Barclays 2013 Annual Report Download - page 396

Risk management
Credit risk management continued
Coverage ratios
The impairment allowance is the aggregate of the identified and
unidentified impairment balances. Impairment allowance coverage, or
the coverage ratio, is reported at two levels:
 Credit risk loans (CRLs) coverage ratio, calculated as impairment
allowances as a percentage of CRL balances;
 Potential credit risk loans coverage ratio (impairment allowances as a
percentage of total CRL and Potential Problem Loan (PPLs)
balances); and
 See identifying potential credit risk loans on page 395 for more
information on the criteria for this category.
Appropriate coverage ratios will vary according to the type of product
but can be broadly shown to have typical severity rates based upon
historic analysis:
 Secured retail home loans: 5%-25%;
 Credit cards, unsecured and other personal lending products:
65%-80%; and
 Corporate facilities: 30%-50%.
CRL coverage ratios would therefore be expected to be at or around
these levels over a defined period of time. In principle, a number of
factors may affect the Group’s coverage ratios, including:
 The mix of products within total CRL balances: Coverage ratios will
tend to be lower when there is a high proportion of secured retail and
corporate balances within total CRLs. This is due to the fact that the
recovery outlook on these types of exposures is typically higher than
retail unsecured products, with the result that they will have lower
impairment requirements;
 The stage in the economic cycle: Coverage ratios will tend to be
lower in the earlier stages of deterioration in credit conditions. At this
stage, retail delinquent balances will be predominantly in the early
delinquency cycles and corporate names will have only recently
moved to CRL categories. As such balances attract a lower
impairment requirement, the CRL coverage ratio will be lower;
 The balance of PPLs to CRLs: The impairment requirements for PPLs
are lower than for CRLs, so the greater the proportion of PPLs, the
lower the PCRL coverage ratio; and
 Write-off policies: The speed with which defaulted assets are written
off will affect coverage ratios. The more quickly assets are written off,
the lower the ratios will be, since stock with 100% coverage will tend
to roll out of PCRL categories more quickly.
Details of the coverage ratios for the current period are shown in the
following chart and may be found in the analysis of loans and advances
and impairment section (pages 151 to 157), the retail credit risk section
(pages 158 to 172) and the wholesale credit risk section (pages 173 to 180).
December
2008
Retail Unsecured & Other
Group
75.5%
54.6%
50.4%
27.7%
December
2010
December
2009
December
2012a
December
2011
December
2013
CRL coveragea
100
80
60
40
20
0
Corporate & Wholesale
Retail Home Loans
c
Monitoring weaknesses in portfolios
Whilst the basic principles for monitoring weaknesses in wholesale and retail exposures are broadly similar, they reflect the differing nature of the
assets. As a matter of policy all facilities granted to corporate or wholesale counterparties are subject to a review on, at least, an annual basis, even
when they are performing satisfactorily.
Watchlist Committee flags client on the
basis of evidence of financial difficulty
Wholesale account status
Asset is considered irrecoverable and is written off Asset is considered irrecoverable and is written off
Write off
Business support assists
the client to return to in
order position
Customer’s financial difficulty requires a
decision on the form of future relationship
Customer pays total overdue
payments and returns back
to in order position
Customer reaches high arrears status and is moved
to the recovery function where legal action is taken
Customer misses contractual payment
and moves to collections function
Retail account status
Performing Including EWL 1-2, WL 1-3
Default (Recovery) Default (Charge-off) (Recovery) Arrears Status 6+
Business Support EWL3, WL3.5 Delinquent (Collections) Arrears Status 1-6
Performing (Current) Areas Status 0
Note
a Balances prior to 2012 have not been restated for the adoption of IFRS 10.
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394 Barclays PLC Annual Report 2013