideration is given to
including it within the PPL category.
Should further evidence of deterioration be observed, a loan may move
to the CRL category. Events that would trigger the transfer of a loan
from the PPL to the CRL category include a missed payment or a
breach of covenant. CRLs comprise three classes of loans:
Note
a The identification and subsequent treatment of up-to-date customers who,
either through an event or observed behaviour exhibit potential financial
difficulty. High Risk must also include customers who have suffered recent
financial dislocation, i.e. prior forbearance or re age.
barclays.com/annualreport324 I Barclays PLC Annual Report 2012
Risk management
Credit risk management continued