Barclays 2014 Annual Report Download - page 145

barclays.com/annualreport Barclays PLC Annual Report 2014 I 143
Overview
Credit risk represents a significant risk to the Group and mainly arises
from exposure to wholesale and retail loans and advances together
with the counterparty credit risk arising from derivative contracts
entered into with clients, and a summary of performance may be found
below.
This section provides an analysis of areas of particular interest or
potentially of higher risk, including: i) balance sheet, including the
maximum exposure, and collateral, and loans and advances; ii) areas of
concentrations, including the eurozone; iii) exposure to and
performance metrics for specific portfolios and assets types, including
home loans, credit cards and UK commercial real estate; iv) exposure
and performance of loans on concession programmes, including
forbearance; v) problem loans, including credit risk loans (CRLs); and
vi) impairment, including impairment stock and management
adjustments to model outputs.
More details of the topics covered in the section may be found in the
credit risk section of the contents on page 113. Please see risk
management section on pages 123 to 140 for details of governance,
policies and procedures.
Summary of performance in the period
Credit impairment charges in 2014 fell 29% to £2.2bn, as performance
improved in core UK and US portfolios reflecting economic growth and
falling unemployment and low inflation in both regions. The economy
in South Africa remains under pressure as economic growth contracted
with prolonged strike actions in the mining and engineering industries
and persistent electricity shortages. The Eurozone economies are also
under pressure with growth prospects in the southern European
countries remaining fragile and susceptible to external shocks.
The level of CRLs reduced by 30% to £9.3bn principally due to a
reduction in balances in BNC as Spanish loans were reclassified as held
for sale. The coverage ratios for home loans, unsecured retail portfolios
and corporate loans remain broadly in line with expected severity rates
for these types of portfolios.
Net loans and advances to customers and banks were stable at £470bn
reflecting a decrease in Non-Core balances offset by increases across
the majority of other businesses.
Lower loan impairment charges coupled with broadly stable loan
balances resulted in the loan loss rate falling to 46bps (2013: 64bps).
This reflects the stable or improving performance trends across the
majority of the portfolios and is the lowest annual rate since 1998 and
significantly below the longer-term average.
Analysis of the Balance Sheet
Group’s maximum exposure and collateral and other credit
enhancements held
Basis of preparation
The following tables present a reconciliation between the Group’s
maximum exposure and its net exposure to credit risk; reflecting the
financial effects of collateral, credit enhancements and other actions
taken to mitigate the Group’s exposure.
For financial assets recognised on the balance sheet, maximum
exposure to credit risk represents the balance sheet carrying value after
allowance for impairment. For off-balance sheet guarantees, the
maximum exposure is the maximum amount that the Group would
have to pay if the guarantees were to be called upon. For loan
commitments and other credit related commitments that are
irrevocable over the life of the respective facilities, the maximum
exposure is the full amount of the committed facilities.
This and subsequent analyses of credit risk include only financial assets
subject to credit risk. They exclude other financial assets not subject to
credit risk, mainly equity securities held for trading, as available for sale
or designated at fair value, and traded commodities. Assets designated
at fair value in respect of linked liabilities to customers under
investment contracts have also not been included as the Group is not
exposed to credit risk on these assets. Credit losses in these portfolios,
if any, would lead to a reduction in the linked liabilities and not result in
a loss to the Group. For off-balance sheet exposures certain contingent
liabilities not subject to credit risk such as performance guarantees are
excluded.
The Group mitigates the credit risk to which it is exposed through
netting and set-off, collateral and risk transfer. Further detail on the
Group’s policies to each of these forms of credit enhancement is
presented on pages 144 and 145.
Overview
As at 31 December 2014, the Group’s net exposure to credit risk after
taking into account netting and set-off, collateral and risk transfer
increased 4% to £746bn. The maximum exposure and the level of
mitigation held remained broadly stable. Overall, the extent to which
the Group holds mitigation against its total exposure reduced slightly
to 53% (2013: 54%).
Of the remaining exposure left unmitigated, a significant portion relates
to cash held at central banks, available for sale debt securities issued by
governments, cash collateral and settlement balances, all of which are
considered lower risk. Trading portfolio liability positions, which to a
significant extent economically hedge trading portfolio assets but
which are not held specifically for risk management purposes, are
excluded from the analysis. The credit quality of counterparties to
derivative, available for sale and wholesale loan assets are
predominantly investment grade. Further analysis on the credit quality
of assets is presented on pages 146 and 147.
Where collateral is obtained in the event of default, the Group does not,
as a rule, use such assets for its own operations and they are usually
sold on a timely basis. The carrying value of assets held by the Group
as at 31 December 2014 as a result of the enforcement of collateral was
£161m (2013: £234m).
Credit risk is the risk of the Group suffering financial loss
if any of its customers, clients, or market counterparties
fails to fulfil their contractual obligations to the Group.
All disclosures in this section (pages 143 to 173) are unaudited unless otherwise stated
The Strategic Report Financial review Financial statements Shareholder information
Risk review
Governance