Barclays 2014 Annual Report Download - page 131

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Roles and responsibilities
The responsibilities of the credit risk management teams in the
businesses, the sanctioning team and other shared services include:
sanctioning new credit agreements (principally wholesale); setting the
policies for approval of transactions (principally retail); monitoring risk
against limits and other parameters; maintaining robust processes,
data gathering, quality, storage and reporting methods for effective
credit risk management; for wholesale portfolios performing effective
turnaround and workout scenarios via dedicated restructuring and
recoveries teams; for retail portfolios maintaining robust collections
and recovery processes/units; and review and validation of credit risk
measurement models.
For wholesale portfolios, credit risk approval is undertaken by
experienced credit risk professionals operating within a clearly defined
delegated authority framework, with only the most senior credit
officers entrusted with the higher levels of delegated authority. The
largest credit exposures are approved at the Credit Committee which is
managed by the central risk function. In the wholesale portfolios, credit
risk managers are organised in sanctioning teams by geography,
industry and/or product.
The role of the Central Risk function is to provide Group-wide direction,
oversight and challenge of credit risk-taking. Central risk sets the Credit
Risk Control Framework, which provides a structure within which credit
risk is managed together with supporting credit risk policies.
Credit risk mitigation
The Group 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.
Netting and set-off
In most jurisdictions in which the Group operates, credit risk exposures
can be reduced by applying netting and set-off. In exposure terms, this
credit risk mitigation technique has the largest overall impact on net
exposure to derivative transactions compared with other risk mitigation
techniques.
For derivative transactions, the Group’s normal practice is 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 the Group’s
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.
Collateral
The Group has the ability to call on collateral in the event of default of
the counterparty, comprising:
Q Home loans: a fixed charge over residential property in the form of
houses, flats and other dwellings
Q Wholesale lending: a fixed charge over commercial property and
other physical assets, in various forms
Q Other retail lending: includes charges over motor vehicles and other
physical assets, second lien charges over residential property, and
finance lease receivables
Q Derivatives: the Group also often seeks to enter into a margin
agreement (e.g. Credit Support Annex (CSA)) with counterparties
with which the Group has master netting agreements in place
Q Reverse repurchase agreements: collateral typically comprises highly
liquid securities which have been legally transferred to the Group
subject to an agreement to return them for a fixed price
Q Financial guarantees and similar off-balance sheet commitments:
cash collateral may be held against these arrangements
Risk transfer
A range of instruments including guarantees, credit insurance, credit
derivatives and securitisation can be used to transfer credit risk from
one counterparty to another. These mitigate credit risk in two main
ways:
Q If the risk is transferred to a counterparty which is more credit
worthy than the original counterparty, then overall credit risk will
have been reduced
Q Where recourse to the first counterparty remains, both
counterparties must default before a loss materialises. This will be
less likely than the default of either counterparty individually so
credit risk is reduced
Detailed policies are in place to ensure that credit risk mitigation is
appropriately recognised and recorded and more information can be
found in the Barclays PLC Pillar 3 Report.
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