Barclays 2015 Annual Report Download - page 179

home.barclays/annualreport Barclays PLC Annual Report 2015 I 177
Economic Capital by business unit
Barclays measures some non-traded market risks using an economic capital (EC) methodology. EC is predominantly calculated using a daily
VaR model and then scaled up to a one-year EC confidence interval (99.98%). For more information on definitions of prepayment, recruitment
and residual risk, and on how EC is used to manage market risk, see the market risk management section on page 128 in Barclays PLC 2015
Pillar 3 Report.
Economic capital for non-trading risk by business unit
Personal &
Corporate
Banking
£m
Barclaycard
£m
Africa
Banking
£m
Non-Corea
£m
Total
£m
As at 31 December 2015
Prepayment risk 35 7 – – 42
Recruitment risk 64 1 – 5 70
Residual risk 7 2 126 5 140
Total 106 10 126 10 252
As at 31 December 2014
Prepayment risk 32 15 – – 47
Recruitment risk 148 1 – – 149
Residual risk 12 3 34 16 65
Total 192 19 34 16 261
PCB recruitment risk: The reduction of EC for PCB is driven by lower levels of recruitment risk associated with hedging mismatch for savings and
mortgage products as at 31 December 2015. The mortgage book in particular saw significant falls in recruitment risk due to lower levels of pre-
hedging, particularly within mortgages of longer tenor.
Africa Banking residual risk: The significant changes in EC for Africa Banking are mainly due to the adoption of new behavioural assumptions for
residual risk which went live on 1 January 2015.
Analysis of equity sensitivity
The table below measures the overall impact of a +/- 100bps movement in interest rates on available for sale and cash flow hedge reserves. This data
is captured using PV01 which is an indicator of the shift in asset value for a 1 basis point shift in the yield curve. Note that the methodology used to
estimate the impact of the negative movement applied a 0% floor to interest rates.
Analysis of equity sensitivity
2015 2014
As at 31 December
+100 basis
points
£m
-100 basis
points
£m
+100 basis
points
£m
-100 basis
points
£m
Net interest income 103 (412) 238 (439)
Taxation effects on the above (31) 124 (57) 105
Effect on profit for the year 72 (288) 181 (334)
As percentage of net profit after tax 11.56% (46.23)% 21.42% (39.53)%
Effect on profit for the year (per above) 72 (288) 181 (334)
Available for sale reserve (751) 1,052 (698) 845
Cash flow hedge reserve (3,104) 1,351 (3,058) 2,048
Taxation effects on the above 1,157 (721) 901 (694)
Effect on equity (2,626) 1,394 (2,674) 1,865
As percentage of equity (3.99)% 2.12% (4.05)% 2.83%
As discussed in relation to the net interest income sensitivity table on page 176, the impact of a 100bps movement in rates is largely driven by PCB
and Treasury. The available for sale reserve change in sensitivity was mainly driven by changes in portfolio composition, primarily due to an increase
in available for sale assets held on a shorter dated outright basis. Note that the movement in the available for sale reserve would impact CRD IV fully
loaded Common Equity Tier 1 (CET1) capital but the movement in the cash flow hedge reserve would not impact CET1 capital.
Note
a Only the retail exposures within Non-Core are captured in the measure.
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