Barclays 2015 Annual Report Download - page 184

182 I Barclays PLC Annual Report 2015 home.barclays/annualreport
Risk review
Overview
The fully loaded CRD IV CET1 ratio, among other metrics, is a measure
of the capital strength and resilience of Barclays. Maintenance of our
capital is vital in order to meet the minimum capital requirements of
regulatory authorities and to fund growth within our businesses.
This section provides an overview of the Group’s: i) regulatory minimum
capital and leverage requirements; ii) capital resources; iii) risk weighted
assets (RWAs); and iv) leverage ratio and exposures.
Summary of performance in the period
Barclays continues to be in excess of minimum CRD IV transitional and
fully loaded capital ratios and PRA capital and leverage ratios.
The fully loaded CRD IV CET1 ratio increased to 11.4% (2014: 10.3%)
driven by a £43.5bn reduction in RWAs to £358.4bn partially offset by
a decrease in fully loaded CRD IV CET1 capital of £0.7bn to £40.7bn.
The RWA reduction was primarily driven by a £29bn decrease in the
Non-Core RWAs to £47bn as a result of the sale of the Spanish business
and a rundown of legacy structured and credit products. Investment
Bank RWAs decreased £14bn to £108bn mainly due to a reduction in
securities and derivatives, and improved RWA efficiency.
CET1 capital decreased £0.7bn to £40.7bn after absorbing adjusting
items and dividends paid and foreseen.
The leverage ratio increased significantly to 4.5% (2014: 3.7%), driven
by a reduction in the leverage exposure to £1,028bn (2014: £1,233bn).
This was predominantly due to the rundown of the Non-Core business
of £156bn to £121bn.
Regulatory minimum capital and
leverage requirements
Capital – Fully loaded
Barclays’ current regulatory requirement is to meet a fully loaded CRD IV
CET1 ratio of 9% by 2019, plus a Pillar 2A add-on. The 9% comprises the
required 4.5% minimum CET1 ratio and, phased in from 2016, a
Combined Buffer Requirement made up of a Capital Conservation Buffer
(CCB) of 2.5% and a Globally Systemically Important Institution (G-SII)
buffer of 2%.
Barclays’ Pillar 2A requirement as per the PRA’s Individual Capital
Guidance (ICG) is subject to review at least annually. Under current PRA
guidance, the Pillar 2A add-on for 2016, will be 3.9% of which 56% will
need to be met in CET1 form, equating to approximately 2.2% of RWAs.
Basel Committee consultations and reviews might further impact the
Pillar 2A requirement in the future.
In addition, a Counter-Cyclical Capital Buffer (CCCB) and/or additional
Sectoral Capital Requirements (SCR) may be required by the BoE to
protect against perceived threats to financial stability. These buffers
could be applied at the Group level or at a legal entity, sub-consolidated
or portfolio level. No SCR has been set to date by the BoE, while the
CCCB is currently 0% for UK exposures. Other national authorities
determine the appropriate CCCBs that should be applied to exposures in
their jurisdiction. During 2016, CCCBs will start to apply for our
exposures in Hong Kong, Norway and Sweden. Based on current
exposures we do not expect this to be material.
Capital – Transitional
On a transitional basis, the PRA has implemented a minimum
requirement CET1 ratio of 4%, Tier 1 ratio of 5.5% and Total Capital ratio
of 8%.
From 1 January 2015, the transitional capital ratios are equal to the fully
loaded ratios following the PRA’s acceleration of transitional provisions
relating to CET1 deductions and filters. The adjustment relating to
unrealised gains on available for sale debt and equity that was applied
throughout 2014 as an exception no longer applies.
Grandfathering limits on capital instruments, previously qualifying as
Tier 1 and Tier 2, are unchanged under the PRA transitional rules.
Leverage
In addition to the Group’s capital requirements, minimum ratios have
also been set in respect of leverage. The leverage ratio applicable to the
Group has been calculated in accordance with the requirements of the
EU Capital Requirements Regulation (CRR) which was amended effective
from January 2015. The leverage calculation uses the end-point CRR
definition of Tier 1 capital for the numerator and the CRR definition of
leverage exposure. During 2015 Barclays was measured against the PRA
leverage ratio requirement of 3%.
In December 2015, the PRA finalised the UK leverage ratio framework
in which it adopted the FPC’s recommendations on leverage ratio
requirements. These recommendations have been finalised in the
Supervisory Statement SS45/15 and have been incorporated as part of
the updated PRA rulebook, effective January 2016. This would result in
a fully phased in leverage ratio requirement of 3.7% for Barclays. The
minimum requirement would increase in the event that Barclays was
subject to: (i) an increased CCCB; and/or (ii) Barclays was reclassified
into a higher G-SII category. Furthermore from January 2016, firms are
required to report quarterly leverage ratio information, including an
average ratio.
Risk performance
Funding risk – Capital
Capital risk is the risk that the Group has
insufficient capital resources to:
 meet minimum regulatory requirements in the UK and in other
jurisdictions such as the US and South Africa where regulated
activities are undertaken. The Group’s authority to operate as a
bank is dependent upon the maintenance of adequate capital
resources at each level where prudential capital requirements
are applied
 support its credit rating. A weaker credit rating would increase the
Group’s cost of funds and
 support its growth and strategic options.
More details on monitoring and managing capital risk may be found
in the Risk Management sections on pages 136 and 137
All disclosures in this section (pages 182 to 186) are unaudited unless otherwise stated.