Barclays 2015 Annual Report Download - page 147

home.barclays/annualreport Barclays PLC Annual Report 2015 I 145
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. 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.
The topics covered in this section may be found in the credit risk section
of the contents on page 117. Please see risk management section on
pages 127 to 142 for details of governance, policies and procedures.
Summary of performance in the period
Credit impairment charges in 2015 fell 2% to £2.1bn which principally
reflected the benign economic conditions in the UK and US and effective
risk management, including the strengthening of the Retail Impairment
Policy. These supported generally stable delinquency rates in retail and
lower default rates in wholesale where large single names were limited
in number and focused on the Oil and Gas sector.
The level of CRL reduced to £7.8bn principally due to a reduction in
Non-Core and Personal and Corporate Banking. 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 reduced 6% to
£440.6bn reflecting a decrease in Non-Core businesses, Investment
Bank and Africa Banking offset by increases in Personal and Corporate
Banking.
The loan loss rate was broadly stable at 47bps (2014: 46bps).
Analysis of the balance sheet
The 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 page 133.
Overview
As at 31 December 2015, the Group’s net exposure to credit risk after
taking into account netting and set-off, collateral and risk transfer
decreased 6% to £701.4bn, reflecting a decrease in maximum exposure
of 14% and a reduction in the level of mitigation held by 21%. Overall,
the extent to which the Group holds mitigation against its total exposure
reduced slightly to 48% (2014: 53%).
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 148 and 149.
Where collateral has been 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 2015, as a result of the enforcement of
collateral was £69m (2014: £161m).
Credit risk
Credit risk is the risk of the Group suffering
financial loss should any of its customers,
clients or market counterparties fail to fulfil
their contractual obligations to the Group.
All disclosures in this section (pages 145 to 170) are unaudited unless otherwise stated
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