Notes to the accounts

For the year ended 31st December 2007


47 Credit risk (continued)

(a) Credit quality of financial assets neither past due nor individually impaired (continued)
Excel File Download table as excel file
2006
Weak/sub- 
Strong  Satisfactory  standard  Total 
£m  £m  £m  £m 
Cash and balances at central banks  7,345  –  –  7,345 
Items in the course of collection from other banks  1,814  594  –  2,408 
Trading portfolio: 
Treasury bills and other eligible bills  2,947  13  –  2,960 
Debt securities  133,230  5,907  1,439  140,576 
Traded loans  405  1,425  13  1,843 
Total trading portfolio  136,582  7,345  1,452  145,379 
Financial assets designated at fair value held on own account: 
Loans and advances  10,586  2,228  382  13,196 
Debt securities  5,307  6,793  –  12,100 
Other financial assets  2,637  155  –  2,792 
Total financial assets designated at fair value held on own account  18,530  9,176  382  28,088 
Derivative financial instruments  133,980  4,194  179  138,353 
Loans and advances to banks  29,008  336  11  29,355 
Loans and advances to customers: 
Residential mortgage loans  53,760  34,019  1,316  89,095 
Credit card receivables  –  11,858  49  11,907 
Other personal lending  2,832  16,652  110  19,594 
Wholesale and corporate loans and advances  92,912  44,583  2,295  139,790 
Finance lease receivables  4,481  5,349  105  9,935 
Total loans and advances to customers  153,985  112,461  3,875  270,321 
Available for sale financial investments: 
Debt securities  47,687  49  –  47,736 
Treasury bills and other eligible bills  2,313  107  –  2,420 
Total available for sale financial investments  50,000  156  –  50,156 
Reverse repurchase agreements  171,725  856  1,509  174,090 
Other assets  2,548  1,546  3  4,097 
Total financial assets neither past due nor individually impaired  705,517  136,664  7,411  849,592 

47 Credit risk (continued)

(b) Financial assets that are past due but not individually impaired

An age analysis of financial assets that are past due but not individually impaired is set out below.

For the purposes of this analysis an asset is considered past due and included below when any payment due under the strict contractual terms is received late or missed. The amount included is the entire financial asset, not just the payment, of principal or interest or both, overdue.

The Group expends considerable effort in monitoring overdue assets. Assets may be overdue for a number of reasons, including late processing of payments or documentation, for example, over weekends and holiday periods. Where assets are considered to be uncollectable they are subject to individual impairment.

Trading portfolio and derivative assets are measured on a fair value basis such that their carrying amount reflects expected defaults. Amounts that are past due as a result of counterparty credit issues are not significant.

Excel File Download table as excel file
2007
Past  Past  Past  Past 
due  due  due  Past  due 
up to 1  1-2  2-3  due  6 months 
month  months  months  3-6 months  and over  Total 
£m  £m  £m  £m  £m  £m 
Financial assets designated at fair value held on own account: 
Loans and advances  261  4  1  24  67  357 
Total financial assets designated at fair value held on own account  261  4  1  24  67  357 
Loans and advances to banks  2,031  305  186  –  –  2,522 
Loans and advances to customers: 
Residential mortgage loans  3,609  1,349  456  215  184  5,813 
Credit card receivables  558  155  107  205  1  1,026 
Other personal lending  271  199  193  152  205  1,020 
Wholesale and corporate loans and advances  6,970  622  267  62  66  7,987 
Finance lease receivables  75  28  18  38  –  159 
Total loans and advances to customers  11,483  2,353  1,041  672  456  16,005 
Available for sale financial investments: 
Debt securities  92  –  –  –  –  92 
Total available for sale financial investments  92  –  –  –  –  92 
Total financial assets past due but not individually impaired  13,867  2,662  1,228  696  523  18,976 

Excel File Download table as excel file
2006
Past  Past  Past  Past 
due  due  due  Past  due 
up to 1  1-2  2-3  due  6 months 
month  months  months  3-6 months  and over  Total 
£m  £m  £m  £m  £m  £m 
Financial assets designated at fair value held on own account: 
Loans and advances  –  –  –  –  –  – 
Total financial assets designated at fair value held on own account  –  –  –  –  –  – 
Loans and advances to banks  1,004  234  337  –  –  1,575 
Loans and advances to customers: 
Residential mortgage loans  3,394  1,124  280  208  150  5,156 
Credit card receivables  622  202  144  304  –  1,272 
Other personal lending  276  118  119  253  1  767 
Wholesale and corporate loans and advances  3,322  130  180  20  53  3,705 
Finance lease receivables  35  10  22  22  –  89 
Total loans and advances to customers  7,649  1,584  745  807  204  10,989 
Available for sale financial investments: 
Debt securities  131  22  –  23  –  176 
Total available for sale financial investments  131  22  –  23  –  176 
Total financial assets past due but not individually impaired  8,784  1,840  1,082  830  204  12,740 

Notes to the accounts

For the year ended 31st December 2007


47 Credit risk (continued)

(c) Impaired financial assets
Financial assets individually assessed as impaired

An analysis of financial assets individually assessed as impaired is as follows:

Excel File Download table as excel file
2007 2006
Original  Revised  Original  Revised 
carrying  Impairment  carrying  carrying  Impairment  carrying 
amount  allowance  amount  amount  allowance  amount 
£m  £m  £m  £m  £m  £m 
Loans and advances to customers: 
Residential mortgage loans  621  (88) 533  384  (75) 309 
Credit card receivables  1,517  (725) 792  1,250  (839) 411 
Other personal lending  1,635  (1,030) 605  1,289  (954) 335 
Wholesale and corporate loans and advances  4,930  (944) 3,986  1,280  (589) 691 
Finance lease receivables  141  (102) 39  118  (79) 39 
Total loans and advances to customers individually impaired  8,844  (2,889) 5,955  4,321  (2,536) 1,785 
Collective impairment allowance  (883) (799)
Total impairment allowance  (3,772) (3,335)

In addition to the above, there are impaired available for sale debt securities with a carrying value at 31st December 2007 of £432m, after a write-down of £13m. In 2006, all impaired available for sale debt securities had been disposed of prior to 31st December.

The movements on the impairment allowance during the year were as follows:

Excel File Download table as excel file
2007
Amounts 
At  Acquisitions  Unwind  Exchange  Amounts  charged to  Balance 
beginning  and  of  and other  written  income  at 31st 
of year  disposals  discount  adjustments  off  Recoveries  statement  December 
£m  £m  £m  £m  £m  £m  £m  £m 
Loans and advances to banks  4  –  –  –  (1) 13  (13) 3 
Loans and advances to customers: 
Residential mortgage loans  124  –  –  2  (5) 5  6  132 
Credit card receivables  1,030  (75) (60) 4  (819) 103  658  841 
Other personal lending  1,139  –  (53) 10  (668) 54  891  1,373 
Wholesale and corporate loans and advances  939  1  –  37  (440) 46  727  1,310 
Finance lease receivables  99  1  –  –  (30) 6  37  113 
Total loans and advances to customers  3,331  (73) (113) 53  (1,962) 214  2,319  3,769 
Total impairment allowance  3,335  (73) (113) 53  (1,963) 227  2,306  3,772 

Excel File Download table as excel file
2006
Amounts 
At  Acquisitions  Unwind  Exchange  Amounts  charged to  Balance 
beginning  and  of  and other  written  income  at 31st 
of year  disposals  discount  adjustments  off  Recoveries  statement  December 
£m  £m  £m  £m  £m  £m  £m  £m 
Loans and advances to banks  4  –  –  –  –  33  (33) 4 
Loans and advances to customers: 
Residential mortgage loans  139  –  (8) (8) (51) 14  38  124 
Credit card receivables  978  –  (66) (21) (887) 101  925  1,030 
Other personal lending  975  –  (22) (42) (557) 63  722  1,139 
Wholesale and corporate loans and advances  1,253  (12) (2) (69) (626) 41  354  939 
Finance lease receivables  101  (11) –  (13) (53) 7  68  99 
Total loans and advances to customers  3,446  (23) (98) (153) (2,174) 226  2,107  3,331 
Total impairment allowance  3,450  (23) (98) (153) (2,174) 259  2,074  3,335 

47 Credit risk (continued)

Collateral and other credit enhancements held

Financial assets that are past due or individually assessed as impaired may be partially or fully collateralised or subject to other forms of credit enhancement.

Assets in these categories subject to collateralisation are mainly corporate and residential mortgage loans.

For corporate loans, security may be in the form of floating charges where the value of the collateral varies with the level of assets such as inventory and receivables held by the customer. For these and other reasons collateral given is only accurately valued on origination of the loan or in the course of enforcement actions and as a result it is not practicable to estimate the fair value of the collateral held.

A description and the estimated fair value of collateral held in respect of residential mortgage loans that are past due or individually assessed as impaired was as follows:

Excel File Download table as excel file
2007  2006 
Fair  Fair 
value  value 
£m  £m 
Nature of assets 
– Residential Property  6,488  6,183 
Total  6,488  6,183 

Collateral included in the above table reflects the Group’s interest in the property in the event of default.That held in the form of charges against residential property in the UK is restricted to the outstanding loan balance. In other territories, where the Group is not obliged to return any sale proceeds to the mortgagee, the full estimated fair value has been included.

Collateral and other credit enhancements obtained

The carrying value of assets held by the Group as at 31st December 2007 as a result of the enforcement of collateral was as follows:

Excel File Download table as excel file
2007  2006 
Carrying  Carrying 
Amount  Amount 
£m  £m 
Nature of assets 
– Residential Property  34  12 
– Commercial and industrial property  1  2 
– Other credit enhancements  –  – 
Total  35  14 

The Group does not use assets obtained in its operations. Assets obtained are normally sold, generally at auction, or realised in an orderly manner for the maximum benefit of the Group, the borrower and the borrower’s other creditors in accordance with the relevant insolvency regulations.

Notes to the accounts

For the year ended 31st December 2007


48 Liquidity risk

Liquidity risk management and measurement

This is the risk that the Group is unable to meet its obligations when they fall due and to replace funds when they are withdrawn, with consequent failure to repay depositors and fulfil commitments to lend. The risk that it will be unable to meet its obligations is inherent in all banking operations and can be impacted by a range of institution specific and market-wide events including, but not limited to, credit events, merger and acquisition activity, systemic shocks and natural disasters.

Intraday liquidity

The need to monitor, manage and control intraday liquidity in real time is recognised by the Group as a mission critical process: any failure to meet specific intraday commitments would have significant consequences.

The Group policy is that each operation must ensure that it has access to sufficient intraday liquidity to meet any obligations it may have to clearing and settlement systems. Major currency payment flows and payment system collateral are monitored and managed in real time to ensure that at all times there is sufficient collateral to make payments.

Day to day funding

Day to day funding is managed by short-term mismatch limits for the next day, week and month which control cash flows to ensure that requirements can be met. These requirements include replenishment of funds as they mature or are borrowed by customers. The Group maintains an active presence in global money markets and monitors and manages the wholesale money market capacity for the Group’s name to enable that to happen.

In addition to cash flow management, Barclays Treasury also monitors unmatched medium-term assets and the level and type of undrawn lending commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees.

Liquid Assets

The Group maintains a portfolio of highly marketable assets including UK, US and Euro-area government bonds that can be sold or funded on a secured basis as protection against any unforeseen interruption to cash flow. The Group accesses secured funding markets in these assets on a regular basis to ensure market access. The Group does not rely on committed funding lines for protection against unforeseen interruption to cash flow.

Diversification of liquidity sources

Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, provider, product and term. In addition, to avoid reliance on a particular group of customers or market sectors, the distribution of sources and the maturity profile of deposits are also carefully managed. Important factors in assuring liquidity are competitive rates and the maintenance of depositors’ confidence. Such confidence is based on a number of factors including the Group’s reputation and relationship with those clients, the strength of earnings and the Group’s financial position.

Structural liquidity

An important source of structural liquidity is provided by our core retail deposits in the UK, Europe and Africa, mainly current accounts and savings accounts. Although current accounts are repayable on demand and savings accounts at short notice, the Group’s broad base of customers – numerically and by depositor type – helps to protect against unexpected fluctuations. Such accounts form a stable funding base for the Group’s operations and liquidity needs.

The Group policy is to fund the balance sheet of the retail and commercial bank on a global basis with customer deposits without recourse to the wholesale markets. This provides protection from the liquidity risk of wholesale market funding. The exception to this policy is ABSA, which has a large portion of wholesale funding due to the structural nature of the South African financial sector.

Stress tests

Stress testing is undertaken to assess and plan for the impact of various scenarios which may put the Group’s liquidity at risk.

Treasury develops and monitors a range of stress tests on the Group’s projected cash flows. These stress scenarios include Barclays-specific scenarios such an unexpected rating downgrade and operational problems, and external scenarios such as Emerging Market crises, payment system disruption and macroeconomic shocks. The output informs both the liquidity mismatch limits and the Group’s contingency funding plan. This is maintained by Treasury and is aligned with the Group and country business resumption plans to encompass decision-making authorities, internal and external communication and, in the event of a systems failure, the restoration of liquidity management and payment systems.

The ability to raise funds is in part dependent on maintaining the Bank’s credit rating. The funding impact of a credit downgrade is regularly estimated. Whilst the impact of a single downgrade may affect the price at which funding is available, the effect on liquidity is not considered significant in overall Group terms.

48 Liquidity risk (continued)

Contractual maturity of financial assets and liabilities

The table below provides detail on the contractual maturity of all financial instruments and other assets and liabilities. Derivatives (other than those designated in a hedging relationship) and trading portfolio assets and liabilities which are included in the on demand column at their fair value. Liquidity risk on these items is not managed on the basis of contractual maturity since they are not held for settlement according to such maturity and will frequently be settled before contractual maturity at fair value. Derivatives designated in a hedging relationship are included according to their contractual maturity.

Financial assets designated at fair value in respect of linked liabilities to customers under investment contracts have been included in Other assets and Other liabilities as the Group is not exposed to liquidity risk arising from them; any request for funds from creditors would be met by simultaneously liquidating or transferring the related investment.

Excel File Download table as excel file
Over 
three  Over  Over  Over  Over 
months  six months  one year  three years  five years 
Not more  but not  but not  but not  but not  but not 
On  than three  more than  more than  more than  more than  more than  Over 
demand  months  six months  one year  three years  five years  ten years  ten years  Total 
At 31st December 2007  £m  £m  £m  £m  £m  £m  £m  £m  £m 
Assets 
Cash and balances at central banks  4,785  1,016  –  –  –  –  –  –  5,801 
Items in course of collection from 
other banks  1,651  185  –  –  –  –  –  –  1,836 
Trading portfolio assets  193,691  –  –  –  –  –  –  –  193,691 
Financial assets designated 
at fair value: 
– held on own account  1,901  3,202  657  3,029  13,882  7,022  10,637  16,299  56,629 
Derivative financial instruments: 
– held for trading  246,950  –  –  –  –  –  –  –  246,950 
– designated for risk management  –  76  92  39  260  105  317  249  1,138 
Loans and advances to banks  5,882  22,143  446  3,189  1,259  1,035  5,680  486  40,120 
Loans and advances to customers  43,469  62,294  12,793  19,307  35,195  30,926  47,297  94,117  345,398 
Available for sale financial 
instruments  994  9,009  4,544  2,377  10,831  6,466  5,268  3,583  43,072 
Reverse repurchase agreements 
and cash collateral on 
securities borrowed  –  158,475  7,369  7,835  4,921  4,348  127  –  183,075 
Total financial assets  499,323  256,400  25,901  35,776  66,348  49,902  69,326  114,734  1,117,710 
Other assets  –  –  –  –  –  –  –  109,651  109,651 
Total assets  499,323  256,400  25,901  35,776  66,348  49,902  69,326  224,385  1,227,361 
Liabilities 
Deposits from other banks  16,288  69,049  1,977  991  651  1,171  231  188  90,546 
Items in the course of collection 
due to other banks  1,781  11  –  –  –  –  –  –  1,792 
Customer accounts  174,269  101,667  5,692  4,097  1,656  1,240  993  5,373  294,987 
Trading portfolio liabilities  65,402  –  –  –  –  –  –  –  65,402 
Financial liabilities designated 
at fair value: 
– held on own account  655  18,022  8,331  6,933  10,830  11,601  12,625  5,492  74,489 
Derivative financial instruments: 
– held for trading  247,378  –  –  –  –  –  –  –  247,378 
– designated for risk management  –  51  43  82  310  150  215  59  910 
Debt securities in issue  698  70,760  11,798  6,945  13,308  7,696  3,123  5,900  120,228 
Repurchase agreements and cash 
collateral on securities lent  –  160,822  2,906  5,547  40  92  22  –  169,429 
Subordinated liabilities  –  –  –  –  250  934  7,511  9,455  18,150 
Total financial liabilities  506,471  420,382  30,747  24,595  27,045  22,884  24,720  26,467  1,083,311 
Other liabilities  –  –  –  –  –  –  –  111,574  111,574 
Total liabilities  506,471  420,382  30,747  24,595  27,045  22,884  24,720  138,041  1,194,885 
Cumulative liquidity gap  (7,148) (171,130) (175,976) (164,795) (125,492) (98,474) (53,868) 32,476  32,476 

Notes to the accounts

For the year ended 31st December 2007


48 Liquidity risk (continued)

Excel File Download table as excel file
Over 
three  Over  Over  Over  Over 
months  six months  one year  three years  five years 
Not more  but not  but not  but not  but not  but not 
On  than three  more than  more than  more than  more than  more than  Over 
demand  months  six months  one year  three years  five years  ten years  ten years  Total 
At 31st December 2006  £m  £m  £m  £m  £m  £m  £m  £m  £m 
Assets 
Cash and balances at central banks  7,050  295  –  –  –  –  –  –  7,345 
Items in course of collection from 
other banks  1,782  626  –  –  –  –  –  –  2,408 
Trading portfolio assets  177,867  –  –  –  –  –  –  –  177,867 
Financial assets designated 
at fair value: 
– held on own account  1,899  1,975  295  942  5,692  5,239  4,018  11,739  31,799 
Derivative financial instruments: 
– held for trading  137,273  –  –  –  –  –  –  –  137,273 
– designated for risk management  –  72  88  37  249  100  296  238  1,080 
Loans and advances to banks  2,887  18,806  800  3,063  1,595  1,130  1,012  1,633  30,926 
Loans and advances to customers  32,492  44,424  9,901  15,508  31,986  27,668  38,036  82,285  282,300 
Available for sale financial 
instruments  564  9,084  2,516  8,733  13,854  4,621  6,999  5,332  51,703 
Reverse repurchase agreements 
and cash collateral on securities 
borrowed  –  149,872  4,670  11,025  1,375  6,939  168  41  174,090 
Total financial assets  361,814  225,154  18,270  39,308  54,751  45,697  50,529  101,268  896,791 
Other assets  –  –  –  –  –  –  –  99,996  99,996 
Total assets  361,814  225,154  18,270  39,308  54,751  45,697  50,529  201,264  996,787 
Liabilities 
Deposits from other banks  19,163  55,534  1,418  891  593  1,406  367  190  79,562 
Items in the course of collection 
due to other banks  2,154  67  –  –  –  –  –  –  2,221 
Customer accounts  153,642  89,079  5,594  3,604  1,655  1,436  807  937  256,754 
Trading portfolio liabilities  71,874  –  –  –  –  –  –  –  71,874 
Financial liabilities designated at 
fair value: 
– held on own account  6  13,958  6,297  5,143  7,090  8,447  10,978  2,068  53,987 
Derivative financial instruments: 
– held for trading  139,746  –  –  –  –  –  –  –  139,746 
– designated for risk management  –  306  13  59  230  284  51  8  951 
Debt securities in issue  17  70,805  8,669  5,311  10,408  3,798  4,017  8,112  111,137 
Repurchase agreements and cash 
collateral on securities lent  –  121,278  6,362  2,659  2,305  –  –  4,352  136,956 
Subordinated liabilities  –  –  –  –  236  911  4,623  8,016  13,786 
Total financial liabilities  386,602  351,027  28,353  17,667  22,517  16,282  20,843  23,683  866,974 
Other liabilities  –  –  –  –  –  –  –  102,423  102,423 
Total liabilities  386,602  351,027  28,353  17,667  22,517  16,282  20,843  126,106  969,397 
Cumulative liquidity gap  (24,788) (150,661) (160,744) (139,103) (106,869) (77,454) (47,768) 27,390  27,390 

48 Liquidity risk (continued)

Contractual maturity of financial liabilities on an undiscounted basis

The table below presents the cash flows payable by the Group under financial liabilities by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows of all financial liabilities (i.e nominal values), whereas the Group manages the inherent liquidity risk based on discounted expected cash inflows. Derivative financial instruments held for trading and trading portfolio liabilities are included in the on demand column at their fair value.

Excel File Download table as excel file
Over 
one year 
but 
On  Within  less than  Over 
demand  one year  five years  five years  Total 
At 31st December 2007  £m  £m  £m  £m  £m 
Deposits from other banks  16,288  72,533  2,099  275  91,195 
Items in the course of collection due to other banks  1,781  11  –  –  1,792 
Customer accounts  174,269  112,875  3,739  10,280  301,163 
Trading portfolio liabilities  65,402  –  –  –  65,402 
Financial liabilities designated at fair value: 
– held on own account  655  34,008  25,870  31,868  92,401 
Derivative financial instruments: 
– held for trading  247,378  –  –  –  247,378 
– designated for risk management  –  226  479  186  891 
Debt securities in issue  698  91,201  22,926  15,020  129,845 
Repurchase agreements and cash collateral on securities lent  –  169,725  146  23  169,894 
Subordinated liabilities  –  463  4,964  17,875  23,302 
Other financial liabilities  –  2,968  1,456  –  4,424 
Total financial liabilities  506,471  484,010  61,679  75,527  1,127,687 
Off balance sheet items 
Loan commitments  183,784  3,111  4,513  963  192,371 
Other commitments  453  200  145  12  810 
Total off balance sheet items  184,237  3,311  4,658  975  193,181 
Total financial liabilities and off balance sheet items  690,708  487,321  66,337  76,502  1,320,868 

Excel File Download table as excel file
Over 
one year 
but not 
On  Within  more than  Over 
demand  one year  five years  five years  Total 
At 31st December 2006  £m  £m  £m  £m  £m 
Deposits from other banks  19,163  58,101  2,317  590  80,171 
Items in the course of collection due to other banks  2,154  68  –  –  2,222 
Customer accounts  153,642  99,165  3,593  2,836  259,236 
Trading portfolio liabilities  71,874  –  –  –  71,874 
Financial liabilities designated at fair value: 
– held on own account  6  27,539  13,861  19,827  61,233 
Derivative financial instruments: 
– held for trading  139,746  –  –  –  139,746 
– designated for risk management  –  378  584  199  1,161 
Debt securities in issue  17  89,222  13,932  15,668  118,839 
Repurchase agreements and cash collateral on securities lent  –  137,040  366  –  137,406 
Subordinated liabilities  –  837  7,487  9,411  17,735 
Other financial liabilities  –  3,138  1,072  –  4,210 
Total financial liabilities  386,602  415,488  43,212  48,531  893,833 
Off balance sheet items 
Loan commitments  192,293  10,939  1,255  624  205,111 
Other commitments  313  370  38  56  777 
Total off balance sheet items  192,606  11,309  1,293  680  205,888