Barclays 2013 Annual Report Download - page 400

Risk management
Credit risk management continued
Writing off assets
Write-off refers to the point where it is determined that the asset is
irrecoverable, it is no longer considered economically viable to try and
recover the asset, 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.
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 three
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 2013, total write-offs of impaired
financial assets decreased 19% to £3,343m (2012: £4,119m).
2013 3,343
2012
2011
2010
2008
Total write offs of impaired financial assets (£m)
4,119
5,165
4,310
2,919
2009 3,380
Credit risk mitigation (audited)
Barclays employs a range of techniques and strategies to actively
mitigate credit risks to which it is exposed. These can broadly be
divided into three types:
 Netting and set-off;
 Collateral; and
 Risk transfer.
Barclays has detailed policies in place to ensure that credit risk
mitigation is appropriately recognised and recorded. The recognition of
credit risk mitigation is subject to a number of considerations,
including ensuring legal certainty of enforceability and effectiveness,
ensuring the valuation and liquidity of the collateral is adequately
monitored, and ensuring the value of the collateral is not materially
correlated with the credit quality of the obligor.
All three types of credit risk mitigation may be used by different areas
of the Group for exposures with a full range of counterparties. For
instance, Investment Bank, Corporate Banking and other business
areas may all take property, cash or other physical assets as collateral
for exposures to retailers, property companies or other client types.
Netting and set-off
In many jurisdictions in which Barclays operates, credit risk exposures
can be reduced by applying netting and set-off. In exposure terms, this
credit risk mitigation technique is used mainly in derivative transactions
with financial institutions and has the largest overall impact on net
exposure to derivative financial instruments compared with other risk
mitigation techniques.
For derivative transactions, Barclays will often seek to enter into
standard master agreements with counterparties (e.g. ISDA). These
master agreements allow for netting of credit risk exposure to a
counterparty resulting from a derivative transaction against Barclays’
obligations to the counterparty in the event of default, to produce a
lower net credit exposure. These agreements may also reduce
settlement exposure (e.g. for foreign exchange transactions) by
allowing for payments on the same day in the same currency to be set
off against one another.
In the majority of its portfolios, Barclays uses the Internal Model
Method (IMM) to calculate counterparty credit risk exposures.
Collateral
The Group has the ability to call on collateral in the event of default of
the borrower or other counterparty, comprising:
 Home loans: a fixed charge over residential property in the form of
houses, flats and other dwellings. The value of collateral is impacted
by property market conditions which drive demand and therefore
value of the property. Other regulatory interventions on ability to
repossess, longer period to repossession and granting of forbearance
may also affect the collateral value;
 Wholesale lending: a fixed charge over commercial property and
other physical assets, in various forms;
 Other retail lending: includes charges over motor vehicle and other
physical assets; second lien charge over residential property, which is
subordinate to first charge held either by the Group or by another
party; and finance lease receivables, for which typically the Group
retains legal title to the leased asset and has the right to repossess
the asset on the default of the borrower;
 Derivatives: Barclays also often seeks to enter into a Credit Support
Annex (CSA) with counterparties with which Barclays has master
agreements in place. These annexes to master agreements provide a
mechanism for further reducing credit risk, whereby collateral
(margin) is posted on a regular basis (typically daily or weekly) to
collateralise the mark-to-market exposure of a derivative portfolio;
 Reverse repurchase agreements: collateral typically comprises highly
liquid securities which have been legally transferred to Barclays
subject to an agreement to return them for a fixed price; and
 Financial guarantees and similar off-balance sheet commitments:
cash collateral may be held against these arrangements.
For details of the fair value of collateral held please refer to Maximum
exposure table on page 143. For detail of collateral in credit portfolios
see pages 166 to 178.
In exposure terms, the main portfolios that Barclays takes collateral for
are home loans and reverse repurchase agreements with financial
institutions.
Floating charges over receivables
The Group may also obtain collateral in the form of floating charges over
receivables and inventory of corporate and other business customers.
The value of this collateral varies from period to period depending on
the level of receivables and inventory. It is impracticable to provide an
estimate of the amount (fair value or nominal value) of this collateral.
The Group may in some cases obtain collateral and other enhancements
at a counterparty level, which are not specific to a particular class of
financial instrument. The fair value of the credit enhancement gained
has been apportioned across the relevant asset classes.
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398 Barclays PLC Annual Report 2013