Barclays 2013 Annual Report Download - page 399

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. The accuracy of this analysis
is periodically assessed against actual losses.
Wholesale portfolios
For wholesale portfolios in Corporate Banking and Investment Bank,
the emergence period is portfolio specific and is based on the
anticipated length of time from the occurrence of a loss event to
identified impairment being incurred. The emergence period in
Corporate Banking is derived from actual case file review. This has also
been benchmarked against the time taken to move between risk grades
in internal watch lists, from EWL1 or 2 into EWL3 which is the level of
risk that will attract a collective impairment allowance. Both
methodologies produce similar results for the emergence period, which
is currently three months. The average life of the Investment Bank
portfolio 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 six months, therefore
the Investment Bank used a six-month emergence period.
Retail portfolios
For retail portfolios, minimum emergence periods and outcome periods
are defined at a product level. Emergence and outcome periods at
31 December 2013 for the main retail products are as shown in the
table below:
Minimum emergence periods
Product type
Emergence
period
(months)
Outcome
period
(months)
Mortgages 6 12
Credit cards 3 6
Personal loans, overdrafts & other secured
loans 3 6
Business banking arrears managed
commercial mortgages 6 12
Business banking arrears managed non-
‘commercial mortgages’ 3 6
Business banking EWL managed 3 12
Mortgages under forbearance n/a 24
All unsecured products under forbearance n/a 12
Business banking EWL managed under
forbearance n/a 24
Outcome periods are tested periodically (at least annually) against the
actual time elapsing from the initial indication of potential default to
the default event. When necessary, the outcome period is adjusted to
reflect our most up-to-date experience of customer behaviour.
The emergence period for Credit Cards products has been raised to
three months to align it with the approach adopted for other retail
unsecured retail products. Given the minimum emergence period
possible is one month, the period was moved to three months based
on expert judgement, with a lower emergence period permitted only on
a case by case basis where supported by analytical evidence.
Returning assets to a performing status
Wholesale portfolios
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.
Retail portfolios
A retail asset, prior to 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 (see page 402) 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; and
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);
(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.
Recovery units
Recovery units are responsible for exposures where deterioration of the
client credit profile is severe to the extent that timely or full recovery of
exposure is considered unlikely and default has occurred or is likely in
the short-term. Recovery teams set and implement strategies to
recover the Bank’s exposure through realisation of assets and collateral
in cooperation with clients and where this is not possible through
insolvency and legal procedures.
In Wholesale, for a case to be transferred to a recovery unit it must be
in default and have ceased to actively trade through the bank account
or be in insolvency. In Retail, the timings of the charge-off points to
recovery units are established based on the type of loan. For the
majority of products, the standard period for charging off accounts is
six missed contractual payments (180 days past due date of
contractual obligation) unless a Forbearance programme is agreed.
Early charge-off points are prescribed for unsecured assets. For
example, in case of customer bankruptcy or insolvency, associated
accounts are charged off within 60 days of notification. See recovery
information included in Portfolio reviews on page 165. In addition
please refer to Foreclosures in process and properties in possession on
page 167.
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.
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