Notes to the accounts

For the year ended 31st December 2007


47 Credit risk (continued)

Settlement risk

The Group is exposed to settlement risk in its dealings with market counterparties (predominantly other financial institutions). These risks arise, for example, in foreign exchange transactions when Barclays pays away its side of the transaction to another bank or other counterparty before receiving payment from the other side. The risk is that the counterparty may not meet its obligation. It also arises on derivative contracts where the carrying value of the financial asset is related to the credit condition of the counterparty.

Settlement risk also arises through the operation of a number of systems through which Barclays makes and receives payments on behalf of its customers.

While these exposures are of short duration, they can be large. In recent years, settlement risk has been reduced by several industry initiatives that have enabled simultaneous and final settlement of transactions to be made (such as payment-versus-payment through Continuous Linked Settlement and delivery-versus-payment in central bank money).

Barclays has worked with its peers in the development of these arrangements. Increasingly the majority of high value transactions are settled by such mechanisms. Where these mechanisms are not available, the risk is further reduced by dealing predominantly with highly-rated counterparties, holding collateral and limiting the size of the exposures according to the rating of the counterparty, with smaller exposures to those of higher risk.

Country risk

Credit risk is manifested as country risk where difficulties may arise in the country in which the exposure is domiciled, thus impeding or reducing the value of the asset, or where the counterparty is the country itself.

Barclays manages country risk by setting a country risk appetite, which is known as the Country Guideline and agreed at the Group Credit Committee. All cross-border or domestic foreign currency transactions are aggregated to give the current utilisation, in terms of country loss given default (CLGD), against country appetite. The level of CLGD incurred by a counterparty transaction will largely depend on three main factors: the country severity, the product severity and counterparty grade. The calculation and loss given default is described under ‘Credit Risk measurement’ below.

CLGD is incurred in the country of direct risk, defined as where the majority of operating assets are held. This may differ from the country of incorporation. However, where transactions are secured with collateral, the country risk can be transferred from the country of the borrower to the country of the collateral provider. This is only permitted where the collateral definitely covers the borrowing and is not expected to decrease over time.

Credit risk measurement

Barclays uses statistical modelling techniques throughout its business in its credit rating systems. These systems assist the Bank in frontline credit decisions on new commitments and in managing the portfolio of existing exposures. They enable a coherent approach to risk measurement across all credit exposures, retail and wholesale. The key building blocks in the measurement system are the probability of customer default (PD), exposure in the event of default (EAD), and severity of loss-given-default (LGD). Using these, Barclays builds the analyses that lead to its decision support systems in the Risk Appetite context described previously.

Where financial models are used to monitor credit risk, they are based upon customers’ personal and financial performance information over recent periods as a predictor for future performance. The models are reviewed regularly to monitor their robustness relative to actual performance and amended as necessary to optimise their effectiveness.

For corporate and wholesale customers, Barclays also assesses the credit quality of borrowers and other counterparties and assigns them an internal risk rating. There are two different categories of default rating used. The first reflects the statistical probability of a customer in a rating class defaulting within the next 12-month period, and is referred to as a point in time rating (PIT). The second also reflects the statistical probability of a customer in a rating class defaulting, but the period of assessment is 12 months of average credit conditions for the customer type. This type of rating therefore provides a measure of risk that is independent of the current credit conditions for a particular customer type, is much more stable over time than a PIT rating and is referred to as a through the cycle (TTC) rating.

Country risk grades are assigned to all countries where the Group has, or is likely to have, exposure and are reviewed every quarter to ensure they remain appropriate. Country grades, which are derived from long-term sovereign foreign currency ratings, range from 1 (lowest probability of default) to 21 (highest probability of default). A ceiling is applied where a country is graded 12 or lower so that the counterparty cannot be graded higher than the country, unless some form of protection is available in the event of a cross-border event, such as a significant portion of a counterparty’s assets or income being held or generated in a convertible currency.

As noted above, for listed debt securities, the Group has regard to both external credit ratings and internal default grades where such ratings are not available or current.

Multiple rating methodologies may be used to inform the rating decision on individual large credits, such as internal and external models, rating agency grades and, for wholesale assets, market information such as credit spreads. For smaller credits, a single source may suffice, such as the result from a rating model.

For debt securities and counterparties where third party ratings are used to inform credit decisions, the Group mainly uses those provided by Standards and Poors’ or Moody’s.

Barclays wholesale credit rating contains 21 grades, representing the Group’s best estimate of credit risk for a counterparty based on current economic conditions.

Retail customers are not assigned internal risk ratings in this way for account management purposes, although a mapping of the PIT probability of default to one of eight Barclays Retail Grades (BRG) is used for some internal reporting purposes.

The tables below detail how external rating grades, Default Grades and Barclays Retail Grades relate to the categories of credit quality selected for the financial statements. Where applicable, the internal measure of probability of default has been presented for indicative purposes.

47 Credit risk (continued)

Listed and unlisted debt securities and market counterparties where external ratings are available

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External ratings  Financial statements description 
AAA, AA+, AA, AA-, A+, A, A-,BBB+, BBB, BBB-  Strong 
BB+, BB, BB-, B+, B  Satisfactory 
B-, CCC+, CCC and lower  Weak / Substandard 

Wholesale lending

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Default Grade  Financial statements description  Probability of default 
1-3  Strong  0.0-0.05% 
4-5  0.05-0.15% 
6-8  0.15-0.30% 
9-11  0.30-0.60% 
12-14  Satisfactory  0.60-2.15% 
15-19  2.15-11.35% 
20-21  Weak / Substandard  11.35% + 

Retail lending

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Barclays Retail Grade  Financial statements description  Probability of default 
1  Strong  0.0-0.15% 
2  0.15-0.30% 
3  0.30-0.60% 
4-5  Satisfactory  0.60-2.50% 
5-7  2.50-10.00% 
8  Weak / Substandard  10.00% + 

Financial statement descriptions can be summarised as follows:

Strong – there is a very high likelihood of the asset being recovered in full. If it is a debt security, then it will be investment grade.

Satisfactory – whilst there is a high likelihood that the asset will be recovered and therefore, of no cause for concern to the Group, the asset may not be collateralised, or may relate to retail facilities, such as credit card balances and unsecured loans, which have been conservatively classified as satisfactory, regardless of the fact that the output of internal grading models may have indicated a higher classification. At the lower end of this grade there are customers that are being more carefully monitored, for example corporate customers which are indicating some evidence of some deterioration, mortgages with a high loan to value ratio, and unsecured retail loans operating outside normal product guidelines.

Weak/Sub-standard – there is concern over the obligor’s ability to make payments when due. However, these have not yet converted to actual delinquency. There may also be doubts over the value of collateral or security provided. However, the borrower or counterparty is continuing to make payments when due and is expected to settle all outstanding amounts of principal and interest.

Credit risk mitigation, collateral, security, and other credit enhancements

The Group uses a wide variety of techniques to reduce credit risk on its lending. The most important of these is performing an assessment of the ability of a borrower to service the proposed level of borrowing. Barclays policy is to establish that loans are within the customer’s capacity to repay, rather than to rely excessively on security. As a result no security is required for a wide range of lending products.

Credit risk mitigation

Barclays actively manages its credit exposures. When weaknesses in exposures are detected – either in individual exposures or in groups of exposures – the Group takes action to mitigate the risks. Such actions may, for example, include; reducing the amounts outstanding (in discussion with the customers, clients or counterparties if appropriate); using credit derivatives securitising the assets; and, on occasion, selling them.

Barclays maintains the diversification of its portfolio to avoid unwanted credit risk concentrations. Maximum exposure guidelines are in place relating to the exposures to any individual counterparty. These permit higher exposures to higher-rated borrowers than to lower-rated borrowers. They also distinguish between types of counterparty, for example, between sovereign governments, banks and corporations. Excesses are considered individually at the time of credit sanctioning, are reviewed regularly, and are reported to the Risk Oversight Committee and the Board Risk Committee.

Similarly, country risk policy specifies risk appetite by country and avoids excessive concentrations of credits in individual countries, whilst other policies limit lending to certain industries.

A further protection against undesirable concentration of risk is the mandate and scale framework. Mandate and scale limits, which can also be set at Group level to reflect overall risk appetite, can relate either to the stock of current exposures in the relevant portfolio or to the flow of new exposures into that portfolio. Typical limits include the proportion of lending with maturity in excess of seven years and the proportion of new mortgage business that is buy-to-let.

Notes to the accounts

For the year ended 31st December 2007


47 Credit risk (continued)

Businesses may put in place other forms of credit risk mitigation, such as credit derivatives or other forms of credit protection in accordance with their procedures or policies. Hedges and mitigants are monitored and risk appetite reviewed to ensure that credit risk is kept to acceptable levels.

Collateral and security

Collateral and security can be an important mitigant of credit risk.

The Group routinely obtains collateral and security, such as in the case of a residential or commercial mortgage, a reverse repurchase agreement, or a commercial loan with a floating charge over book debts and inventories.

The Group ensures that any collateral held is sufficiently liquid, legally effective, enforceable and regularly reassessed. Before attaching value to collateral, businesses holding specific, agreed classes of collateral must ensure that they are holding a correctly perfected charge.

The principal collateral and security types are as follows:

  • – Personal lending – mortgages over residential properties;
  • – Commercial and industrial sector – charges over business assets such as premises, stock and debtors, and third party credit protection (i.e. guarantees);
  • – Commercial real estate sector – charges over the properties being financed; and,
  • – Over-The-Counter (OTC ) trading exposures – cash; direct debt obligation government (G14+) bonds denominated in the domestic currency of the issuing country, debt issued by supranationals and letters of credit issued by an institution with a long-term unsecured debt rating of A+/A3 or better.

Valuation of the collateral and security taken is within agreed parameters.

Before reliance is placed on third party protection in the form of bank, government or corporate guarantees or credit derivative protection from financial intermediary counterparties, a credit assessment is undertaken. Eligibility parameters for guarantees and credit derivative are similar to those applied to collateral held against OTC traded exposures.

Any collateral taken in respect of OTC trading exposures will be subject to a ‘haircut’ which is negotiated at the time of signing the collateral agreement. A haircut is the valuation percentage applicable to each type of collateral and will be largely based on liquidity and price volatility of the underlying security.

The Group also uses various forms of specialised legal agreements to reduce risk, including entering into master netting agreement with counterparties, which the Group uses to restrict its exposure to credit losses. Group policy requires all netting arrangements to be legally documented. The ISDA Master Agreement is the Group’s preferred agreement for documenting OTC activity. It provides the contractual framework within which dealing activities across a full range of OTC products are conducted and contractually binds both parties to apply close-out netting across all outstanding transactions covered by an agreement if either party defaults or other pre-determined events occur. In the normal course of events, where the master agreement is ISDA, the collateral document will be the ISDA Credit Support Annex (CSA). The collateral document must give Barclays the power to realise any collateral placed with it in the event of the failure of the counterparty, and to place further collateral when requested or in the event of insolvency, administration or similar processes, as well as in the case of early termination.

Security structures and legal covenants are subject to regular review, at least annually, to ensure that they remain fit for purpose and remain consistent with accepted local market practice.

Any properties repossessed are made available for sale in an orderly and timely fashion, with any proceeds realised being used to reduce or repay the outstanding loan. For business customers, in some circumstances,where excess funds are available after repayment in full of the outstanding loan, they are offered to any other, lower ranked, secured lenders. Any additional funds are returned to the customer. Barclays does not, as a rule, occupy repossessed properties for its business use.

Maximum exposure to credit risk before collateral held or other credit enhancements

For financial assets recognised on the balance sheet, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that Barclays 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 to credit risk is the full amount of the committed facilities.

The following table presents the maximum exposure at 31 December 2007 and 2006 to credit risk of balance sheet and off balance sheet financial instruments, before taking account of any collateral held or other credit enhancements and after allowance for impairment and netting where appropriate.

47 Credit risk (continued)

This analysis and all subsequent analyses of credit risk include financial assets subject to credit risk only. They exclude other financial assets, mainly equity securities held in trading portfolio or available for sale as well as non-financial assets. The nominal value of off-balance sheet credit related instruments are also shown, where appropriate.

Financial assets designated at fair value held in respect of linked liabilities to customers under investment contracts have 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 result in no direct loss to the Group.

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2007  2006 
£m  £m 
On balance sheet: 
Cash and balances at central banks  5,801  7,345 
Items in course of collection from other banks  1,836  2,408 
Trading portfolio: 
Treasury and other eligible bills  2,094  2,960 
Debt securities  152,778  140,576 
Traded loans  1,780  1,843 
Total trading portfolio  156,652  145,379 
Financial assets designated at fair value held on own account: 
Loans and advances  23,491  13,196 
Debt securities  24,217  12,100 
Other financial assets  3,545  2,792 
Total financial assets designated at fair value held on own account  51,253  28,088 
Derivative financial instruments  248,088  138,353 
Loans and advances to banks  40,120  30,926 
Loans and advances to customers: 
Residential mortgage loans  111,955  94,511 
Credit card receivables  14,289  13,399 
Other personal lending  24,968  20,511 
Wholesale and corporate loans and advances  183,109  143,836 
Finance lease receivables  11,077  10,043 
Total loans and advances to customers  345,398  282,300 
Available for sale financial investments: 
Treasury and other eligible bills  2,723  2,420 
Debt securities  38,673  47,912 
Total available for sale financial investments  41,396  50,332 
Reverse repurchase agreements  183,075  174,090 
Other assets  3,966  4,097 
Total on balance sheet  1,077,585  863,318 
Off balance sheet: 
Acceptances and endorsements  365  287 
Guarantees and letters of credit pledged as collateral security  35,692  31,252 
Commitments  192,639  205,504 
Total off balance sheet  228,696  237,043 
Total maximum exposure at 31st December  1,306,281  1,100,361 

Notes to the accounts

For the year ended 31st December 2007


47 Credit risk (continued)

Whilst the Group’s maximum exposure to credit risk is the carrying value of the assets, or, in the case of off-balance sheet items the amount guaranteed, committed, accepted or endorsed, in most cases the likely exposure is far less due to collateral, credit enhancements and other actions taken to mitigate the Group’s exposure, described below for each class of financial instrument:

Asset Nature of collateral obtained or other credit risk mitigation
Cash with central banks, items Due to the nature of the counterparties, collateral is generally not sought on these balances which are
in the course of collection, and considered to be low risk.
loans and advances to banks
Trading portfolio The credit risk of these assets is reflected in their fair values. No collateral or enhancements are obtained
directly from the issuer or counterparty but may be implicit in the terms of the instrument.
Financial assets designated at fair value The credit risk of these assets is reflected in their fair values. Debt securities may be collateralised, according to
held on own account their terms. Loans and advances included in this category may be collateralised.
Derivatives Credit risk is also minimised where possible through netting agreements whereby derivative assets and
liabilities with the same counterparty can be offset. Collateral will also be sought, depending on the
creditworthiness of the counterparty and/or nature of the transaction.
Loans and advances to customers
–Residential mortgage loans These are secured by a fixed charge over the property. In addition, portfolios may be securitised.
–Credit card receivables This lending is generally unsecured. Balances may be securitised.
–Other personal lending In general this is unsecured. For certain personal lending, a charge over the borrower’s property or other
assets may be sought.
–Wholesale and corporate loans Various forms of collateral may be sought for these loans, often in the form of a fixed charge over the
and advances borrower’s property and a floating charge over the current assets of a corporate borrower. Loan covenants
may be put in place to safeguard the bank’s financial position. If the exposure is sufficiently large, either
individually or at the portfolio level, credit protection in the form of guarantees, credit derivatives or
insurance may be taken out.
–Finance lease receivables The net investment in the lease is secured through retention of legal title to the leased assets.
Available for sale assets No collateral or enhancements are obtained although collateral may be inherent in the structure of the asset.
Reverse repurchase agreements and These loans are fully collateralised with the securities legally transferred to the Group. The level of collateral
cash collateral on securities borrowed is monitored daily and further collateral calls made when required.
Off balance sheet The Group applies the same risk management policies for off balance sheet risks as it does for its on balance
sheet risks. Collateral may be sought, depending on the strength of the counterparty and/or nature of
the transaction.
Acceptances and endorsements Amounts paid are normally repaid by the customer on presentation.
Acceptances and endorsements Amounts paid are normally repaid by the customer on presentation.
Guarantees and letters of credit The Group is only required to meet its obligations should the customer default, in which case the Group will
pledged as security generally have recourse to the customer.
Commitments
These are commitments to future lending and are subject to the Group’s normal lending policies including taking collateral depending on the customers’ circumstances.
Financial assets that would be past due or impaired had their terms not been renegotiated

Financial assets are generally renegotiated either as part of an ongoing customer relationship or in response to an adverse change in the circumstances of the borrower. In the latter case renegotiation can result in an extension of the due date of payment or repayment plans under which the Group offers a concessionary rate of interest to genuinely distressed borrowers. This will result in the asset continuing to be overdue (delinquent) and will be individually impaired where the renegotiated payments of interest and principal will not recover the original carrying amount of the asset. In other cases, renegotiation will lead to a new agreement, which is treated as a new loan.

Credit risk concentrations

A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.

The analyses of credit risk concentrations presented below are based on the location of the counterparty or customer or the industry in which they are engaged, otherwise, the product type in accordance with the manner in which the Group manages credit risk.

47 Credit risk (continued)

Analyses of the Group’s credit exposure are set out below:

Credit risk concentrations by geographical sector
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2007 
Other  Rest of 
United  European  United  the 
Kingdom  Union  States  Africa  World  Total 
£m  £m  £m  £m  £m  £m 
On balance sheet: 
Cash and balances at central banks  1,458  2,170  206  1,406  561  5,801 
Items in the course of collection from other banks  1,638  75  –  110  13  1,836 
Trading portfolio  28,959  41,675  53,208  877  31,933  156,652 
Financial assets designated at fair value held on own account  15,713  5,907  20,396  958  8,279  51,253 
Derivative financial instruments  60,534  75,017  82,975  2,229  27,333  248,088 
Loans and advances to banks  5,515  11,102  13,443  2,581  7,479  40,120 
Loans and advances to customers  187,824  56,189  39,944  38,653  22,788  345,398 
Available for sale financial investments  5,934  18,354  7,818  2,944  6,346  41,396 
Reverse repurchase agreements  42,160  51,734  67,018  2,156  20,007  183,075 
Other assets  1,813  617  424  698  414  3,966 
Total on balance sheet  351,548  262,840  285,432  52,612  125,153  1,077,585 
Off balance sheet: 
Acceptances and endorsements  227  5  5  34  94  365 
Guarantees and letters of credit pledged as collateral security  7,377  1,468  23,696  1,286  1,865  35,692 
Commitments  90,964  23,946  48,657  20,471  8,601  192,639 
Total off balance sheet  98,568  25,419  72,358  21,791  10,560  228,696 
Total  450,116  288,259  357,790  74,403  135,713  1,306,281 

Credit risk concentrations by geographical sector
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2006 
Other  Rest of 
United  European  United  the 
Kingdom  Union  States  Africa  World  Total 
£m  £m  £m  £m  £m  £m 
On balance sheet: 
Cash and balances at central banks  4,367  2,275  109  515  79  7,345 
Items in the course of collection from other banks  2,296  21  –  82  9  2,408 
Trading portfolio assets  27,900  30,508  55,674  762  30,535  145,379 
Financial assets designated at fair value held on own account  9,969  4,559  10,951  244  2,365  28,088 
Derivative financial instruments  44,022  41,424  35,485  1,639  15,783  138,353 
Loans and advances to banks  6,227  8,511  9,056  2,219  4,913  30,926 
Loans and advances to customers  168,043  43,121  25,577  31,274  14,285  282,300 
Available for sale financial investments  9,262  22,288  9,132  2,287  7,363  50,332 
Reverse repurchase agreements  33,544  41,725  73,415  1,147  24,259  174,090 
Other assets  1,288  1,433  237  982  157  4,097 
Total on balance sheet  306,918  195,865  219,636  41,151  99,748  863,318 
Off balance sheet: 
Acceptances and endorsements  220  6  –  47  14  287 
Guarantees and letters of credit pledged as collateral security  5,210  3,489  19,682  1,196  1,675  31,252 
Commitments  88,731  27,355  56,546  20,880  11,992  205,504 
Total off balance sheet  94,161  30,850  76,228  22,123  13,681  237,043 
Total  401,079  226,715  295,864  63,274  113,429  1,100,361 

Notes to the accounts

For the year ended 31st December 2007


47 Credit risk (continued)

Credit risk concentrations by industrial sector
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2007 
Transport, 
Postal and  Agriculture, 
communi-  Manufac- 
cation and  turing and  Con- 
Government  Business  Wholesale  struction  Energy  Residential  Other  Finance 
and Central  Financial  and other  and retail  and  and  mortgage  personal  lease 
Banks  Services  services  trade  Property  water  loans  lending  receivables  Total 
£m  £m  £m  £m  £m  £m  £m  £m  £m  £m 
On balance sheet: 
Cash and balances 
at central banks  5,801  –  –  –  –  –  –  –  –  5,801 
Items in the course 
of collection from 
other banks  8  1,828  –  –  –  –  –  –  –  1,836 
Trading portfolio 
assets  58,608  83,790  4,434  3,928  924  4,072  895  1  –  156,652 
Financial assets 
designated at fair value 
held on own account  10,914  23,742  570  699  11,325  396  3,509  98  –  51,253 
Derivative financial 
instruments  2,886  227,609  2,771  5,567  1, 106  8,031  87  31  –  248,088 
Loans and advances 
to banks  7,881  32,239  –  –  –  –  –  –  –  40,120 
Loans and advances 
to customers  2,036  70,699  41,678  37,722  22,288  8,623  111,955  39,320  11,077  345,398 
Available for sale 
financial investments  8,880  29,693  2,142  249  167  246  –  19  –  41,396 
Reverse repurchase 
agreements  1,713  179,459  416  735  752  –  –  –  –  183,075 
Other assets  270  1,506  542  307  168  5  112  1,056  –  3,966 
Total on balance sheet  98,997  650,565  52,553  49,207  36,730  21,373  116,558  40,525  11,077  1,077,585 
Off balance sheet: 
Acceptances and 
endorsements  –  125  111  91  21  4  –  13  –  365 
Guarantees and letters 
of credit pledged as 
collateral security  51  17,021  12,847  1,867  538  2,687  1  680  –  35,692 
Commitments  4,511  30,492  26,370  32,388  11, 282  9,961  10,969  66,666  –  192,639 
Total off balance sheet  4,562  47,638  39,328  34,346  11,841  12,652  10,970  67,359  –  228,696 
Total  103,559  698,203  91,881  83,553  48,571  34,025  127,528  107,884  11,077  1,306,281 

47 Credit risk (continued)

Credit risk concentrations by industrial sector
Excel File Download table as excel file
2006 
Transport, 
Postal and  Agriculture, 
communi-  Manufac- 
cation and  turing and  Con- 
Government  Business  Wholesale  struction  Energy  Residential  Other  Finance 
and Central  Financial  and other  and retail  and  and  mortgage  personal  lease 
Banks  Services  services  trade  Property  water  loans  lending  receivables  Total 
£m  £m  £m  £m  £m  £m  £m  £m  £m  £m 
On balance sheet: 
Cash and balances 
at central banks  7,345  –  –  –  –  –  –  –  –  7,345 
Items in the course 
of collection from 
other banks  5  2,403  –  –  –  –  –  –  –  2,408 
Trading portfolio 
assets  56,222  78,322  2,793  3,333  792  3,043  871  3  –  145,379 
Financial assets 
designated at fair value 
held on own account  6,412  12,101  269  325  6,797  162  2,022  –  –  28,088 
Derivative financial 
instruments  1,701  119,812  2,496  5,945  642  7,681  53  23  –  138,353 
Loans and advances 
to banks  2,221  28,705  –  –  –  –  –  –  –  30,926 
Loans and advances 
to customers  2,426  45,033  34,543  34,755  20,542  6,810  94,511  33,538  10,142  282,300 
Available for sale 
financial investments  10,055  39,105  733  9  141  257  31  1  –  50,332 
Reverse repurchase 
agreements  1,205  171,146  107  435  918  20  –  259  –  174,090 
Other assets  43  2,637  469  78  97  5  –  768  –  4,097 
Total on balance sheet  87,635  499,264  41,410  44,880  29,929  17,978  97,488  34,592  10,142  863,318 
Off balance sheet: 
Acceptances and 
endorsements  11  99  38  114  21  1  1  2  –  287 
Guarantees and letters 
of credit pledged as 
collateral security  12  20,999  4,313  1,915  907  2,900  9  197  –  31,252 
Commitments  4,914  49,917  23,807  29,164  15,263  12,401  19,375  50,663  –  205,504 
Total off balance sheet  4,937  71,015  28,158  31,193  16,191  15,302  19,385  50,862  –  237,043 
Total  92,572  570,279  69,568  76,073  46,120  33,280  116,873  85,454  10,142  1,100,361 

Notes to the accounts

For the year ended 31st December 2007


47 Credit risk (continued)

Financial assets subject to credit risk

For the purposes of the Group’s disclosures regarding credit quality, its financial assets have been analysed as follows:

Excel File Download table as excel file
As at 31st December 2007
Neither past  Past due 
due nor  but not  Total 
individually  individually  Individually  Impairment  carrying 
impaired  impaired  impaired  Total  allowance  value 
£m  £m  £m  £m  £m  £m 
Cash and balances at central banks  5,801  –  –  5,801  –  5,801 
Items in the course of collection from other banks  1,836  –  –  1,836  –  1,836 
Trading portfolio  156,652  –  –  156,652  –  156,652 
Financial assets designated at fair value held on own account  50,896  357  –  51,253  –  51,253 
Derivatives  248,088  –  –  248,088  –  248,088 
Loans and advances to banks  37,601  2,522  –  40,123  (3) 40,120 
Loans and advances to customers  324,318  16,005  8,844  349,167  (3,769) 345,398 
Available for sale financial investments  41,304  92  –  41,396  –  41,396 
Reverse repurchase agreements  183,075  –  –  183,075  –  183,075 
Other assets  3,966  –  –  3,966  –  3,966 
Total  1,053,537  18,976  8,844  1,081,357  (3,772) 1,077,585 
As at 31st December 2006
Neither past  Past due 
due nor  but not  Total 
individually  individually  Individually  Impairment  carrying 
impaired  impaired  impaired  Total  allowance  value 
£m  £m  £m  £m  £m  £m 
Cash and balances at central banks  7,345  –  –  7,345  –  7,345 
Items in the course of collection from other banks  2,408  –  –  2,408  –  2,408 
Trading portfolio  145,379  –  –  145,379  –  145,379 
Financial assets designated at fair value held on own account  28,088  –  –  28,088  –  28,088 
Derivatives  138,353  –  –  138,353  –  138,353 
Loans and advances to banks  29,355  1,575  –  30,930  (4) 30,926 
Loans and advances to customers  270,321  10,989  4,321  285,631  (3,331) 282,300 
Available for sale financial investments  50,156  176  –  50,332  –  50,332 
Reverse repurchase agreements  174,090  –  –  174,090  –  174,090 
Other assets  4,097  –  –  4,097  –  4,097 
Total  849,592  12,740  4,321  866,653  (3,335) 863,318 

Financial assets designated at fair value, derivatives, and trading portfolios are not subject to impairment allowances as credit losses are fully reflected in their fair values.

The impairment allowance above includes allowances against financial assets that have been individually impaired and those subject to collective impairment. Assets subject to a collective impairment allowance are included in financial assets neither past due nor individually impaired or financial assets past due but not individually impaired, as appropriate.

47 Credit risk (continued)

(a) Credit quality of financial assets neither past due nor individually impaired

The credit quality of financial assets subject to credit risk, that were neither past due nor impaired, based on the credit ratings on page 243, was as follows:

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2007
Weak/sub- 
Strong  Satisfactory  standard  Total 
£m  £m  £m  £m 
Cash and balances at central banks  5,801  –  –  5,801 
Items in the course of collection from other banks  1,713  123  –  1,836 
Trading portfolio: 
Treasury bills and other eligible bills  1,984  110  –  2,094 
Debt securities  143,161  8,958  659  152,778 
Traded loans  223  1,228  329  1,780 
Total trading portfolio  145,368  10,296  988  156,652 
Financial assets designated at fair value held on own account: 
Loans and advances  13,844  6,186  3,104  23,134 
Debt securities  10,010  14,207  –  24,217 
Other financial assets  3,541  4  –  3,545 
Total financial assets designated at fair value held on own account  27,395  20,397  3,104  50,896 
Derivative financial instruments  243,491  3,630  967  248,088 
Loans and advances to banks  35,635  1,955  11  37,601 
Loans and advances to customers: 
Residential mortgage loans  62,748  41,144  1,761  105,653 
Credit card receivables  –  12,582  5  12,587 
Other personal lending  2,882  19,915  889  23,686 
Wholesale and corporate loans and advances  114,695  54,380  2,427  171,502 
Finance lease receivables  4,586  6,036  268  10,890 
Total loans and advances to customers  184,911  134,057  5,350  324,318