Barclays 2013 Annual Report Download - page 406

Risk management
Credit risk management continued
Further details on the Barclays approach to environmental risk
management can be found at Barclays.com, in the section on
Citizenship; the way we do business, ‘Managing Social and
Environmental Risk in Lending’.
Asset credit quality
All loans and advances are categorised as either neither past due nor
impaired; past due but not impaired; or impaired, which includes
restructured loans. For the purposes of the disclosures in the balance
sheet credit quality section (page 149) and the analysis of loans and
advances and impairment section (page 151):
 a loan is considered past due when the borrower has failed to make a
payment when due under the terms of the loan contract;
 the impairment allowance includes allowances against financial
assets that have been individually impaired and those subject to
collective impairment;
 loans neither past due nor impaired consist predominantly of
wholesale and retail loans that are performing. These loans, although
unimpaired, may carry an unidentified impairment;
 loans that are past due but not impaired consist predominantly of
wholesale loans that are past due but individually assessed as not
being impaired. These loans, although individually assessed as
unimpaired, may carry an unidentified impairment provision;
 impaired loans that are individually assessed consist predominantly
of wholesale loans that are past due and for which an individual
allowance has been raised; and
 impaired loans that are collectively assessed consist predominantly
of retail loans that are one day or more past due for which a
collective allowance is raised. Wholesale loans that are past due,
individually assessed as unimpaired, but which carry an unidentified
impairment provision, are excluded from this category.
Home loans and credit card receivables that are subject to forbearance
in the retail portfolios are included in the collectively assessed impaired
loans column in the tables in the Analysis of loans and advances and
impairment section (page 151). Included within wholesale loans that
are neither past due nor impaired are a portion of loans that have been
subject to forbearance or similar strategies as part of the Group’s
ongoing relationship with clients. The loans will have an internal rating
reflective of the level of risk to which the Group is exposed, bearing in
mind the circumstances of the forbearance and the overall
performance and prospects of the client. Loans on forbearance
programmes will typically, but not always, attract a higher risk rating
than similar loans which are not. A portion of wholesale loans under
forbearance is included in the past due but not impaired column,
although not all loans subject to forbearance are necessarily impaired
or past due. Where wholesale loans under forbearance have been
impaired, these form part of individually assessed impaired loans.
Retail
lending
Wholesale
lending
Credit quality description
Probability
of default
Probability
of default Default grade
Strong 0.0-0.60% 0.0-0.05% 1-3
0.05-0.15% 4-5
0.15-0.30% 6-8
0.30-0.60% 9-11
Satisfactory 0.60-10.00% 0.60-2.15% 12-14
2.15-11.35% 15-19
Higher risk 10.00%+ 11.35%+ 20-21
For loans that are performing, these descriptions can be summarised as
follows:
Strong: there is a very high likelihood of the asset being recovered in full;
Satisfactory: while there is a high likelihood that the asset will be
recovered and, therefore, is of no current cause for concern to the
Group, the asset may not be collateralised, or may relate to facilities
such as unsecured loans and credit card balances; and
Higher risk: there is concern over the obligor’s ability to make
payments when due. However, these have not yet converted to actual
delinquency. There may also be doubts over value of collateral or
security provided. However, the borrower or counterparty is continuing
to make payments when due and is expected to settle all outstanding
amounts of principal and interest.
Loans that are past due are monitored closely, with impairment
allowances raised as appropriate and in line with the Group’s
impairment policies. These loans are all considered Higher Risk for the
purpose of this analysis of credit quality.
Debt securities
For assets held at fair value, the carrying value on the balance sheet will
include, among other things, the credit risk of the issuer. Most listed
and some unlisted securities are rated by external rating agencies. The
Group mainly uses external credit ratings provided by Standard &
Poor’s or Moody’s. Where such ratings are not available or are not
current, the Group will use its own internal ratings for the securities.
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404 Barclays PLC Annual Report 2013