Barclays 2015 Annual Report Download - page 268

266 I Barclays PLC Annual Report 2015 home.barclays/annualreport
Notes to the financial statements
Performance/return
7 Credit impairment charges and other provisions continued
Available for sale financial assets
Impairment of available for sale debt instruments
Debt instruments are assessed for impairment in the same way as loans. If impairment is deemed to have occurred, the cumulative decline in the
fair value of the instrument that has previously been recognised in the AFS reserve is removed from reserves and recognised in the income
statement. This may be reversed if there is evidence that the circumstances of the issuer have improved.
Impairment of available for sale equity instruments
Where there has been a prolonged or significant decline in the fair value of an equity instrument below its acquisition cost, it is deemed to be
impaired. The cumulative net loss that has been previously recognised directly in the AFS reserve is removed from reserves and recognised in the
income statement.
Increases in the fair value of equity instruments after impairment are recognised directly in other comprehensive income. Further declines in the
fair value of equity instruments after impairment are recognised in the income statement.
Critical accounting estimates and judgements
The calculation of impairment involves the use of judgement, based on the Group’s experience of managing credit risk.
Within the retail and small businesses portfolios, which comprise large numbers of small homogenous assets with similar risk characteristics
where credit scoring techniques are generally used, statistical techniques are used to calculate impairment allowances on a portfolio basis, based
on historical recovery rates and assumed emergence periods. These statistical analyses use as primary inputs the extent to which accounts in the
portfolio are in arrears and historical information on the eventual losses encountered from such delinquent portfolios. There are many such
models in use, each tailored to a product, line of business or customer category. Judgement and knowledge is needed in selecting the statistical
methods to use when the models are developed or revised. The impairment allowance reflected in the financial statements for these portfolios is
therefore considered to be reasonable and supportable. The impairment charge reflected in the income statement for retail portfolios is £1,808m
(2014: £1,844m; 2013: £2,161m) and amounts to 86% (2014: 84%; 2013: 71%) of the total impairment charge on loans and advances.
For individually significant assets, impairment allowances are calculated on an individual basis and all relevant considerations that have a bearing
on the expected future cash flows are taken into account (for example, the business prospects for the customer, the realisable value of collateral,
the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process).
The level of the impairment allowance is the difference between the value of the discounted expected future cash flows (discounted at the loan’s
original effective interest rate), and its carrying amount. Subjective judgements are made in the calculation of future cash flows. Furthermore,
judgements change with time as new information becomes available or as work-out strategies evolve, resulting in frequent revisions to the
impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the allowances and have a direct
impact on the impairment charge. The impairment charge reflected in the financial statements in relation to wholesale portfolios is £289m (2014:
£360m; 2013: £901m) and amounts to 14% (2014: 16%; 2013: 29%) of the total impairment charge on loans and advances. Further information
on impairment allowances and related credit information is set out within the Risk review.
2015
£m
2014
£m
2013
£m
New and increased impairment allowances 3,056 3,230 3,929
Releases (547) (809) (683)
Recoveries (400) (221) (201)
Impairment charges on loans and advances 2,109 2,200 3,045
Provision (releases)/charges for undrawn contractually committed facilities and guarantees provided (12) 4 17
Loan impairment 2,097 2,204 3,062
Available for sale investment 17 (31) 1
Reverse repurchase agreements – (5) 8
Credit impairment charges and other provisions 2,114 2,168 3,071
2015
Loan impairment fell 5% to £2,097m, reflecting lower impairment in PCB and Non-Core, partially offset by higher charges in the Investment Bank and
Barclaycard.
2014
Loan impairment fell 28% to £2,204m, reflecting lower impairment in Non-Core, PCB, and Africa Banking partially offset by higher charges in
Barclaycard.