UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year endedDecember 31, 20152017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transitionperiod from to
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file numbers | Barclays PLC | 1-09246 | ||||
Barclays Bank PLC | 1-10257 |
BARCLAYS PLC
BARCLAYS BANK PLC
(Exact Names of Registrants as Specified in their Charter[s])
ENGLAND
(Jurisdiction of Incorporation or Organization)
1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND
(Address of Principal Executive Offices)
PATRICK GONSALVES,GARTH WRIGHT, +44 (0)20 7116 2901, PATRICK.GONSALVES@BARCLAYS.COM3170, GARTH.WRIGHT@BARCLAYS.COM
1 CHURCHILL PLACE, LONDON E14 5HP, ENGLAND
*(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Barclays PLC
Title of Each | Name of Each Exchange On Which | |
25p ordinary shares | New York Stock Exchange* |
| |||
American | New York Stock Exchange | ||
4.375% Fixed Rate Subordinated Notes due | New York Stock Exchange | ||
2.75% Fixed Rate Senior Notes due 2019 | New York Stock Exchange | ||
2.00% Fixed Rate Senior Notes due 2018 | New York Stock Exchange | ||
3.65% Fixed Rate Senior Notes due 2025 | New York Stock Exchange | ||
2.875% Fixed Rate Senior Notes due 2020 | New York Stock Exchange | ||
5.25% Fixed Rate Senior Notes due 2045 | New York Stock Exchange | ||
3.25% Fixed Rate Senior Notes due 2021 | New York Stock Exchange | ||
4.375% Fixed Rate Senior Notes due 2026 | New York Stock Exchange | ||
5.20% Fixed Rate Subordinated Notes due 2026 | New York Stock Exchange | ||
3.20% Fixed Rate Senior Notes due 2021 | New York Stock Exchange | ||
Floating Rate Senior Notes due 2021 | New York Stock Exchange | ||
Floating Rate Senior Notes due 2023 | New York Stock Exchange | ||
3.684% Fixed Rate Senior Notes due 2023 | New York Stock Exchange | ||
4.337% Fixed Rate Senior Notes due 2028 | New York Stock Exchange | ||
4.950% Fixed Rate Senior Notes due 2047 | New York Stock Exchange | ||
4.836% Fixed Rate Subordinated Callable Notes due 2028 | New York Stock Exchange | ||
3.250% Fixed Rate Senior Notes due 2033 | New York Stock Exchange |
* | Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements |
Barclays Bank PLC
Title of Each Class | Name of Each Exchange On Which Registered | |
Callable Floating Rate Notes 2035 | New York Stock Exchange | |
| New York Stock Exchange | |
| ||
| New York Stock Exchange | |
Non-Cumulative Callable Dollar Preference Shares, Series 5 | New York Stock Exchange* | |
American Depository Shares, Series 5, each representing one Non-Cumulative Callable Dollar Preference Share, Series 5 | New York Stock Exchange | |
5.140% Lower Tier 2 Notes due October 2020 | New York Stock Exchange | |
iPath® Bloomberg Commodity Index Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Agriculture Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Bloomberg Aluminum Subindex Total ReturnSM ETN | NYSE Arca | |
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iPath® Long Enhanced MSCI EAFE® TR Index ETN | NYSE Arca | |
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iPath® Long Extended S&P 500® TR Index ETN | NYSE Arca | |
iPath® Global Carbon ETN | NYSE Arca | |
iPath® Optimized Currency Carry ETN | NYSE Arca | |
iPath® US Treasury Steepener ETN | NASDAQ | |
iPath® US Treasury Flattener ETN | NASDAQ | |
iPath® US Treasury 2-year Bull ETN | NASDAQ | |
iPath® US Treasury 2-year Bear ETN | NASDAQ | |
iPath® US Treasury 10-year Bull ETN | NASDAQ | |
iPath® US Treasury 10-year Bear ETN | NASDAQ | |
iPath® US Treasury Long Bond Bull ETN | NASDAQ | |
iPath® US Treasury Long Bond Bear ETN | NASDAQ | |
iPath® Pure Beta Broad Commodity ETN | NYSE Arca | |
iPath® Pure Beta S&P | NYSE Arca | |
iPath® Pure Beta Cocoa ETN | NYSE Arca | |
iPath® Pure Beta Coffee ETN | NYSE Arca | |
iPath® Pure Beta Cotton ETN | NYSE Arca | |
iPath® Pure Beta Sugar ETN | NYSE Arca | |
iPath® Pure Beta Aluminum ETN | NYSE Arca | |
iPath® Pure Beta Copper ETN | NYSE Arca | |
iPath® Pure Beta Lead ETN |
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iPath® Pure Beta | NYSE Arca | |
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iPath® Pure Beta | NYSE Arca | |
iPath® Pure Beta | NYSE Arca | |
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iPath® Pure Beta | NYSE Arca | |
iPath® Pure Beta | NYSE Arca | |
iPath® | ||
NYSE Arca | ||
iPath® | NASDAQ | |
iPath® US Treasury 5-year Bear ETN | NASDAQ | |
iPath® S&P 500 Dynamic VIX | NYSE Arca | |
iPath® | NYSE Arca | |
iPath® GEMS | NYSE Arca | |
iPath® | NYSE Arca | |
iPath® | NYSE Arca | |
NYSE Arca | ||
iPath® Series B S&P GCSI Crude Oil Return Index ETN | NYSE Arca | |
iPath® Series B Bloomberg Agriculture Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Aluminum Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Coffee Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Copper Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Cotton Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Energy Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Grains Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Industrial Metals Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Livestock Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Nickel Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Platinum Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Precious Metals Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Softs Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Sugar Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Tin Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B Bloomberg Natural Gas Subindex Total ReturnSM ETN | NYSE Arca | |
iPath® Series B S&P 500 VIX Short-Term FuturesTM ETNs | CBOE BZX Exchange | |
iPath® Series B S&P 500 VIX Mid-Term FuturesTM ETNs | CBOE BZX Exchange | |
Barclays ETN+ S&P 500® VEQTOR™ ETN | NYSE Arca | |
Barclays ETN+ Shiller CAPETM ETNs | NYSE Arca | |
Barclays ETN+ Select MLP ETN | NYSE Arca | |
Barclays ETN+ FI Enhanced Europe 50 ETN | NYSE Arca | |
Barclays ETN+ FI Enhanced Global High Yield ETN | NYSE Arca | |
Barclays | NYSE Arca | |
Barclays Women in Leadership ETN | NYSE Arca | |
Barclays Return on Disability ETN | NYSE Arca | |
Barclays Inverse US Treasury Composite ETN | NASDAQ |
* | Not for trading, but in connection with the registration of American Depository Shares, pursuant to the requirements to the Securities and Exchange Commission. |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuers’ classes of capital or common stock as of the close of the period covered by the annual report.
Barclays PLC | 25p ordinary shares | 16,804,603,949 | ||||
Barclays Bank PLC | £1 ordinary shares | 2,342,558,515 | ||||
£1 preference shares | 1,000 | |||||
€100 preference shares | 31,856 | |||||
$0.25 preference shares | ||||||
$100 preference shares | 58,133 |
Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yesþ☑ No¨☐
If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.
Yes¨☐ Noþ☑
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yesþ☑ No¨☐
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes¨☐ No¨☐
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and large accelerated filer”“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Barclays PLC
Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer | Emerging growth company☐ |
Barclays Bank PLC
Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer | Emerging growth company☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards* provided pursuant to Section 13(a) of the Exchange Act.☐
† | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
*Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP¨☐
International Financial Reporting Standards as issued by the International Accounting Standards Board þ☑
Other¨☐
*If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17¨☐
Item 18¨☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨☐ Noþ☑
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes¨☐ No¨☐
SEC Form 20-F Cross reference information
SEC Form 20-F Cross reference information | ||||||
Form 20-F item number | Page and caption references in this document* | |||||
1 | Identity of Directors, Senior Management and Advisers | Not applicable | ||||
2 | Offer Statistics and Expected Timetable | Not applicable | ||||
3 | Key Information | |||||
A. Selected financial data | ||||||
B. | Capitalization and indebtedness | Not applicable | ||||
C. | Reason for the offer and use of proceeds | Not applicable | ||||
D. Risk factors | ||||||
4 | ||||||
Information on the Company | ||||||
A. | History and development of the company |
271 (Note 43), 272-274, 388-389, | ||||
B. Business overview | 201-202 (Note 2), | |||||
C. Organizational structure | ||||||
D. | Property, plants and equipment | (Note 25) | ||||
4A | Unresolved staff comments | Not applicable | ||||
5 | Operating and Financial Review and Prospects | |||||
A. Operating results | (Note 15), 239-247 (Note 29), 347 | |||||
B. | Liquidity and capital resources | 213-215 (Note 15), (Note 30), 265-266 (Note 39), | ||||
C. | Research and development, patents and licenses, etc. | |||||
D. | Trend information | – | ||||
E. Off-balance sheet arrangements | (Note 39) | |||||
F. | Tabular disclosure of contractual obligations | |||||
G. Safe harbor | ||||||
6 | Directors, Senior Management and Employees | |||||
A. | Directors and senior management | |||||
B. Compensation | 267-268 (Note 41), 385, 408 | |||||
C. Board practices | ||||||
D. Employees | ||||||
E. Share ownership | 292-294 | |||||
7 | ||||||
Major Shareholders and Related Party Transactions | ||||||
A. Major shareholders | ||||||
B. | Related party transactions | |||||
C. | Interests of experts and counsel | Not applicable | ||||
8 | Financial Information | |||||
A. | Consolidated statements and other financial information | 251 (Note 31), 195-271, 273, 275-276, 386- 387, 404-406 | ||||
B. | Significant changes | Not applicable | ||||
9 | The Offer and Listing | |||||
A. | Offer and listing details | |||||
B. | Plan of distribution | Not applicable | ||||
C. Markets | ||||||
D. | Selling shareholders | Not applicable | ||||
E. | Dilution | Not applicable | ||||
F. | Expenses of the issue | Not applicable | ||||
10 | Additional Information | |||||
A. | Share capital | Not applicable | ||||
B. | Memorandum and Articles of Association | |||||
C. Material contracts | ||||||
D. Exchange controls | ||||||
E. Taxation | ||||||
F. | Dividends and paying assets | Not applicable | ||||
G. | Statement by experts | Not applicable | ||||
H. Documents on display | ||||||
I. Subsidiary information | ||||||
11 | ||||||
Quantitative and Qualitative Disclosure about Market Risk |
87, 118-121, 143-144, 146-148, 331-337 | ||||||
| ||||||
Description of Securities Other than Equity Securities | ||||||
A. | Debt Securities | |||||
Not applicable | ||||||
B. Warrants and Rights | Not applicable | |||||
C. Other Securities | Not applicable | |||||
D. American Depositary Shares | 275-276, 280-281 | |||||
13 | Defaults, Dividends Arrearages and Delinquencies | Not applicable | ||||
14 | Material Modifications to the Rights of Security Holders and Use of Proceeds | Not applicable |
15 | Controls and Procedures | |||||
A. | Disclosure controls and procedures | |||||
B. | Management’s annual report on internal control over financial reporting | |||||
C. | Attestation report of the registered public accounting firm | |||||
D. | Changes in internal control over financial reporting | |||||
16A | Audit Committee Financial Expert | |||||
16B | Code of Ethics | |||||
16C | Principal Accountant Fees and Services | |||||
16D | Exemptions from the Listing Standards for Audit Committees | Not applicable | ||||
16E | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |||||
16F | Change in Registrant’s Certifying Accountant | |||||
16G | Corporate Governance | |||||
17 | Financial Statements | Not applicable (See Item 8) | ||||
18 | Financial Statements | Not applicable (See Item 8) | ||||
19 | Exhibits | Exhibit Index |
* | Captions have been included only in respect of pages with multiple sections on the same page in order to identify the relevant caption on that page covered by the corresponding Form 20-F item number. |
Positioned for growth,
Return to stability
sharing and success
Barclays PLC and Barclays Bank PLC
|
Notes
The termterms Barclays or Group refersrefer to Barclays PLC together with its subsidiaries. Unless otherwise stated, the income statement analysis compares the year ended 31 December 20152017 to the corresponding twelve months of 20142016 and balance sheet analysis as at 31 December 20152017 with comparatives relating to 31 December 2014.2016. The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of Pounds Sterling respectively; and the abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of US Dollars respectively.
Comparatives have been restated to reflect the implementation of the Group structure changesrespectively; and the reallocationabbreviations ‘€m’ and ‘€bn’ represent millions and thousands of elementsmillions of the Head Office results under the revised business structure. These restatements were detailed in our Form 6-K filed with the SEC dated 14 July 2014.
References throughout this document to ‘provisions for ongoing investigations and litigation including Foreign Exchange’ mean ‘provisions held for certain aspects of ongoing investigations involving certain authorities and litigation including Foreign Exchange.’Euros respectively.
The information in this documentannouncement, which was approved by the Board of Directors on 21 February 2018, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015,2017, which includeincludes certain information required for the Joint Annual Report on Form 20-F of Barclays PLC and Barclays Bank PLC to the US SEC (2015 20-F)Securities and Exchange Commission (SEC) and which contain an unqualified audit report under Section 495 of the Companies Act 2006 (which does not make any statements under Section 498 of the Companies Act 2006) have beenwill be delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.
Barclays is a frequent issuer in the debt capital markets and regularly meets with investors via formal road-shows and other ad hoc meetings. Consistent with its usual practice, Barclays expects that from time to time over the coming quarter it will meet with investors globally to discuss these results and other matters relating to the Group.
Strategic Update
On 1 March 2016, Barclays also announced certain strategy updates of the Group, including in relation to reorganisation of operating segments into Barclays UK and Barclays Corporate & International, the intention to reduce the Group’s stake in Barclays Africa Group Limited, the contribution of certain assets to the Non-Core segment, revised guidance on future dividends and new Group financial targets. Further information can be found in the Form 6-K regarding the “Group Chief Executive Officer—Strategy Update” filed by Barclays on 1 March 2016, which is incorporated herein by reference.
Certain non-IFRS measures
Barclays management believes that the non-International Financial Reporting Standards (non-IFRS)non-IFRS performance measures included in this document provide valuable information to the readers of itsthe financial statements becauseas they enable the reader to identify a more consistent basis for comparing the business’ performance between financial periods, and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence or are relevant for an assessment of the Group. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by BarclaysBarclays’ management. However, any non-IFRS performance measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as well. As management reviewsRefer to the adjusting items described belowappendix on pages 181 to 183 for further information, reconciliations and calculations of non-IFRS performance measures included throughout this document, and the most directly comparable IFRS measures.
There are a number of key judgement areas, for example impairment calculations, which are based on models and which are subject to ongoing adjustment and modifications. Reported numbers reflect best estimates and judgements at a Group level, segmental results are presented excluding these itemsthe given point in accordance with IFRS 8; “Operating Segments”. Statutory and adjusted performance is reconciled at a Group level only.time.
Key non-IFRS measures included in this document, and the most directly comparable IFRS measures, are:
– Adjusted profit before taxAverage allocated equity represents the average shareholders’ equity that is the non-IFRS equivalent of profit before tax as it excludes the impact of own credit, impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, gain on US Lehman acquisition assets, provisions for ongoing investigations and litigation including Foreign Exchange, losses on sale relatingallocated to the Spanish, Portuguese and Italian businesses, Education, Social Housing, and Local Authority (ESHLA) revision of valuation methodology, and gain on valuation of a component of the defined retirement benefit liability. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted profit after tax represents profit after tax excluding the post-tax impact of own credit, impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, gain on US Lehman acquisition assets, provisions for ongoing investigations and litigation including Foreign Exchange, loss on sale relating to the Spanish, Portuguese and Italian businesses, Education, Social Housing, and Local Authority (ESHLA) revision of valuation methodology, and gain on valuation of a component of the defined retirement benefit liability. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted attributable profit represents adjusted profit after tax less profit attributable to non-controlling interests.businesses. The comparable IFRS measure is attributable profit. A reconciliation to IFRS is provided on page 192 for the Group;
– Adjusted income and adjusted total income net of insurance claims represents total income net of insurance claims adjusted to exclude the impact of own credit, revision of Education, Social Housing, and Local Authority (ESHLA) valuation methodology and gain on US Lehman acquisition assets. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted net operating income represents net operating income excluding the impact of own credit; the gain on US Lehman acquisition assets and revision of ESHLA valuation methodology. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted total operating expenses represents operating expenses excluding impairment of goodwill and other assets relating to businesses being disposed, provisions for UK customer redress, provisions for ongoing investigations and litigation including Foreign Exchange and gain on valuation of a component of the defined retirement benefit liability. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted litigation and conduct represents litigation and conduct excluding the provisions for UK customer redress and the provision for ongoing investigations and litigation including Foreign Exchange. A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted cost: income ratio represents adjusted operating expenses (defined above) compared to adjusted income (defined above). A reconciliation to IFRS is presented on page 192 for the Group;
– Adjusted compensation: net operating income ratio represents compensation costs: net operating income ratio excluding the impact of own credit; and the revision of ESHLA valuation methodology.average equity. A reconciliation is provided on page 192iii;
– Average allocated tangible equity is calculated as the average of the previous month’s period end allocated tangible equity and the current month’s period end allocated tangible equity. The average allocated tangible shareholders’ equity for the Group;
– Adjusted compensation: operating income ratio represents compensation costs: operating income ratioquarter/year is the average of the monthly averages within that quarter/year. Period end allocated tangible equity is calculated as 12.0% (2016: 11.5%) of CRD IV fully loaded risk weighted assets for each business, adjusted for CRD IV fully loaded capital deductions, excluding goodwill and intangible assets, reflecting the impact of credit impairment charges and other provisions; own credit; gain on US Lehman acquisition and revision of ESHLA valuation methodology.assumptions the Group uses for capital planning purposes. The comparable IFRS measure is average equity. A reconciliation is provided on page 192iii;
– Average tangible equity is calculated as the average of the previous month’s period end tangible equity and the current month’s period end tangible equity. Period end tangible equity is calculated as 12.0% (2016: 11.5%) of CRD IV fully loaded risk weighted assets, adjusted for CRD IV fully loaded capital deductions, excluding goodwill and intangible assets, reflecting the assumptions the Group uses for capital planning purposes. The average tangible shareholders’ equity for the Group;quarter/year is the average of the monthly averages within that quarter/year. The comparable IFRS measure is average equity. A reconciliation is provided on page iii;
– Adjusted basicBasic earnings per ordinary share excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and the re-measurement of US DTAs represents adjusted attributable profit (page 205)excluding the impact of excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and the re-measurement of US DTAs divided by the basic weighted average number of shares in issue. The comparable IFRS measure is basic earnings per share, whichshare. A reconciliation is provided on page 183;
– Operating expenses excluding UK Bank Levy and litigation and conduct charges represents profit after taxoperating expenses excluding the impact of UK Bank Levy and non-controlling interests, divided by the basic weighted average numberimpact of shares in issue.charges for litigation and conduct. The comparable IFRS measure is operating expenses. A reconciliation to IFRS is provided on page 192183;
– Profit attributable to ordinary equity holders of the parent excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and the re-measurement of US DTAs represents profit/(loss) attributable to ordinary shareholders excluding the impact of charges for litigation and conduct, losses related to Barclays’ sell down of BAGL and the re-measurement of US DTAs. The comparable IFRS measure is attributable profit. A reconciliation to IFRS is provided on page 183;
– Profit before tax excluding impairment of Barclays’ holding in BAGL and loss on sale of BAGL represents profit/(loss) before tax excluding the impairment of Barclays’ holding in BAGL and loss on sale of BAGL. The comparable IFRS measure is profit before tax. A reconciliation to IFRS is provided on page 179;
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F | ||
i |
– Return on average allocated equity represents the return on shareholders’ equity that is allocated to the businesses. The comparable IFRS measure is return on equity. A reconciliation is provided on page iv;
– Return on average tangible shareholders’ equity excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and the re-measurement of US DTAs BAGL is calculated as profit attributable to ordinary equity holders excluding the impact of charges for litigation and conduct, losses related to Barclays’ sell down of BAGL and the re-measurement of US DTAs BAGL, including an adjustment for the Group;tax credit in reserves in respect of other equity instruments, as a proportion of average allocated tangible equity. The comparable IFRS measure is return on equity. A reconciliation is provided on page 183;
– Adjusted returnReturn on average shareholders’allocated tangible equity representsis calculated as the annualised adjustedstatutory profit after tax for the period attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity, excluding non-controlling interests, the impact of own credit on retained earnings, and other equity instruments.allocated tangible equity. The comparable IFRS measure is return on equity. A reconciliation is provided on page iv;
– Return on average tangible shareholders’ equity which representsis calculated as the annualised statutory profit after tax for the period attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity, excluding non-controlling interests and other equity instruments. A reconciliation to IFRS is provided on page 192 for the Group;
– Adjusted return on average tangible shareholders’ equity represents annualised adjusted profit after tax for the period attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non-controlling interests, the impact of own credit on retained earnings, and other equity instruments adjusted for the deduction of intangible assets and goodwill.equity. The comparable IFRS measure is return on average tangible shareholders’ equity which represents annualised profit after tax for the period attributable to ordinaryequity. A reconciliation is provided on page iv;
– Tangible net asset value per share is calculated by dividing shareholders including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity, excluding non-controlling interests and other equity instruments, adjusted for the deduction ofless goodwill and intangible assets, and goodwill. A reconciliation to IFRS is providedby the number of issued ordinary shares. The components of the calculation have been included on page 192 for the Group;
– Barclays Core results are non-IFRS measures because they represent the sum of five Operating Segments, each of which is prepared in accordance with IFRS 8; “Operating Segments”: Personal183; and Corporate Banking, Barclaycard, Africa Banking, Investment Bank and Head Office. A reconciliation to IFRS is provided on pages 191 and 192;
– Constant currency results are calculated by converting ZAR results into GBP using the average exchange rate for the year ended 31 December 2015 for the income statement and the 31 December 2015 closing exchange rate for the balance sheet to eliminate the impact of movement in exchange rates between the two periods;
– Net Stable Funding Ratio (NSFR) is calculated according to the definition and methodology detailed in the standard provided by the Basel Committee on Banking Supervision. The original guidelines released in December 2010 (‘Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring’, December 2010) were revised in October 2014 (‘Basel III: The Net Stable Funding Ratio’, October 2014). The metric is a regulatory ratio that is not yet finalised in local regulations and, as such, represents a non-IFRS measure. This definition and the methodology used to calculate this metric is subject to further revisions ahead of the implementation date and our interpretation of this calculation may not be consistent with that of other financial institutions;
– Liquidity Coverage Ratio (LCR) is calculated according to the Commission Delegated Regulation of October 2014 that supplements Regulation (EU) 575/2013 (CRDIV) published by the European Commission in June 2013. The metric is applicable from 01 October 2015 and as such is a binding measure as at 31 December 2015;
– Transitional CET1 ratio according to FSA October 2012. This measure is calculated by taking into account the statement of the Financial Services Authority, the predecessor of the Prudential Regulation Authority, on CRD IV transitional provisions in October 2012, assuming such provisions were applied as at 1 January 2014. This ratio is used as the relevant measure starting 1 January 2014 for purposes of determining whether the automatic write-down trigger (specified as a Transitional CET1 ratio according to FSA October 2012 of less than 7.00%) has occurred under the terms of the Contingent Capital Notes issued by Barclays Bank PLC on November 21, 2012 (CUSIP: 06740L8C2) and April 10, 2013 (CUSIP: 06739FHK0). Please refer to page 150139 for a reconciliation of this measure to CRD IV CET1 ratio.
Forward-looking statements
This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and Section 27A of the US Securities Act of 1933, as amended, with respect to the Group. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results or other financial condition or performance measures could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as ‘may’, ‘will’, ‘seek’, ‘continue’, ‘aim’, ‘anticipate’, ‘target’, ‘projected’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, ‘achieve’ or other words of similar meaning. Examples of forward-looking statements include, among others, statements or guidance regarding or relating to the Group’s future financial position, income growth, assets, impairment charges, and provisions, business strategy, structural reform, capital, leverage and other regulatory ratios, payment of dividends (including dividend pay-out ratios)payout ratios and expected payment strategies), projected levels of growth in the banking and financial markets, projected costs or savings, original and revisedany commitments and targets in connection with the strategic cost programme and the impact of any regulatory deconsolidation resulting from the sell down of the Group’s interest in Barclays Africa Group Strategy Update, rundown of assets and businesses within Barclays Non-Core,Limited, estimates of capital expenditures and plans and objectives for future operations, projected employee numbers, IFRS 9 impacts and other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. These may be affected by changes in legislation, the development of standards and interpretations under International Financial Reporting Standards (IFRS),including the implementation of IFRS 9, evolving practices with regard to the interpretation and application of accounting and regulatory standards, the outcome of current and future legal proceedings and regulatory investigations, future levels of conduct provisions, the policies and actions of governmental and regulatory authorities, geopolitical risks and the impact of competition. In addition, factors including (but not limited to) the following may have an effect: capital, leverage and other regulatory rules (including with regard to the future structure of the Group) applicable to past, current and future periods; United Kingdom (UK), United States (US),UK, US, Africa, Eurozone and global macroeconomic and business conditions; the effects of continued volatility in credit markets; market related risks such as changes in interest rates and foreign exchange rates; effects of changes in valuation of credit market exposures; changes in valuation of issued securities; volatility in capital markets; changes in credit ratings of any entities within the Group or any securities issued by such entities; the potential for one or more countries exiting the Eurozone; the implementationimplications of the strategic cost programme;exercise by the United Kingdom of Article 50 of the Treaty of Lisbon and the disruption that may result in the UK and globally from the withdrawal of the United Kingdom from the European Union and the success of future acquisitions, disposals and other strategic transactions. A number of these influences and factors are beyond the Group’s control. As a result, the Group’s actual future results, dividend payments, and capital and leverage ratios may differ materially from the plans, goals, expectations and expectationsguidance set forth in the Group’s forward-looking statements. Additional risks and factors which may impact the Group’s future financial condition and performance are identified in our filings with the SEC (including, without limitation, our annual report on form 20-F for the fiscal year ended 31 December 2017), which arewill be available on the SEC’s website at http://www.sec.gov.
AnySubject to our obligations under the applicable laws and regulations of the United Kingdom and the United States in relation to disclosure and ongoing information, we undertake no obligation to update publicly or revise any forward-looking statements, made herein speak onlywhether as of the date they are made and it should not be assumed that they have been revised or updated in the lighta result of new information, future events or future events. Except as required by the Prudential Regulation Authority, the Financial Conduct Authority, the London Stock Exchange plc (the LSE) or applicable law, Barclays expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Barclays’ expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Barclays has made or may make in documents it has published or may publish via the Regulatory News Service of the LSE and/or has filed or may file with the SEC.otherwise.
Market and other data
This document contains information, including statistical data, about certain Barclays markets and its competitive position. Except as otherwise indicated, this information is taken or derived from Datastream and other external sources. Barclays cannot guarantee the accuracy of information taken from external sources, or that, in respect of internal estimates, a third party using different methods would obtain the same estimates as Barclays.
Uses of Internet addresses
This document contains inactive textual addresses to internet websites operated by us and third parties. Reference to such websites is made for information purposes only, and information found at such websites is not incorporated by reference into this document.
References to Pillar 3 report
This document contains references throughout to Barclays annual risk report, the Pillar 3. Reference to the aforementioned report is made for information purposes only, and information found in said report is not incorporated by reference into this document.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F | ||
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Average allocated equitya |
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2017
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2016
£bn |
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2015
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Barclays UK | 13.6 | 13.4 | 13.7 | |||||||||
Corporate and Investment Bank | 24.9 | 23.2 | 23.1 | |||||||||
Consumer, Cards and Payments | 5.6 | 5.0 | 4.0 | |||||||||
Barclays International | 30.5 | 28.2 | 27.1 | |||||||||
Head Officeb | 10.6 | 8.0 | 3.9 | |||||||||
Barclays Non-Core | 2.4 | 7.8 | 11.2 | |||||||||
Barclays Group | 57.1 | 57.4 | 55.9 | |||||||||
Effect of Goodwill and intangibles |
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Barclays UK | (4.4) | (4.5) | (4.4) | |||||||||
Corporate and Investment Bank | (1.0) | (1.4) | (1.2) | |||||||||
Consumer, Cards and Payments | (1.4) | (1.3) | (1.0) | |||||||||
Barclays International | (2.4) | (2.7) | (2.2) | |||||||||
Head Officeb | (1.4) | (1.4) | (1.3) | |||||||||
Barclays Non-Core | (0.0) | (0.1) | (0.3) | |||||||||
Barclays Group | (8.2) | (8.7) | (8.2) | |||||||||
Average allocated tangible equityc |
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Barclays UK | 9.1 | 8.9 | 9.3 | |||||||||
Corporate and Investment Bank | 24.0 | 21.9 | 21.9 | |||||||||
Consumer, Cards and Payments | 4.2 | 3.6 | 3.0 | |||||||||
Barclays International | 28.1 | 25.5 | 24.9 | |||||||||
Head Officeb | 9.3 | 6.5 | 2.6 | |||||||||
Barclays Non-Core | 2.4 | 7.8 | 10.9 | |||||||||
Barclays Group | 48.9 | 48.7 | 47.7 |
ContentsNotes
a This table shows the allocation of Group average equity across IFRS reporting segments.
b Includes the Africa Banking discontinued operation.
c This table shows average tangible equity for the Group and average allocated tangible equity for the IFRS reporting segments.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F | ||
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Profit/(loss) attributable to ordinary equity holders of the parent |
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2017
£m |
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2016
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2015
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Barclays UK | 893 | 857 | (33) | |||||||||
Corporate and Investment Bank | 269 | 1,342 | 1,180 | |||||||||
Consumer, Cards and Payments | 698 | 1,153 | 620 | |||||||||
Barclays International | 967 | 2,495 | 1,800 | |||||||||
Head Office | (864) | 109 | 11 | |||||||||
Barclays Non-Core | (409) | (1,899) | (2,405) | |||||||||
Africa Banking discontinued operation | (2,335) | 189 | 302 | |||||||||
Barclays Group | (1,748) | 1,751 | (324) | |||||||||
Average allocated equitya |
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£bn |
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Barclays UK | 13.6 | 13.4 | 13.7 | |||||||||
Corporate and Investment Bank | 24.9 | 23.2 | 23.1 | |||||||||
Consumer, Cards and Payments | 5.6 | 5.0 | 4.0 | |||||||||
Barclays International | 30.5 | 28.2 | 27.1 | |||||||||
Head Officeb | 10.6 | 8.0 | 3.9 | |||||||||
Barclays Non-Core | 2.4 | 7.8 | 11.2 | |||||||||
Barclays Group | 57.1 | 57.4 | 55.9 | |||||||||
Return on average allocated equityc |
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% |
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Barclays UK | 6.6% | 6.4% | (0.2%) | |||||||||
Corporate and Investment Bank | 1.1% | 5.8% | 5.1% | |||||||||
Consumer, Cards and Payments | 12.5% | 23.1% | 15.3% | |||||||||
Barclays International | 3.2% | 8.8% | 6.6% | |||||||||
Barclays Group | (3.1%) | 3.0% | (0.6%) |
Notes
a This table shows average equity for the Group and average allocated equity for the IFRS reporting segments.
b Includes the Africa Banking discontinued operation.
c This table shows return on average equity for the Group and return on average allocated equity for the IFRS reporting segments.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F | ||
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Governance
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Governance
Contents
Our corporate governance processes and the role they play in supporting the delivery of our strategy, including reports from the Chairman and each of the Board Committee Chairmen.
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How we comply
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People
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Remuneration report
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Barclays PLC and Barclays Bank PLC |
Who we are
Board of Directors1UK Corporate Governance Code – index to disclosures
“The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.” The UK Corporate Governance Code The UK Corporate Governance Code (the Code) is not a rigid set of rules. It consists of principles (main and supporting) and provisions. The Listing Rules require companies to apply the main principles and report to shareholders on how they have done so. You can find our disclosures as follows: |
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Leadership | Page | |||||
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There should be a clear division of responsibilities at the head of the company between the running of the board and
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The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role. | ||||||
Roles on the Board | 38 | |||||
As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy. | ||||||
◾ Roles on the Board | 38 | |||||
Effectiveness | Page | |||||
The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively. | ||||||
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◾ Board Diversity | 4 | |||||
There should be a formal, rigorous and
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All directors should be able to allocate sufficient time to the |
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All directors should receive an induction on joining the board and should regularly update and refresh their skills and knowledge. | ||||||
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Appointment and re-election of Directors |
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Accountability |
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The board should present a fair, balanced and understandable assessment of the company’s position and prospects. |
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Risk management |
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Governance: Directors’ report
Who we are
Group Executive Committee1
Biographies for Jes Staley, Group Chief Executive, and Tushar Morzaria, Group Finance Director, who are members of the Group Executive Committee, which is chaired by Jes Staley, can be found on pages 324 and 326.
The board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems. | |||||||||
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The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting, risk management and internal control principles, and for maintaining an appropriate relationship with the company’s auditors. |
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◾ Board Audit Committee report | 11 | ||||||||
◾ Accountability | 40 |
Remuneration | Page | ||||||||
Executive directors’ remuneration should be designed to promote the long-term success of the company. Performance-related elements should be transparent, stretching and rigorously applied. | |||||||||
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There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration. |
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Relations with shareholders | Page | ||||||||
There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place. |
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◾ Stakeholder engagement | 42 | ||||||||
The board should use general meetings to communicate with investors and to encourage their participation. | |||||||||
◾ Stakeholder engagement | 42 |
2 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
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Governance: Directors’ report
Chairman’s introduction
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Dear Fellow Shareholders Welcome to my 2017 corporate governance report. In my Chairman’s letter in the Strategic report, I highlighted the significant milestones and achievements for Barclays in 2017, including the further sell-down of our interest in Barclays Africa Group Limited, the closure of Barclays Non-Core, progress towards the establishment of our ring-fenced bank in 2018 as well as preparations for the UK’s departure from the EU. Throughout this period of activity and change, your Board has been providing critical oversight of executive management to oversee the successful execution of the Group’s long term strategy. I firmly believe and have often said that the role of the Board is to create long term, sustainable value for our shareholders. In order to do this, we must have a robust corporate governance framework, providing systems of checks and controls to ensure accountability and drive better decision-making, and also policies and practices which ensure that the Board and its Committees operate effectively. Part of this is creating an environment which encourages a constructive relationship between the Board and executive management to enable an appropriate level of debate, challenge and support in the decision-making process. I am pleased to report that in 2017 your Board and executive management continued to demonstrate this dynamic as we worked together in executing strategy. The impending changes to our Group corporate structure following structural reform has been a significant area of focus for the Board in 2017 and no doubt will continue to be at the forefront of our minds in 2018. After approving for appointment Sir Gerry Grimstone as the Chairman of Barclays International and Sir Ian Cheshire as the Chairman of Barclays UK, we worked closely with both of them to recruit high quality candidates to build the boards of those two entities. Our aim is to ensure that corporate governance within Barclays is in line with best practice for FTSE100 companies and as a Board we will work hard to ensure that our governance framework is always providing the | ||||||||||
strong foundation needed for effective management of the Group.
Board changes in 2017 Through the Board Nominations Committee, |
over the long-term. With this in mind, we brought on three new non-executive Directors in 2017: Sir Ian Cheshire, Matthew Lester and Mike Turner CBE, all of whom have significant board-level experience and bring specific sector and technical expertise to your Board. During 2017, Diane de Saint Victor and Steve Thieke, both non-executive Directors, left the Board and I thank them on behalf of the Board for their contributions and service.
The Board has a balanced and diverse range of skills and experience. All Board appointments are made on merit, in the context of the diversity of skills, experience, background and gender required to be effective.
Balance of non-executive Directors: executive Directors
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Governance: Directors’ report
Chairman’s introduction
Conduct, culture and values
The Board also actively supports diversity throughout the Group. To attract and retain the best talent, we need to create an environment in which colleagues can thrive, develop and achieve their ambitions. I am very proud of the initiatives that we have at Barclays to encourage diversity and support inclusion among colleagues. Most recently, we launched a campaign aimed at increasing mental health awareness as Barclays aims to become a “mental health confident” organisation, and we are delighted that our Chief Internal Auditor, Sally Clark, is the Executive sponsor for “Be Well”, our well-being initiative. Everything we do at Barclays is underpinned by theBarclays Values and Purpose, and we must act with respect, transparency and integrity in our interactions with stakeholders and with each other to create the right culture, and encourage the right behaviours by colleagues, across the Group. With that framework, we can build and maintain the trust and confidence of our stakeholders and the market.
An important part of our strategy in relation to cultural progress and embedding ourBarclays Values is our citizenship strategy, the Shared Growth Ambition, where our long-term aim is to create and grow a collection of products, services and partnerships that improve the lives of people in the communities that we serve. In 2017 we launched Barclays’ “green bonds” as part of our support for the transition to a sustainable and low carbon economy. This was the first green bond issued by a UK bank using UK assets, and you can read more about this in Barclays’ Strategic report. Initiatives like this not only enable us to contribute meaningfully to society, but also enable us to better understand the environment in which we operate and our wider societal obligations, supporting the Board’s objective of delivering sustainable returns to shareholders.
Shared Growth Ambition at | ||
home.barclays/citizenship |
WhatAs a Board we didare conscious of the impact that our business and decisions have on our customers, clients and employees as well as our wider societal impact. It is through an appreciation of our stakeholders that we can create a strategy aimed at delivering sustainable returns to our shareholders over the long term. The Board is supported in 2015this role by the Board Reputation Committee, which monitors key indicators across the areas of conduct, culture, citizenship and customer satisfaction, as well as Barclays’ reputation and events that occur which may impact the trust in our brand.
Chairman’s introduction
“The role of any board,Board receives information about, and engages with, our various stakeholders throughout the year and one of the most important dates in which I passionately believe,our calendar is to create and deliver long-term, sustainable value.”
Dear Fellow Shareholders
I joined Barclays in January 2015 as a non-executive Director and succeeded Sir David Walker as Chairman following the April 2015our Annual General Meeting, (AGM). I would like to extend my thanks and appreciation to Sir David for all that he did for Barclays during his tenure.
This is my first report to you as Chairman and is perhaps not quite the report I anticipated writing when I first took up this role. From 17 July to 30 November 2015, I served as Executive Chairman,which gives the Board having asked mean opportunity to take on this role on an interim basis following its decision to search for a new Group Chief Executive to succeed Antony Jenkins. I welcomemeet our shareholders and hear their views. During the flexibility afforded to us by the UK Corporate Governance Code that allowed us to operate under these revised governance arrangements for a short period of time and ensure continuity of focus and leadership. I was ably supported by my fellow Directors and by the Group Executive Committee during my period as Executive Chairman and thank them for their individual and collective guidance and input. I was delighted that, under the leadership of Sir Michael Rake, we were able to progress the search for a new Group Chief Executive quickly and welcome Jes Staley toyear the Board in December 2015, at which point I reverted to my roleis kept informed of non-executive Chairman. Jes has a track recordshareholder views through regular
updates from the Head of Investor Relations, as an outstanding leader and I believe he has the skills and experience to take Barclays forward to deliver improved shareholder returns and reclaim its positionwell as the UK’s pre-eminent bank. Jes and I are already enjoying a constructive and positive time working together.
The roleviews of employees through the results of the Board
The roleBarclaysYour View employee opinion surveys. Another key stakeholder of any board,Barclays is our regulators, and oneduring 2017 the Board invited representatives of our regulators to attend meetings to hear directly their views and expectations of Barclays. All of these views form the context in which I passionately believe, is to createBoard decision-making takes place and deliver long-term, sustainable value. Barclays is a standout brandfeeds into the considerations and has first-class retail, cards, commercial and investment banking businesses, but this has not translated into shareholder value in recent years. To deliver that value sustainably, we need to be much more focused on what is attractive, what we are good at, and where we are good at it. Put simply, we need to create a tangible and compelling reason for our shareholders to invest in us. This has drivendebate when determining the Board’s focus on three priorities during 2015: focus on our core segments and markets; generate shareholder value; and instil a high performance and customer culture, with strong ethical values.Group’s strategy.
Board appointments, performanceeffectiveness
To deliver our strategy and succession planning
Oneachieve the delivery of the key aspectslong-term, sustainable value for shareholders requires an effective Board. It is an important part of my role as Chairman to satisfy myself that the Board – both collectively and one which was especially important during my tenure as Executive Chairman, is to ensure that Barclays has an effective and cohesive, yet challenging Board,its individual members – operates effectively. Each year, we conduct a self-assessment of our performance with the optimum balanceaid of experience, skills, expertisean independent facilitator. As part of this process, I receive a report on the performance of our individual Directors, and personal attributes. I have sought to promote a culture of integrity and transparency, enabling Board debate that allows diverse perspectives and constructive challenge. Certainly, the Board did not shy away from difficult conversations and decisions during 2015, always with a focus on what was needed to drive forward execution of the strategy to generate sustainable value for Barclays and its shareholders.
The Barclays Board has undergone a significant amount of change in recent years and saw further changes during 2015. In addition to my own appointment, we welcomed Diane Schueneman to the Board in June 2015 and Jes Staley in December 2015. Diane brings valuable operations and technology experience to the Board. Sir David Walker and Sir John Sunderland left the Board in April 2015, following the AGM, with Antony Jenkins leaving the Board in July 2015. Finally, in October 2015, we announced that Sir Gerry Grimstone would succeed Sir Michael Rake as Deputy Chairman andour non-executive Directors, led by our Senior Independent Director, with effect from 1 January 2016. Sir Michael retired fromhave the Board at the end of 2015 and I would like to thank him for his dedicated service and commitment over his eight years as a non-executive Director, including being Senior Independent Director since October 2011 and Deputy Chairman since July 2012. Sir Michael offers his own perspective on governance during 2015 on page 8.
What we did in 2015
Chairman’s introduction
I am also delighted to report that we have met the Board diversity target we set back in 2012, which was that 25% of the Board by the end of 2015 should be women. We have now agreed a new diversity target, which is that 33% of the Board by the end of 2020 should be women, although our overriding principle is that all appointments to the Board are made on merit, taking into account the skills and experience that the Board needs now and may need in the future to support delivery of our strategy.
I am on record as saying that Barclays needs to reduce its internal bureaucracy by becoming leaner and more agile and consequently more effective and the Board and its processes are no exception to this. One of the steps I took on becoming Chairman wasopportunity to review the Board’s governance structure, with assistance from the Company Secretary, in order to simplify and streamline the principal Board Committees, in particular those Board Committees with responsibility for oversight of risk. As a result, the Board decided to disband the Board Enterprise Wide Risk Committee, with its responsibilities for oversight of enterprise-wide risk being assumed by the Board as a whole. We also concluded that the Board Financial Risk Committee should assume responsibility for oversight of the capital and financial aspects of operational risk, in addition to financial risk, leaving the Board Conduct, Operational and Reputational Risk Committee to focus on conduct and culture, reputational risk and citizenship. The Board Audit Committee continued to focus on the control aspects of operational risk. The Board Committees have subsequently been renamed to more accurately reflect their responsibilities.
As part of our discussions on Board and Board Committee succession planning, membership of each Committee was also reviewed to ensure that it had the right balance of skills, experience and perspectives and also to ensure that individual Directors were not being over-burdened by Committee responsibilities. Board Committees play a vital role in supporting the Board in its oversight of internal control and financial reporting, risk and risk management and reward and remuneration. Each of the Board Committee Chairmen report below on how their committees discharged their responsibilities during 2015 and the material matters each considered. The Board Nominations Committee has continued to play a role in succession planning for Group Executive Committee and senior leadership roles and, having had the opportunity during 2015, as Executive Chairman, to work even more closely with Group Executive Committee members, I was able to bring some fresh perspectives on the talent pipeline and talent management processes. More detail on the Board Nominations Committee’s work on succession planning can be found on page 28.
It is important to periodically obtain an independent perspective on the effectiveness of the Board and particularly so in a year when our conventional Board governance processes were temporarily revised. We have conducted an externally facilitated review of the effectiveness of the Board each year since 2004, and for 2015 we asked Independent Board Evaluation to facilitate that review.my performance. I am pleased to advisereport that the overall outcomeresults of the review wasfindings showed that your Board and its Committees are still operating effectively. There are, of course, areas to work on and challenges ahead once the Boardnew Group structure is operating effectively, althoughcrystallised following the stand-up of our new ring-fenced bank in 2018. Ensuring that there are some areas that could be enhanced. A report onis clear accountability and delineated responsibilities in the evaluation processnew structure, not just between boards but also between committees and between the boards and the outcomes mayexecutive team, will be found on pages 33 and 34.
Culture and values
People matter more than anything else in any business: it is a company’s people that make it great help it stand out from its competitors and make it an attractive proposition for customers and investors. As a Board, we are responsible for ensuring that Barclays’ people do things – the right things – in the right way by setting the tone from the top, by living Barclays’ culture and values in everything that we do and in the decisions we make, by holding the Group Executive Committee to account for the integrity of our Purpose and Values and by creating a culture in which doing the right thing is integral to the way we operate, globally. In an organisation as large and as complex as Barclays, that can be, and is, a challenge, but we are only too alive to the consequence of getting this wrong. I have personally endorsed our Code of Conduct, The Barclays Way, and the Board Reputation Committee has been monitoring, on behalf of the Board, the progress we are making to embed cultural change.
Shareholder and regulatory engagement
Meaningful engagement with our shareholders and regulators is a key pillar of our approach to corporate governance. We welcome open and constructive discussion with our stakeholders, particularly with regard to governance and succession planning, strategy and remuneration.focus for us in 2018. You can read more about how we have engaged with key stakeholders during 2015 in this report. I also hope to meet with many of our private shareholders at our AGM, which will be held on 28 April 2016. A significant activity during 2015 was our external audit tender, on which we engaged with a number of our major shareholders,the findings and you can read a report from Tim Breedon, who chaired our Audit Tender Oversight Sub-Committee,the review process undertaken for 2017 on page 18.36.
Looking ahead
2015 has not been without its challenges, but I believe that we now have2018 will be another pivotal year for Barclays with the leadership in place to take forward execution of our new Group corporate structure, and I look forward to working closely with the boards of Barclays UK and Barclays International to embed a strong framework to ensure clear, effective and consistent corporate governance. We will continue to work closely with executive management on improving performance within the Group’s businesses, without losing sight of the need to constantly be acting in line with the Barclays Values and Purpose to build on and retain the trust and confidence of our customers, clients, employees. Together with your Board, we remain focused on working hard to execute the Group’s strategy at pace,in order to deliver oncreate sustainable long-term value for our priorities and generate the long-term sustainable value that will benefit not only Barclays’ shareholders, but society at large.shareholders.
John McFarlane
Chairman
2921 February 2018
Board diversity
The Board has a balanced and diverse range of skills and experience. All Board appointments are made on merit, in the context of the diversity of gender, skills, experience and background required to be effective.
Balance of non-executive Directors:
executive Directors
Gender balance
Length of tenure
(Chairman and non-executive Directors)
1 0-3 years | 6 | |
2 3-6 years | 4 | |
3 6-9 years | 2 | |
Industry experience | ||
(Chairman and non-executive Directors)* | ||
1 Financial Services | 12 (100%) | |
2 Political/regulatory experience | 12 (100%) | |
3 Current/recent Chair/CEO | 5 (42%) | |
4 Accountancy/auditing | 2 (17%) | |
5 Operations and Technology | 1 (8%) | |
6 Retail/marketing | 1 (8%) | |
International experience** | ||
(Chairman and non-executive Directors)* | ||
1 International (UK) | 10 (83%) | |
2 International (US) | 2 (17%) | |
3 International (Rest of the World) | 2 (17%) |
Note
* | Individual Directors may fall into one or more categories |
** | In relation to Board experience based on the location of the headquarters/registered office of a company |
4 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Governance: Directors’ report
Who we are – Board of Directors
Board of Directorsa | ||
Barclays understands the importance of having a Board with the right balance of skills, experience and diversity, and the composition of the Board is regularly reviewed by the Board Nominations Committee. The skills and experience of the current Directors and the value they bring to the Barclays Board are highlighted below. | ||
Full biographies can be accessed online via www.home.barclays/investorrelations | ||
John McFarlane Chairman Appointed: 1 January 2015 |
Relevant skills and experience
John is Chairman of Barclays PLC and Barclays Bank PLC. He is a senior figure in global banking and financial services circles having spent over 40 years in the sector.
John is currently chairman of TheCityUK and a member of the Financial Services Trade and Investment Board and the European Financial Round Table. Other current non-executive directorships include Westfield Corporation, Old Oak Holdings Limited and The International Monetary Conference. John was previously chairman of Aviva plc where he oversaw a transformation of the company FirstGroup plc, and the Australian Bankers Association. He was also a non- executive director of The Royal Bank of Scotland, joining at the time of the UK government rescue. Prior to that he was CEO of Australia and New Zealand Banking Group Limited for 10 years, group executive director of Standard Chartered and head of Citibank in the UK.
Other current appointments
Member of Cranfield School of Management Advisory Board; Member of Institut International d’Etudes Bancaires; Member of the President’s Committee Confederation of British Industry
Committees
Nominations (Chairman)
Jes Staley Group Chief Executive Appointed: 1 December 2015 |
Relevant skills and experience
Jes joined Barclays as Group Chief Executive on 1 December 2015. He has nearly four decades of extensive experience in banking and financial services. He worked for more than 30 years at JP Morgan, initially training as a commercial banker, later advancing to the leadership of major businesses involving equities, private banking and asset management and ultimately heading the company’s Global Investment Bank. Jes is currently a member of the Institute of International Finance and formerly served as managing partner at BlueMountain Capital. These roles have provided him with a vast experience in leadership and he brings a wealth of investment banking knowledge to Barclays’ Board.
Other current appointments
None
Committees
None
Sir Gerry Grimstone Deputy Chairman and Senior Independent Director Appointed: 1 January 2016 |
Relevant skills and experience
Sir Gerry brings to the Board a wealth of investment banking, financial services and commercial experience gained through his senior roles at Schroders and his various board positions. Sir Gerry has global business experience across the UK, Asia, the Middle East and the US. Sir Gerry has significant experience as a non-executive director and chairman. He is currently the chairman of Standard Life Aberdeen plc, independent non-executive board member of Deloitte NWE LLP, board adviser to the Abu Dhabi Commercial Bank and the lead non-executive at the Ministry of Defence.
Other current appointments
Financial Services Trade and Investment Board
Committees
Nominations, Reputation (Chairman)
Mike Ashley Non-executive Appointed: 18 September 2013 |
Relevant skills and experience
Mike has deep knowledge of auditing and associated regulatory issues, having worked at KPMG for over 20 years, where he was a partner. Mike was the lead engagement partner on the audits of large financial services groups including HSBC, Standard Chartered and the Bank of England. While at KPMG, Mike was Head of Quality and Risk Management for KPMG Europe LLP, responsible for the management of professional risks and quality control. He also held the role of KPMG UK’s Ethics Partner.
Other current appointments
ICAEW Ethics Standards Committee; International Ethics Standards Board for Accountants; Chairman, Government Internal Audit Agency; Charity Commission
Committees
Audit (Chairman), Nominations, Risk, Reputation
a | Full Director biographies can be found on pages 286 to 288 |
Tim Breedon CBE Non-executive Appointed: 1 November 2012 |
Relevant skills and experience
Tim joined Barclays after a distinguished career with Legal & General, where, among other roles, he was the group chief executive until June 2012. Tim’s experience as a CEO enables him to provide challenge, advice and support to the executive on performance and decision-making.
Tim brings to the Board extensive financial services experience, knowledge of risk management and UK and EU regulation, as well as an understanding of the key issues for investors.
Other current appointments
Marie Curie; Chairman, Apax Global Alpha Limited; Chairman, The Northview Group
Committees
Audit, Nominations, Remuneration, Risk (Chairman)
Sir Ian Cheshire Non-executive Appointed: 3 April 2017 |
Relevant skills and experience
Sir Ian joined Barclays in April 2017 as a non-executive Director and the Chairman of Barclays UK. From his lengthy executive career including his time as Group Chief Executive of Kingfisher plc, Sir Ian brings to the Board substantial business experience particularly in the international retail sector, as well as experience in sustainability and environmental matters. He holds strong credentials in leadership as well as being highly regarded by the Government for his work with various Government departments.
Other current appointments
Business Disability Forum President’s Group; Debenhams plc; Maisons du monde; Menhaden plc; lead non-executive director for the Government
Committees
Nominations
Mary Francis CBE Non-executive Appointed: 1 October 2016 |
Relevant skills and experience
Mary has extensive board-level experience across a range of industries. She is a non-executive director of Swiss Re Group and Ensco plc and was formerly senior independent director of Centrica and a non-executive director of the Bank of England, Aviva and Alliance & Leicester. She held senior executive positions in the UK Treasury and Prime Minister’s Office and in the City as Director General of the Association of British Insurers. She brings to Barclays strong understanding of the interaction between public and private sectors and skills in strategic decision-making and all aspects of board governance.
Other current appointments
Advisory Panel of The Institute of Business Ethics
Committees
Remuneration, Reputation
Barclays PLC and Barclays Bank PLC |
WhatGovernance: Directors’ report
Who we did in 2015
Statement from Sir Michael Rake,
Deputy Chairman until 31 December 2015are – Board of Directors
Crawford Gillies Non-executive Appointed: 1 May 2014 |
Relevant skills and experience
“In asking the Chairman to take on executive responsibilities…we were mindfulCrawford has extensive business and management experience, gained with Bain & Company and Standard Life plc. These roles have provided him with experience in strategic decision-making and knowledge of company strategy across various sectors and geographical locations.
Crawford has also held board and committee chairman positions during his career, notably as chairman of the need to ensure that our Board governance arrangements remained effective.”remuneration committees of Standard Life plc and MITIE Group PLC and is a senior independent director at SSE plc.
Other current appointments
Chairman, The Edrington Group Limited
Board allocation of time (%)Committees
2015 | 2014 | |||||||||||||
1 | Strategy formulation and | 56 | 47 | |||||||||||
implementation monitoring | ||||||||||||||
2 | Finance (incl. capital and liquidity) | 11 | 17 | |||||||||||
3 | Governance and Risk (incl. regulatory issues) | 29 | 32 | |||||||||||
4 | Other (incl. compensation) | 4 | 4 | |||||||||||
Dear Fellow Shareholders
In early July 2015, we announced the departure of Antony Jenkins as Group Chief Executive and the appointment of John McFarlane as Executive Chairman, pending the appointment of a new Group Chief Executive. The non-executive Directors had reflected long and hard on the issue of Group leadership and had concluded that new leadership, bringing a new set of skills, was required to accelerate the pace of execution going forward. These events were extensively reported at the time and, rather than revisit them, I would simply like to reiterate here the Board’s appreciation of Antony’s contribution at what was a critical period for Barclays.
In asking the Chairman to take on executive responsibilities, albeit for an interim period, we were mindful of the need to ensure that our Board governance arrangements remained effective and to maintain an appropriate balance of responsibilities on the Board and in the running of the Company until such time as a new Group Chief Executive was appointed. I wanted to give you my perspective on how we approached that and, in particular, how my role as Deputy Chairman and Senior Independent Director evolved during this time.
First, as Executive Chairman, John McFarlane relinquished his membership of the principal Board Committees on which he served, to ensure they continued to be composed solely of non-executive Directors and without any impediment to their ability to provide independent and constructive challenge to executive management. Specifically, John stood down as Chairman of both the BoardAudit, Nominations, Committee and the Board Reputation Committee and I became Chairman of both committees in his place.
Secondly, I took primary responsibility for the search for a new Group Chief Executive, leading the Board Nominations Committee through this process. As the relationship between the Chairman and Group Chief Executive is pivotal to the effectiveness of the Board, John worked closely with me during this process and his insight and guidance on the skills and qualities we needed in the new Group Chief Executive was invaluable. During the search process, I reported regularly to my non-executive colleagues on the Board on progress and on potential candidates, ensuring that they had the opportunity to provide their views and feedback. You can read more about the search for our new Group Chief Executive on page 32. We announced in late October 2015 that Jes Staley would join the Board as Group Chief Executive with effect from 1 December 2015. John subsequently resumed his chairmanship of the Board Nominations Committee, however, I continued to chair the Board Reputation Committee for the remainder of 2015.
Thirdly, my general interaction with our main stakeholders – our major shareholders and our regulators in the UK and US – increased during the period that John served as Executive Chairman.
Finally, I also maintained close contact with both John and members of senior management to ensure there were no significant issues arising from a governance perspective during this period.
2015 was my last year on the Barclays Board. I joined the Board in January 2008 and served through an eventful and difficult period for both Barclays and the financial services industry as a whole. Barclays announced in October 2015 that I would retire from the Board with effect from 31 December 2015 and I have spent time with my successor as Deputy Chairman and Senior Independent Director, Sir Gerry Grimstone, to ensure a smooth handover. I have been proud to serve on the Barclays Board and wish my fellow Directors continuing success for the future.
Sir Michael Rake
Deputy Chairman and Senior Independent Director until
31 December 2015
Reuben Jeffery III Non-executive Appointed: 16 July 2009 |
Relevant skills and experience
Reuben has extensive financial services experience, particularly within investment banking and wealth management, through his role as CEO and president of Rockefeller & Co. Inc. and Rockefeller Financial Services Inc. and his former senior roles with Goldman Sachs, head of the European Financial Institutions Group. His various government roles in the US, including as chairman of the Commodity Futures Trading Commission and as undersecretary of state, provides Barclays’ Board with insight into the US political and regulatory environment.
Other current appointments
Advisory Board of Towerbrook Capital Partners LP; Financial Services Volunteer Corps; The Asia Foundation
Committees
Nominations, Risk
Matthew Lester Non-executive Appointed: 1 September 2017 |
Relevant skills and experience
Matthew joined Barclays as a non-executive Director in September 2017 and contributes strong financial management and regulatory experience to the Board, having held a number of senior finance roles across a range of business sectors, including financial services. Most recently was chief financial officer of Royal Mail Group. Matthew’s financial expertise enables him to analyse effectively complex reporting and risk management processes. He is currently a non-executive director of Man Group plc and Capita plc, where he also chairs the audit and risk committees of both companies.
Other current appointments
None
Committees
Audit, Risk
Tushar Morzaria Group Finance Director Appointed: 15 October 2013 |
Relevant skills and experience
Tushar joined Barclays in 2013 having spent the previous four years in senior management roles with JP Morgan Chase, most recently as the CFO of its Corporate & Investment Bank. Throughout his time with JP Morgan he gained strategic financial management and regulatory relations experience. Since joining the Barclays Board he has been a driving influence on the Group’s cost reduction programme and managing the Group’s capital plan, particularly in response to Structural Reform.
Other current appointments
Member of the 100 Group main committee
Committees
None
Dambisa Moyo Non-executive Appointed: 1 May 2010 |
Relevant skills and experience
Dambisa is an international economist and commentator on the global economy, having completed a PhD in economics. Dambisa has a background in financial services and a wide knowledge and understanding of African economic, political and social issues, in addition to her experience as a director of companies with complex, global operations. She served as a non-executive director of SABMiller plc (2009-2016) and Seagate Technology (2015-2017).
Other current appointments
Chevron Corporation; Barrick Gold Corporation
Committees
Remuneration, Reputation
Diane Schueneman Non-executive Appointed: 25 June 2015 |
Relevant skills and experience
Diane joined Barclays after an extensive career at Merrill Lynch, holding a variety of senior roles, including responsibility for banking, brokerage services and technology provided to the company’s retail and middle market clients, and latterly for IT, operations and client services worldwide. She brings a wealth of experience in managing global, cross-discipline business operations, client services and technology in the financial services industry. Diane is a member of the board of Barclays US LLC, Barclays’ US intermediate holding company and chair of Barclays Services Limited.
Other current appointments
None
Committees
Audit, Risk
Mike Turner CBE Non-executive Appointed: 1 January 2018 |
Relevant skills and experience
Mike has considerable business and board level experience gained from his lengthy career with BAE Systems PLC where he was CEO as well as his non-executive positions. He has a strong commercial background and experience in strategy and operational performance culture. Mike brings significant leadership and strategic oversight experience to the Board, particularly from his roles as chairman of Babcock International Group PLC and GKN Plc.
Other current appointments
Member of the UK Government’s Apprenticeship Ambassadors Network
Committees
Reputation
Company Secretary
Stephen Shapiro Appointed: 1 November 2017 |
Relevant skills and experience
Stephen was appointed Company Secretary in November 2017 having previously served as the Group Company Secretary and Deputy General Counsel of SABMiller plc. Prior to this, he practised law as a partner in a law firm in South Africa, and subsequently in the UK. Stephen has extensive experience in corporate governance, legal, regulatory and compliance matters. Stephen has also previously served as Chairman of the ICC UK’s Committee on Anti-Corruption as well as on working groups of the GC100, providing business input into key areas of legislative and policy reform.
6 Barclays PLC and Barclays Bank PLC |
Who we are – Group Executive Committee
Group Executive Committeea | ||
Biographies for Jes Staley, Group Chief Executive, and Tushar Morzaria, Group Finance Director, who are members of the Group Executive Committee, which is chaired by Jes Staley, can be found on pages 5 and 6. | ||
Paul Compton Group Chief Operating Officer |
Bob Hoyt Group General Counsel |
Laura Padovani Interim Group Chief Compliance Officer |
Tristram Roberts Group Human Resources Director |
Group Executive Committee meetings are also attended on a regular basis by the Chief Internal Auditor, Sally Clark, and by an ex-officio member, drawn from senior management. The current ex-officio member is Barry Rodrigues, Head of Barclaycard International.
Tim Throsby President, Barclays International and Chief Executive Officer, Corporate and Investment Bank |
Ashok Vaswani CEO, Barclays UK |
C S Venkatakrishnan Chief Risk Officer | ||
a | Executive Committee biographies can be found on pages 288 to 289 |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 7 |
Governance: Directors’ report
What we did in 20152017
Board Audit Committee report
| ||
The Board of Directors is responsible for promoting the highest standards of corporate governance in Barclays. | ||
Further details about our corporate governance framework, policies and Board responsibilities can be found online at home.barclays/corporategovernance | ||
We act in a way that we consider promotes the success of Barclays for the benefit of shareholders as a whole, and are accountable to the shareholders for creating and delivering sustainable value. It is our responsibility as the Board to ensure that management not only delivers on short-term objectives, but promotes the long-term growth of Barclays. Our corporate governance framework embeds what we believe are the right culture, values and behaviours throughout the Group and supports our role in determining strategic objectives and policies.
In addition to setting strategy and overseeing its implementation, we are also responsible for ensuring that management maintains an effective system of internal control. An effective system of internal control should provide assurance of effective and efficient operations, internal financial controls and compliance with law and regulation. In meeting this responsibility, we consider what is appropriate for the Group’s business and
reputation, the materiality of financial and other risks and the relevant costs and benefits of implementing controls. See page 40 for further details on those systems of controls.
The Board is the decision-making body for matters that, owing to their strategic, financial or reputational implications or consequences, are considered significant to the Group. A formal schedule of powers reserved to the Board ensures that our control of these key decisions is maintained. A summary of the matters reserved to the Board can be found athome.barclays/corporategovernance. It includes the approval of appointments to the Board, Barclays’ strategy, financial statements, capital expenditure and any major acquisitions, mergers or disposals.
Board Committees
The main Board Committees are the Board Audit Committee, the Board Nominations Committee, the Board Remuneration Committee, the Board Reputation Committee
and the Board Risk Committee. Pursuant to authority granted under our Articles of Association, each Board Committee has had specific responsibilities delegated to it by the Board. Further information on the role and activities of each of the Board Committees can be found in this report on pages 11 to 37 and in their individual terms of reference, which have been approved by the Board and are available athome.barclays/corporategovernance.
In addition, the Regulatory Investigations Committee was formed in 2012 and focused on providing Board-level oversight of regulatory investigations. In 2017, this Committee was disbanded with residual matters being brought under the oversight of the Board Audit Committee or falling directly under the Board’s oversight, as appropriate.
You can read more about what the Board and each of the Board Committees did during 2017 on the following pages.
8 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Strategic goals | Principal risks | |||||||
Strategy formulation and monitoring | ||||||||
Debated and provided input to management on the formulation of overall Group strategy, and reflected on the Group strategy with longer term views on what could be done to accelerate returns and build capital. The topics covered include: | ||||||||
◾ potential growth opportunities, and key trends and risks, for Barclays UK and Barclays International | ||||||||
◾ constraints and risks to strategy execution, including economic assumptions, expected regulatory requirements on capital and solvency ratios, anticipated changes to accounting rules including IFRS 9, investor expectations, and potential impacts for clients and customers | ||||||||
◾ a strategic approach to costs optimisation, including analysing the impact on costs of different structural initiatives such as product redesign and automation | ||||||||
◾ impact of continuing legacy conduct issues on capital requirements and profit targets | ||||||||
◾ options for the location of Barclays’ operations in Europe, driven by the EU Referendum result. | ||||||||
Discussed regular updates from the Group Chief Executive on the progress being made against the Group’s 2017 execution priorities and capital targets, received insights on stakeholder, employee and cultural matters (including results from employee opinion surveys), and updates on items of focus for the Group Executive Committee. | ||||||||
Considered the strategy, and assessed the progress of execution of strategy, in the businesses within each of Barclays UK and Barclays International. | ||||||||
Monitored the progress of the sell down of the Group’s remaining interest in Barclays Africa Group Limited. | ||||||||
Monitored the progress of the rundown and subsequent closure of Barclays Non-Core. | ||||||||
Monitored the progress of the Group’s execution of its structural reform programme – see the case study on page 10 for further details. | ||||||||
Monitored the potential implications of the UK’s preparations to leave the EU following the EU Referendum result; approved and monitored progress of the expansion of Barclays Bank Ireland’s operations in preparation for Brexit – see the case study on page 10 for further details. | ||||||||
Finance, including capital and liquidity | ||||||||
Debated and approved the Group’s Medium Term Plan for 2017-2019. | ||||||||
Regularly assessed financial performance of the Group and its main businesses through reports from the Group Finance Director. | ||||||||
Reviewed and approved Barclays’ financial results prior to publication, including approving final and interim dividends. | ||||||||
Discussed market and investor reaction to Barclays’ strategic and financial results announcements, with insights provided by the Head of Investor Relations. | ||||||||
Provided input, guidance and advice to senior management on the high-level shape of Barclays’ 2018-2020 Medium Term Plan and subsequently approved the final plan. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 9 |
Governance: Directors’ report
What we did in 2017
Board report
Strategic goals | Principal risks | |||||||
Governance and risk, including regulatory issues | ||||||||
Debated and approved the 2017 risk appetite for the Barclays Group. | ||||||||
Regularly assessed Barclays’ overall risk profile and emerging risk themes, hearing directly from the Chief Risk Officer and the Chairman of the Board Risk Committee. | ||||||||
Received reports on Barclays’ operational and technology capability, including specific updates on cyber risk capability and the strategy for technology and infrastructure services. | ||||||||
Approved the Group’s 2017 Recovery Plan and US Resolution Plan. | ||||||||
Invited representatives of Barclays’ UK and US regulators to meetings to enable the Board to hear first-hand about regulatory expectations and their specific views on Barclays. | ||||||||
Considered and debated proposals for the establishment of a programme to further enhance Barclays’ management information framework across all businesses and entities within the Group. | ||||||||
Discussed and received regular updates directly from the Chief Controls Officer on the Group’s internal controls and framework, and monitored progress of the Barclays Internal Control Enhancement Plan (the programme for remediation of identified risk and control issues). | ||||||||
Considered regular updates from the Group General Counsel on the legal and regulatory risks and issues facing Barclays –refer to note 29 in the financial statements. | ||||||||
Considered matters relating to Board succession and approved appointments to the Board and Board Committees. | ||||||||
Received and considered regular updates from the Chairmen of the Board’s principal Board Committees on the matters discussed at Board Committee meetings. See the reports of each Board Committee set out on the following pages for further details. | ||||||||
Received regular updates (following the establishment of each respective board) from the Chairs of the Barclays UK and Barclays International divisional boards and the Group Service Company. | ||||||||
Considered updates on views of major shareholders, particularly in the period leading up to the 2017 Annual General Meeting. | ||||||||
Discussed the Board and Committee governance framework in the context of structural reform, and considered significant developments in UK corporate governance and other corporate governance matters. | ||||||||
Considered the results of the 2016 Board effectiveness review and proposed action plan, and considered the process for and findings of the 2017 Board effectiveness review. See page36 for further details of this process and the findings for 2017. | ||||||||
Other, including compensation | ||||||||
Considered progress on Barclays’ talent and succession planning (and hosted receptions for key talent within the Group), and received updates on the Bank’s diversity and inclusion initiatives, including from the Chairman of the Board Nominations Committee. | ||||||||
Considered and approved the 2017 incentive funding pools for the Group and allocation among each business and function – see the Remuneration report on pages51 to 74 for further details. |
Governance in Action – Structural reform and Brexit | ||||
Execution of structural reform The execution of our structural reform programme was a significant focus for the Group in 2017 as we move towards the legal entity stand up of our ring-fenced bank in 2018. Building on from the work carried out in 2016, the Board continued to closely monitor and evaluate progress on the execution of the programme in 2017. Specific matters addressed by the Board included the following:
◾ monitoring the stakeholder communications plan (including, in particular, the communications plan for customers and employees) ◾ considering regular updates on migrating sort codes with a focus on any potential impact on customers and clients | ◾ overseeing and approving various transfers of assets and liabilities among Barclays Group entities including establishing a Committee to provide appropriate Board-level oversight of the processes involved ◾ with the support of the Board Nominations Committee, debating the composition of, and appointments to each of, the boards of Barclays UK, Barclays International and the Group Service Company and discussing the appropriate governance arrangements for the new Group structure. Preparations for Brexit Another area of focus for the Board was preparations for the impact of the UK’s exit from the EU. Barclays has created an internal programme specifically in relation to the planning and preparation for Brexit. The Board debated potential EU hubs for Barclays’ | European operations and decided to pursue expansion in Ireland where we have been operating for over 40 years and have an existing banking licence held by Barclays Bank Ireland. Specific matters considered by the Board included debating the feasibility of a significant expansion of Barclays Bank Ireland’s operations, the transfer of capital and resources to Barclays Bank Ireland and assessing the progress being made with applications for the necessary regulatory licensing requirements with the relevant authorities. The successful completion of the Group’s structural reform programme and further progress on our Brexit plans will continue to be areas of focus for the Board in 2018. |
10 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2017
Board Audit Committee report
Solid progress has been made in turning the controls enhancement programme into a ‘business as usual’ activity, with an emphasis on achieving sustainable progress. | ||||
Dear Fellow Shareholders
As I reported in 2017, the Committee continues to consider a critical part of its role Solid progress has been made in | continue to The Committee In assessing control issues for disclosure in the Annual Report, the Committee has The Committee has continued to oversee the performance and effectiveness of internal and external audit, the main independent assurance mechanisms that serve to protect shareholders’ interests. I continue to hold regular meetings with the Chief Internal Auditor and members of her senior management team to ensure I am aware of current work programmes and any emerging issues. I also agreed the Chief Internal Auditor’s objectives and the outcomes of her performance assessment and remuneration. The Committee also held a networking event with Barclays Internal Audit (BIA) during 2017, enabling Committee members to meet on a less formal basis with senior members of the BIA management team. During 2017, the Committee continued to monitor closely the implementation of the action plan to address the recommendations arising from the review undertaken by the PRA of BIA to increase its effectiveness. The Chartered Institute of Internal Auditors requires an independent external review of | internal audit functions to be carried out at least every five years and during 2017, the Committee commissioned an independent external quality assessment of BIA, further details of which may be found on page 19. The Committee was satisfied with the conclusions drawn in the The Committee continued to
| ||
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Barclays PLC and Barclays Bank PLC |
Governance: Directors’ report
What we did in 2017
Board Audit Committee report
addressed. Further details of the Committee’s consideration of the judgements and financial impacts relating to the implementation of the new standard may be found in the ‘Governance in Action’ section of the Committee report on page 21.
I have continued to hold the role of Whistleblower’s Champion, a position required by the FCA to be held at Board level. As champion, I continue to have specific responsibility for the integrity, independence and effectiveness of the Barclays’ policies and procedures on whistleblowing, including the procedures for protecting employees who raise concerns from detrimental treatment. As Whistleblower’s Champion and as Chairman of the Committee, I have been involved in overseeing the implementation of the suggested enhancements following the benchmarking review undertaken in 2017 at the request of the Board of Barclays.
Responsibility for the oversight of litigation, investigation and competition matters has transitioned to the Committee, in line with the Committee’s existing responsibility for the oversight of matters related to disclosure and provisioning. The Committee has received regular updates on these matters from the Group General Counsel, with matters of particular significance to the Group continuing to be subject to oversight by the Board of Barclays.
I attended meetings of the IHC audit committee to gain a first-hand insight into the issues being addressed by that committee and have held regular meetings with the chairmen elect of the Barclays UK and Barclays International audit committees. The chairmen or chairmen elect of all those entities have attended at least one Committee meeting during 2017. I also met frequently with other members of senior management, including the Group Finance Director, and continued my engagement with Barclays’ regulators both in the UK and US. I have reported regularly on the activities of the Committee to the Board of Barclays.
Committee performance
The Committee’s performance during 2017 was assessed as part of an internal committee effectiveness review. The conclusion of my Board colleagues and standing attendees at Committee meetings was that the Committee is regarded as operating effectively and the Board takes assurance from the quality of the Committee’s work. It is considered well constituted with the right balance of skills and experience. The main area identified for improvement was the need to manage a demanding agenda efficiently so that time is allocated to the most significant items for discussion.
Last year’s review commented on the need to strengthen the depth of financial and accounting expertise on the Committee via new appointments, which I am pleased was addressed through the appointment of Matthew Lester to the Committee when he joined the Board of Barclays in September 2017. The review also highlighted the need to ensure that the way in which the Committee works with the Board Reputation and Board Risk Committees continues to capture all significant issues effectively while minimising any overlap. I continued to work closely with my fellow Board Committee chairmen during 2017, particularly with the Board Risk Committee chairman in order to clarify the responsibility of the respective committees for operational risk issues, which each Committee has a role in overseeing.
You can read more about the outcomes of the Board effectiveness review on page 36.
Looking ahead
In 2018, in addition to overseeing management’s progress in continuing to embed the role of the Chief Controls Office and the Group’s management of controls remediation, the Committee will be focusing on some significant accounting issues, including in particular, monitoring the impact of IFRS 9 and the resultant disclosures. The Committee is looking forward to working with the audit committees of Barclays UK and Barclays International as we discharge our responsibilities and focus on ensuring efficient and effective coverage of the business under the new group structure. We have already agreed an allocation of responsibilities, and embedding the necessary reporting and information flows across the three audit committees to ensure all of them can discharge their responsibilities efficiently will be a key area of focus.
Mike Ashley
Chairman, Board Audit Committee
21 February 2018
Committee allocation of time (%)
2017 | 2016 | |||||
1 | Control issues | 11* | 23 | |||
2 | Business control environment | 15 | 19 | |||
3 | Financial results | 33 | 36 | |||
4 | Internal audit matters | 25† | 11 | |||
5 | External audit matters | 8 | 6 | |||
6 | Other (incl governance and compliance) | 8 | 4 |
* | The time allocation in 2017 has reduced following the streamlining of the reporting of control issues through the Chief Controls Office. |
† | The increased time allocation to internal audit matters in 2017 reflects the role of the Committee in (i) overseeing the recommendations arising from the review undertaken by the PRA of Barclays Internal Audit to increase its effectiveness, and (ii) the independent external quality assessment of Barclays Internal Audit which was commissioned by the Committee in 2017. |
Committee composition and meetings
The Committee is composed solely of independent non-executive Directors. Dambisa Moyo retired fromDirectors, with membership designed to provide the Committee atbreadth of financial expertise and commercial acumen it needs to fulfil its responsibilities. Its members as a whole have experience of the end of August 2015 following a review of Board Committee compositionbanking and size by the Board, which resultedfinancial services sector in the membership of each Board Committee being refreshed. Diane Schueneman was appointedaddition to the Committee with effect from 1 March 2016.general management and commercial experience. Mike Ashley, who is the designated financial expert on the Committee for the purposes of the US Sarbanes-Oxley Act. Although each memberAct, is a former audit partner who during his executive career acted as lead engagement partner on the audits of the Committee has financial and/ora number of large financial services experience,groups. Following the Board has determinedBoard’s finding that the Committee would benefit fromcould be strengthened by the appointment of an additional member with direct accounting and auditing experience, and consideration is being given to further appointmentsMatthew Lester was appointed to the Board and Committee in order to deepen its expertise in these areas.with effect from 1 September 2017. During his executive career, Matthew held a number of senior finance roles across a range of business sectors, including financial services, and most recently was the Chief Financial Officer of Royal Mail Group. You can find more details of the experience of Committee members in their biographies on pages 35 and 4.6.
The Committee met 10 times in 20152017 and the chart on page 17above shows how it allocated its time. Meetings are generally arranged well in advance and are scheduled in line with Barclays’ financial reporting timetable. One additional meeting was held purelyarranged to consider presentations from the three audit firms biddingselect an appropriate service provider for the external audit tenderindependent review of Barclays Internal Audit and was not attended by Mike Ashley.to undertake an early review of particular issues relevant to the financial statements. Committee meetings were attended by management, including as required the Group
12 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Chief Executive, Group Finance Director, Chief Internal Auditor, Chief Controls Officer, Chief Risk Officer, Chief Operating Officer, General Counsel and Head of Compliance, as well as representatives from the businesses and other functions. The lead audit partner of theKPMG (the Group’s external auditorauditor), Guy Bainbridge, attended all Committee meetings except the meeting to evaluate the external audit tender proposals, and thesince January 2017. The Committee held a number of private sessions with each of the Chief Internal Auditor or the lead audit partner, which were not attended by management. The lead audit partner of PwC, the Group’s previous external auditor, attended meetings until the end of February 2017 to deliver its final audit report to the Committee on the 2016 financial statements before PwC resigned as the Group’s statutory auditor.
Member | Meetings attended/eligible to attend | |||||
Committee role and responsibilities
The Committee is responsible for:
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Governance: Directors’ report
What we did in 2015
Board Audit Committee report
The Committee’s work
The significant matters addressed by the Committee during 2015 are described below.
Significant financial statement reporting issues
Assumptions and estimates or judgements are an unavoidable and significant part of the financial reporting process and are evaluated carefully by the Committee ahead of the publication of Barclays’ results announcements. The Committee examined in detail the main judgements and assumptions made by management, any sensitivity analyses performed and the conclusions drawn from the available information and evidence, with the main areas of focus during the year set out below. Where appropriate, the Committee sought input and guidance from the external auditor and welcomed its challenge on specific matters. In addition to these main areas of focus, the Committee also covered matters relating to Barclays’ pension scheme, taxation and accounting policy choices.
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Other significant matters
Other matters addressed by the Committee focused on the effectiveness of Barclays’ internal controls, the performance and effectiveness of the internal audit function, the performance, objectivity and independence of the external auditor, PricewaterhouseCoopers LLP (PwC) and the arrangements being made to ensure that the incoming auditor, KPMG LLP (KPMG), achieves full independence prior to commencing the Barclays’ audit. The most significant matters are described below.
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The Committee also covered the following matters:
§ ensured it was updated on the implementation of IFRS 9, including the work under way to develop the Group’s approach, project status, resourcing and employee training. The Committee requested, and received, a specific briefing session on IFRS 9, covering the key assumptions and judgements that will be required
§ debated the Group’s plan for recovery and resolution and the process by which it was developed, including assessing the forward-looking trigger indicators
§ tracked progress of plans to ensure an attestation could be made to the Group’s regulators with regard to financial crime controls
§ assessed status reports on the Group’s controls around client assets and encouraged management to ensure that complexity, and the associated compliance costs, was taken into account when deciding which products to be offered
§ evaluated regular reports on regulatory issues
§ approved revisions to its terms of reference and recommended them to the Board for approval
§ approved a revised Group Retail Impairment Policy.
Assessing external auditor effectiveness, auditor objectivity and independence and non-audit services
The Committee is responsible for assessing the effectiveness, objectivity and independence of the Group’s auditor, PwC. This responsibility was discharged throughout the year at formal committee meetings, during private meetings with PwC and via discussions with key executive stakeholders. In addition to the matters noted above, during 2015, the Committee:
§ approved the terms of the audit engagement letter and associated fees, on behalf of the Board, having scrutinised the results of Barclays’ formal evaluation of PwC. More information on the formal evaluation is provided below
§ appraised PwC’s approach to key accounting judgements and how they were communicated and agreed with management and the Committee
§ recognising that PwC, and its predecessor firms, has been Barclays external auditor since 1896 and that it had been more than 10 years since the external audit was last tendered, conducted an external audit tender, identified KPMG as the preferred candidate for appointment as Barclays’ new auditor and made a recommendation to the Board. Details of the audit tender process, which was overseen by the Audit Tender Oversight Sub-Committee, can be found on page 18
§ discussed and agreed revisions to the Group Policy on the Provision of Services by the Group Statutory Auditor and regularly analysed reports from management on the services that PwC provided to Barclays. Following the appointment of KPMG as auditor from 1 January 2017, the Committee also commenced oversight of new non-audit service engagements with KPMG in recognition of the potential threats to independence. Read more about non-audit services below
§ instructed Barclays Internal Audit to undertake a review of a sample of non-audit services provided by PwC to ensure that the final deliverables aligned to the scope of work approved by the Committee. No concerns were identified by this review
§ evaluated and approved revisions to the Group Policy on Employment of Employees from the Statutory Auditor and ensured compliance with the policy by regularly assessing reports from management detailing any appointments made
§ analysed the results of the inspection of PwC by the Financial Reporting Council’s Audit Quality Review Team and confirmed support for the actions PwC proposed to take to address areas identified for improvement
§ assessed the draft report to the PRA prepared by PwC regarding its detailed audit work on specific topics, in particular, impairment.
PwC’s performance, independence and objectivity during 2015 were formally assessed at the beginning of 2016. A questionnaire incorporating best practice recommendations from a number of professional and governance bodies, and taking account of key findings from the 2014 review, was completed by key stakeholders across the Group. The questionnaire was designed to evaluate PwC’s audit process in its entirety and addressed matters including the quality of planning and communication, technical knowledge, the level of scrutiny and challenge applied and PwC’s understanding of the business. The subsequent report provided empirical data on which the Committee assessed PwC. It also reflected specific comments made by respondents, giving the Committee a valuable insight into management’s views. The Committee was particularly interested in assessing whether audit quality was being maintained throughout the period of transition to a new auditor. The results of the evaluation confirmed that both PwC and the audit process were effective. Having considered the results of the evaluation, the Committee recommended to the Board and to shareholders that PwC should be reappointed as the Group’s auditors at the AGM on 28 April 2016, noting that this would be PwC’s final year as Group auditor.
Governance: Directors’ report
What we did in 2015
Board Audit Committee report
Non-audit services
In order to safeguard the auditor’s independence and objectivity, Barclays has in place a policy setting out the circumstances in which the auditor may be engaged to provide services other than those covered by the Group audit. The Group Policy on the Provision of Services by the Group Statutory Auditor (the Policy) applies to all Barclays’ subsidiaries and other material entities over which Barclays has significant influence. The core principle of the Policy is that non-audit services (other than those legally required to be carried out by the Group’s auditor) should only be performed by the auditor in certain, controlled circumstances. The Policy sets out those types of services that are strictly prohibited and those that are allowable in principle. Any service types that do not fall within either list are considered by the Committee Chairman on a case by case basis, supported by a risk assessment provided by management.
The Committee has pre-approved all allowable services up to £100,000, or £25,000 for tax advisory services, however, all proposed work, regardless of the fees, must be sponsored by a senior executive and recorded on a centralised online system, with a detailed explanation of the clear commercial benefit arising from engaging the auditor over other potential service providers. The audit firm engagement partner must also confirm that the engagement has been approved in accordance with the auditor’s own internal ethical standards and does not pose any threat to the auditor’s independence or objectivity.
All requests to engage the auditor are assessed by independent management before work can commence. Requests for allowable service types in respect of which the fees are expected to meet or exceed the above thresholds must be approved by the Chairman of the Committee before work is permitted to begin. Services where the fees are expected to be £250,000 or higher must be approved by the Committee as a whole. All expenses and disbursements must be included in the fees calculation.
During 2015, all engagements where expected fees met or exceeded the above thresholds were evaluated by either the Committee Chairman or the Committee as a whole who, before confirming any approval, assured themselves that there was justifiable reason for engaging the auditor and that its independence and objectivity would not be threatened. Two requests were declined in 2015 (2014: two). On a quarterly basis, the Committee scrutinised details of individually approved and pre-approved services undertaken by the auditor in order to satisfy itself that they posed no risk to the auditor’s independence, either in isolation or on an aggregated basis. A breakdown of the fees paid to the auditor for non-audit work can be found in Note 42 on page 296, with non-audit fees representing 23.5% (2014: 25.7%) of the audit fee. Significant categories of engagement undertaken in 2015 included:
Independence of KPMG
Following the appointment of KPMG as Barclays’ auditor with effect from 1 January 2017, the Committee was concerned to ensure that KPMG obtained independence from Barclays during 2016, enabling it to familiarise itself with Barclays and receive a structured, formal handover from PwC. In order to ensure KPMG’s independence, and to allow the Committee to assess whether any non-audit work being conducted by KPMG in the meantime is appropriate, both in terms of type and scale, Barclays is in the process of exiting any current relationships or assignments that may prevent KPMG obtaining independent status and
has implemented procedures to manage the types of relationships and assignments that KPMG provides going forward. In particular, KPMG is not permitted to provide any service that may continue beyondmid-2016 if it has potential to cause independence issues. Since October 2015, the Committee has required all new engagements to be considered in light of the Policy and is maintaining oversight of them on the same basis as for the current auditor. The Committee has reserved the right to decline any proposed engagement with KPMG.
The fees paid to KPMG for non-audit work during 2015 were £38m. Significant categories of engagement undertaken in 2015 included:
The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014
Barclays intends to comply with the requirements of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, which relates to the frequency and governance of tenders for the appointment of the external auditor and the setting of a policy on the provision of non-audit services.
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5 | External audit matters (including external audit tender) | 26 | 11 | |||||||||||
6 | Other (including governance and compliance) | 6 | 5 | |||||||||||
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Diane Schueneman* | 8/10 | |||||||||||||
Matthew Lester (from 1 September 2017)† | 1/3 |
What we did in 2015
Board Risk Committee reporta
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Committee composition and meetings
The Committee is comprised solely of independent non-executive Directors. Following a review by the Board during 2015 of Board Committee composition, Dambisa Moyo stepped down from the Committee with effect from 31 August 2015 and Diane Schueneman joined the Committee with effect from 1 September 2015. Details of the skills and experience of the Committee members can be found in their biographies on pages3 and 4.
The Committee met seven times in 2015, with two of the meetings held in New York. Two additional meetings were held at short notice for the sole purpose of considering and approving revised risk limits in connection with specific transactions and, with the consent of the Committee Chairman, were not attended by all Committee members. The chart on page23 shows how the Committee allocated its time during 2015. Committee meetings were attended by management, including the Group Chief Executive, Group Finance Director, Chief Internal Auditor, Chief Risk Officer, Barclays Treasurer and General Counsel, as well as representatives from the businesses. Representatives from the external auditor also attended meetings.
Did not attend due to personal circumstances. |
Committee role and responsibilities
The Committee’s responsibilities include:Committee is responsible for:
scrutinising the activities and performance of the internal and external auditors, including monitoring |
◾ | overseeing significant legal and regulatory investigations, including the proposed litigation statement for inclusion in the statutory accounts. |
The Committee’s terms of reference are available at | ||
home.barclays/ |
The Committee’s work
The significant matters addressed by the Committee during 20152017 and in evaluating Barclays’ 2017 Annual Report and financial statements, are described below:on the following pages.
Financial statement reporting issues
The Committee’s main responsibility in relation to Barclays’ financial reporting is to review with both management and the external auditor the appropriateness of Barclays’ financial statements, including quarterly results announcements and half-year and annual financial statements and supporting analyst presentations, with its primary focus being on:
◾ | the quality and acceptability of accounting policies and practices |
◾ | any correspondence from financial reporting regulators in relation to Barclays’ financial reporting |
◾ | material areas where significant judgements have been made, along with any significant assumptions or estimates, or where significant issues have been discussed with or challenged by the external auditor |
◾ | an assessment of whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess Barclays’ position and performance, business model and strategy. |
Accounting policies and practices
The Committee discussed reports from management in relation to the identification of critical accounting judgements and key sources of estimation uncertainty, significant accounting policies and the proposed disclosure of these in the 2017 Annual Report. Following discussions with both management and the external auditor, the Committee approved the critical accounting judgements, significant accounting policies and disclosures, which are set out in note 1, ‘Significant accounting policies’, to the consolidated financial statements.
There was one significant change in accounting policy during the period which was the early adoption of IFRS 9 (Financial Instruments) in relation to own credit, resulting in the recognition of fair value movements through the Statement of Comprehensive Income. Further information regarding this change can be found in note 1 to the consolidated financial statements. Two new significant accounting standards became effective from 1 January 2018, IFRS 9 (Financial Instruments) and IFRS 15 (Revenue Recognition). Further information regarding these changes can be found in note 1 to the consolidated financial statements. During 2017, the Committee was regularly updated on Barclays’ preparations for the implementation of IFRS 9, in particular in relation to the new expected loss model which represents a fundamental change in approach
to impairment. The Committee discussed with management the key technical decisions and interpretations required and Barclays’ approach to these. Further details of the Committee’s role in overseeing the Group’s IFRS 9 preparations can be found on page 21, ‘Governance in Action’.
Financial reporting regulators and Barclays
The Committee from time to time considers comment letters and papers from external bodies including the SEC and the Financial Reporting Council (FRC). In that regard, the Committee considered the following:
◾ | The FRC’s Year-End Advice Letter to Audit Committee Chairs and Finance Directors which highlighted key developments for 2017/18 annual reports. |
◾ | The FRC’s Annual Review of Corporate Reporting which summarised key characteristics of good corporate reporting for the 2017/18 reporting year. |
◾ | The PRA note of advice to Non-executive Directors regarding IFRS 9 implementation which set out a series of questions for consideration to ensure audit committees were well prepared for the transition and its implications. |
The Committee sought to ensure that Barclays took due account of the matters raised in the letters and papers described above in its external reporting and has sought to enhance and clarify relevant disclosures.
The Committee from time to time considers comment letters from the SEC in relation to its reviews of Barclays’ Annual Report and other publicly filed financial statements. Such comment letters and Barclays’ responses are made publicly available by the SEC on its website, www.sec.gov, once it has closed each such review. Barclays received one comment letter from the SEC during 2017 requesting clarification from the SEC in relation to its 2017 half year filing. Barclays responded to clarify the queries raised by the SEC. The letter did not raise any material concerns or disclosure items.
Significant judgements and estimates
The significant judgements and estimates and actions taken by the Committee in relation to the 2017 Annual Report and financial statements are outlined below. The significant judgements and estimates are broadly comparable in nature to prior years. Each of these matters was discussed with the external auditor during the year and, where appropriate, have been addressed n the Auditors’ Report on pages 186 to 187.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 13 |
Governance: Directors’ report
What we did in 2017
Board Audit Committee report
Area of focus | Reporting issue | Role of the Committee | Conclusion/action taken | |||
Conduct provisions (refer to Note 27 to the financial statements) | Barclays makes certain assumptions and estimates, analysis of which underpins provisions made for the costs of customer redress, such as for Payment Protection Insurance (PPI). | ◾ Regularly analysed the judgements and estimates made with regard to Barclays’ provisioning for PPI claims, taking into account forecasts and assumptions made for PPI complaints and actual claims experience for Barclays and the industry as a whole, including the volume of invalid PPI claims. ◾ Debated the impact on the future range of provisions arising from (i) the FCA’s introduction of August 2019 as the timebar on claims, (ii) the PPI marketing campaign, and (iii) the progress of the proposed fee cap on the submission of PPI complaints by Claims Management Companies which is being considered by the UK Parliament. ◾ Evaluated proposed additional provisions for PPI, considering whether the total provision is within the modelled range of future outcomes, and whether the external auditor agreed with management’s analysis and approach. ◾ Monitored the position on provisions for alternative PPI (card protection and payment break plan insurance) and considered whether further provisions were required. | The Committee and management continue to monitor closely any changes in customer or claims management companies’ behaviour in light of the FCA timebar and marketing campaign and the ongoing impact of the Plevin case. Having regard to the actual claims experience over 2017 the Committee agreed with management’s assessment that the current provision of £1,600m was appropriate. The Committee noted that this estimate remains subject to significant uncertainty in particular regarding the level of valid customer claims that may be received in the period to August 2019. In this context the Committee was satisfied that sensitivities to the key variables were appropriately disclosed. | |||
Legal, competition and regulatory provisions (refer to Notes 27 to 29 to the financial statements) | Barclays is engaged in various legal, competition and regulatory matters. The extent of the impact on Barclays of these matters cannot always be predicted, but matters can give rise to provisioning for contingent and other liabilities depending on the relevant facts and circumstances. The level of provisioning is subject to management judgement on the basis of legal advice and is therefore an area of focus for the Committee. | ◾ Evaluated advice on the status of current legal, competition and regulatory matters. ◾ Assessed management’s judgements and estimates of the levels of provisions to be taken and the adequacy of those provisions, based on available information and evidence. ◾ Considered the adequacy of disclosure, recognising that any decision to set provisions involves significant judgement. | The Committee discussed provisions and utilisation. Having reviewed the information available to determine what was both probable and could be reliably estimated, the Committee agreed that the level of provision at the year end was appropriate. The Committee also considered that the disclosures made provided the appropriate information for investors regarding the legal, competition and regulatory matters being addressed by the Group. | |||
Valuations (refer to Notes 14 to 18 to the financial statements) | Barclays exercises judgement in the valuation and disclosure of financial instruments, derivative assets and certain portfolios, particularly where quoted market prices are not available, including the Group’s Education, Social Housing and Local Authority (ESHLA) portfolio. | ◾ Evaluated reports from Barclays Valuations Committee, with particular focus on the matters below. ◾ Monitored the valuation methods applied by management to significant valuation items, including the ESHLA portfolio, a valuation disparity with a third party in respect of a specific long-dated derivative portfolio, and the approach to the marking of Own Credit. ◾ Monitored and discussed the impact of negative interest rates on derivative valuation. ◾ Considered the treatment of the re-integration of Non-Core residual operations into the core business. | The Committee discussed these matters and agreed that a minor modification be made to the valuation of the specific long-dated derivative portfolio where there existed significant valuation disparity. This did not result in a material change to the fair value recorded by the Group. The Committee noted that, following efforts by management to restructure derivative agreements impacted by negative interest rates, any residual uncertainty was now insignificant. |
14 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Area of focus | Reporting issue | Role of the Committee | Conclusion/action taken | |||
Impairment (refer to Note 7 to the financial statements) | Where appropriate, Barclays models potential impairment performance, allowing for certain assumptions and sensitivities, the size, particularly where to agree allowances for credit impairment, including agreeing the timing of the recognition of any impairment and estimating forbearance has been granted. | ◾ Assessed impairment experience against forecast and whether impairment provisions were appropriate. ◾ Evaluated credit impairment reports (reviewed by the Group Impairment Committee) presented by the Chief Risk Officer. ◾ Considered a report from the Chief Risk Officer on the position in the US Cards portfolio and monitored the position to determine whether increase in impairment would be required. ◾ Considered a report from the Group Impairment Committee on the adequacy of loan impairment allowances as at 31 December 2017, including assessing internal and external trends, methodologies and key management estimates. | The Committee reviewed model adjustments made by management to ensure that impairment allowances were set at appropriate and adequate levels. The Committee reviewed the impairment charge in Barclaycard US arising in the third quarter from the asset sale in the first quarter. The Committee also reviewed three material single name charges in the Corporate Bank. The committee agreed that the provision levels for impairment were appropriate. | |||
Tax (refer to Note 10 to the financial statements) | Barclays is subject to taxation in a number of jurisdictions globally and makes judgements with regard to provisioning for tax at risk and on the recognition and measurement of deferred tax assets. | ◾ Evaluated the appropriateness of tax risk provisions to cover existing tax risk. ◾ Confirmed the forecasts and assumptions supporting the recognition and valuation of deferred tax assets was in line with Barclays Medium Term Plan. ◾ Monitored the impact to Barclays of the new US framework for tax legislation covering a broad range of tax proposals which was enacted on 22 December 2017 and which had a substantial impact on the measurement of the Group’s US deferred tax assets. The Committee also considered the potential impact of the Base Erosion Anti-abuse Tax (BEAT) which was introduced as part of the new legislation. | The Committee reviewed Barclays’ global tax risk and associated provisions for the full year and noted that the level of tax provisions remained at about the same level, although the amount of gross tax risk was assessed as slightly reduced. In relation to the treatment of deferred tax assets the Committee noted that those due to US tax losses (£1,520m) are forecast to be utilised by 2019 which is significantly earlier than the first expiry date of 2028. The Committee agreed with management’s view that it was appropriate not to take account of any potential future BEAT liabilities in the measurement of the deferred tax assets. It noted that this would be in line with recent US GAAP pronouncements and as disclosed management is also continuing to assess the full impact to the Group of the complex provisions in the new US legislation. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 15 |
Governance: Directors’ report
What we did in 2017
Board Audit Committee report
Area of focus | Reporting issue | Role of the Committee | Conclusion/action taken | |||
Fair, balanced and understandable reporting (including country-by-country reporting and Pillar 3 reporting) | Barclays is required to ensure that its external reporting is fair, balanced and understandable. The Committee undertakes an assessment on behalf of the Board in order to provide the Board with assurance that it can make the statement required by the UK Code on Corporate Governance. | ◾ Assessed, through discussion with and challenge of management, including the Group Chief Executive and Group Finance Director, whether disclosures in Barclays’ Annual Report and other financial reports were fair, balanced and understandable. ◾ Evaluated reports from Barclays’ Disclosure Committee on its assessment of the content, accuracy and tone of the disclosures. ◾ Established through reports from management that there were no indications of fraud relating to financial reporting matters. ◾ Evaluated the outputs of Barclays’ internal control assessments and Sarbanes-Oxley s404 internal control process. ◾ Assessed disclosure controls and procedures. ◾ Confirmed that management had reported on and evidenced the basis on which representations to the external auditors were made. | Having evaluated all of the available information and the assurances provided by management, the Committee concluded that the processes underlying the preparation of Barclays’ published financial statements, including the 2017 Annual Report and financial statements, were appropriate in ensuring that those statements were fair, balanced and understandable. In assessing Barclays’ financial results statements over the course of 2017, the Committee specifically addressed and provided input to management on the disclosure and presentation of: ◾ the classification of Barclays’ holding in Barclays Africa as an available for sale asset with effect from 1 June 2017 ◾ the closure of Barclays Non-Core business and the reintegration of the remaining businesses and portfolio ◾ the Group Finance Director’s presentations to analysts ◾ the level of segmental reporting. The Committee recommended to the Board that the 2017 Annual Report and financial statements are fair, balanced and understandable. |
16 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Other significant matters Apart from financial reporting matters the Committee has responsibility for oversight of the effectiveness of Barclays’ internal controls, the performance and effectiveness of BIA and | the performance, objectivity and independence of the external auditor. The most significant matters considered during 2017 are described in the table below. | |||||
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
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| ◾ Considered the second line of defence role in the oversight of operational risk controls, including ◾ Evaluated reports on the |
◾ Assessed the progress of the ◾ Clarified the
| The Committee The Committee provided feedback on the reporting of material control issues, requesting further detail regarding completion dates, key milestones and current status for significant remediation projects to enable closer monitoring and help drive accountability at the appropriate management level. The Committee challenged the application of the lessons learned process in view of the low level of coverage of significant control incidents. Management has taken steps to enhance the process and ensure compliance. Going forward this will be tracked by the Chief Controls Office. The Committee has continued to use the output from the RCSA process in its review of the control environment. While providing a reasonable overview of the control environment, the Committee welcomes management’s plans to put in place a more granular process which should provide greater visibility on controls requiring remediation and associated risks. This approach was piloted in 2017 and will be rolled out across the Group in 2018. | |||
The effectiveness of the control environment in each individual business, including the status of any material control issues and the progress of specific remediation plans. | ◾ Assessed reports on individual businesses and functions on their control environment, questioned the heads of the relevant businesses or functions on control concerns and scrutinised any identified control failures and closely monitored the status of remediation plans or workstreams to enhance the respective control environments. ◾ Received updates directly from senior management, and scrutinised action plans, in relation to remediation plans following unsatisfactory audit findings. ◾ Reviewed updates from management on the Designated Market Activity (DMA) remediation plan which addresses Barclays’ regulatory commitments to the | The Committee received deep dive control environment presentations from Barclays International and Barclays UK. These provided further detail of management’s assessment of the business unit control environment and key areas of focus, including key controls hot spots for the businesses. The Committee also received a number of presentations from business heads following unsatisfactory audit reports. The Committee challenged the business regarding their role in identifying the control issues and requested confirmation from management regarding the remediation programme, timeframe and accountability for delivery and which are subsequently The Committee was encouraged that the |
Barclays PLC and Barclays Bank PLC |
Governance: Directors’ report
What we did in 20152017
Board RiskAudit Committee report
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
The |
◾ The Committee received a deep dive control environment presentation from the Chief Information Officer regarding Technology control issues. | The Committee The Committee also received updates on the following matters: ◾ Data ◾ Security of Secret and ◾ Client Assets and ◾ Payments.
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◾ Monitored whistleblowing metrics, including case load and case ageing.
| The Committee The Committee supported the focus on training both to colleagues on the channels available, and also managers on how to handle whistleblowing issues. The Committee also emphasised the importance of The Committee was As Whistleblowing Champion, the Chairman of the Committee made an annual report to the Board on whistleblowing matters. | |||||
| The |
| ◾ Monitored BIA’s response to feedback received from the ◾ Monitored delivery of the | |||
audit plan and reviewing the reasons for the postponement of audits in greater depth.
◾ Tracked the levels of |
◾ Commissioned an independent external review of BIA. The reviewer was selected as a result of a tender process also run by the | The Committee The Committee reiterated its support for BIA’s recruitment plans which reflected significant activity during 2017 to ensure appropriate audit coverage to support the focus on BIA quality across the audit cycle. The Committee Chairman provided input into the recruitment of the two key roles of Head of Internal Audit in Barclays UK and Barclays International. The Committee observed that the issues arising from unsatisfactory audits indicated that there was still work to do in embedding the required level of control consciousness across the Group and ensuring that control exceptions were highlighted clearly in management reporting. The Committee also requested that senior management support BIA in holding individuals accountable for failure to remediate risks effectively where they had failed BIA validation. The Committee confirmed that it was satisfied with the outcome of the self-assessment of BIA performance and the independent external review, both of which evidenced that the function generally conforms to the standards set by the Institute of Internal Auditors. It further confirmed that it felt able to rely on the work of BIA in discharging its own responsibilities. The Committee is providing oversight over the actions
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18 Barclays PLC and Barclays Bank PLC |
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
External audit | The work and performance of KPMG | ◾ Met with key members of the KPMG audit team to discuss the 2017 audit plan and agree areas of focus. ◾ Assessed regular reports from KPMG on the progress of the 2017 audit and any material accounting and control issues identified. ◾ Discussed KPMG’s feedback on Barclays’ critical accounting estimates and judgements. ◾ Discussed KPMG’s draft report on certain control areas and the control environment ahead of the 2017 year end. ◾ Discussed the approach to KPMG’s annual report to the PRA which will be issued following completion of the 2017 audit. ◾ Considered the draft SOX controls report and the draft audit opinion. | The Committee approved the audit plan and the main areas of focus. The Committee also approved the principal services agreement and terms of engagement in connection with KPMG’s appointment as the Group’s auditors. Read more about the Committee’s role in assessing the performance, effectiveness and independence of the external auditor and the quality of the external audit below. | |||
The Committee also covered the following matters: ◾ tracked the progress of specific work being done to enhance Barclays’ financial crime controls, including the function’s investigation capabilities, in particular in relation to prevention and detection activities. The Committee also assessed the Group Money Laundering Officer’s annual report ◾ assessed the status of the programme in place to ensure Barclays’ compliance with client assets (CASS) regulatory requirements, including approving the annual client assets audit report and discussing the potential impact of Structural Reform on client assets ◾ evaluated the outcomes of the assessment of the Committee’s performance and any areas of Committee performance that needed to be enhanced ◾ reviewed and updated its terms of reference, recommending them to the Board for approval. In addition to these matters, as highlighted above in the section of the table headed ‘Internal audit’ the Committee commissioned an independent review of BIA which was undertaken by Deloitte during the second half of 2017. The Chartered Institute of Internal Auditors requires an independent external review of internal audit functions to be carried out at least every five years. Following a selection process, the Committee commissioned Deloitte to conduct this review reporting directly to the Committee. The report concluded that: ◾ BIA demonstrates general conformance with the relevant standards and guidelines. ◾ BIA has an effective core audit methodology which reflects investment in Agile ways of working and data analytics which has helped to drive continuous improvement. In this respect it is aligned with or ahead of peers. | ◾ BIA’s purpose and remit is clearly defined and the function is positioned appropriately within the governance framework of the organisation/ its role as an objective third line of defence. This role has been supported by the clearer delineation of the first line role of the newly created Chief Controls Office. ◾ The focus on increased headcount in BIA will help drive audit capacity and capability through enhanced specialist skills/ knowledge. Deloitte reported that BIA cares about its people and has created a supportive environment in which to work. ◾ While there are opportunities to improve BIA’s impact, they are able to deliver effective feedback on the operation of controls that address key risks. The report paid close attention to the matters raised in the 2016 PRA letter regarding BIA, and Deloitte met with the PRA as part of its review. The Committee was satisfied with the conclusions drawn in the report, while noting the potential development areas identified, in particular, extending the use of data analytics. BIA has drawn up an action plan in response to the review and the Committee will continue to monitor the delivery of this plan. External auditor Following an external audit tender in 2015, PWC was replaced in 2017 as Barclays’ statutory auditor by KPMG. Guy Bainbridge of KPMG is Barclays’ senior statutory auditor with effect from the audit for the 2017 financial year. | Assessing external auditor effectiveness, auditor objectivity and independence and non-audit services The Committee is responsible for assessing the effectiveness, objectivity and independence of the Group’s Auditor, KPMG and in 2017 the Committee was particularly concerned to ensure that the external auditor transition period was managed effectively. This responsibility was discharged throughout the year at formal Committee meetings, during private meetings with KPMG and via discussions with key executive stakeholders. In addition to the matters noted above, during 2017 the Committee: ◾ approved the terms of the audit engagement letter and associated fees, on behalf of the Board ◾ discussed and agreed revisions to the Group policy on theProvision of Services by theGroup Statutory Auditorand regularly analysed reports from management on the non-audit services provided to Barclays. ◾ evaluated and approved revisions to the Group policy onEmployment of Employeesor Workers from the Statutory Auditorand ensured compliance with the policy by regularly assessing reports from management detailing any appointments made ◾ was briefed by KPMG on critical accounting judgements and estimates ◾ assessed any potential threats to independence that were self-identified and reported by KPMG ◾ reviewed the report on KPMG issued by the FRC’s Audit Quality Review team. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 19 |
Governance: Directors’ report
What we did in 2017
Board Audit Committee report
KPMG’s performance, independence and objectivity during 2017 were formally assessed at the beginning of 2018 by way of a questionnaire completed by key stakeholders across the Group. The questionnaire was designed to evaluate KPMG’s audit process and addressed matters including the auditor transition, quality of planning and communication, technical knowledge, the level of scrutiny and challenge applied and KPMG’s understanding of the business. In addition KPMG have nominated a senior partner on the audit team reporting to the Senior Statutory Auditor to have specific responsibility for ensuring audit quality. The Committee therefore met with the partner concerned without the Senior Statutory Auditor in order to receive a report on his assessment of audit quality.
Taking into account the results of all of the above, the Committee considered that KPMG maintained their independence and objectivity and the audit process was effective.
Non-audit services
In order to safeguard the Auditor’s independence and objectivity, Barclays has in place a policy setting out the circumstances in which the Auditor may be engaged to provide services other than those covered by the Group audit.The Group Policy on the Provision of Services by the Group Statutory Auditor (the “Policy”) applies to all Barclays’ subsidiaries and other material entities over which Barclays has significant influence. The Policy therefore included Barclays Africa Group Limited up until the point of accounting deconsolidation. The core principle of the Policy is that non-audit services (other than those legally required to be carried out by the Group’s Auditor) should only be performed by the Auditor in certain, controlled circumstances. The Policy sets out those types of services that are strictly prohibited and those that are allowable in principle. Any service types that do not fall within either list are considered by the Committee Chairman on a case by case basis, supported by a risk assessment provided by management.
Under the Policy, the Committee has pre-approved all allowable services for which fees are less than £100,000, or less than £25,000 for tax advisory and tax planning services. However, all proposed work, regardless of the fees, must be sponsored by a senior executive and recorded on a centralised online system, with a detailed explanation of the clear commercial benefit arising from engaging the auditor over other potential service providers. The audit firm engagement partner must also confirm that the engagement has been approved in accordance with the auditor’s own internal ethical standards and does not pose any threat to the auditor’s independence or objectivity. All requests to engage the auditor are assessed by independent management before work can commence. Requests for allowable service types in respect of which the fees are expected to meet or exceed the above thresholds must be approved by the Chairman of the Committee before work is permitted to
begin. Services where the fees are expected to be £250,000 or higher must be approved by the Committee as a whole. All expenses and disbursements must be included in the fees calculation. The thresholds remained the same following the annual review of the Policy in 2017.
During 2017, all engagements where expected fees met or exceeded the above thresholds were evaluated by either the Committee Chairman or the Committee as a whole who, before confirming any approval, assured themselves that there was justifiable reason for engaging the auditor and that its independence and objectivity would not be threatened. No requests to use KPMG were declined in 2017 (2016: one). On a quarterly basis, the Committee scrutinised details of individually approved and pre-approved services undertaken by KPMG in order to satisfy itself that they posed no risk to independence, either in isolation or on an aggregated basis. For the purposes of the Policy, the Committee has determined that any pre-approved service of a value of under £50,000 is to be regarded as clearly trivial in terms of its impact on Barclays’ financial statements and has required the Group Financial Controller to specifically review and confirm to the Committee that any pre-approved service with a value of £50,000-£100,000 (or up to £25,000 for tax advisory and tax planning services) may be regarded as clearly trivial. The Committee undertook a review of pre-approved services at its meeting in December 2017 and satisfied itself that such pre-approved services were clearly trivial in the context of their impact on the financial statements.
The fees payable to KPMG for the year ended 31 December 2017 amounted to £48m, of which £10m (2016: £17m) was payable in respect of non-audit services (KPMG was appointed as the Group’s statutory auditor from the financial year beginning 1 January 2017). A breakdown of the fees payable to the auditor for statutory audit and non-audit work can be found in Note 42. Of the £10m of non-audit services provided by KPMG during 2017, the significant categories of engagement, i.e. services where the fees amounted to more than £500,000, included:
◾ | audit-related services: services in connection with Client Asset Sourcebook Rules (“CASS) audits (while the CASS audit fell within the auditor’s scope of services, the fees for such services did not form part of the global fee arrangements and therefore required separated Audit Committee approval pursuant to the Policy) |
◾ | quality assurance: support in connection with reports on the internal controls applicable to IBOR submission processes |
◾ | transaction support: ongoing attestation and assurance services for treasury and capital markets transactions to meet regulatory requirements, including regular reporting obligations and verification reports |
The fees paid to PwC for non-audit work during 2017, in the period before they resigned as the Group’s statutory auditor, and after they had resigned but before they were non-independent of certain Group entities (and therefore still fell within the Policy), were £3m (2016: £8m). Significant categories of engagement approved in 2017 included:
◾ | transaction support: ongoing support for treasury and capital markets transactions, including providing comfort and accounting letters to meet trust deed and regulatory obligations (this ongoing support transitioned to KPMG during 2017). |
The Committee also reviewed the level of consultancy spend with PwC during 2017, which it had asked to be monitored in the immediate period after they stepped down as the Group’s auditors. Work with an estimated value of £1m million was awarded to PwC during the year (this was in addition to the £3m in fees paid to PwC for non-audit services referred to above).
The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014
An external audit tender was conducted in 2015 and the decision was made to appoint KPMG as Barclays’ external auditor with effect from the 2017 financial year, with PwC resigning as the Group’s statutory auditor at the conclusion of the 2016 audit.
Barclays is in compliance with the requirements of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, which relates to the frequency and governance of tenders for the appointment of the external auditor and the setting of a policy on the provision of non-audit services.
20 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Governance in Action – Preparation for IFRS 9 | ||||||
A significant activity for the Committee during 2017 has been overseeing the Group’s preparation for the implementation of IFRS 9. IFRS 9 Financial Instruments is effective from 1 January 2018 and replaces the IAS 39 accounting standard. The new standard sets out the recognition and measurement requirements for financial instruments and has three parts: classification and measurement of financial assets, the requirements for impairment of financial assets and a hedge accounting model that is designed to more closely reflect risk management. As permitted, Barclays intends to continue with the existing IAS 39 hedge accounting model. The new impairment accounting model however has a significant impact on Barclays and the changes are complex and wide ranging classification and measurement also results in a number of much less significant changes. IFRS 9 has therefore been the subject of significant regulatory and market focus. Barclays has worked with the industry and regulators to agree a transitional framework for regulatory capital and on disclosures and has taken note of the best practice recommendations they have issued for the management of the transition to the new standard. The Committee received regular updates on the status, judgements and financial impacts relating to the implementation of IFRS 9 during 2017 and the first quarter of 2018. It has overseen the steps required for Barclays’ transition to the new standard, in particular the delivery into production of the models and controls which are required for its implementation. | Throughout the process, the Committee emphasised to management the importance of developing the models to support business decision making to manage risk and ensure appropriate customer outcomes. The Committee reviewed the internal governance and validation processes in Risk and Finance and received regular updates from KPMG on their assurance work. The Committee also received reports from BIA following the audits undertaken in respect of the IFRS 9 programme, with a number of further audits planned for 2018. The Committee also reviewed the key estimates made by management in considering future economic scenarios and the criteria for determining when significant credit deterioration is observed. In line with its terms of reference, the Committee has been closely involved in the review of all material external financial reporting relating to IFRS 9 and is focussed on ensuring clarity, completeness and appropriateness of the Group’s disclosures, particularly given the complexity and technical challenges of this standard. The Committee reviewed the best estimate impact on the Group which was disclosed in Barclays’ third quarter results and the updated IAS 8 disclosures included in the 2017 financial statements. | |||||
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 21 |
Governance: Directors’ report
What we did in 2017
Board Risk Committee report
The Committee continued to monitor UK economic trends, consumer behaviour and portfolio performance, and a prudent approach to lending was maintained. | ||||
Dear Fellow Shareholders The focus of the Committee during 2017 has continued to be on assessing the impact of important macro-economic and market developments on the risk profile of the Group. Credit risk management during 2017 was primarily concerned with the level of exposure to consumer debt both in the UK and US. In the UK, the Committee in 2016 had accepted the recommendation of Management to pursue a conservative approach to managing growth and balances in credit card debt. This had been prompted by the rising level of personal debt in the UK and concerns of weaker growth and higher inflation resulting from the country’s vote to leave the European Union. This theme persisted in 2017, as the Committee continued to monitor UK economic trends, consumer behaviour and portfolio performance, and a prudent approach to lending was maintained. In the US, in late 2016, there had been nascent signs of weakness in the consumer credit portfolio. The Committee had requested Management to perform detailed analyses of the balances and, based on this work, approved in early 2017 the sale of a proportion of the weaker segments of the portfolio. This action, along with increased conservatism during the year in lending and portfolio quality, has moderated the impact on Barclays of increasing delinquencies among US credit card borrowers being seen among US credit card lenders. While the impairment performance of the Bank was largely within plan, wholesale credit performance in the UK was slightly weaker than in the US. The Bank experienced higher impairment in its corporate lending book in the UK from the default of certain borrowers in the service sector. In the US, improved economic conditions, and higher energy prices resulted in favourable corporate impairment trends compared to 2016. | In recent years, the Committee has been closely supervising the strengthening of the capital position of the Bank. Progress continued in 2017 as the Bank’s capital ratios continued to improve. In assessing the adequacy of the Bank’s capital position, the Committee took into account current financial performance, the impact of expected regulatory developments (including structural reform), and estimates of the costs of resolving past conduct and litigation issues. Likewise, the Committee is pleased that the liquidity risk in the Bank has been closely monitored and strengthened over the past year. An important role of the Committee each year is to recommend the risk appetite of the Bank to the Board: its ability to earn an appropriate return while being able to withstand shocks in the market and economic environment. In addition, the Committee monitors closely the assessment of the Bank’s performance under a variety of regulatory stress tests. We evaluate not just the outcome of these analyses but the means by which they are performed, particularly the assessment of model risk. These efforts increased in 2017, as the Bank prepared for the first stress test of the US Intermediate Holding Company (IHC), in addition to completing the newly introduced Biennial Exploratory Scenario for the Bank of England stress test. The Committee assesses external conditions as part of establishing risk appetite. These remain challenging and our objective was to position the Bank conservatively to deal with economic uncertainty. Key themes that developed during 2017 with potential to have a significant first order impact on Barclays’ businesses included heightened political and economic risk in the UK in the backdrop of Brexit negotiations, increased geo-political risk impacting the delicately poised global economy, and a shortage of new transaction flow in Leveraged Finance underwriting driving tighter terms. Other emerging risks with potential to impact Barclays include volatility in the UK Pension scheme, UK property price stress and volatility in financial markets after a long period of quiescent asset | appreciation. The Committee maintains regular oversight of exposure to the key risk themes it has identified and actions taken by Management in response. During the year, the Committee also evaluated the financial and capital impacts of operational risk. The Committee has noted, and encouraged, the efforts by Management to improve the Risk and Control Self-Assessment programme in Operational Risk. This work is important in an environment of heightened cyber risk and increased operational complexity as the Bank implements structural reform. As in past years, the Committee reviewed the execution by Management of material regulatory programmes and initiatives. These included the BCBS239 effort to improve the quality and reliability of data and information, and IFRS 9, a new standard for the estimation of credit impairment. Committee performance The performance of the Committee during 2017 was assessed as part of an internal annual Committee effectiveness review. The conclusion of my Board colleagues was that the Committee is considered to operate effectively and that the Board continues to have a high degree of confidence in the diligence and coverage of the Committee. Feedback from the review indicated that the Committee was both effective and influential in identifying areas of risk where Barclays needs to change its performance or adjust its risk profile. One of the areas identified for improvement was to consider whether the Committee would benefit from deeper expertise by including a member with a risk function management background and we will give further consideration to this in 2018. The review also highlighted the need to ensure that the way in which the Committee works with the Board Reputation and Board Audit Committees continues to capture all significant issues effectively while minimising any overlap. I continued to work closely with my fellow Board Committee Chairmen during | ||
22 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
2017, particularly with the Board Audit Committee Chairman in order to clarify the responsibility of each committee in relation to operational risk matters during the year which each Committee has a role in overseeing. We will work to embed this further in 2018. The Committee will also focus on ensuring there is a framework in place to ensure clear allocation of responsibilities regarding the Committee’s interaction with the risk committees of Barclays UK and Barclays International under the new Group structure.
You can read more about the outcomes of the Board effectiveness review on page 40.
Looking ahead
2018 is important for Barclays as it completes the restructuring required under the structural reform programme. As a result, the firm will have two important subsidiary legal entities in Barclays UK, the core domestic franchise in the UK, and Barclays International, the Corporate and Investment Banking and international consumer businesses of the firm. These will be in addition to the US Intermediate Holding Company, which is part of Barclays International. The Committee will pay close attention to the executive’s management of risk within and across these entities.
We expect that credit and employment conditions in the UK will continue to be uncertain, as future trade and economic arrangements with the EU take shape. In the US, the impact of the corporate tax reform on the health of companies and consumers will need assessment. Lastly, the Committee will continue to monitor the risk to Barclays from volatility in financial markets, which have experienced many years of steady asset appreciation.
Tim Breedon
Chairman, Board Risk Committee
21 February 2018
Committee allocation of time (%)
2017 | 2016 | |||||||
1 Risk profile/risk appetite (incl capital and liquidity management) | 53 | 52 | ||||||
2 Key risk issues | 26 | 26 | ||||||
3 Internal control/risk policies | 12 | 8 | ||||||
4 Other (incl remuneration and governance issues) | 9 | 14 |
Committee composition and meetings
The Committee is composed solely of independent non-executive Directors. Details of the skills and experience of the Committee members can be found in their biographies on pages 5 to 6.
The Committee met nine times in 2017, with two of the meetings held at Barclays’ New
York offices. The chart above shows how the Committee allocated its time during 2017. Committee meetings were attended by management, including the Group Chief
Executive, Group Finance Director, Chief Internal Auditor, Chief Risk Officer, Barclays Treasurer and Group General Counsel, as well as representatives from the businesses and other representatives from the Risk function. Representatives from Barclays’ external auditor, KPMG, and until March 2017, representatives from the outgoing external auditor, PwC, also attended meetings.
Member | Meetings attended/eligible to attend |
Tim Breedon | 9/9 | |||
Mike Ashley | 9/9 | |||
Reuben Jeffery | 9/9 | |||
Diane Schueneman | 9/9 | |||
Matthew Lester (from 1 September 2017) | 3/3 | |||
Steve Thieke (to 10 May 2017) | 3/3 |
Committee role and responsibilities
The Committee’s main responsibilities include:
◾ | reviewing and recommending to the Board the Group’s financial and operational risk appetite |
◾ | monitoring the Group’s financial and operational risk profile |
◾ | commissioning, receiving and considering reports on key financial and operational risk issues |
The Committee’s terms of reference are available at | ||
home.barclays/corporategovernance |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 23 |
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The significant matters addressed by the Committee during 2017 are described below: | ||||||
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Risk appetite and stress testing, i.e. the level of risk the Group chooses to take in pursuit of its business objectives, including testing whether the Group’s financial position and risk profile provide sufficient resilience to withstand the impact of severe economic stress. | The risk context to Medium Term Plan (MTP), the financial parameters and constraints and mandate and scale limits for specific business risk exposures; the Group’s internal stress testing exercises, including scenario selection and financial constraints, stress testing themes and the results and implications of stress tests, including those run by the Bank of England (BoE). | ◾ Assessed the risk context for the 2017 MTP, including general economic and financial conditions and how these had been reflected in planning assumptions. ◾ Debated the assumptions, parameters and results of the internal stress test of the risk appetite of the 2017 MTP. ◾ Discussed and agreed mandate and scale limits for Credit, Market and Treasury and capital risk. ◾ Evaluated the BoE annual cyclical stress test results, and the results of a stress test under the BoE biennial exploratory scenario. ◾ Observed and debated regulatory and market reaction to the publication of BoE stress test results. ◾ Considered and approved internal stress test themes and the financial constraints and scenarios for stress testing risk appetite for the 2018 MTP. ◾ Considered the Federal Reserve Board’s feedback on the US Intermediate Holding Company’s Comprehensive Capital Analysis and Review (“CCAR”) capital plan following the submission of the CCAR stress test results. | The Committee recommended the proposed risk appetite for 2017 to the Board for approval, although noted that this may need to be revisited to take account of the impact of IFRS 9 in due course. It encouraged management to make further progress on enhancing infrastructure used to conduct the internal stress test. The Committee approved the 2017 annual stress test results for submission to the BoE, including the range of management actions and overlays designed to mitigate risk impacts. Similarly, the Committee approved the results of the stress test under the BoE biennial exploratory scenario and recommended that the results should be taken into consideration for strategy projections. In recommending the internal stress test and risk appetite for the 2018 MTP, the Committee noted and considered that the severity of the internal stress test had been higher than normal, which provided added resilience to the various challenges for the MTP, such as macroeconomic issues. | |||
Capital and funding, i.e. having sufficient capital and financial resources to meet the Group’s regulatory requirements and its obligations as they fall due, to maintain its credit rating, to support growth and strategic options. | The trajectory to achieving required regulatory and internal targets and capital and leverage ratios. | ◾ Debated on a regular basis, capital performance against plan, tracking the capital trajectory, any challenges and opportunities and regulatory policy developments. ◾ Assessed on a regular basis, liquidity performance against both internal and regulatory requirements. ◾ Regularly monitored capital and funding requirements on a legal entity basis. ◾ Assessed the possible implications of litigation and investigations on the Group’s liquidity position, including a review of the Bank’s liquidity risk control framework. ◾ Monitored the funding risk and capital volatility associated with the Barclays pension scheme. | The Committee supported the forecast capital and funding trajectory and the actions identified by management to manage the Group’s capital position. It approved the proposed capital and liquidity processes for Barclays UK for submission to the regulator as part of its banking licence application. The Committee considered and approved the Group capital adequacy assessment together with the methodologies and results of the reverse stress testing for the submission of the 2017 Internal Capital Adequacy Assessment Process (ICAAP) as well as the Group’s 2017 Individual Liquidity Adequacy Assessment Process (ILAAP). | |||
Political and economic risk, i.e. the impact on the Group’s risk profile of political and economic developments and macroeconomic conditions. | The potential impact on the Group’s risk profile of political developments, such as elections in other European countries, as well as continuing to monitor the |
◾ Continued to monitor the risks relating to South Africa while Barclays still had control of Barclays Africa Group Limited (BAGL). ◾ Monitored Barclays’ exposures to certain products, and with particular focus on redenomination risk, and the
| Following the further sell-down of the equity stake in Barclays Africa and the subsequent proportionate regulatory deconsolidation, the Committee agreed that South Africa should be removed as an ongoing risk theme, although it continued to maintain oversight of any emerging risk. It also agreed to remove negative interest rates as a key risk theme on the basis that the actions previously identified and agreed to mitigate the risk were nearing completion. The Committee | |||
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In addition, the Committee also covered the following matters in 2015:
§ regularly tracked the utilisation of risk appetite and evaluated the Group’s risk profile
§ evaluated the impact of the Swiss franc revaluation on the Group’s electronic trading systems and asked for any lessons learned to be applied to other electronic platforms
§ debated risk related matters arising from regulatory assessments and the actions needed to address any specific issues raised
§ approved regulatory submissions, including the Individual Capital Adequacy Assessment Process and the Individual Liquidity Adequacy Assessment
§ assessed and debated a report on its own performance during 2014, including considering whether its remit should be revised to cover operational risk and assessing the degree of challenge and support and value it provided to the Risk function
§ discussed and agreed on its own training needs, resulting in two workshops being held in 2015, one on risk appetite and one on structural reform, with a further briefing session on the impact of IFRS 9 planned for 2016
§ approved amendments to its terms of reference to reflect its revised remit and to ensure they remained in line with best practice and
§ discussed and agreed its specific responsibilities for the oversight of operational risk, focusing on the capital and financial impacts, leaving the Board Audit Committee to oversee operational risk control issues. | Board Risk Committee allocation of time (%) | |||||||||||||||
2015 | 2014 | |||||||||||||||
| 1 | Risk profile/risk appetite | 43 | 57 | ||||||||||||
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2 | Key risk issues | 31 | 19 | |||||||||||||
3 | Internal control/risk policies | 11 | 11 | |||||||||||||
4 | Other (including remuneration and | 15 | 13 | |||||||||||||
governance issues) | ||||||||||||||||
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The significant matters addressed by the Committee during 2015 are described below:
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
◾ Evaluated how management was tracking and responding to rising levels of consumer indebtedness, particularly unsecured credit in both the UK and US. ◾ Discussed the PRA’s statement on consumer credit and unsecured lending in the UK, and considered Barclays’ response to the PRA statement. ◾ Scrutinised the performance of the UK and US Cards businesses, including the level of impairment. ◾ Reviewed and approved proposals for frameworks relating to Securities Financial Limits and Maximum Exposure Governance. ◾ Scrutinised a strategic review of business activity in the Corporate and Investment Bank (CIB). | The Committee focused on effective collections capability as an important tool of risk management. The Committee encouraged management to carry on with its conservative approach to UK lending. The Committee approved changes to the risk appetite levels for US Cards. The Committee requested more granular detail of the impact of strategy changes on risk limits and oversight. | |||||
Operational risk, i.e. costs arising from human factors, inadequate processes and systems or external events. | The Group’s operational risk capital requirements and any material changes to the Group’s operational risk profile and performance of specific operational risks against agreed risk appetite. | ◾ Tracked operational risk key indicators via regular reports from the Head of Operational Risk. ◾ Debated specific areas of emerging risks, including conduct risk,
| The Committee | |||
| The frameworks, policies and talent and tools in place to support effective risk management |
◾ Assessed risk management matters raised by Barclays’ regulators and the actions being taken by management to respond. ◾ Endorsed Legal risk and
| The Committee The Committee assessed during the year the Group’s early 2018. | |||
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Barclays PLC and Barclays Bank PLC |
Governance: Directors’ report
What we did in 2017
Board Risk Committee report
In addition, the Committee also covered the following matters in 2017: ◾ assessed Barclays’ exposures to the leveraged finance market, general conditions in that market and approved an updated leveraged finance framework which would be submitted annually to the Committee for approval ◾ was briefed by PwC on main risk issues identified during the 2016 year-end audit, specifically impairment, post-model adjustments, forbearance control issues, key valuation judgements (including in relation to the ESHLA portfolio), and key assumptions used in the pension scheme liabilities ◾ requested and evaluated a report on partnership programmes in the US Cards business with a focus on risk profile and credit quality ◾ considered a report on the effectiveness of the Committee and any areas of the Committee’s performance that could be improved ◾ reviewed and updated its terms of reference, recommending them to the Board for approval. | Governance in Action – Risk and Control Self Assessment Programme | |||||||
A key focus of the Committee in 2017 was oversight of the implementation of a revised Risk and Control Self Assessment (RCSA) programme. The RCSA enhancement programme was established as part of Barclays’ commitment to the effective management the Group’s Operational risk and extend both the scope of coverage across a wider range of risks, and also improve the granularity of management’s risk and control assessments of business processes. The programme is the firm-wide process led approach for management to identify and regularly assess material inherent risks and their associated controls, in order to mitigate these risks and reduce the likelihood and/or severity of losses to the firm from a Risk event. In 2017, a number of pilot RCSAs were rolled out across the Group in addition to the regular RCSA process, which was also enhanced. Improvements were also made in the assessment of inherent risk values and the aggregation process for risk and control assessments across risk types. During the year, the Committee reviewed progress in terms of the RCSAs completed across the Group, and also considered the next steps in the review process and the results of the residual risk assessments. Based on the results of the pilot RCSAs undertaken, | the Committee was satisfied that the process will improve management’s understanding of the risk and control environment, so they can prioritise and remediate ineffective controls where required. Following completion of the pilot RCSA programme, the Committee considered the ways in which the RCSA programme could be enhanced for the wider implementation of the programme in 2018. The Committee considered specific revisions of the 2017 RCSA programme with the aim of: ◾ improving the identification of inherent risk, control effectiveness and residual risk by going into detail at a more granular process level ◾ increasing the degree of independent challenge provided by all three lines of defence ◾ increasing the granularity of assessments for a further set of pilot RCSAs to estimate inherent risk at activity level by risk type, together with the identification and assessment of detailed operating controls by activity and residual risk. The Committee will continue to work with management in 2018 on further refining and enhancing the RCSA programme. | |||||||
26 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Governance: Directors’ report
What we did in 2017
Board Reputation Committee report
The Committee has been well positioned during 2017, a time of significant organisational change for the Group, to ensure that our people, whether within Barclays UK, Barclays International or the Group Service Company, continue to demonstrate behaviours and conduct that are consistent with the Barclays Values. | ||||
Dear Fellow Shareholders This is my second report to you as Chairman of the Board Reputation Committee. At the conclusion of my last report I commented that the Committee, by way of its membership, executive engagement and reporting processes, had built a strong foundation on which to base its future operations and drive Barclays to be a governance leader in conduct, culture and reputation matters. This strong foundation has ensured that the Committee has been well positioned during 2017, a time of significant organisational change for the Group, to ensure that our people, whether within Barclays UK, Barclays International or the Group Service Company, continue to demonstrate behaviours and conduct that are consistent with theBarclays Values. On two occasions during 2017 the Committee extended an invite to representatives of the Banking Standards Board (BSB) to present and discuss the outcomes of their 2016 and 2017 assessments of Barclays. As an independent third party with insights across the banking industry as a whole, the Committee attaches significant value to the insights offered by the BSB and I would like to extend my personal thanks to Dame Colette Bowe and her team at the BSB for their continuing work to promote the highest standards of behaviour in UK banking and restore public trust in the sector. We were encouraged to hear that the results had generally improved between 2016 and 2017 and were particularly pleased to see how strongly theBarclays Values still resonate with our colleagues. The Committee also carefully considered the BSB’s feedback on results relating to colleague resilience and you will find an outline of our discussion on colleague well-being on page 29. | One of the key challenges faced by the Committee is how to maintain oversight of Group Conduct and Culture matters as a whole, without overlooking the cultural differences that, naturally and quite rightly, exist between our different operating businesses and support functions. During the year the Committee actively discussed this challenge and, in an attempt to address this, I rebalanced the Committee’s agenda by introducing business and functional “Deep Dive” sessions into each meeting. The Deep Dives allow the Committee to understand the conduct, culture and customer satisfaction issues being faced in specific areas of the business and the actions undertaken to address them. Whilst consideration of our well-refined dashboards and Reputation risk reports ensure that Group-level metrics, challenges and initiatives remain clearly visible and subject to Committee consideration and challenge. You can read about some of the Deep Dives undertaken by the Committee during 2017 on the following pages. A significant output from the Committee during 2017 resulted from discussions around Barclays’ historic commitments to the financing of certain fossil fuels projects, which resulted in a decision to develop a more proactive approach to the management of sustainability issues across the Barclays business. I would encourage you to refer to the Governance in Action box on page 32 for further details on this initiative. | Committee performance Through the process of the annual Board effectiveness review, which confirmed the continued effectiveness of the Committee, the ongoing evolution of the Committee’s role and the increased impact that it had during the last year was clearly acknowledged. An area that the review identified for further consideration was the continued oversight of Conduct and Reputation risk matters in the post-structural reform corporate structure, which I will ensure is addressed by the Committee ahead of April 2018. Looking ahead Finally, I would like to record my thanks to Mike Roemer, who stepped down as Group Chief Compliance Officer in October 2017, for his outstanding contribution to the work of the Committee during his tenure in that role. I would also like to thank Diane de Saint Victor, who stepped down from the Committee on her retirement from the Board in May 2017. I look forward to working with our new Committee member, Mike Turner and, subject to regulatory approval, our new Group Chief Compliance Officer, Laura Padovani, as we continue to support the delivery of the Board’s collective vision of theBarclays Values. Sir Gerry Grimstone Chairman, Board Reputation Committee 21 February 2018 |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 27 |
Governance: Directors’ report
What we did in 2017
Board Reputation Committee report
Committee allocation of time (%)
2017 | 2016* | |||||||
1 Conduct and compliance | 36% | 33% | ||||||
2 Culture | 20% | 21% | ||||||
3 Customer satisfaction | 14% | 6% | ||||||
4 Citizenship | 16% | 13% | ||||||
5 Brand & other Reputation risk | 14% | 27% | ||||||
* 2016 figures have been rebased according to the significant matters considered by the Committee in 2017. |
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Committee composition and meetings
The Committee is composed solely of independent non-executive Directors. During 2017, Diane de Saint Victor stepped down from the Committee and the Barclays Board with effect from 10 May 2017.
The Committee met four times during 2017 and the chart to the left shows how it allocated its time. Committee meetings were attended by representatives from management, including the Group Chief Executive, Chief Compliance Officer, Chief Internal Auditor, Chief Risk Officer, Group General Counsel, Group Chief of Staff, Group HR Director and the Heads of Corporate Communications, Citizenship and Reputation, as well as senior representatives from the businesses and other functions. A representative from KPMG, Barclays’ external auditor, attended each Committee meeting during the year and representatives from the BSB attended two meetings during 2017.
Member | Meetings attended/eligible to attend | |||||
Sir Gerry Grimstone | 4/4 | |||||
Mike Ashley | 4/4 | |||||
Mary Francis | 4/4 | |||||
Dambisa Moyo | 4/4 | |||||
Diane de Saint Victor (to 10 May 2017) | 1/1 |
Committee role and responsibilities
The principal purpose of the Committee is to:
◾ | support the Board in promoting its collective vision of Barclays’ purpose, values, culture and behaviours |
◾ | ensure, on behalf of the Board, the efficiency of the processes for identification and management of Conduct and Reputation risk |
◾ | oversee Barclays’ conduct in relation to its corporate and societal obligations, including setting the guidance, direction and policies for Barclays’ approach to customer and regulatory matters and Barclays’ Citizenship Strategy, including advising the Board and management on these matters. |
The Committee’s terms of reference are available at | ||
home.barclays/corporategovernance |
The Committee’s work | ||||||
The significant matters addressed by the Committee during 2017 are described below: | ||||||
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Conduct risk | Monitoring the risks that can arise from the inappropriate supply of financial services, including instances of wilful or negligent misconduct. | ◾ Discussed updates from management on Conduct risk and considered performance against Conduct risk indicators at each meeting. ◾ Discussed the specific Conduct risks associated with certain business areas and the status of initiatives in place to address those risks and further strengthen the culture of the business. ◾ Received reports from Barclays Internal Audit (BIA) in respect of internal audit activities on conduct risk management matters, including details of any unsatisfactory audit reports and remediation steps identified. ◾ Discussed and approved the Conduct Risk Framework, with Conduct risk having been identified as a Principal Risk under the Barclays Enterprise Risk Management Framework (ERMF). ◾ Received forward looking information on regulatory developments, including the issuance of new consultations by regulators, that might have a Conduct risk impact on Barclays in the future. ◾ Approved the annual Compliance Plan. ◾ Considered and approved the proposed methodology for calculating Conduct risk adjustments to incentive pools. | In line with its re-categorisation under the ERMF, the Committee adopted Board-level oversight of financial crime risk and conducted a Deep Dive into this area. The Conduct dashboard report was updated to include financial crime information and metrics, and the Committee was encouraged by management’s open and transparent approach to engaging with regulators on financial crime matters. The Committee considered the differing regulatory requirements placed on the UK and US Cards businesses and have suggested that a “Barclays view” should overlay the requirements of local regulations to ensure that all retail facing businesses within the Group operate within a framework that prioritises the concept of “Treating Customers Fairly”. During discussion of the realignment of businesses between Barclays UK and Barclays International, the Committee encouraged management to take advantage of opportunities presented by structural reform to address some areas of Conduct risk by harmonising policies and operations, in areas such as collections and affordability assessments. The Committee considered an update from BIA on the use of Conduct risk information by legal entities within the Group and their assessment of reporting mechanisms and the escalation of issues up the organisational hierarchy. |
28 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Cultural |
◾ Approved the adaption of the Culture dashboard to include the monitoring of cultural attributes across the firm. ◾ Considered and discussed with representatives of the BSB the results of their 2016 and 2017 Annual Reviews of Barclays. ◾ Considered a Deep Dive analysis on culture within Barclaycard UK, including the process and challenges of integrating the UK Cards business into Barclays UK. ◾ Considered feedback from the FCA on the Conduct and Culture dashboards. ◾ Received information on management’s initiatives to improve colleague well-being and resilience, including actively encouraging employees to work dynamically and providing a supportive environment in which colleagues feel able to talk about the impacts of stress and mental health concerns. ◾ Considered draft disclosures on the Gender Pay Gap within the Group and industry comparators. | Through consideration of the Culture dashboards and YourView results, the Committee was encouraged by the consistently strong sustainable engagement scores achieved throughout 2017. Improvements have been made in the area of colleague enablement, however the Committee appreciated management’s acknowledgement that further improvement is still required in this area, notably in terms of reducing perceived bureaucracy throughout the organisation. The Committee discussed the importance of a culture in which colleagues feel able to speak up and raise concerns. Particular attention has been paid to whistleblowing metrics throughout the year and, on recommendation of the Committee, the YourView survey system now contains a direct link to Barclays’ whistleblowing resources with the intention of further encouraging and supporting employees to report instances of unethical or inappropriate behaviour. Additional and more detailed information is becoming available to the Committee, by way of reporting on cultural attributes, on what employees perceive to be the most prevalent facets of Barclays’ organisational culture. It is intended that this information be used to monitor attainment of a set of desired attributes and facilitate further discussion and action in order to achieve this. By way of discussion of the FCA’s feedback on Barclays’ dashboards, the Committee acknowledged that the dashboards are just one of a number of key management information tools used to set its agenda and facilitate an |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 29 |
Governance: Directors’ report
What we did in 2017
Board Reputation Committee report
Area of | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Customer satisfaction | Ensuring fair outcomes for customers by monitoring complaints volumes, the standard and quality of complaints handling processes and other relevant metrics. | ◾ Debated complaints dashboards and performance against key indicators at each meeting. ◾ Gave consideration to the impact that matters, such as an effective communication channel, have on customer complaints volumes. ◾ Considered the quality of the processes in place to address and resolve customer complaints. ◾ Monitored trends in the underlying causes of complaints and considered forward looking analysis to identify events (both industry wide and Barclays-specific) which could influence the volume and timings of complaints. ◾ Considered the differing complaints profiles of the Barclays UK and Barclays International businesses and the actions being undertaken to positively improve the customer journey by utilising complaints management information (MI). ◾ Requested further insight into ◾ Requested additional Deep Dives on areas of the Barclays International business that have a retail customer base and ◾ Considered the progress being made by relevant businesses to improve their respective net promoter score (NPS). | The Committee While the Committee still receives a Group-wide report The Committee developed its The Committee was pleased to see an increase in Barclays UK’s NPS during the course of 2017 and support management’s objective of further increasing NPS to ensure Barclays UK remains competitive against challenger and start-up banks. In relation to Barclays International’s business areas, the Committee was encouraged to hear that
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30 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Citizenship |
◾ Received information on new Citizenship initiatives such as the ◾ Received an update from Barclays’ Global Head of Financial Crime in respect of the function’s development of intelligenceled initiatives to combat fraud. ◾ Reviewed and recommended the approval of Barclays’ statement on modern slavery. | The Committee was very pleased to see that Citizenship The Committee is very encouraged by management’s decision to dedicate resource to financial crime, skills and employability and digital empowerment initiatives that provide benefits not only to Barclays and its customers, but to the banking industry and UK population more generally. | ||||
Reputation and brand | Ensuring that the Barclays brand is proactively managed and Reputation risks and issues are identified and managed appropriately. | ◾ Reviewed Reputation risk updates from management, receiving specific information on those issues deemed to constitute the most significant Reputation risks and issues in each quarter. ◾ Regularly evaluated the ◾ Considered whether the process for | The Committee
The Committee requested further refinement of the Reputation risk reporting received to include sentiment analysis of media coverage and metrics on Barclays’ social media presence. The Corporate Relations priorities for 2017 were pre-approved by the Committee and fulfilment of those priorities kept under review throughout the year. This process improved management’s ability to more effectively understand and monitor external perceptions of Barclays among key stakeholders. The Committee requested that management undertake work to further refine the components of Reputation risk, clarify the process for identifying risks, enhance management oversight and give consideration to how the overall process can be better communicated. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 31 |
The Committee also covered the following matters:
§ assessed progress of the programme to implement enhanced controls in the Investment Bank over conflicts of interest between Barclays and third parties
§ evaluated outcomes of regulatory thematic reviews of conduct issues and controls
§ evaluated the levels of attestation by colleagues globally to The Barclays Way, the Group’s code of conduct
§ assessed the status of specific remediation programmes being implemented by the business
| Board Reputation Committee allocation of time (%) | |||||||||||||||||||
2015 | 2014 | |||||||||||||||||||
| 1 | Citizenship | 6 | 2 | ||||||||||||||||
2 | Reputational issues | 13 | 7 | |||||||||||||||||
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3 |
| Culture, conduct and compliance | 57 | 52 | |||||||||||||||
4 | Operational risk | 19 | 33 | |||||||||||||||||
5 | Other | 6 | 6 | |||||||||||||||||
Governance: Directors’ report
What we did in 2017
Board Reputation Committee report
The Committee also covered the
◾ discussed the outcome of an externally facilitated review on Barclays compliance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and its comparative performance against its peers. ◾ approved, from a Reputation risk perspective, a proposal to restructure certain intra-group shareholdings and enhance capital utilisations ◾assessed and discussed a report on the Committee’s performance
| Governance in Action – Responding to Stakeholder Concerns During the year, the Committee gave consideration to Barclays’ exposure to environmental, social and sustainability matters through its business relationships and challenged management to establish a more In response to recommendations from the Committee, management commenced work to review Barclays’ The Committee considers that the establishment of sector-specific policies and | ||||||||||||||
Read more about Barclays’ risk management on pages 77 to 78 and in our Pillar 3 Report, which is available online atbarclays.com/annualreport
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What we did in 20152017
Board Nominations Committee reporta
In 2017 we made significant progress towards our new Group governance structure in preparation for structural reform and the stand up of our ring-fenced bank in 2018, with appointments having been made to both the Barclays UK and Barclays International divisional boards.
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Dear Fellow Shareholders In 2017 we made significant progress towards our new Group governance structure in preparation for structural reform and the stand up of our ring-fenced bank in 2018, with appointments having been made to both the Barclays UK and Barclays International divisional boards. We are delighted to welcome the new directors to those boards, led by Sir Gerry Grimstone as Chairman of Barclays International (subject to regulatory approval) and Sir Ian Cheshire as Chairman of Barclays UK (which will become our ring-fenced bank). We continued to refine the details of how the Group Board will interact with those boards and the boards of our other strategically significant subsidiaries, building on the Governance Guiding Principles created in 2016. We look forward to working collaboratively with them to ensure that the roles and responsibilities of each board are clear, while providing effective governance of the Group and protection of shareholder interests. In view of the significant changes to our Group corporate structure, and always bearing in mind the long term strategy of the Group, the Committee continues to regularly consider our Board composition and succession plans, ensuring it comprises the right balance of diversity, skills and experience to provide the strategic oversight needed to steer the business of the Group. We conducted searches for non-executive Directors in 2017 and were pleased to appoint Matthew Lester and Mike Turner CBE to the Board, in addition to the appointment of Sir Ian Cheshire. Matthew, Mike and Sir Ian each bring with them significant board-level experience and you can find out more about their background and relevant skills and experience that they bring to the Board in their profiles on pages 5 to 6. I have previously emphasised that it is a key part of our role to be satisfied that there are proper processes in place for executive succession, and this continues to remain another key consideration of the Committee. We closely monitored the status and progress | of the Barclays Talent and Succession strategy, providing input and guidance to management to ensure we attract and retain the best talent for the Group. As a Committee, we also discuss ways in which we can develop and nurture high performing individuals within senior management to strengthen our succession pipeline, including the use ofex officio posts to relevant executive committees to give those individuals exposure to Group matters and leadership. Our people are the driving force in sustaining our business and we firmly believe in the benefits of having a diverse workforce. I am proud to see the number and variety of diversity and inclusion initiatives we have at Barclays to develop and support colleagues, and ultimately to encourage them to grow their careers with us. While we recognise that diversity is not only about gender, it is nevertheless an important element of diversity and we have set ourselves a target of 33% female representation on the Board by 2020, which as a Board we remain committed to achieving. Please see page 37 for further information about our approach to diversity at both Board and Group Executive Committee levels. Committee performance The performance of the Committee was assessed as part of the annual Board effectiveness review and I am pleased to report that the results show that it is performing effectively, with the role and responsibilities of the Committee clear and well understood. One area identified for consideration is that the Committee should be mindful of ensuring that all non-executive Directors receive the same flow of information in relation to decisions and discussions by the Committee, which I will address in my updates to the Board as Chairman of the Board Nominations Committee, and outside of scheduled Board meetings to the extent appropriate. The report on the Board effectiveness review can be found on page 36. | Looking ahead In 2018 we look forward to the execution of our new Group structure and to the implementation of robust processes providing clear, consistent and effective corporate governance for the Group post-structural reform. Throughout this period of change, the Committee will continue to ensure that we have the right people leading the strategic direction of Barclays, motivating colleagues and sustaining our business over the long term. John McFarlane Chairman, Board Nominations Committee 21 February 2018 |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 33 |
Governance: Directors’ report
What we did in 2017
Board Nominations Committee report
Committee allocation of time (%)
2017 | 2016 | |||||||
1 Corporate governance matters | 8 | 20 | ||||||
2 Board and Committee composition | 42 | 36 | ||||||
3 Succession planning and talent | 33 | 31 | ||||||
4 Board effectiveness | 11 | 8 | ||||||
5 Other | 6 | 5 |
Committee composition and meetings
The Committee is composed solely of independent non-executive Directors. John McFarlane, as Chairman of the Board, is also Chairman of the Committee. Mike Ashley, Tim Breedon, Crawford Gillies, and Sir Gerry Grimstone, being the Chairmen of each of the other Board Committees, and Sir Ian Cheshire (as Chairman of Barclays UK) and Reuben
Jeffery III, are also members of the Committee. Details of the skills and experience of the Committee members can be found in their biographies on pages 5 and 6.
During 2017 there were three meetings of the Committee, including one held at Barclays’ New York offices. Attendance by members at Committee meetings is shown below and the chart to the left shows how the Committee allocated its time. Committee meetings were attended by the Group Chief Executive, with the Group HR Director, the Head of Talent, and the Global Head of Diversity and Inclusion attending as appropriate.
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Member | Meetings attended/eligible to attend | |||||||
John McFarlane | ||||||||
3/3 | ||||||||
Mike Ashley | 3/3 | |||||||
Tim Breedon | ||||||||
Crawford Gillies | ||||||||
Sir Gerry Grimstone | 3/3 | |||||||
Reuben Jeffery III | ||||||||
Sir Ian Cheshire (from 9 May 2017) | 0/1 | * |
*
| Sir Ian Cheshire did not attend
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Committee role and responsibilities
The principal purpose of the Committee is to:
home.barclays/corporategovernance§◾ support and advise the Board in ensuring that the composition of the Board and its Committees is appropriate and enables them to function effectively §◾ examine the skills, experience and diversity on the Board and plan succession for key Board appointments, planning ahead to deal with upcoming retirements and to fill any expected skills gaps §◾ provide Board-level oversight at Board level, of the Group’s talent management programme and diversity and inclusion initiatives§◾ agree the annual Board effectiveness review process and monitor the progress of any actions arising and§◾ ensure the Board has appropriate corporate governance standards and practices in place and keep the Board’s governance arrangementsthese under review and make appropriate recommendations to the Board to ensure that they are consistent with best practice corporate governance standards.practice.You can find the Committee’s terms of reference athome.barclays/corporategovernanceNotea The name of the Committee changed from the Board Corporate Governance and Nominations Committee in June 2015 Barclays PLC and Barclays Bank PLC 2015 Annual Report on Form 20-F | 27The Committee’s terms of reference are available at
The Committee’s work
The significant matters addressed by the Committee during 20152017 are described below:
Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||||
Board | The | ◾ Reviewed the |
◾ Reviewed the membership, size and composition of Board Committees. | The Committee
During the year it recommended for appointment to the Board Mike Turner CBE, Sir Ian Cheshire (brought on as Chairman of Barclays UK) and Matthew Lester (following the Committee’s previous recommendation of an additional non-executive Director with accounting and auditing experience). The Committee agreed that a search would be conducted for an additional female non-executive Director to promote diversity of gender on the Board and in recognition of the Board’s commitment to achieving 33% female representation on the Board by 2020. The Committee agreed to review the role, purpose and composition of the Group Board once the Barclays UK and Barclays International Boards were fully constituted and operational as divisional boards. It noted that changes to Board Committee membership may take place once those boards, as well as the Group Service Company board, were operational so that a holistic view can be taken on appropriate memberships and cross-memberships of boards and committees. Please refer to | ||||
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Governance: Directors’ report
What we did in 2015
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Area of focus | Matter addressed | Role of the Committee | Conclusion/action taken | |||
Board | The |
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◾ Discussed updates from the Group HR Director on Group Executive Committee succession plans, including assessing emergency cover, the existing talent pipeline and any potential gaps. ◾ Considered individuals identified as potential Group Executive Committee successors and discussed next steps for their development. ◾ Considered the succession plans for the
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In addition, the Committee covered the following matters:
considered the |
Board Nominations Committee allocation of time (%)
2015 | 2014 | |||||||||||||
| 1 | Corporate governance matters | 17 | 21 | ||||||||||
2 | Board and Committee composition | 24 | 20 | |||||||||||
3 | Succession planning and talent (includging CEO succession) | 47 | 43 | |||||||||||
4 | Board effectiveness | 6 | 11 | |||||||||||
5 | Other | 6 | 5 | |||||||||||
Appointment and re-election of Directors
The Committee reviews Board and Board Committee composition includingis a standing item for consideration at each Committee meeting. This includes the consideration of potential new non-executive Directors, at eachDirector appointments, both in respect of its meetings. In addition to seeking successorsplanned succession for known retirements fromand as a result of the Board, the Committee monitorsongoing review of the skills and experience needed on the Group needsBoard in order for it to be ablecontinue to operate effectively.
The Committee frequently considers a skills matrix for the Board, which identifies the core competencies, skills, diversity and experience required for the Board to deliver its strategic aims toand govern the Group appropriately,effectively. Certain attributes identified in the skills matrix have a target weighting attached to ensure that risks threatening performancethem and these are identified and either addressed or mitigated, andregularly updated over time to set ‘the tone fromreflect the top’ in terms of Barclays’ corporate culture and values. In 2015, the Committee also focused on the need to identify non-executive directors to serve on the boards
needs of the Group’s strategically significant subsidiaries.
WhenGroup. The Committee reviews the skills matrix when considering a new appointment to the Board, the Committee relies on assessments ofas well as reviewing the current and expected Board and Board Committee composition, in ordercomposition. This helps to assess thedetermine a timeline for proposed appointments andto the Board.
When recruiting a skills matrix that identifies the core competencies, skills, experience and diversity required for the Board to function effectively, with target weightings for each attribute. These assessments are regularly updated to take account of the Group’s needs over time.
The approach to recruiting new non-executive Directors is to createDirector, the specific skills that are needed are identified, for example, an individual specification with reference to the role requirements, including time commitment,international experience, or recent history serving on a particular board committee. TheCharter of Expectations contains the key competencies and behaviours set outskills expected of non-executive Directors, and these, in our Charter of Expectations and the desired key skills and experience identified from the skills matrix.addition to other details such as expected time commitment, will be included in an individual specification. The Committee as a whole then considers curriculum vitae and references of
for potential candidates. Any candidates who are assessed by the Committee as a whole, before shortlisted candidates arewill be interviewed by members of the Committee. For certain Board positions, the Committee seeks engagement withand, if applicable, key shareholders and Barclays’ regulators as partmay be asked to provide feedback on the proposed appointment. The Board is updated on the progress of the selection process. Feedbackrecruitment and interview process, and any feedback from these partiesthe interviews is taken into account before any recommendation is madeprovided to the Board which is kept informed of progress throughout the selection and recruitment process. An illustration of the rigorous process applied to appointments can be found in the case study and timeline of the process to identify Jes Staley as Group Chief Executive, which is set out on page 32.alongside a recommendation for appointment.
Executive search firms MWM Consulting, Egon Zehnder International and Spencer StuartBuchanan Harvey were instructed to assist with our Director searches in 2015. None of these firmsthe search for non-executive Directors during 2017. Neither firm has any other connection withto Barclays, other than to provide executive recruitment services. Open advertising for
Group Board positions was not used during 2015,in 2017, as the Committee believes that targeted recruitment is the optimal way of recruiting for Board positions. Both of the firms used for non-executive Director recruitment have signed up to the Voluntary Code of Conduct for Executive Search Firms, which include measures designed to improve gender diversity on boards.
In 2017, Barclays announced the appointmentappointments of two newSir Ian Cheshire, Matthew Lester and Mike Turner CBE as non-executive Directors, during 2015: Diane Schueneman and Sir Gerry Grimstone. In addition, Barclays announced the appointment of Jes Staley as Group Chief Executive. Each of them brings valuedwith each Director bringing specific skills and experience which contribute to fill the efficacy ofrole previously identified by the Board as a whole. As previously reported, Diane Schueneman brings expertise in operations and technology to the Board, which she gained in financial services organisations,Committee as well as wide-rangingall having extensive board-level experience (see pages 5 to 6 for details of implementing changeeach Director’s experience and achieving turnaround in business successbackground). Diane de Saint Victor and profitability. Sir Gerry Grimstone, who succeeded Sir Michael Rake as Deputy Chairman and Senior Independent Director, is well known, commands great respect withinSteve Thieke both stood down from the financial services industry and brings immense experience, integrity and knowledge to his roles at Barclays. Jes Staley hasBoard with effect from the leadership skills and wide-ranging experience to deliver shareholder value and to take the Group forward strategically and, in particular, possesses a good understanding of corporate and investment banking. Biographical information is provided on pages 3 and 4, with further details available online at home.barclays
Changes in the compositionend of the Board and the Committee’s reassessment of the structure, size and composition of the Board and its Committees resulted in a refresh of the membership of Board Committees, as well as their roles and responsibilities, during 2015. Details of the changes are included in each of the Board Committee reports.2017 AGM.
The Directors in office at the end of 20152017 were subject to an effectiveness review, as described below.on page 36. Based on the results of the review the Board accepted the view of the Committee that each Director proposed for election or re-election continuedcontinues to be effective and that they had each demonstrated the level of commitment required in connection with their role on the Board and the needs of the business.
Barclays PLC and Barclays Bank PLC |
Governance: Directors’ report
What we did in 20152017
Board Nominations Committee report
Diversity statement
The Financial Reporting Council maintains that one of the ways in which constructive board debate can be encouraged is through having sufficient diversity on the board. Barclays agrees with this view and, when it adopted a Board Diversity Policy in 2012, stated the Board’s aspirational goal of achieving 25% female representation on the Board by 2015. Female representation on the Board exceeded 25% at the end of 2015, having increased during the year with the appointment of Diane Schueneman. Noting that the latest progress report onWomen on Boards from the Davies Review has suggested a target of 33% by 2020, Barclays has adopted this new target in its Board Diversity Policy.
The Committee assisted the Board in achieving its target of 25% by ensuring that this was recorded on the Board skills matrix and, in particular, that the search firms were aware of the priority. The Committee also supported a number of initiatives to grow the talent pipeline within the Group and sought opportunities to engage with female members of senior management. Diversity as a whole, including gender, was also taken into account when evaluating the effectiveness of the Board. The comprehensive brief provided to Independent Board Evaluation for this year’s review included an evaluation of boardroom dynamics and the effects of diversity. The consultant accordingly assessed the impact of diversity including gender, age, the internationality of the Directors, the breadth of experience, qualifications and skills, concluding that there was a good degree of diversity on the Board with a range of different experiences and outlooks and that the Chairman should continue to nurture inputs from all Directors to derive the benefits of this diversity.
Below Board level, Barclays met its target of 23% female representation among the Managing Director and Director population in 2015. To achieve the target, the Committee endorsed programmes to embed accountability for diversity and inclusion throughout the Group. These efforts included Balanced Scorecard aligned targets for hiring, promotion and attrition set for each business or function, expansion of diversity data to include greater focus, expanding global campaigns to raise awareness and refined communications to drive impact. More details of Barclays’ diversity and inclusion strategy may be found on pages 47 to 49.
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Review of Board and Board Committee effectiveness
Barclays conductsProcess
Each year, an externally facilitated review ofevaluation is conducted on the effectiveness of the Board, the Board Committees and individual DirectorsDirectors. Full external evaluations of Board effectiveness have been undertaken in the past two years. In view of the impending new Group corporate structure, following which another external evaluation will be carried out once the structure has had time to settle, the Board decided to focus this year’s review on individual Director performance to monitor the Board’s progress and to inform the Chairman each year. For 2015,agenda of the next full external review process.
Independent Board Evaluation facilitated the effectiveness review for 2016 and was facilitatedengaged again to conduct the 2017 Board review, also again led by Ffion Hague. Independent Board Evaluation is an independent external consultancy with no other connection to Barclays. Consistent with Barclays. The review process involved the consultant,previous years, Ffion Hague attending certain Board and Board Committee meetings in November and December 2015 as an observer, alongside detailedcarried out interviews conducted accordingwith the Directors to a set agenda with Directors, membersobtain feedback on the effectiveness of the Group Executive Committee, the Company Secretary and other members of the executive and senior management. Feedback was also sought from external stakeholders. Board throughout 2017.
Independent Board Evaluation preparedissued a report forto the Board on the findings fromof the review process, which was presented to the Board in December 2015.effectiveness review. In addition, the Chairman was provided with a report and feedback on the performance of each of the
Directors, and the Senior Independent Director received a report on the Chairman. A similar process was followed for the Board Committees. Independent Board Evaluation provided feedback to each
Following consideration of the Committee Chairmen on the performance of each Committee. The feedback is scheduled to be discussed by each Committee in early 2016.
Having assessed the findings of the 2017 Board and Committee effectiveness review,reviews, the Directors wereremain satisfied that the Board and each of its Committees operated effectively during 2015. Nonetheless, the Board identifiedCommittees are operating effectively.
Outcomes of 2017 review
Board performance is considered to be improving, with more effective and insightful questions being asked in Board debates and a number of actions to help maintainbetter balance being struck between support and improve its effectiveness. These, togetherchallenge. In particular, the Directors were positive about:
◾ | the preparations for structural reform |
◾ | project execution, such as the remediation of control issues and preparations for Brexit |
◾ | the recruitment of high quality new Board members and members for the boards of Barclays UK and Barclays International. |
The Directors were also pleased with an updateprogress on strengthening the actions taken following the 2014 review, are set out on pages 33senior executive team and 34.
Directors’ Conflicts of Interest
Barclays requiresdeepening relationships between Directors to declare any potential or actual conflict of interest that could interfere with a Director’s ability to act in the best interests of the Group.and key executives. The Board has adopted procedures for ensuring that its powers to authorise Directors’ conflicts operate effectively. A register of actual and potential conflicts and of any authorisation of a conflict grantedexecutive team feels well supported by the Board and is maintainedgrateful for that support.
Business performance is a concern for Board members, and the Board is focused on improving this within the Group. This will be a particular area of focus in 2018. The
restructuring of the Group in April 2018 is also a significant focus for the Group and regarded as a major challenge. The Board is cognisant of the challenges of ensuring the new Group corporate structure is effective and efficient, and is conscious of the need to maintain good governance overall and minimise duplication. The interaction between the Group Board and the boards of our strategically significant subsidiaries will be closely monitored and thought will be given to identifying opportunities for engagement with subsidiary board members to develop and maintain a good working relationship. The impact of the new structure on Board work and governance will be a key area of review for the 2018 external evaluation of the Board.
Committee effectiveness
The 2017 Board Committee effectiveness review was carried out internally, led by the Company SecretarySecretary. A questionnaire was circulated to all Committee members with a report of the findings of the effectiveness review provided to the Chair of each Committee as well as an update to the Board. The conclusion from the Committee reviews is that the Committees are working well, and reviewed annually byyou can read more about the findings for each Board Nominations Committee.Committee within each Committee Chairman’s letter.
Progress against 2016 findings
Following the 2016 Board effectiveness review facilitated by Independent Board Evaluation, a number of findings were identified and the summary below sets out the Board’s progress against those actions in 2017.
2016 findings | Actions taken/findings in 2017 | |||||
Board priorities |
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Positive and | The review found that the relationship between the Board and executive management deepened during 2017, with executive management feeling well supported. | ||||
Optimise communication and collaborationa | Continue to optimise the information flow between Directors in the run-up to structural reform in 2018.
| The Chairman continued to hold meetings with non-executive Directors ahead of Board meetings to brief them on current issues. Further principles and practices were developed for interaction between the Board and the boards of Barclays UK and Barclays International, building on the Governance Guiding principles created in 2016. | ||||
Board appointment process | Continue to refine the Board skills matrix to ensure it aligns with the Group’s strategy and informs the succession plan for key Board roles. Implement more regular reporting to the | The Board skills matrix and succession plan were kept under review, with separate skills matrices established for the Barclays UK and Barclays International boards. Board members were updated on recruitment progress and details of potential candidates. | ||||
Director induction | Continue to enhance the Director induction process with a focus on providing broader governance training to anyone who has not previously served on a UK PLC board. | The induction programme was reviewed to factor in tailored governance training for new Directors and was extended also to directors of Barclays UK, Barclays International and the Group Service Company. | ||||
Reporting to the Boardb | Review reporting arrangements on strategy implementation and review the KPIs or dashboard reports for key initiatives. | The form and content of reporting to the Board
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Notes
a In 2016 this finding was named “Greater awareness of Board Committee work”.
b In 2016 this finding was named “Dealing more strategically with global regulation”.
Governance: Directors’ report
What we did in 2015
Board Nominations Committee report
Review of Board and Board Committee effectiveness
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The Board continues to have regard to the Hampton-Alexander Review recommendations to improve gender diversity among FTSE leadership teams and the Parker Review recommendations on the ethnic diversity of UK boards. The Committee recognises the importance of ensuring that there is broad diversity inclusive of, but not limited to, gender, ethnicity, geography and business experience on the Board, while continuing to recommend all appointments based on merit in the context of the skills and experience required. Barclays’ approach to Board diversity is set out in full in theBoard Diversity Policy, which can be found online athome.barclays/corporategovernance. OurBoard Diversity Policy recognises that a truly diverse Board will include and make good use of the differences in skills, experience, background, race, gender and other distinctions brought by each Director, with such differences | With regard to ethnic diversity, the Board considers that Barclays is currently well-positioned in terms of representation at Board level and also at Group Executive Committee level when taking into account the Parker Review definition (being “individuals of Black, East Asian, Latin American, Middle Eastern or South Asian ethno-cultural backgrounds”). The Board will continue to monitor the overall diversity of our leadership pipeline to ensure we are attracting the broadest spectrum of leaders to Barclays. During 2017, the Committee received regular updates from the Global Head of Diversity and Inclusion covering the full spectrum of Barclays’ diversity and inclusion agenda, including the actions being taken regarding dynamic working, colleague inclusion, workforce diversity, mental health awareness and social mobility. The Committee is pleased with the progress being made and discussed ways in which inclusion might be tracked. Management is continuing to work on drawing together indicators across the Group to develop a metric to measure progress on inclusion. | |||||||||||||
being considered in determining the optimum composition of the Board. When executive search firms are engaged to assist with the recruitment of a new Director, diversity is identified as a key factor. In addition, the external Board evaluation considered diversity when assessing the effectiveness of the Board. The Barclays Board target of 33% female representation among Directors by 2020 is formally reflected in theBoard Diversity Policy as well as being noted in the Board skills matrix. Noting the current gender diversity balance on the Board, and as mentioned earlier in this report, the Committee has commissioned the recruitment of a further female non-executive Director to strengthen the diversity of gender on the Board. Further details about the current diversity balance of the Board can be found on page 4. The Committee is also mindful of the current gender diversity balance of the Group Executive Committee, but is satisfied with the overall level of diversity across that Committee standing at 33% and with the percentage of women among the direct reports of Group Executive Committee members strengthening our succession pipeline. Further, Barclays is committed to achieving 33% female representation among the Group Executive Committee and their direct reports by 2020, and is currently reporting 25% female representation among this population. In 2017, the Group Executive Committee continued the initiative introduced by the Group Chief Executive in 2016 of having oneex-officio position on the Committee to broaden the scope of perspectives and contributions made, with each appointee serving for a four-month rotation. |
| Further details about the current diversity balance of the Board can be found on page 4. More details on Barclays diversity and inclusion strategy and the progress made can be found on page 47. | ||||||||||||
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Governance: Directors’ report
Leadership
The Role of the Board
As members of the Board of Directors, we have a collective responsibility to create and deliver sustainable value for our shareholders, in a manner that is supported by the right culture, values and behaviours throughout the Group. To support our role in determining the strategic objectives and policies of the Group, there exists a well-defined Corporate Governance framework. We aim to achieve long-term and sustainable value and it is our responsibility as the Board to ensure that management effectively delivers on short-term objectives, while promoting the long-term growth of Barclays.
In addition, we have further responsibility for ensuring that management maintains both an effective system of internal control and an effective risk management and oversight process. When carrying out these responsibilities we consider the Group’s business and reputation, the materiality of risks that are inherent in the business and the relevant costs and benefits of implementing controls. The Group’s internal control system provides assurance of internal financial controls, compliance with law and regulation and effective and efficient operations.
The Board is the decision-making body for those matters that are considered of significance to the Group owing to their strategic, financial or reputational implications or consequences. To retain control of these key decisions, certain matters have been identified that only we as the Board can approve and there is in place a formal schedule of powers reserved to the Board. As Directors we must act in accordance with the Company’s constitution and only exercise powers for the purposes for which they have been conferred. A summary of the matters reserved to the Board is available at home.barclays/corporategovernance. These matters include the approval of Barclays’ strategy, interim and full year financial statements and any major acquisitions, mergers, disposals or capital expenditure.
Specific responsibilities have been delegated to Board Committees and each Committee has its own terms of reference, which are available on home.barclays/corporategovernance. Each Committee reports to, and has its terms of reference approved by, the Board and the minutes of Committee meetings are shared with the Board. The main Board Committees are the Board Audit Committee, the Board Nominations Committee, the Board Remuneration Committee, the Board Reputation Committee and the Board Risk Committee.
In addition to the principal Board Committees, the Regulatory Investigations Committee, which was formed in late 2012, focuses on providing Board-level oversight of regulatory investigations. This Committee met six times in 2015. John McFarlane is Chairman of the Committee and the other current Committee members are Mike Ashley, Sir Gerry Grimstone, Diane de Saint Victor and Jes Staley. Antony Jenkins, Sir Michael Rake, Sir John Sunderland and Sir David Walker also served on the Committee during 2015, stepping down when they left the Board.
Barclays PLC and Barclays Bank PLC |
Attendance
In 2015 we attended both scheduled and additional Board meetings, as disclosed in the table below. The Chairman met privately with non-executive Directors ahead of scheduled Board meetings. If, owing to exceptional circumstances, a Director was not able to attend a Board meeting, he or she ensured that their views were known to the Chairman.
Board attendance | Independent | | Scheduled meetings eligible to attend | | | Scheduled meetings attended | | | Additional meetings eligible to attend | | | Additional meetings attended | | |||||
Group Chairman | ||||||||||||||||||
John McFarlane | On appointment | 8 | 8 | 2 | 2 | |||||||||||||
Executive Directors | ||||||||||||||||||
Tushar Morzariaa | Executive Director | 8 | 8 | 2 | 1 | |||||||||||||
Jes Staley | Executive Director | 1 | 1 | 0 | 0 | |||||||||||||
Non-executive Directors | ||||||||||||||||||
Mike Ashley | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Tim Breedon | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Crawford Gillies | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Reuben Jeffery III | Independent | 8 | 7 | 2 | 2 | |||||||||||||
Wendy Lucas-Bullb | Non-Independent | 8 | 8 | 2 | 2 | |||||||||||||
Dambisa Moyo | Independent | 8 | 8 | 2 | 1 | |||||||||||||
Frits van Paasschen | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Sir Michael Rake | Deputy Chairman, Senior Independent Director | 8 | 7 | 2 | 2 | |||||||||||||
Diane de Saint Victor | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Diane Schueneman | Independent | 5 | 5 | 1 | 1 | |||||||||||||
Steve Thieke | Independent | 8 | 8 | 2 | 2 | |||||||||||||
Former Directors | ||||||||||||||||||
Sir David Walker | On appointment | 3 | 3 | 0 | 0 | |||||||||||||
Antony Jenkins | Executive Director | 4 | 4 | 1 | 1 | |||||||||||||
Sir John Sunderland | Independent | 3 | 3 | 0 | 0 | |||||||||||||
Secretary | ||||||||||||||||||
Lawrence Dickinson | 8 | 8 | 2 | 2 |
Notes
Governance: Directors’ report
How we comply
Board Governance Framework
Leadership
As highlighted earlier in this report, the Board of Directors is responsible for promoting the highest standards of corporate governance in Barclays. We act in a Boardway that we may, underconsider promotes the authoritysuccess of our ArticlesBarclays for the benefit of Associationshareholders as a whole, and where appropriate, delegate all or anyare accountable to the shareholders for creating and delivering sustainable value. We are responsible for setting strategy and overseeing its implementation, and also ensuring that management maintains an effective system of our powers to an individual Director or to a Committee of Directors. Furtherinternal control.
For further information onabout the operations of eachrole of the Barclays Board Committees can be found on the pages referenced above. Board Committee membership is reviewed regularly byand its responsibilities, together with the Board Nominations Committee.governance framework, please see page 8.
Roles on the Board
AsExecutive and non-executive Directors we have establishedshare the same duties and are subject to the same constraints. However, in line with the principles of the Code, a clear division of responsibilities between runninghas been established. The Chairman is responsible for leading and managing the work of the Board, and running the business of the Group. It is the responsibility of the Chairman to lead the Board and to ensure that it operates effectively, while the responsibility for the day-to-day management of Barclays has been delegated to the Group
Chief Executive.
Role profiles setting out the responsibilities of the Chairman, the Group Chief Executive, Deputy Chairman, Senior Independent Director, non-executive Directors, Executive Directors, Committee Chairmen and the Company Secretary can be found inBarclays Charter of Expectations, which is available on home.barclays/corporategovernance.Barclays Charter of Expectationsalso sets out high-performance indicators for non-executive Directors.
The Group Chief Executive is supported in this role by the Group Executive Committee, which is responsible for making and implementing operational decisions while running the Group’s day-to-day business.Committee. Further information on membership of the Group Executive Committee can be found on page 5.7.
As a Board we have set out our expectations of each Director in Barclays’ Charter of Expectations. This includes role profiles and the behaviours and competencies required for each role on the Board, namely the Chairman, Deputy Chairman, Senior Independent Director, non-executive Directors, executive Directors and Committee Chairmen. The Group Executive Management structure has been designedCharter of Expectations is reviewed annually to support management’s decision-making responsibilities, alignedensure it remains relevant and up-to-date. It is published onhome.barclays/corporategovernance to personal accountabilityensure that there is complete transparency of the standards we set for ourselves.
Attendance
As members of the Board of Directors we are expected to attend every Board meeting. In 2017, we attended both scheduled and delegated authority, while embedding riskadditional Board meetings, as recorded in the table below. The Chairman met privately with the non-executive Directors ahead of each scheduled Board meeting, and controlif, owing to exceptional circumstances, a Director was not able to attend a Board meeting they ensured that their views were made known to the Chairman in business decision-making.advance of the meeting.
Board Attendance | Independent | Scheduled to attend | Scheduled Meetings attended | % attendance | Additional to attend | Additional meetings attended | % attendance | |||||||||||||||||||
Group Chairman | ||||||||||||||||||||||||||
John McFarlane | On appointment | 8 | 8 | 100 | 7 | 7 | 100 | |||||||||||||||||||
Executive Directors | ||||||||||||||||||||||||||
Tushar Morzaria | Executive Director | 8 | 8 | 100 | 4 | 4 | 100 | |||||||||||||||||||
Jes Staley | Executive Director | 8 | 8 | 100 | 4 | 4 | 100 | |||||||||||||||||||
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Mike Ashley | Independent | 8 | 8 | 100 | 7 | 7 | 100 | |||||||||||||||||||
Tim Breedon | Independent | 8 | 8 | 100 | 7 | 6 | 86 | |||||||||||||||||||
Sir Ian Cheshire | Independent | 6 | 5 | 83 | 4 | 4 | 100 | |||||||||||||||||||
Mary Francis | Independent | 8 | 8 | 100 | 7 | 7 | 100 | |||||||||||||||||||
Crawford Gillies | Independent | 8 | 7 | 88 | 7 | 7 | 100 | |||||||||||||||||||
Sir Gerry Grimstone | Senior Independent Director | 8 | 8 | 100 | 7 | 7 | 100 | |||||||||||||||||||
Reuben Jeffery III | Independent | 8 | 8 | 100 | 7 | 7 | 100 | |||||||||||||||||||
Matthew Lester | Independent | 3 | 3 | 100 | 1 | 1 | 100 | |||||||||||||||||||
Dambisa Moyo | Independent | 8 | 7 | 88 | 7 | 7 | 100 | |||||||||||||||||||
Diane Schueneman | Independent | 8 | 8 | 100 | 7 | 7 | 100 | |||||||||||||||||||
Mike Turner CBEa | Independent | - | - | n/a | – | – | n/a | |||||||||||||||||||
Former Directors | ||||||||||||||||||||||||||
Diane de Saint Victor | Independent | 3 | 3 | 100 | 3 | 3 | 100 | |||||||||||||||||||
Steve Thieke | Independent | 3 | 3 | 100 | 3 | 3 | 100 | |||||||||||||||||||
Secretary | ||||||||||||||||||||||||||
Stephen Shapiro | 2 | 2 | 100 | – | – | n/a | ||||||||||||||||||||
Former Secretaries | ||||||||||||||||||||||||||
Lawrence Dickinson | 1 | 1 | 100 | 1 | 1 | 100 | ||||||||||||||||||||
Claire Davies | 5 | 5 | 100 | 6 | 6 | 100 |
Note
a Mike Turner CBE joined the Board with effect from 1 January 2018. As part of his induction programme, he attended the December 2017 board meeting.
38 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Board Committee cross-membership
The table below shows the number of cross-memberships of our non-executive Directors across our Board Committees.
Board Audit Committee | Board Nominations Committee | Board Remuneration Committee | Board Reputation Committee | |||||
Board Risk Committee |
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Effectiveness
Composition of the Board
The Board Nominations Committee is responsible for reviewing Board composition, considering succession plans for bothIn line with the Board and senior executives, selecting and appointing new Directors and consideringrequirements of the resultsCode, a majority of the Board effectiveness review. For more information on the work of this Committee in 2015 please turn to page 27.
Our individual biographies can be found onpages 3 and 4: these include our relevant skills and experience, Board Committee membership and any other principal appointments. Details of changes to the Board in 2015 and year to date are disclosed on page 6.
independent non-executive Directors. The Board currently comprises a Chairman, who was independent on appointment, two Executiveexecutive Directors and11 eleven non-executive Directors. In line with the Code, independent non-executive Directors form a majority of our Board. Each year weWe consider the independence of our non-executive Directors annually, using the guidanceindependence criteria set out in the Code and by reviewing performance against behaviours determined by usthat we have identified as essential in order for a Director to be considered independent. TheseAs part of this process, the Board keeps under review the length of tenure of all Directors, which is a factor that is considered as part of its deliberations when determining independence of our non-executive Directors. The independence criteria are disclosedcan be found inCorporate Governance in Barclays which canathome.barclays/corporategovernance.
The Board Nominations Committee considers Board succession planning and regularly reviews the composition of the Board and the Board Committees to ensure that there is an appropriate balance and diversity of skills, experience, independence and knowledge. The size of the Board is not fixed and may be viewed at home.barclays/corporategovernance. Havingrevised from time to time to reflect the changing needs of the business and the Board Nominations Committee will consider the balance of skills and experience of current Directors when considering a proposed appointment.
Each year we carry out an effectiveness review in order to evaluate our performance as a Board, as well as the performance of each of the Board Committees and individual Directors. This annual review assesses whether each of us continues to discharge our respective duties and responsibilities effectively and is considered this guidance, we have determined those non-executivewhen deciding whether individual Directors who are standingwill offer themselves for election or re-election at the 2016 AGMAGM. More information on the 2017 Board effectiveness review can be found on page 36.
Our biographies containing our relevant skills and experience, Board Committee membership and other principal appointments can be found on pages 5 and 6. Details of changes to be independent.the Board in 2017 and year to date are disclosed on page 3.
Executive Directors’The service contracts for the executive Directors and the letters of appointment for the Chairman and non-executive Directors are available for inspection at the Company’sour registered office.
Time commitment
We are expected to allocate sufficient time to our role on the Board in order to discharge our responsibilities effectively. This includes attending, and being well-prepared for, all Board and Board Committee meetings, as well as making time to understand the business, meet with executives and regulators, and complete ongoing training. As stated in ourCharter of Expectations, time commitment is agreed with each non-executive Director on an individual basis. Set out below is the average expected time commitment for the role of non-executive Directors and the other non-executive positions on the Board. For these additional positions there is an expectation that, in order to effectively fulfil extra responsibilities, additional time commitment is required.
We carry out an annual effectiveness review in order to evaluate our performance as a Board. This evaluation includes an assessment of the effectiveness of Board Committees and individual Directors, to ensure that each of us continues to contribute effectively to the decision-making of the Board. Independence and the existence of any conflicts of interest are considered as part of the effectiveness evaluation. We take the outcomes of the review into account when deciding whether Directors will offer themselves for election or re-election at the AGM.
More information on the Board effectiveness review can be found on page 33 and 34.
Time commitmentRole
In order to effectively discharge our responsibilities, non-executive Directors must commit sufficient time to their role. Set out below is the average time commitment for each non-executive position on the Board. In practice, however, time commitment is agreed on an individual basis and for certain Board positions additional time commitment will often be required in order to fulfil extra responsibilities, such as those of the Deputy Chairman, Senior Independent Director and Committee Chairmen. In addition, in exceptional circumstances, we are expected to commit significantly more time than disclosed below.
Expected time commitment | ||
Chairman | 80% of a | |
Deputy Chairman | At least 0.5 days a week | |
Senior Independent Director | As required to fulfil the role | |
Committee Chairmen |
It is expected that ourThe Chairman willmust commit as muchto expend whatever time as is necessary to fulfil his duties withand, while this is expected to be equivalent to 80% of a full time position, his responsibilities to Barclays takingChairmanship of the Group, and leadership of the Board, has priority over other business commitments. The Chairman and non-executive DirectorsIn exceptional circumstances, we are alsoall expected to allocate sufficientcommit significantly more time to understandingour work on the business, through meetings with regulators and executives and undergoing training to ensure ongoing business awareness. This time is in addition to that spent preparing for, and attending, Board and Board Committee meetings. When appropriate, a Director joining a Board Committee will be given a specific Board Committee induction programme.Board.
Induction
FollowingOn appointment each Director undergoesto the Board, all Directors receive a comprehensive induction that has beenwhich is tailored to the new Director’s individual requirements. The personal induction programmeschedule is designed and organised byto quickly provide the Company Secretary in consultationnew Director with the Chairman and in doing so they consider how to develop each Director’san understanding of how the Group works and the key issues that it faces. The Company Secretary consults the Chairman when designing an induction schedule, giving consideration to the particular needs of the new Director. When a Director is joining a Board Committee the schedule includes an induction to the operation of that committee.
The purposeOn completion of the induction programme, isthe Director should have sufficient knowledge and understanding of the nature of the business, and the opportunities and challenges facing Barclays, to provide Directors withenable them to effectively contribute to strategic discussions and oversight of the information they need to become as effective as possible within the shortest practicable time afterGroup.
Following their appointment in 2017, Sir Ian Cheshire, Matthew Lester and Mike Turner CBE received induction programmes on joining the Board. Typically, a new Director will meetIn line with normal practice, they met with the Company Secretary, the current non-executive Directors and members of the Group Executive Committee and certain other senior management, allowing an opportunity to familiarise themselves with various businesses and discuss specific matters with senior individuals. When an induction programme is complete, in addition to understanding the Group’s business, a new Director should have a clear understanding of Barclays’ relationships with its shareholders, regulators and customers and clients.executives.
In 2015, John McFarlane and Diane Schueneman both received tailored induction programmes on joining the Board. Feedback was sought from both new Directors to ensure that the induction programme remains effective.
Training and development
In order to ensure that our non-executive Directors have the necessary knowledge and understanding of the Group’s business to enable them to contribute effectively at Board and Board Committee meetings they are regularly provided with the opportunity for training and development.
As part of the annual performance evaluation process the individual development needs of each non-executive Director are reviewed and discussed with the Chairman. Training can be provided through one-to-one meetings with senior executives, in order to receive further insight into a particular area of the Group’s business, or as part of dedicated training on a particular issue identified by the Directors and the Company Secretary.
Our Directors have a continuing responsibility to fulfil their duties as members of the Board and Board Committees and this is managed through the provision of focused training and development opportunities.
During 2015, non-executive Directors attended briefings on the following subjects:
Board Committees also undertook specific training and details can be found in the respective Committee Chairmen’s reports.
During 2015, individual Directors also attended regular meetings with our regulators, external auditors and major shareholders. In addition, the Board Audit Tender Oversight Sub-Committee carried out site visits as part of the audit tender process.
The following provides more detail of a specific training session that took place in 2015.
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Barclays PLC and Barclays Bank PLC |
Governance: Directors’ report
How we comply
Training and development
In order to continue to contribute effectively to Board and Board Committee meetings, Directors are regularly provided with the opportunity to take part in ongoing training and development and can also request specific training that we may consider necessary or useful. As part of our annual performance review with the Chairman, we discuss any particular development needs that can be met through either formal training or meeting with a particular senior executive. In 2017, Directors received ongoing training in relation to legal and regulatory developments, including in relation to the requirements of, and responsibilities under, the UK Senior Managers Regime.
Conflicts of Interest
In accordance with the Companies Act 2006 and the Articles of Association the Board has the authority to authorise conflicts of interest. Directors are required to declare any potential or actual conflicts of interest that could interfere with their ability to act in the best interests of the Group. The Company Secretary maintains a conflicts register, which is a record of actual and potential conflicts, together with any Board authorisation of the conflict. The authorisations are for an indefinite period but are reviewed annually by the Board Nominations Committee, which also considers the effectiveness of the process for authorising Directors’ conflicts of interest. The Board retains the power to vary or terminate the authorisation at any time.
Information provided to the Board
AsThe Role Profile for the Chairman, as set out in the Code, the Chairman is responsibleourCharter of Expectations, confirms his responsibility for ensuring that members of the Board receivesreceive accurate, timely and high qualityhigh-quality information. In particular, we require information about the Company’sBarclays’ performance at appropriate intervals and in an appropriate manner to enable itus to take sound decisions, monitor effectively and provide advice to promote the success of the Company. OurWorking in collaboration with the Chairman, the Company Secretary supports the Chairman inis responsible for ensuring good governance and consults Directors to ensure that good information flows betweenexist and that the Board receives the Board Committees and the senior executives. In addition to providing dedicated support for the Board, the Company Secretary maintains dialogue with our Directorsinformation it requires in order to confirm thatbe effective.
Throughout the information they require in order to fulfil their responsibilities as a member ofyear both the Board is being received. If there is a need for independentexecutive Directors and professional advice this can be sought bysenior executives keep the Board via the Company Secretary or directly, at Barclays expense.
Directors expect to be kept informed of key developments in the business by boththrough regular reports and updates. These are in addition to the Executive Directors and senior management, and take seriously their responsibility to request any further explanations as required. Thepresentations that the Board and Board Committee annual forward calendarsCommittees receive as part of businesstheir formal meetings. Directors are formulatedable to ensure thatseek independent and professional advice at Barclays’ expense, if required, to enable Directors receive regular reports and presentations, in addition to periodic communications advising of any updates to the businessfulfil their obligations as members of the Company, current events and the regulatory environment.Board.
Accountability
Risk managementManagement and internal controlInternal Control
The Directors have responsibilityare responsible for ensuring that management maintainmaintains an effective system of risk management and internal control and for assessing its effectiveness. Such a system is designed to identify, evaluate and manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
Barclays is committed to operating within a strong system of internal control that enables business to be transacted and risk taken without exposing itself to unacceptable potential losses or reputational damage. Barclays has an overarching framework that sets out the Group’s approach to internal governance, (theBarclays Guide). TheBarclays Guide, which establishes the mechanisms and processes by which management implements the strategy set by the Board directsto direct the organisation, through setting the tone and expectations from the top, delegating its authority and assessing compliance.
A key component of theThe Barclays Guide is theEnterprise Risk Management Framework(ERMF). The purpose of the ERMF is to identify and set minimum requirements in respect of the main risks to achieving the Group’s strategic objectives and to provide reasonable assurance that internal controls are effective. The key elements of the Group’s system of internal control, which is aligned to the recommendations ofThe Committee of Sponsoring Organizations of the Treadway Commission, Internal Control – Integrated Framework (2013 COSO), are set out in the risk control frameworks relating to each of the Group’s principal and key risks.Principal Risks. As well as incorporating our internal requirements, these reflect material Group-wide legal and regulatory requirements relating to internal control and assurance.
Effectiveness of internal controls
Key controls are assessed on a regular basis for both design and operating effectiveness. Issues arising out of business risk and control assessments and other internal and external sources are examined to identify pervasive themes. Where appropriate, control issues are reported to the Board Audit Committee.Committee (BAC). In addition, the BAC receives regular reports are made to the Board Audit Committee byfrom management, Barclays Internal Audit (BIA) and the Finance, Compliance and Legal functions covering, in particular, financial controls, compliance and other operational controls.
Risk management and internal control framework
The ERMF is the Group’s internal control framework. Itframework, which is refreshed annually with an assessment of operational maturity provided toannually. There are eight Principal Risks under the Board Audit Committee. In 2015, the Board Audit Committee received quarterly reports on the effectiveness of the control environment: these reports covered risksERMF: Credit risk, Market risk, Treasury and controls including financial, operationalcapital risk, Operational risk, Model risk, Reputation risk, Conduct risk and complianceLegal risk.
The Board Audit CommitteeBAC formally reviews the system of internal control and risk management annually. Throughout the year endingended 31 December 20152017 and to date, the Group has operated a system of internal control that provides reasonable assurance of effective operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the principal risksPrincipal Risks facing the Group in accordance with the‘Guidance on Risk Management, Internal Control and Related Financial and Business ReportingReporting’ published by the Financial Reporting Council.
The review of the effectiveness of the system of risk management and internal control is achieved through a four-step approach which is centred on reviewing the effectiveness of theThe Barclays Guide and its component parts, including the ERMF.parts:
1. |
2. | Testing of the |
3. | The owners of the key governance processes which comprise |
4. | The annual review of the system of risk management and internal control brings together the results of the activities completed in steps 1 to 3 to ensure that each of the key processes has been effectively reviewed. |
In 2015,
40 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Regular reports are made to the Board received regular reports covering risks of Group-level significance. Over the year, theThe Board Risk Committee and the Board Reputation Committee examinedexamine reports covering the principal risks (credit risk, market risk, capital risk, liquidity risk, operational risk and conduct risk)Principal Risks as well as reports on risk measurement methodologies and risk appetite. Further details of risk management procedures and potential risk factors are given in the Risk Management sectionreview and risk management sections on pages 8775 to 93.162.
Controls over financial reporting
A framework of disclosure controls and procedures is in place to support the approval of the Group’s financial statements. The Legal and Technical Review Committee isSpecific governance committees are responsible for examining the Group’sGroups’ financial reports and disclosures to ensure that they have been subject to adequate verification and comply with applicable standards and legislation. The Committee reports itsThese committees report their conclusions to the Disclosure Committee. The Disclosure Committee examines the content, accuracy and tone of the disclosures and reports its conclusions to the Board Audit Committee,BAC which debates its conclusions and provides further challenge. Finally, the Board scrutinises and approves results announcements and the Annual Report, and ensures that appropriate disclosures have been made. This governance process ensures that both management and the Board are given sufficient opportunity to debate and challenge the Group’sGroups’ financial statements and other significant disclosures before they are made public.
Management’s report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed under the supervision of the principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and issued by the International Accounting Standards Board (IASB). Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorisations of management and the respective Directors; and provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of assets that could have a material effect on the financial statements.
Internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the internal control over financial reporting of Barclays PLC Group’s and Barclays Bank PLC Group’s internal control over financial reporting as of 31 December 2015.2017. In making its assessment, management has utilised the criteria set forth byout in the 2013 COSO framework. Managementframework and concluded that, based on its assessment, the internal control over financial reporting was effective as of 31 December 2015.2017. Our independent registered public accounting firm has issued a report on the Barclays PLC’sPLC Group internal control over financial reporting, which is set out on page 210.186.
The system of internal financial and operational controls is also subject to regulatory oversight in the UK and overseas. Further information on supervision by the financial services regulators is provided under Supervision and Regulation in the Risk review section on pages 177155 to 182.162.
Changes in internal control over financial reporting
There have been no changes in the Group’sGroups’ internal control over financial reporting that occurred during the period covered by this report which have materially affected or are reasonably likely to materially affect the Group’sGroups’ internal control over financial reporting.
Remuneration
Remuneration
We haveThe Board has delegated responsibility tofor the Board Remuneration Committee to determineconsideration and approval of the remuneration arrangements forof the Chairman, our Executiveexecutive Directors, and other senior executives and certain other Group employees to the Board Remuneration Committee. The Board as determined bya whole, with the Committee. Additional informationnon-executive Directors abstaining, considers annually the fees paid to non-executive Directors. Information on the activities of the Board Remuneration Committee including its membership and activities in 2015,2017 can be found in the Remuneration report on pages 70 and 71 in the Directors’ remuneration report,51 to 74, which forms part of the corporate governance statement.
Stakeholder engagement
We describe below how we engage with our stakeholders.
Investor engagement
The Board is committed to promoting effective channels of communication with shareholders and upholding good corporate governance as a means of building stronger and more engaged relationships with them. Our comprehensive investor engagement initiatives help us to understand their views about Barclays, which are communicated regularly to the Board. Our shareholder communication guidelines, which underpin all investor engagement, are available on our website at home.barclays/barclays-investor-relations/corporate-governance/shareholder-communication-guidelines.html.
Institutional investors
In 2015, our engagement with institutional investors took place throughout the year, following our quarterly results as well as outside the reporting cycle. This allowed the opportunity for existing and potential investors to engage with us regularly, and promoted dialogue on longer-term strategic developments, as well as about the recent financial performance of the Group.
The Directors, in conjunction with the senior executive team and Investor Relations, participated in varied forms of engagement across multiple geographic locations, reflecting the diverse nature of our equity and debt institutional ownership. Divisional management also presented extensively to investors, promoting greater awareness and understanding of our operational businesses and other functions.
In the past year, discussions with investors focused on the continued execution of our strategic plan outlined in 2014, and the steps taken in 2015 to improve our returns to shareholders, while adapting to the changing regulatory environment and addressing legacy issues. Meetings focused on corporate governance matters also took place throughout the year, covering topics including management changes, remuneration and other AGM-related matters. Following the appointment of Sir Gerry Grimstone as Senior Independent Director on 1 January 2016, our major investors were offered a meeting with him.
During 2015, we held quarterly results briefings, including an in-person presentation for the 2014 results announcement in March 2015, and quarterly breakfast briefings for equity and debt sellside analysts, hosted by the Group Finance Director. For fixed income investors, we held conference calls at our full year and half year results, hosted by our Group Finance Director and Group Treasurer, as well as quarterly briefings for credit analysts.
An independent audit of investor views took place in April 2015. Interviews with a cross-section of institutional shareholders and non-holders, were conducted on specific topics including strategy, business performance and the management team. The findings of the investor audit were presented to the Board.
To enable the effective distribution of information to all investors, transcripts of executive management speeches were uploaded to the investor relations section of the website, alongside associated presentation materials. In 2015, we received the UK Investor Relations Society’s award for the Best Use of Digital Communications, reinforcing the importance placed on using our website to engage with the market. For example, we introduced short videos providing a summary of our results from our Chairman, Group Chief Executive and Group Finance Director.
Barclays PLC and Barclays Bank PLC |
Governance: Directors’ report
How we comply
Private shareholders
Throughout 2015, we continued to communicate with our private shareholders using our shareholder mailings. Also, shareholders can choose to sign up to Shareview so that they receive information about Barclays and their shareholding directly by email. On a practical level, over 60,000 shareholders did not cash their Shares Not Taken Up (SNTU) cheque following the Rights Issue in September 2013. During 2015, we conducted a tracing process to reunite these shareholders with their SNTU monies together with any unclaimed dividends. By the end of the year, we had returned over £2.2m to our shareholders. In addition, we launched a special share dealing service in October 2015 for shareholders holding 4,000 shares or less. Shareholders could donate their sale proceeds to ShareGift if they wished. Shareholders donated nearly £130,000.
Our Annual General Meeting (AGM)
Our AGM continues to be a key date in the diary for the Board. It affords us our primary opportunity to engage with shareholders, particularly our private shareholders, on the key issues facing the Group and any questions they may have. The majority of Directors, including the Chairman, were available for informal discussion before and after the formal business of our 2015 AGM. All resolutions proposed at the 2015 AGM, which were considered on a poll, were passed with votes for ranging from 88.5% to 99.9% of the total votes cast.
The 2016 AGM will be held on Thursday 28 April 2016 at the Royal Festival Hall in London. The Notice of AGM can be found in a separate document, which is sent out at least 20 working days before the AGM and also made available at home.barclays/agm. Voting on the resolutions will again be by poll and the results will be announced via the Regulatory News Service and made available on our website on the same day. We encourage any shareholders who are unable to attend on the day to vote in advance of the meeting via home.barclays/investorrelations/vote or through Shareview (www.shareview.co.uk).
Stakeholder engagement | ||||||
Investor Engagement The Board is committed to promoting effective channels of communication with our shareholders and upholding good corporate governance as a means of building stronger and more engaged relationships with them. Our comprehensive Investor Relations engagement with the market helps us to understand investor views about Barclays, which are communicated regularly to the Board. Our shareholder communication guidelines, which underpin all investor engagement, are available on our website athome.barclays/investorrelations. Institutional Investors In 2017, our Investor Relations engagement with institutional investors took place throughout the year, both following our quarterly results as well as outside of the reporting cycle. This allowed the opportunity for existing and potential new investors to engage with Barclays regularly, promoting dialogue on longer-term strategic developments as well as on the recent financial performance of the Group. The Directors, in conjunction with the senior executive team and Investor Relations, participated in varied forms of engagement, including investor meetings, seminars and conferences across many geographic locations, reflecting the diverse nature of our equity and debt institutional ownership. Divisional management also presented extensively to investors, promoting greater awareness and understanding of our operating businesses. During 2017, discussions with investors were focused on the completion of our restructuring, including the sell down of our interest in Barclays Africa Group Limited to 14.9% and the closure of Non-Core in June, as well as our revised Group financial targets and our plans to achieve them within the specified timelines. Investors were also kept informed about progress on structural reform, in particular the set up of the UK ring-fenced bank, which we expect to take place in the second quarter of 2018. Investor meetings focused on corporate governance also took place throughout the year, with the Chairman, Senior Independent Director, other Board representatives and the Company Secretary. We held conference calls/webcasts for our quarterly results briefings and an in-person presentation for our 2016 full year results in March 2017, all hosted by the Group Chief Executive and Group Finance Director. In addition, the Group Finance Director held a | quarterly breakfast briefing for sellside analysts, with a transcript of the discussions uploaded to our website. For fixed income investors we held conference calls at our full year and half year results, hosted by our Group Finance Director and Group Treasurer. The Investor Relations section of our website is an important communication channel that enables the effective distribution of information to the market in a clear and consistent manner. Executive management presentations, speeches and, where possible, webcast replays are uploaded to our website on a timely basis. Private Shareholders During 2017, we continued to communicate with our private shareholders through our shareholder mailings. Shareholders can also choose to sign up to Shareview so that they receive information about Barclays and their shareholding directly by email. On a practical level, over 60,000 shareholders did not cash their Shares Not Taken Up (SNTU) cheque following the Rights Issue in September 2013. In 2017, we continued the tracing process to reunite these shareholders with their SNTU monies and any unclaimed dividends and by the end of the year, we had returned approximately £200,000 to our shareholders, in addition to the £1.65m returned in 2016 and £2.2m in 2015. Each year we launch a Share Dealing Service aimed at shareholders with relatively small shareholdings for whom it might otherwise be uneconomical to deal. One option open to shareholders is to donate their sale proceeds to ShareGift. As a result of this initiative, more than £61,000 was donated in 2017, taking the total donated since 2015 to over £299,000. Our AGM The Board and the senior executive team continue to consider our AGM as a key date for shareholder engagement. The AGM provides us with our main opportunity to engage with shareholders, particularly our private shareholders, on the key issues facing the Group and any questions they may have. A number of Directors, including the Chairman, were available for informal discussion either before or after the meeting. All resolutions proposed at the 2017 AGM, which were considered on a poll, were passed with votes “For” ranging from 85.67% to 99.95% of the total votes cast. The 2018 AGM will be held on Tuesday 1 May 2018 at the QEII Conference Centre in London. The Notice of AGM can be found in a separate document, which is sent out at least 20 working days before the AGM and also made available at | home.barclays/agm. Voting on the resolutions will again be by poll and the results will be announced via the Regulatory News Service and made available on our website on the same day. We encourage any shareholders who are unable to attend on the day to vote in advance of the meeting viahome.barclays/ investorrelations/vote or through Shareview(www.shareview.co.uk). 2017 engagement timeline |
42 Barclays PLC and Barclays Bank PLC |
Other statutory information
The Directors present their report together with the audited accounts for the year ended 31 December 2015.2017.
Other information that is relevant to the Directors’ Report, and which is incorporated by reference into this report, can be located as follows:
Page | ||||
Employee involvement | 47 | |||
Policy concerning the employment of disabled persons | 48 | |||
Financial instruments | 212 | |||
Hedge accounting policy | 200 | |||
Remuneration policy, including details of the remuneration of each Director and Directors’ interests in shares | 51 | |||
Corporate governance report | 1 | |||
Risk review | 75 |
Page | ||||
Long-term incentive schemes | 81 | |||
Waiver of Director emoluments | 70 | |||
Allotment for cash of equity securities | 251 | |||
Waiver of dividends | 43 |
The particulars of important events affecting the Company since the financial year end can be found in Note 29 Legal, competition and regulatory matters.
Profit and dividends
The adjusted profit for the financial year, after taxation, was £3,713m (2014: £3,798m). Statutory profitloss after tax for 20152017 was £623m (2014: £845m)£894m (2016: profit £2,828m). The final dividend for 20152017 of3.5p 2.0p per share will be paid on 5 April 20162018 to shareholders whose names are on the Register of Members at the close of business on 112 March 2016.2018. With the interim dividendsdividend totalling 3p1.0p per ordinary share, paid in June, September and December 2015,2017, the total distribution for 20152017 is 6.5p (2014: 6.5p)3.0p (2016: 3.0p) per ordinary share. The interim and final dividends for 20152017 amounted to £1,081m (2014: £1,057m)£509m (2016: £757m).
For 2018, Barclays anticipates resuming a total cash dividend of 6.5p, subject to regulatory approvals.
The nominee companiescompany of certain Barclays’ employeesemployee benefit trusts holding shares in Barclays in connection with the operation of the Company’s share plans havehas lodged evergreen dividend waivers on shares held by themit that have not been allocated to employees. The total amount of dividends waived during the year ended 31 December 20152017 was £6.4m.£0.68m (2016: £2.6m).
Barclays understands the importance of the ordinary dividend for our shareholders. Barclays is therefore committed to maintaining an appropriate balance between total cash returns to shareholders, investment in the business, and maintaining a strong capital position. Going forward, Barclays intends to pay an annual ordinary dividend that takes into account these objectives, and the medium-term earnings outlook of the Group. It is also the Board’s intention to supplement the ordinary dividends with additional returns to shareholders as and when appropriate.
The Board notes that in determining any proposed distributions to shareholders, the Board will consider the expectation of servicing more senior securities.
Board of Directors
The names of the current Directors of Barclays PLC, along with their biographical details, are set out on pages 35 and 46 and are incorporated into this report by reference. Changes to Directors during the year are set out in the table below.
Name | Role | Effective date of
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| Non-executive Director | Appointed 3 April 2017 | ||||
Matthew Lester | Non-executive Director | Appointed
1 September 2017 | ||||
| Non-executive Director | Appointed
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Diane de Saint Victor | Non-executive Director | Retired
10 May 2017 | ||||
| Non-executive Director | Retired
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10 May 2017 |
John McFarlane succeeded Sir David Walker as Chairman of Barclays with effect from the conclusion of the Barclays PLC AGM in April 2015. John McFarlane held the position of Executive Chairman with effect from 17 July 2015 to 1 December 2015, when Jes Staley took up the position of Group Chief Executive.
Governance: Directors’ report
Other statutory information
Appointment and retirement of Directors
The appointment and retirement of Directors is governed by the Company’s Articles of Association (the Articles), the UK Corporate Governance Code (the Code), the Companies Act 2006 and related legislation.
The Articles may only be amended by a special resolution of the shareholders. The Board has the power to appoint additional Directors or to fill a casual vacancy among the Directors. Any such Director holds office only until the next AGM and may offer himself/herself for election.re-election. The Code recommends that all directors of FTSE 350 companies should be subject to annual re-election. All Directors will stand for election or re-election at the 2018 AGM.
Directors’ indemnities
Qualifying third party indemnity provisions (as defined by section 234 of the Companies Act
2006) were in force during the course of the financial year ended 31 December 20152017 for the benefit of the then Directors and, at the date of this report, are in force for the benefit of the Directors in relation to certain losses and liabilities which they may incur (or have incurred) in connection with their duties, powers or office. In addition, the Company maintains Directors’ and& Officers’ Liability Insurance which gives appropriate cover for legal action brought against its Directors.
Qualifying pension scheme indemnity provisions (as defined by section 235 of the Companies Act 2006) were in force during the course of the financial year ended 31 December 20152017 for the benefit of the then Directors, and at the date of this report are in force for the benefit of directors of Barclays Pension Funds Trustees Limited as Trustee of the Barclays Bank UK Retirement Fund. The directors of the Trustee are indemnified against liability incurred in connection with the Company’scompany’s activities as Trustee of the retirement fund.Barclays Bank UK Retirement Fund.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 43 |
Governance: Directors’ report
Other statutory information
Similarly, qualifying pension scheme indemnities were in force during 20152017 for the benefit of directors of Barclays Executive Schemes Trustees Limited as Trustee of Barclays Bank International Limited Zambia Staff Pension Fund (1965), Barclays Capital International Pension Scheme (No.1), Barclays Capital Funded Unapproved Retirement Benefits Scheme, and Barclays PLC Funded Unapproved Retirement Benefits Scheme. The Directorsdirectors of the Trustee are indemnified against the liability incurred in connection with the Company’scompany’s activities as Trustee of the schemes above.
Political donations
The Group did not give any money for political purposes in the UK, the rest of the EU or outside of the EU, nor did it make any political donations to political parties or other political organisations, or to any independent election candidates, or incur any political expenditure during the year.
In accordance with the US Federal Election Campaign Act, Barclays provides administrative support to a federal Political Action Committee (PAC) in the US funded by the voluntary political contributions of eligible employees. The PAC is not controlled by Barclays and all decisions regarding the amounts and recipients of contributions are directed by a steering committee comprising employees eligible to contribute to the PAC. Contributions to political organisations reported by the PAC during the calendar year 20152017 totalled $79,500 (2014: $103,000)$67,250 (2016: $12,500).
Environment
Barclays’ climate action programmeBarclays focuses on addressing environmental issues where we believe we have the greatest potential to make a difference. The programme focusesWe focus on managing our own carbon footprint and reducing our absolute carbon emissions, developing products and services to help enable the transition to a low-carbon economy, and managing the risks of climate change to our operations, clients, customers and society at large.
We invest in improving the energy efficiency of our operations and offset the emissions remaining through the purchase of carbon credits.credits, sourced from verified projects. We also have a long-standing commitment to managing the environmental and social risks associated with our lending practices, which is embedded into our creditCredit risk processes. A governance structure is in place to facilitate clear dialogue across the business and with suppliers around
issues of potential environmental and social risk.
We have disclosed global greenhouse gas emissions (GHG) that we are responsible for as set out by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. We provide fuller disclosure acrosson (i) financing solutions for the lower carbon economy, (ii) environmental risk management and (iii) management of our carbon emissions withinand environmental footprint in the Barclays Citizenship Data Supplement foundEnvironmental, Social and Governance (ESG) Report available on our website home.barclays/athome.barclays.com/citizenship. We have also provided initial disclosures aligned with the Task Force on Climate-Related Financial
Disclosures (TCFD) in the Strategic Report and ESG Report.
Reporting yeara 2015 | Reporting yeara 2014 | Reporting yeara 2013 | Comparison yeara 2012 | |||||
Global GHG emissionsb | ||||||||
Total CO2e (tonnes)b | 701,600 | 853,376 | 1,036,755 | 1,119,145 | ||||
Scope 1 CO2e emissions (tonnes)c | 65,340 | 49,939 | 58,372 | 47,904 | ||||
Scope 2 CO2e emissions (tonnes)d | 500,086 | 678,443 | 791,766 | 880,995 | ||||
Scope 3 CO2e emissions (tonnes)e | 136,174 | 124,993 | 186,616 | 190,245 | ||||
Intensity ratio | ||||||||
Total full time employees (FTE) | 129,400 | 132,300 | 139,600 | 139,200 | ||||
Total CO2e per FTE (tonnes) | 5.42 | 6.45 | 7.43 | 8.04 |
Current Reporting Yeara 2017 | Previous Reporting Year 2016 | Previous reporting Year 2015 | ||||||||||
Global Green House Gas (GHG) Emissionsb | ||||||||||||
Total CO2e emissions (tonnes) | 347,165 | 402,531 | 479,934 | |||||||||
Scope 1 CO2e emissions (tonnes)c | 25,627 | 26,721 | 29,144 | |||||||||
Scope 2 CO2e emissions (tonnes)d | 250,897 | 308,473 | 342,012 | |||||||||
Scope 3 CO2e emissions (tonnes)e | 70,641 | 67,336 | 93,989 | |||||||||
Intensity Ratio | ||||||||||||
Total Full Time Equivalent (Full Time Equivalent) | 79,900 | 76,500 | 85,800 | |||||||||
Total CO2e emissions (tonnes) per FTEf | 4.34 | 5.26 | 5.59 | |||||||||
Scope 2 CO2e market based emissions (tonnes)d | 298,469 | 337,483 |
Notes
a |
b | The methodology used to calculate our |
c | Scope 1 covers direct combustion of fuels and |
d | Scope 2 |
e | Scope 3 covers indirect emissions from business travel (global flights and ground |
In cases where we have collected new data for previously unreported consumption, we have restated the baseline if the new data amounts to a material change greater than 1% of the total consumption. If the change is less than 1%, we have reported consumption from the point at which the data became available. If it is greater than 1%, we have restated the baseline and previous years’ figures based on actual or estimated figures. Reasons for restatements in data are due to more accurate data being available which led to replacements of estimates with actual data for 2012, 2013 and 2014.
f | Intensity ratio calculations have been calculated using location based emission factors only. |
Research and development
In the ordinary course of business, the Group develops new products and services in each of its business divisions.
Share capital
Share capital structure
The Company has ordinary shares in issue. The Company’s Articles also allow for the issuance of sterling, US dollar, euro and yen preference shares (preference shares). No preference shares have been issued as at 2619 February 20162018 (the latest practicable date for inclusion in this report). Ordinary shares therefore represent 100% of the total issued share
capital as at 31 December 20152017 and as at 2619 February 20162018 (the latest practicable date for inclusion in this report). Details of the movement in ordinary share capital during the year can be found in Note 31 on page 276.251.
Voting
Every member who is present in person or represented at any general meeting of the Company, and who is entitled to vote, has one vote on a show of hands. Every proxy present has one vote. The proxy will have one vote for and one vote against a resolution if he/she has been instructed to vote for or against the resolution by different members or in one direction by a member while another member has permitted the proxy discretion as to how to vote.
On a poll, every member who is present or represented and who is entitled to vote has one vote for every share held. In the case of joint holders, only the vote of the senior holder (as determined by order in the share register) or hishis/her proxy may be counted. If any sum payable remains unpaid in relation to a member’s shareholding, that member is not entitled to vote that share or exercise any other right in relation to a meeting of the Company unless the Board otherwise determine. determines.
If any member, or any other person appearing to be interested in any of the Company’s ordinary shares, is served with a notice under section 793 of the Companies Act 2006 and does not supply the Company with the information required in the notice, then the Board, in its absolute discretion, may direct that that member shall not be entitled to attend or vote at any meeting of the Company. The Board may further direct that if the shares of the defaulting member represent 0.25% or more of the issued shares of the relevant class, that dividends or other monies payable on those shares shall be retained by the Company until the direction ceases to have effect and that no transfer of those shares shall be registered (other than certain specified ‘excepted transfers’). A direction ceases to have effect seven days after the Company has received the information requested, or when the Company is notified that an excepted transfer of all of the relevant shares to a third party has occurred, or as the Board otherwise determines.
44 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Transfers
Ordinary shares may be held in either certificated or uncertificated form. Certificated ordinary shares shall be transferred in writing in any usual or other form approved by the Company Secretary and executed by or on behalf of the transferor. Transfers of uncertificated ordinary shares shall be made in accordance with the Companies Act 2006 and CREST Regulations.
The Board is not bound to register a transfer of partly-paid ordinary shares or fully-paid shares in exceptional circumstances approved by the FCA. The Board may also decline to register an instrument of transfer of certificated ordinary shares unless it is (i) duly stamped, and deposited at the prescribed place and accompanied by the share certificate(s) and such other evidence as reasonably required by the Board to evidence right to transfer, (ii) it is in respect of one class of shares only, and (iii) it is in favour of a single transferee or not more than four joint transferees (except in the case of executors or trustees of a member).
In accordance with the provisions of Section 84 of the Small Business, Enterprise and Employment Act 2015, preference shares may only be issued in registered form. Preference shares shall be transferred in writing in any usual or other form approved by the Company Secretary and executed by or on behalf of the transferor. The Company’s registrar shall register such transfers of preference shares by making the appropriate entries in the register of preference shares. Each preference share shall confer, in the event of a winding up or any return of capital by reduction of capital (other than, unless otherwise provided by their terms of issue, a redemption or purchase by the Company of any of its issued shares, or a reduction of share capital), the right to receive out of the surplus assets of the Company available for distribution among the members and in priority to the holders of the ordinary shares and any other shares in the Company ranking junior to the relevant series of preference shares and pari passu with any other class of preference shares (other than any class of shares then in issue ranking in priority to the relevant series of preference shares), repayment of the amount paid up or treated as paid up in respect of the nominal value of the preference share together with any premium which was paid or treated as paid when the preference share was issued in addition to an amount equal to accrued and unpaid dividends.
Variation of rightsRights
The rights attached to any class of shares may be varied either with the consent in writing of the holders of at least 75% in nominal value of the issued shares of that class, or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. The rights of shares shall not (unless expressly provided by the rights attached to such shares) be deemed varied by the creation of further shares ranking equally with them or subsequent to them.
Limitations on foreign shareholders
There are no restrictions imposed by the Articles of Association or (subject to the effect of any economic sanctions that may be in force from time to time) by current UK laws which relate only to non-residents of the UK and which limit the rights of such non-residents to hold or (when entitled to do so) vote the ordinary shares.
Exercisability of rights under an employee share scheme
Employee Benefit Trusts (EBTs) operate in connection with certain of the Group’s Employee Share Plans (Plans). The trustees of the EBTs may exercise all rights attached to the shares in accordance with their fiduciary duties other than as specifically restricted in the relevant Plan governing documents. The trustees of the EBTs have informed the Company that their normal policy is to abstain from voting in respect of the Barclays shares held in trust. The trustees of the Global Sharepurchase EBT and UK Sharepurchase EBTs may vote in respect of Barclays shares held in the EBTs, but only as instructed by participants in those Plans in respect of their partnership shares and (when vested) matching and dividend shares. The trustees will not otherwise vote in respect of shares held in the Sharepurchase EBTs.
Special rights
There are no persons holding securities that carry special rights with regard to the control of the Company.company.
Major shareholdersa
Major shareholders do not have different voting rights from those of other shareholders. Information provided to the Company by majorsubstantial shareholders pursuant to the FCA’s Disclosure RulesGuidance and Transparency Rules (DTRs) are published via a Regulatory Information Service and is available on the Company’s website. As at 31 December 2015,2017, the Company had been notified under Rule 5 of the DTRsDisclosure Guidance and Transparency Rules of the following holdings of voting rights in its shares.
Person interested | Number of Barclays shares | % of total voting rights attaching to issued share capitala | ||
The Capital Group Companies Incb | 1,172,090,125 | 6.98 | ||
Qatar Holding LLCc | 813,964,522 | 6.65 | ||
BlackRock, Inc.d | 822,938,075 | 5.02 | ||
Norges Bank | 506,870,056 | 3.02 |
Person interested | Number of Barclays Shares | % of total voting rights attaching to issued share capitalb | ||||||
The Capital Group | ||||||||
Companies Incc | 1,172,090,125 | 6.98 | ||||||
Qatar Holding LLCd | 1,017,455,690 | 5.99 | ||||||
BlackRock, Ince | 1,010,054,871 | 5.92 |
Notes
a | Significant shareholders for the last 3 years are shown on page |
b | The percentage of voting rights detailed above was calculated at the time of the relevant disclosures made in accordance with Rule 5 of the |
c | The Capital Group Companies Inc (CG) holds its shares via CG Management companies and funds. Part of the CG holding is held as American Depositary Receipts. On 14 February 2018, CG disclosed by way of a Schedule 13G filed with the SEC, beneficial ownership of 1,167,912,211 ordinary shares of the Company as of 29 December 2017, representing 6.8% of that class of shares. |
d | Qatar Holding LLC is |
e | Total shown includes |
Between 31 December 2017 and 19 February 2018 (the latest practicable date for inclusion in this report), the Company was notified that BlackRock, Inc. now holds 990,743,261 Barclays shares, representing 5.80% of the total voting rights attached to issued share capital.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 45 |
Governance: Directors’ report
Other statutory information
Powers of Directors to issue or buy back the Company’s shares
The powers of the Directors are determined by the Companies Act 2006 and the Company’s Articles. The Directors are authorised to issue and allot shares and to buy back shares subject to annual shareholder approval at the AGM. Such authorities were granted by shareholders at the 20152017 AGM. It will be proposed at the 20162018 AGM that the Directors be granted new authorities to allot and buy back shares.
Governance: Directors’ report
Other statutory information
Repurchase of shares
The Company did not repurchase any of its ordinary shares during 2015 (2014:2017 (2016: none). As at26 19 February 20162018 (the latest practicable date for inclusion in this report) the Company had an unexpired authority to repurchase ordinary shares up to a maximum of 1,650,234,6021,696m ordinary shares.
Distributable reserves
As at 31 December 2017, the distributable reserves of Barclays PLC (the Parent company) were £6,728m and the distributable reserves of Barclays Bank PLC were £24,021m.
As at the date of this report, Barclays PLC, Barclays Bank PLC and Barclays Bank UK PLC (our future ring-fenced bank) intend to carry out a process in the second half of 2018 to increase their respective distributable reserves. Each process will require the relevant company to obtain shareholder and court approval, and for Barclays PLC we will be seeking shareholder approval at our 2018 AGM. In each case, the processes will involve the conversion of the share premium account into a distributable reserve, which is a reclassification within the equity of each company and will have no regulatory capital impact. Further information will be included in the Barclays PLC AGM Notice of Meeting (please see page 74 for further details about our AGM and how you can vote).
Change of control
There are no significant agreements to which the Company is a party that are affected by a change of control of the Company following a takeover bid. There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid.
Going concern
The Group’s business activities, and financial position, thecapital, factors likely to affect its future development and performance and its objectives and policies in managing the financial riskrisks to which it is exposed and its capital are discussed in the Risk Management section.review and Risk management sections.
The Directors considered it appropriate to prepare the financial statements of the Group and Company on a going concern basis.
In preparing each of the Group and parent Company financial statements, the directors are required to:
◾ | assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and |
◾ | use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent company’s or to cease operations, or have no realistic alternative but to do so. |
Disclosure of informationInformation to auditorthe Auditor
Each Director confirms that, so far as he/she is aware, there is no relevant audit information of which the Company’s auditors are unaware and that each Directorof the Directors has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given pursuant to section 418 of the Companies Act 2006 and should be interpreted in accordance with and subject to those provisions.
Directors’ responsibilities
The following statement, which should be read in conjunction with the reportReport of the independent registered public accounting firm set out on page 210,186 and 187, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditors in relation to the accounts.
The Directors are required by the Companies Act 2006 to prepare accountsGroup and Company financial statements for each financial year and, with regards to Group accounts, in accordance with Article 4 of the IAS Regulation. The Directors have prepared groupGroup and individualCompany accounts in accordance with IFRS as adopted by the EU. The accounts are required by law and IFRS to present fairlyUnder the financial position of the Company and the Group and the performance for that period. The Companies Act 2006, provides, in relation to such accounts,the Directors must not approve the financial statements unless they are satisfied that references to accounts givingthey give a true and fair view are references to fair presentation.of the state of affairs of the Group and parent Company and of their profit or loss for that period.
The Directors consider that, in preparing the accounts on pages 211 to 305,financial statements, the Group and the additional information contained on pages 111 to 182, the GroupCompany has used appropriate accounting policies, supported by reasonable judgements and estimates, and that all accounting standards which they consider to be applicable have been followed.
Having taken all the matters considered by the Board and brought to the attention of the Board during the year into account, the Directors are satisfied that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Group and Company’s position and performance, business model and strategy.
Directors are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Directors’ responsibility statement
The Directors have responsibility for ensuring that the Company and the Group keep accounting records which disclose with reasonable accuracy the financial position of the Company and the Group and which enable them to ensure that the accounts comply with the Companies Act 2006.
The Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement in accordance with applicable law and regulations.
The Directors are responsible for the maintenance and integrity of the Annual Report and Financial Statements as they appear on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and Company and to prevent and detect fraud and other irregularities.
The Directors, whose names and functions are set out on pages 35 and 4,6, confirm to the best of their knowledge that:
(a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole, and
(a) | the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and |
(b) the management report, which is incorporated into the Directors’ Report on pages 3 to 45, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
(b) | the management report, on page 2 to 50 which is incorporated in the Directors’ Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. |
By order of the Board
Lawrence DickinsonStephen Shapiro
Company Secretary
2921 February 2016
Barclays PLC2018
Registered in England, England.
Company No. 48839
46 Barclays PLC and Barclays Bank PLC |
GovernanceGovernance: Directors’ report
People
During 2015As highlighted in Our People and Culture we have continued to make progress towards increasing the diversity of our work to enhance support forworkforce underpinned by an inclusive culture and engaged employees. Below provides an overview of some of the programmes, initiatives and ways in which we are supporting our colleagues, which in their careers andturn enables us to enable them to contribute to the long-term success of Barclays.
Culture, values and learning
We are intosupport our third year of cultural change at Barclays. We have defined a common set of Values and Behaviours and embedded them into our core people processes so that they are recognised and understood by our colleagues. Having set the tone from the top by driving cultural change through our Group Executive Committee and business/ functional senior leaders, we have delivered a number of group-wide initiatives to embed the organisational culture. Our leadership development programme is underpinned by our Values, and ensures all senior management are aware of, and are enabled to role model our Values and Behaviours. Both the Barclays Leadership Academycustomers, clients and the Global Curriculum, which provides colleagues with development resources focused on personal and behavioural skill, are widely available and provide a consistent approach to core and leadership development.
We continue to assess candidate alignment to our Values and Behaviours through our recruitment and promotion processes and we also ensure new joiners attend the ‘Being Barclays’ Global Induction programme, which provides an in-depth experience of the Values and life at Barclays. All colleagues are required to attest and demonstrate their understanding of expected behaviours through the Global Code of Conduct (The Barclays Way).community.
Early careers and apprenticeships
Barclays is committed to helping young people achieve their ambitions when they enter the world of work, so ourOur Early Careers propositionoffering includes graduate, internship and apprenticeship programmes which provide structured support to young people.programmes. In 2015,2017 we launched our Bolder Apprenticeship Programme, targeting long-term unemployed adultshired over the age of 24, which is the first of its kind in the UK780 interns and underlines our commitment to tackling societal issues675 graduates, and attracting diverse talent.
since 2012 we have created over 3,400 apprenticeships. We provide pathways for progression from apprentice to graduate supported by recognised qualifications and, in doing so, help to create an internal talent pipeline. In 2015,During 2017, we launched a new graduate programme across a number of our business areas to attract the workforce of the future, and within Technology and Barclays hired over 1,000 interns, 800 graduates and have created over 2,500 apprenticeships since 2013. During 2015UK we increased our gender diversity across our internship programmes by 8% to 42% female representation.the number of opportunities for both interns and graduates.
My CareerInternal Mobility
By supporting internal mobility across Barclays and mentoring toolmaking it simple and easy for colleagues to move internally, we hope to successfully retain and develop our internal talent. We have developed multiple tools and resources for colleagues to find internal career opportunities and for managers to find and assess suitable internal candidates. In 2017 our rate of internal hiring was 40%, a reduction on 2016, which can be attributed to factors including a strategic move to hire externally for specific skill sets, particularly within Technology, and a focus on converting temporary staff into permanent roles.
Leadership and Learning
ColleagueIn 2017, a consistent Barclays Leadership Capability framework launched across the organisation. Our leadership and learning solutions are underpinned by this framework and our values. The Barclays Academies and our Global Curriculum provide colleagues with face-to-face, virtual and self-managed development both personalresources. All new joiners undertake the ‘Being Barclays’ induction, providing an in-depth understanding of the values and professional,expected behaviours through the Global Code of Conduct (The Barclays Way).
Industrial relations and Managing change
Barclays has a long-standing partnership approach to industrial relations and we value the relationships we have with over 14 trade unions, works councils and staff associations globally. Within the UK we have a formal partnership with Unite which has been in place for over 17 years. Following joint review, the partnership agreement was extended in 2017 for a priority in 2015. We launchedfurther 5 years. As part of the ‘My Career’ online portal which providesreview, Unite recognition was extended to cover an additional 1,500 employees. Throughout 2017, we have continued to have regular and constructive dialogue with employee representatives and employees on a wide range of information and tools to help colleagues understand their potential and make informed career decisions. We recognise the importance of great mentor relationships and have deployed an online tool to match mentors and mentees based on skill sets and experience.
Wellbeing
Our new global wellbeing programme, ‘Be Well’ launched in 2015, aiming to support employee engagement and improve health and well-being. The programme includes existing health and well-being resources,topics. Earlier this year, as well as new investment in areas such as employee health screenings, a global speaker series and a new global portal which acts as a gateway to education materials and events.
Performance management
Colleagues are encouraged to align their objectives to business and team goals and behavioural expectations are set in relation to our Values. Performance is assessed against both ‘what’ colleagues do and ‘how’ they do it. The ‘Values in Action’ framework provides all colleagues with the tools to assess ‘what’ objectives they achieved and ‘how’ they achieved them, together with a guide on expected behaviours in line with the Values. Our global recognition plan allows colleagues to recognise the outstanding achievements of those who have demonstrated our Values, with over 188,500 colleagues receiving a Values ‘Thank You’ in 2015.
Managing change
Where business restructuring has been necessary to support the transformationpart of our businessimplementation of structural reform, we consulted with Unite and cost profile, we have consultedemployee forums on potential job losses with employee representatives, as well as the impacted individuals. Our aim has beensuccessful transfer of c. 53,000 employees to treat all colleagues with respect andnew legal employing entities. We seek to avoid compulsory redundancies wherever possible.where possible and try to find ways in which we can achieve this during the consultation period. We have placedcontinue to place significant emphasis on both voluntary redundancy programmes as well as internal redeployment via “Internals First”.through our ‘Internals First’ programme. We also aim to keep in touch with former colleagues through the Barclays Global Alumni Programme.
Internals First supportsPerformance Management
Barclays approach to performance management is key to the delivery of our strategy and to drive a values-based culture. Colleagues align their objectives (‘what’ they will deliver) to business and team goals to support our strategy and good customer outcomes. Behavioural expectations (‘how’ they will achieve their objectives) are set in the context of our values. Our global recognition programme provides colleagues the opportunity to recognise the achievements of those who have been impacted by change and provides individual support to ensure that we retain talent within Barclays. Internals First is deployed in alldemonstrated our main locations and is managed by a dedicated team. In 2015, 935 colleagues registered for Internals First support and we redeployed 39% of them within Barclays. Throughout 2015, colleagues attended Internals First Career and Networking Events and opted for outplacement support services.
During 2015, we also developed ‘Be Informed’, which is available on both desktop and mobile devices. This intuitive support site gives transparent and helpful advice for colleagues who are impacted by change, including how to manage change, further career options available to them and where to go for help and support during periods of uncertainty.
When an employee does leave Barclays as a consequence of restructuring, our commitment is to ensure they are given the best support for the next stage in their career and life. Following an extensive review, a new globally consistent career transition service has been implemented which offers personalised advice and support for all employees placed at risk of redundancy.
Industrial relations
values. We continue to advocate and practisesee a partnership approach to industrial relations and valueyear-on-year increase in the relationships we havenumber of colleagues receiving a values ‘Thank You’ message, with over 30 trade unions, works councils and staff associations around the world. In particular, our formal partnership with Unite since 2000 is one of the longest standing210,000 messages sent in the UK. During 2015, we have continued to have regular, constructive dialogue with employee representatives on a wide range of topics that affect employees, facilitated through established regional consultation forums which bring together representatives from across our businesses.
We are confident that through all these established core people processes and others, we have created the right landscape at Barclays to sustain the desired organisational culture. We also believe that while we have a common purpose, Values, and vision, this can mean different things for different parts of our business and so we need to continue to shape our culture in a way that makes sense for each of our business areas. To that end, in 2015, each business CEO was tasked with driving the organisational culture for their business and we supported this by deploying business-specific training academies across the Group. This will continue into 2016.
Governance
People
Your View
Barclays’ recognises the importance of listening to our colleagues and maintaining open, two-way dialogues between the organisation and colleagues. The views of our colleagues shape the decisions we make, helping us create an environment that colleagues want to work in, which we in turn believe will help drive high performance.
We deployed a global colleague survey, ‘Your View’ once again in 2015 to seek the views of colleagues. This year’s survey was more focused, based on the insights derived from the previous year’s survey, and asked for our colleagues’ views on a range of topics, including our Values, leadership and line management, the working environment, and citizenship. The results showed a near-universal understanding among colleagues of the Values and related behaviours (97% favourable) with 81% agreeing that role modelling the Values is central to creating the right culture at Barclays.
Compared to 2014, colleagues feel an increased sense of job accomplishment and enthusiasm, believe more strongly in Barclays’ goals, and are more likely to recommend Barclays as a place to work. Sustainable Engagement is at 75%, a 3% increase compared to 2014. This is a strong result, suggesting action taken during 2015 is having an impact, notwithstanding the continued and sustained change we have experienced. We have performed an in-depth review of the results of the survey with all senior leaders, and will continue to focus our efforts on improving employee engagement in 2016.
Barclays regularly updates employees regarding the financial and economic factors affecting the company’s performance throughout the year, using a variety of communications channels. These include CEO and senior leader email communications, line manager briefing packs, video interviews and talking points which are distributed to employees every quarter to coincide with Barclays’ financial reporting calendar. They are all designed to build awareness and understanding of Barclays’ results and the broader macroeconomic environment, and to drive dialogue around what the figures mean and how employees should respond. We also hold a variety of events for all employees, across each business division and function throughout the year, which provide employees the chance to hear directly from the CEO, ExCo member or leader and to ask them questions. We have also recently introduced an ‘Ask the Experts’ communication which gives perspectives from across the bank on what Barclays’ results mean and how they are received by different stakeholders such as investors, politicians and the media.
Flagship campaigns are released to all employees each quarter, covering topics such as wellbeing, recognition and dynamic working. Each quarter, colleagues and managers receive interactive updates to raise awareness of the tools being introduced to help them develop their careers at Barclays and to provide them with the opportunity to understand and engage in employee initiatives. Colleagues are also kept informed through regular intranet and email updates about the progress Barclays is making across activity such as our Diversity and Inclusion agenda, Performance Management and annual Pay and Reward processes.
Employees are invited to share their opinion on what it is like to work at Barclays through regular interactive events with senior leaders. These events provide employees with the opportunity to discuss their perspective on a range of areas to help senior management understand what is working well and where we need to improve. Any changes that are implemented as a result of colleague feedback are communicated through leadership briefings and engagement initiatives at an individual business/function level.2017.
Colleagues are also encouraged to be involved with the company’sCompany’s performance by participating in Barclaysour all-employee shareplans,share plans, which have been running successfully for over 10 years. Further details of our approach to remuneration are included in the Remuneration Report pages 5351 to 74.
Employee Communications
Barclays regularly updates employees on the financial and 54.economic factors affecting the Company’s performance and the delivery of the strategy through Group CEO and senior leader communications, line manager briefing packs, interviews and talking points distributed to employees every quarter in accordance with our financial reporting calendar. We hold a variety of events for employees to hear directly from the Group Executive Committee and employees are kept regularly informed about what is happening in their area and across Barclays through engagement initiatives and communications. Campaigns and colleague stories throughout the year highlight our Citizenship work and how we are supporting our customers, clients and colleagues.
Diversity and inclusionInclusion
Barclays’We aim to ensure that employees of all backgrounds are treated equally and have the opportunity to be successful. Our global Diversity and Inclusion (D&I) strategy sets out objectives, initiatives and frames our plans for each ofacross five core pillars: Gender, LGBT, Disability, Multicultural and Multigenerational. CentralMultigenerational, in support of that ambition. Our approach to each pillar is building an inclusive culture, whichwork environment is whyfocused on upskilling our leadership and we continue to build leadership competency aboutprovide a range of development opportunities including our Unconscious Bias Training which has been delivered to over 10,000 leaders across Barclays, and have had more than 10,000 participants undertake the training. Following our 2014 programme to engage senior leaders, our ‘Everyday Ism’s’ programme has this year opened up dialogue with colleagues more widely focusing on stereotypes, assumptions and bias.
An important aspect of our D&I agenda is ensuring people from all backgrounds have equal opportunity to join, and progress through, our organisation. In support of this, we have established candidate shortlist diversity goals for senior positions to provide focus during talent decisions, and ensure hiring panels are diverse to broaden assessment perspectives.
This ethos begins with our most senior roles. Having achieved the target we set ourselves in 2012 to increase Board level diversity to 25%, we have now challenged ourselves to achieve a minimum of 33% by 2020. To strengthen the pipeline, we have consecutively achieved our year on year goals towards representation of women in senior roles to 26% by 2018. We have more to do, but are pleased when progress towards greater inclusion is recognised. During 2015, respected organisations such as Stonewall in the UK,Dynamic Working Mother in the US and Community Business in Asia have praised our programmes and achievements, citing our D&I work as innovative and robust.
Gender
Sustaining progress towards our Balanced Scorecard and Board Diversity goals remains a core focus. Our Board membership has increased to four women, with one woman on Group Executive Committee. Our female senior leadership population stood at 23% at the end of 2015 representing a consecutive 1% increase year-on-year since 2011. Women are also leading countries where we operate, for example in Ireland, Brazil, Singapore, Botswana and Gibraltar.
At all levels, our gender pipeline is strengthening thanks to extensive programmesline manager clinics which focus on building capability and fostering gender intelligence. Our internal HeForShe campaign, in partnership with the United Nations, asks colleagues to pledge a specific commitment that will contribute to gender parity. Since launching HeForShe, 60% of new Women’s Initiative Network members have been male, and men have also taken active roles as mentors and sponsors.
Also new this year is our Returnship programme which is enabling senior women who needed to pause their career, the opportunity to refresh their skills and confidence in preparation for a return to leadership roles. For the eighth year running, we were pleased to be included in The Times Top 50 Workplaces for Women in the UK, and for the third successive year to be named in ‘Working Mother’ 100 Best Companies in the US.
Female representation
Above shows the positive change in female representation within Barclays from 2014 (H2) to 2015 (H2)
attended by over 4,000 leaders.
LGBT
An inclusive culture is vital forthat enables colleagues to have the freedom and choice to bring their whole selves to work is built on having leadership participation and visible role models. Now in particular for peopleits third year, our Spectrum Allies campaign has identified over 8,000 leaders globally who have pledged to be open about their sexual orientation if they choose to. Our Your Viewchallenge homophobia, biphobia and transphobia in the workplace and provide support to LGBT colleagues. Through the ‘Your View’ survey saw 5%we provide colleagues with the opportunity to identify as being LGBT, with 7% of global colleagues identifying as being LGBT globally, a 1% increase since 2014. Enablingin 2017. This year was the fourth consecutive year that culture are our Global Allies – colleagues from every region who share our commitment to LGBT equalityBarclays supported Pride in London as the headline sponsor. The #lovehappenshere theme reached over 3 million people across multiple communications channels and who take an active role in shaping an LGBT-inclusive workplace. The Allies programme is led by Spectrum, our employee network for anyone interested in LGBT matters. Since 2001, Spectrum has been an important contributor of insight and innovation and now connects colleagues across the world,UK over 1,000 Barclays colleagues participated in regional Pride events across the UK.
Independent recognition reflects the progress we are making and the impact of our strategy. For the fifth consecutive year, Stonewall has recognised Barclays as one of only 12 Top Global Employers. The Human Rights Campaign has awarded Barclays with the Spectrum App providing access outside the workplace.100% on their corporate equity index.
Barclays PLC and Barclays Bank PLC |
Governance: Directors’ report
People
‘#PrideHeroes’ was the theme of Pride in London, which we were again the lead sponsors of in 2015. More than 400 colleagues, leaders, friends and family came together for Pride, with many more joining other events across our regions of operation. A specially ‘Pride wrapped’ DLR train carried the ‘#RidewithPride’ message across London, with ATM’s up and downDisability
Under the UK communicatingGovernment’s Department of Work and Pensions Disability Confident scheme, Barclays has been recognised as a Disability Confident Leader for our support for LGBT equality. ATM messaging also conveyed our advocacy for IDAHOBIT (International Day Against Homophobia, Biphobia and Transphobia). For World AIDS Day, £ for £ matching augmented colleague fundraising for organisations leading on the treatment and prevention of AIDS.
Independent recognition reflects the sustained impact of our global work and further motivates usefforts to continue to shape our culture so that colleagues can be themselves at work. In Singapore, we won best LGBT employee network at this year’s ALMA Awards, and Stonewall continue to name us as one of just eight ‘Star Performer’ organisations that are seen as leaders globally. Colleagues across a range of levels were this year recognised in the Financial Times OUTstanding list of 100 LGBT business leaders, and in the Pride Power List.
Disability
Our aspiration to become ‘the most accessible bank’ remains firm. Understanding where we need to focus attention is key which is why we value our Disability Listening forums to bring together colleagues who have insight withsupport those who have influence to turn ideas into action. We listen to our customers too, directly and via our external partners – from RNIB to Leonard Cheshire – as parta disability. This year, alongside PwC, we have further scaled the ‘This is Me in the City’ initiative along with the Lord Mayor of our continual improvement ethos. Their feedback contributed to us becoming the first bank to receive an accreditation from AbilityNet for our Mobile Banking app, reflecting its improved accessibility functionality.
In another first, we successfully launched our Return on Disability Exchange Traded Notes (ETNs) on the New York Arca Stock Exchange.City of London. The ETNs are a first of a kind investment product, linked to the performance of an index developed in conjunction with The Return on Disability Group. They provide investors with exposure to US based companies that have acted to attract and serve people with disabilities, and their friends and family, as customers and employees.
Continually improving our own workplace is a steadfast aim, and is why we expanded ‘This Is Me’ from a UK to a global campaign. Originally focused on mental health through ‘This Is Me’ colleagues tell their stories as to how disability touches their lives. The stories told via ‘This Is Me’ included members of our Reach employee network, which connects anyone interested in disability. The inclusive culture enabled by Reach is instrumental in helping us attract peopleand wellbeing campaign now includes over 280 organisations across London who have pledged to focus on eliminating the stigma associated with mental health in their workplace (over 1 million employees collectively). In 2018, through these partnerships, we plan to expand ‘This is Me’ further in the UK. Continuing our commitment to increase employment of those with a disability so that they bring their talentor mental health condition, this year we expanded our Able to us. Our apprenticeshipEnable internship in the UK. This 13 week paid programme is just one career route that we are ensuring is fully accessibleaimed at recruiting talented individuals of all ages with a background of mental health conditions, providing them with opportunities to all.
Awardsgain work experience, learn new skills and recognition from exemplar organisations, including the Business Disability Forum, indicates that we are fast moving towards our own ‘most accessible’ ambition but we want to share learning with others. To celebrategrow their experience and recognise the 25th anniversary of the American Disability Act (ADA), we partnered with the New York Mayor’s Office to host the only B2B event in the ADA calendar to stimulate thought leadership and encourage partnership. Our Your view Survey saw over 6% of colleagues identifying as having a disability globally, a 1 percentage point improvement from previous year results.
We recognise ability is multi-faceted. We give full and fair consideration to applications from candidates who may have a disability. Our people processes ensure all colleagues can progress their careers, with comprehensive training and
development, and through tailored and needs-based workplace adjustments where relevant. Employees who become disabled during their employment with us can access a full range of services and support ensuring, where-ever possible, we retain their talent. Ongoing reviews ensure adjustments are updated and relevant to individual requirements, providing the ability for colleagues to move between roles with consistent support.confidence.
Multigenerational
We benefit fromOur Dynamic Working campaign is relevant to colleagues at every life stage. It addresses the diverse perspectivesneeds of employees froma workforce comprised of five generations, and need to ensure our workplace is inclusive for all. ‘Work’ and ‘place’ are increasingly becoming less co-joined, with shifts in technology and generational expectations requiring us to think and act differently. Dynamic Working, our signature campaign relevant to colleagues’ every life stages with the strapline of ‘how do your work your life’, encourages dialogue aboutby encouraging the integration of personal and professional responsibilities through smarter working. With flexibilitywork patterns. The campaign is having a positive impact on colleague engagement with the 59% of colleagues actively working dynamically in 2017 reporting 5% points higher than the Group sustainable engagement result. Dynamic Working is also enabling Barclays to have a positive impact on the retention of diverse talent, examples include a 13% improvement in maternity returners retained after 12 months, and agility at95% of those taking Shared Parental Leave are fathers.
Addressing the core, more than 12,000 line managers and their teams have participatedchanging needs of a multigenerational workforce will be an ongoing focus in workshops, presentations and training to open up discussions about how work could be done differently.2018 but we are pleased that Working Families UK has recognised Barclays as one of the top 10 Employers for Working Families in 2017.
Multigenerational
Above shows the different generations working at Barclays and the percentage change over 2014 (H2) and 2015 (H2)
Changing careers is another important time, which is why our Armed Forces Transitioning, Employment and Rehabilitation (AFTER) programme also continued to see ex-military talent join our company, or be supported to gain relevant work-ready skills. Our ‘LifeSkills’ programme continue to prepare young people for their first steps into the world of work and our Emerge network ensures new joiners, whatever their career stage, feel connected from the moment they arrive.
In Singapore, we won the Most Empowering Company for Mums award by the National Trades Union Congress while in the US we were included in the ‘100 Best Companies for Working Mothers’. In the UK, our approach to Talent Attraction was recognised by Working Mums as well as by Business In the Community who felt our apprenticeship and ‘LifeSkills’ programmes were award winning.
Governance
People
Multicultural
OurDuring 2017, the Embracing Us campaign was launched in celebration of World Cultural Day, aiming to challenge global footprint covers more than 50 countries, making multicultural inclusion imperative. Fostering cross-cultural connections is enabled by Embracestereotypes and mind-sets in relation to nationality, faith, ethnicity, race and language. During the campaign our multicultural network, which brings together allEmbrace, engaged over 15,000 colleagues through multiple communications channels, leadership forums and Being Colour Brave development workshops. Barclays Apprenticeship Programme reflects our commitment to recruit a diverse workforce. Since the programme launched, we have focused on recruiting those who share an interestare NEET (Not in all aspects of race, ethnicity, nationality and faith. Embrace took an active role in Interfaith week, when leaders hosted discussions to gain insight and ideas for better serving our multicultural customers and clients, and for engaging colleagues across our global community. Embrace also helped us mark important cultural and religious calendar dates throughout 2015 such as Diwali and Eid, creating communications and events to bring to life the rich multicultural diversityEducation, Employment or Training). 19% of our people. Day-to-day, this diversity is enabled by, for example, a dedicated quiet room in many of our larger sites for prayer and reflection, and by serving halal and kosher food in our canteens.
Ensuringapprentices identify as Black, Asian and Minority Ethnic, (BAME) female entrepreneurs can sustain and develop their businesses has been a shared focus via our partnership with8% points higher than the UK Women’s Business Council, and in 2015 we also supported the Black British Business Awards to celebrate the achievements of BAME leaders in the UK.
Insight from BAME colleagues has been put into practice for our attraction and recruitment processes, including profiling available roles in jobsites dedicated to the diverse job-seeker and targeting high calibre candidates for ournational apprenticeship programmes. 26%average. In addition, 46% of our Bolder apprentices have been fromare female and 8% identify as a BAME background, evidencing our engagement approach is working butperson with a disability. Through this scheme we will continue to strive to ensure our workforce is representativeare making a positive impact on youth unemployment and social mobility.
The multicultural profile of our communities.the organisation was acknowledged externally by the City of London and the Social Mobility Commission through the Social Mobility Employer Index as a Top 50 Employer in 2017.
Multicultural
Above shows the percentage of underrepresented populations that make up our global and regional populations. Note that underrepresentedUnderrepresented populations are defined regionally to ensure inclusion withof all groups in the workplaceworkplace. For the purposes of comparability 2016 figures exclude Barclays Africa Group Limited headcount. UK includes Asian, Mixed, Black, Other and Non-Disclosed and US includes Hispanic/Latino, Asian, Mixed, Black, Other and Non-Disclosed.
Permanent Employees by region | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
United Kingdom | 48,700 | 46,400 | 49,000 | |||||||||
Continental Europe and Middle East | 3,600 | 4,700 | 7,400 | |||||||||
Americas | 10,400 | 9,700 | 10,600 | |||||||||
Asia Pacific | 17,200 | 15,700 | 18,800 | |||||||||
Africa | - | 42,800 | 43,600 | |||||||||
Total | 79,900 | 119,300 | 129,400 |
Gender Pay Gap Disclosure
The gender pay gap measures the difference between the average male pay and the average female pay as a proportion of the average male pay. For example, average male pay of £100 per hour and average female pay of £85 per hour would indicate a gender pay gap of 15%. The calculation does not take into consideration the role that an employee performs or the seniority of the employee. As a result, gender pay gaps are often driven by higher proportions of women than men in more junior, lower paid roles and fewer women than men in senior, more highly paid roles.
Equal Pay legislation in the UK specifically relates to an employee’s role, making it unlawful for an employer to pay individuals differently for performing the same or similar work. This right for women and men to receive the same pay for the same, or similar work, or work of equal value, has been a requirement under UK law since 1970. Paying our colleagues fairly and equitably relative to their role, skill, experience and performance is central to our global reward structures and benefits policies, which are reviewed regularly to ensure that there is no unfair bias in how employees are paid. At Barclays we are confident that men and women across our organisation are paid equally for doing the same job.
The difference between the gender pay gap and Equal Pay can be illustrated by the fact that men and women who are paid equally for the same or similar roles, can still generate a gender pay gap driven by the relative proportions of men and women across the organisation. This is illustrated in graphic B.
Our gender pay gap results shown in graphic C reflect the distribution of men and women between corporate grades within Barclays. As illustrated in graphic A, the percentage of women in our more senior corporate grades is lower than the percentage of women at Barclays overall. This correlates with the ordinary pay quartile data in graphic C, in which the entire population is arranged in order of ordinary pay (fixed pay), from lowest to highest, and then divided into four equal sub-populations. The numbers of male and female employees in each sub-population is then expressed as a proportion. The ordinary pay quartiles reflect the high proportions of women in more junior, lower paid roles (particularly evident in Barclays UK within the retail branch network) and the high proportions of men in senior, highly paid roles (particularly evident in Barclays International).
48 Barclays PLC and |
FTE by regionGraphic A
Female representation
The mean pay gap shown in graphic C is the difference between the average hourly pay of men and women. The median pay gap is the difference between the midpoints in the ranges of hourly pay of men and women. It arranges the hourly pay rates from highest to lowest and identifies the hourly pay in the middle of the range. The mean bonus gap is based on actual bonuses paid and does not make any adjustments to the amounts paid to employees who work a reduced number of hours.
The demographics of our population and the resulting gender pay gaps emphasise the importance of maintaining our firm commitment to increasing female representation across Barclays, particularly among the senior leadership population. We welcome the introduction of gender pay gap reporting to bring further focus to our commitment to improving gender diversity – a commitment that is, and will remain, at the core of our talent management and leadership succession processes.
How we are addressing the gender pay gap
We recognise that tackling the gender pay gap will take time and therefore it is key that we remain focused on improving gender diversity through a workplace environment and culture that supports and empowers women. At Barclays, our focus goes beyond simply addressing the gender pay gap and extends to our internal and external gender equality commitments. Across both our organisation, and in the financial services industry, we are dedicated to enabling women to fulfil their career aspirations. To achieve this goal and thereby narrow our gender pay gap, we will continue to focus on ensuring there is no bias in the hiring, promotion, development and retention of women at Barclays.
Gender Diversity Commitments
As a founding signatory of the HM Treasury Women in Finance Charter and supporter of the Hampton-Alexander Review, to support our commitment to gender equality, we proactively set gender targets and we have made good progress towards these targets. Our goal to
Graphic B Illustrative example of the difference between gender pay gap and equal pay
2015 | 2014 | 2013 | ||||||||||
United Kingdom | 49,000 | 48,600 | 54,400 | |||||||||
Continental Eurpe | 7,400 | 9,900 | 9,800 | |||||||||
Americas | 10,600 | 10,900 | 11,100 | |||||||||
Africa and Middle East | 43,600 | 44,700 | 45,800 | |||||||||
Asia Pacific | 18,000 | 18,200 | 18,500 | |||||||||
Total | 129,400 | 132,300 | 139,600 |
Graphic C
Barclays PLC and Barclays Bank PLC |
Governance: Directors’ report
People
improve the percentage of female Managing Directors and Directors to 26% by the end of 2018 (23% at the end of 2017) has subsequently expanded with commitments of 33% female representation across our Board of Directors by 2020 (21% at the end of 2017) and 33% female representation among the Group Executive Committee and their direct reports (25% at the end of 2017). Alongside these targets, Barclays has been focused on and will continue to develop, a range of extensive initiatives, programmes and policies to improve gender diversity. Below are some highlights of the ways in which we are increasing female representation at Barclays and enabling women to fulfil their career aspirations.
Creating New Career Opportunities
We have expanded our graduate and apprenticeship programmes, reflecting our commitment to improve employment opportunities, tackle societal issues and attract diverse talent. We have transformed the way we recruit for our graduate programmes to drive diversity and inclusion as students are able to demonstrate ability and potential throughout the process, so that recruitment outcomes are based on performance and not on the basis of subjects studied, universities attended and previous work experience. In doing so we hope to increase the number of female graduate hires to 50% (40% at the end of 2017, up from 31% in 2014). For those looking to re-enter the workforce after taking time out of their careers, our Encore! Returnship Programme provides opportunities for experienced professionals to join a paid programme with a view to securing a permanent role at Barclays at the end of the programme. More broadly, we have policies and practices in place to ensure that all recruitment decisions are fair and candidate shortlists are diverse.
Talent Management and Leadership Development
The creation of ex-officio positions on the Group Executive Committee and across the business unit and functional Executive Committees in 2016 by the Group CEO, has provided development opportunities for a number of our high potential female leaders and has broadened the scope of the perspectives and decision making across our leadership teams. Our Unconscious Bias training, now attended by over 10,000 leaders, supports the continued elimination of bias from our people processes, and successful events that we run each year such as the Global Women in Leadership conference and the Enterprise Leaders Summit focus on building capability and upskilling leaders.
Cultural Change
Providing a workplace that encourages colleagues to achieve their personal and professional goals is key to supporting and retaining our employees. We aim to do this through our progressive maternity, paternity, adoption and shared parental leave policies which go beyond the statutory requirements, as well as through our flexible working campaign Dynamic Working. Dynamic Working
Internally we are committed to: | ||
Leadership accountability including gender diversity targets and the introduction of a gender taskforce Focusing on a more inclusive work environment to ensure all colleagues have the flexibility to achieve personal and professional goals Ensuring we are developing leaders who are equipped to meet the demands of a more diverse workforce | 2020 Gender Diversity Commitments ◾ Board of Directors 33% ◾ Leadership 33% (Group ExCo and their direct reports) Cultural Change ◾ Dynamic Working ◾ Progressive parental policies ◾ Barclays’ Win Gender Network Talent Management ◾ Leadership Succession Planning ◾ Ex-Officio Leadership roles ◾ Internal Mobility Leadership Development ◾ Unconscious Bias Training ◾ Global Women in Leadership Conference ◾ Enterprise Leaders Summits | |
Externally we are committed to: | ||
Engaging men globally in gender equality in partnership with the United Nations Providing enhanced employment opportunities and attracting diverse candidates Community impact | UN HeForShe ◾ Global Impact Champion Barclays Role Models ◾ External engagement of Barclays’ senior women across Financial Services, IT and STEM Creating New Career Opportunities ◾ Encore! Returnship Programme ◾ Expanded Apprenticeship Programme ◾ 50% Female Graduate Hires Strategic Partnerships ◾ Women’s Business Council ◾ 30% Club | |
supports colleagues in all stages of their lives in achieving an optimal work and life balance, helping them with parenthood, studies, caring and hobbies. Across Barclays, our Women’s Initiative Network (Win) provides colleagues with career development and networking opportunities including mentoring, career fairs and senior leader speaker events.
Strategic Partnerships
Barclays recognises that gender equality extends to the communities in which we work, support and live and greater gender equality is integral to our long-term investments to drive societal change. We demonstrate this through strategic partnerships, external engagement and leadership commitment, including but not limited to, our multi-year commitment to the United Nations HeForShe campaign and our partnership with the Women’s Business Council.
So what next?
Our existing pipeline of female talent is being further strengthened through the launch of a global gender taskforce, comprising of leaders from across the organisation who believe passionately in gender diversity and who will focus on new and improved initiatives to further accelerate our progress against our gender diversity commitments. We acknowledge that there is still a lot of work to do, but our determination and commitment to building a diverse and inclusive workforce
through attracting, retaining and developing world class professionals is paramount, and we are working hard to foster an environment in which all employees have the opportunity to succeed, regardless of race, religion or belief, age, gender, disability, sexual orientation, gender identity or nationality.
Further details on the gender pay gap and Barclays commitments to gender diversity and equality can be found at home.barclays/diversity. |
Under the Companies Act 2006, Barclays is required to report on the gender breakdown of our employees and ‘senior managers’. Of our global workforce of 79,900 (45,100 male, 34,800 female), 555 were senior managers (401 male, 154 female), which include Officers of the Group, certain direct reports of the Chief Executive, heads of major business units, certain senior Managing Directors, and directors on the boards of undertakings of the Group, but exclude individuals who sit as directors on the Board of the Company. The definition of senior managers within this disclosure has a narrower scope than the Managing Director and Director female representation data provided above.
50 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Governance: Remuneration report
Annual statement from the Chairman of the Board Remuneration Committee
‘The Committee’s priorities are to ensure that Barclays pays for sustainable performance, aligns remuneration with risk and delivers a greater proportion of the income we generate to our shareholders.’
Remuneration Committee members
Chairman
Crawford Gillies (member from 1 May 2014,
Chairman from 24 April 2015)
Sir John Sunderland (until 23 April 2015)
Members
Sir David Walker (until 23 April 2015)
Tim Breedon
Steve Thieke
Dambisa Moyo (from 1 September 2015)
We are committed to pay being aligned to performance, while ensuring that we are able to attract and retain the employees critical to delivering our strategy. | ||
Contents | ||
Page | ||
Annual statement | 51 | |
At a glance – performance and pay for 2017 | 53 | |
2017 Group incentives | 54 | |
Remuneration policy for all employees | 55 | |
Directors’ remuneration policy | 58 | |
Annual report on Directors’ remuneration | 61 | |
Dear Fellow Shareholders
I am pleased to introduce my first Remuneration report asAs Chairman of the Board Remuneration Committee, having taken over from Sir John Sunderland on 24 April 2015.I am pleased to introduce the Remuneration report for 2017.
As in previous years, we are committed to pay being aligned to performance, while ensuring that we are able to attract and retain the employees critical to delivering our strategy.
The Committee thought carefully about Barclays’believes that our pay outcomes for 2017 reflect overall Group performance, recognising improvements in profit before tax and significant achievements in restructuring the Group, while acknowledging the need for further improvement in returns.
Further details on our performance and the decisions we have made on remuneration philosophy during 2015, and we agreed a revised, simplified statement, which articulates Barclays’ overarching approach to remuneration. This is set out in full on page 53 and is the background to our 2015 decisions.
The Committee’s priorities are to ensure that Barclays pays for sustainable performance, aligns remuneration with risk and delivers a greater proportion of the income we generate to our shareholders.outlined below.
Performance and payPay
The Committee’s 2015 pay decisions took full consideration2017 has been a year of financial performance, both on an adjustedsignificant strategic progress for the Group, achieving a number of milestones to deliver a simpler organisation. These include the sell down of our shareholding in Barclays Africa Group Limited (BAGL) and a statutory basis,subsequent proportionate regulatory deconsolidation, the closure of Non-Core and non-financial performance including progress towards the launch of the Group Service Company. A great deal has been accomplished in relation to the UK ring-fencing requirements, establishing the necessary entity structure, processes and governance.
As well as positioning the simplified Group for growth in 2018, targets within the Balanced Scorecard. The Committee also recognised the need to improve returns to shareholders and to accelerate delivery. We are committed to moving this forward in a manner that is consistent with Barclays’ Values to ensure that legacy events are not repeated.
Although there were improvements in the Core operating businesses, adjusted profit before tax was down 2% to £5,403m for 2015. Statutory profit before tax was down 8% at £2,073m. The Group’s capital positionBarclays has continued to strengthen withachieved a CRD IV fully loaded Common Equity Tier 1 (CET1) ratio of 11.4% and a leverage ratio of 4.5% at13.3%, within the end of the year. Cost targets have been met and Barclays Non-Core has made significant progressstate target range. Group profit before tax (PBT) is up 10% from 2016 to £3,541m driven by an £882m reduction in reducing its risk weighted assets.operating expenses.
Against this background, the Committee approved a Group incentive pool for 2015 is again significantly lower than in prior years,of £1,506m, down by £191m or 10% in absolute terms at £1,669m compared to2% from 2016. This decision recognises the incentive pool of £1,860m for 2014. Similarly,strong strategic execution across the 2015 Investment Bank incentive pool is down 7%.
Total compensation costsGroup, while being clear that Group returns are down 6%,not yet where our shareholders, and the compensationBoard, want them to adjusted net income ratio is 37.2%, down from 37.7% in 2014. Compensationbe. The Committee also recognises the need to statutory net income ratio is 35.7%, down from 38.5% in 2014. The Core compensationensure that areas of strong performance within the businesses are rewarded competitively, with key talent retained to adjusted net income ratio isdeliver against our growth strategy going into 2018 and beyond. This pool also down at 34.7% (2014: 35.7%). For a reconciliation of total incentive awards granted to the relevant income statement charge, see table on page 56.
Risk and conduct
A central feature of our remuneration philosophy is that remuneration must be aligned with risk, and with the conduct expectations of Barclays, our regulators and stakeholders. The Group incentive pool outlined above is afterreflects appropriate adjustments the Committee has made for both risk and conduct events. In addition to specific risk and conduct events, we also adjusted the incentive pool to take account of an overall assessment of a wide range of future risks, non-financial factors that can support the delivery of a strong conduct culture and other factors including reputation, impact on customers, markets and other stakeholders.
We have a robust process for considering risk and conduct issues as part of individual performance management reviews with outcomes reflected in individual incentive decisions. Individuals who are directly or indirectly accountable for risk and conduct events have had their remuneration adjusted as appropriate. This includes reductions in current year bonus levels and reductions in vesting amounts of deferred awards throughmatters, which continue to be taken very seriously by the application of malus. Further details can be found on page 56.Committee.
Key remuneration decisions for executive Directors
2015 saw a change in Group Chief Executive. AllThe Committee considered the executive Directors’ performance against the financial and strategic/non-financial performance measures which had been set to reflect company priorities for 2017. Separately, performance against their personal objectives was assessed on an individual basis.
Based on Jes Staley’s performance against the performance measures set at the beginning of the associated remuneration decisions were madeyear, the Committee approved a 2017 bonus of £1,065,000 (48.5% of maximum) of which 62.4% will be deferred in accordance with the Directors’ remuneration policy approved by our shareholders at the 2014 Annual General Meeting (AGM).
We announced on 28 October 2015 that Jes Staley was to become Group Chief Executive with effect from 1 December 2015. He was appointed on a salary of £1,200,000 and Role Based Pay of £1,150,000 commensurate with market pay levels. He was not eligibleshares for a 2015 bonus or a grant underperiod of up to seven years. The Committee’s deliberations on his 2017 personal performance have taken account of delivery against financial commitments including achieving the 2016-2018 long term incentive plan (LTIP) cycle.end state target range for the CET1 ratio as well as improvements to our cost: income ratio, while recognising that there is still some way to go in getting returns to where management, the Board and our investors expect them to be. The Committee approvedhas also taken account of the grantearly completion of a share ‘buy-out’ award to compensate him for an unvested share award granted to him by a previous employer which was forfeited as a resultthe strategic restructuring, including the sell down of him joining Barclays.BAGL and closure of Non-Core.
Barclays PLC and Barclays Bank PLC |
Governance: Remuneration report
Annual statement from the Chairman of the Board Remuneration Committee
The award was made on terms aligned toCommittee noted the forfeited award. Jes Staley satisfied, atsignificant work that has taken place in planning following the date of joining, the executive Directors’ shareholding requirement of four times salary through his personal purchase of 2,790,000 Barclays shares.
During the four month period between Antony Jenkins’ departure as Group Chief Executive and Jes Staley starting in the role, John McFarlane served as Executive Chairman. He indicated to the Committee that he did not wish his remuneration to be increased during that time, and therefore his fee remained unchanged for the period during which he served as Executive Chairman.
EU referendum outcome. The Committee also approved compensation arrangements on Antony Jenkins’ departurerecognised that Jes Staley has made continued progress towards ensuring a high performing culture in line with our Values, and Barclays has made improvements in some customer and client metrics such as Group Chief Executive duringa reduction in customer complaints, while noting the year. Further details can be found on page 68.
Bonusesneed for bothfurther improvement. As announced last year, the Committee will keep Jes Staley’s 2016 variable remuneration under review pending the outcome of the executive Directorsinvestigation relating to his involvement in role at the start of 2015 were determineda whistleblowing matter. The Committee will make a final decision on outcome once that investigation is complete.
Based on Tushar Morzaria’s performance against the financial, Balanced Scorecard and personalperformance measures set at the beginning of the year. Theyear, the Committee approved a pro-rated2017 bonus award of £505,000£747,000 (50.5% of maximum) of which 46.5% will be deferred in shares for Antony Jenkins. A 2015 bonus awarda period of £701,000 was approved for Tushar Morzaria.up to seven years. The Committee in particular noted that Tushar Morzaria took on significantly increased executive responsibilitieshad been instrumental in the second half of 2015 and we regard this bonus as fully deserved in recognition of his strong performance. Further detailsexecution of the Committee’s 2015 decisions forstrategy including the executive Directors are set outsell down of BAGL, the closure of Non-Core, the setting up of the ring-fenced bank in the UK and in Barclays achieving its end state range capital position. Tushar Morzaria has also demonstrated effective management of key external stakeholders.
The Committee decided to make an award under the 2018-2020 Long Term Incentive Plan (LTIP) cycle to Jes Staley and Tushar Morzaria (based on pages 59 to 61.
During the year, we alsotheir performance in 2017) with a face value at grant of 120% of their respective Total fixed pay at 31 December 2017. The Committee reviewed the performance measures of ourthe LTIP to ensure they are appropriate given our growth strategy and align the interests of executive Directors and shareholders. WeReturn on tangible equity (RoTE) and cost: income ratio have changed the financial measures and given them an increased weighting of 70% for the award to be granted in 2016 and added a comprehensive Risk Scorecardbeen retained as the new risk measure which willkey financial metrics, with the weighting on RoTE increased to 50% to emphasise the focus on Barclays’ managementimproving returns across the Group. The calibrations have also been established to maintain direct alignment with the Group’s financial targets. The weighting on the cost: income ratio remains unchanged at 20%. CET1 ratio remains a key financial metric, but given the end state target range of principal risks (including Conduct Risk). Before formal approval, we engaged with shareholdersc13% has been achieved, the Committee concluded that this would now be more appropriate as an underpin measure on these changes. Tushar Morzaria is the only participant in this LTIP cycle. Further details are set out on pages 62 and 63.
Regulatory developments
The volume and pace of regulatory change has continued during 2015.
The PRA made revisions to the Remuneration part of its Rulebook (formerly the UK Remuneration Code) which apply from 1 January 2016. These include the seven, five and three year ‘tiered’ deferral requirements for Senior Managers and different categories of Material Risk Taker (MRT) respectively, and the potential extension of the clawback period to 10 years for Senior Managers (under certain circumstances). These changes, which apply globally to Barclays as a UK-headquartered bank, further emphasise the competitive disadvantages attributable to the lackRoTE instead of a global level regulatory ‘playing field’.
Further revisions to the Remuneration part of the PRA Rulebook are expected during 2016 as a consequence of the European Banking Authority’s (EBA) final Guidelines on sound remuneration policies. The most significant changes include a prohibition on the payment of dividends on deferred shares and an increase to a one year (from six months) holding period for incentive awards delivered in shares to the large majority of MRTs. The Guidelines apply from 1 January 2017. The application of the Guidelines to UK firms, once confirmed by the PRA and FCA, will contribute to changes to our Directors’ remuneration policy in 2017.
Agenda for 2016standalone measure.
In line with legal requirements, we will be seeking shareholder approval for ourthe Directors’ remuneration policy (DRP) approved at the 2017 AGM. As a Committee weAGM, both executive Directors’ Fixed Pay will be unchanged for 2018 at £2,350,000 for Jes Staley and £1,650,000 for Tushar Morzaria.
Fair pay agenda
We are committed to fair pay, ensuring that all our employees are appropriately and fairly rewarded for their contributions. This concept touches on many areas of our work, including fair pay for the lowest paid in our organisation, as well as the alignment of executive reward outcomes with business performance. Additionally, the Board is committed to individuals being able to progress through the organisation based on capability and performance and irrespective of any other difference such as gender, age, ethnicity, religion, sexual orientation or disability. We take employees’ views into consideration throughout our deliberations and continue to review potential approaches to build on this.
Barclays’ commitment to fair pay is illustrated by the repositioning of the incentive pools over recent years, during which incentive funding has been directed to provide more to junior employees, and our remuneration policyactive engagement on pay matters with our unions to ensure that future arrangementsour staff are fully alignedfairly treated across the organisation. The current 2017-2019 pay deal with Unite commits to a 7.5% agreed salary increase for the Unite recognised population and a minimum increase of 10% for the most junior graded employees over the course of the three year deal. Barclays is also a long-standing supporter of the Living Wage under which Barclays commits to pay all UK permanent employees and those UK employees of third party contractors at least the current London or UK Living Wage. This is a commitment which we have also extended to our strategyUK employed apprentices. By March 2018, the entry level for permanent, non-apprentice employees will already be above the Living Wage target level set for 2020 by the Government, two years early. Similarly, Barclays will meet the 2020 target level for its apprentice population by 2019.
Further detail of our activities in relation to accelerate deliveryfair pay may be found on page 56.
Barclays has published its UK Gender Pay Gap report for the first time this year in line with UK requirements and further details can be found in the People section on page 48.
Looking ahead
The Committee continues to shareholdersmonitor with interest the Government’s proposals in a manner consistent with Barclays’ Values and also to meet new regulatory requirements. Thisrespect of the UK Corporate Governance Code, which will be developed overan area of focus for the coming monthsCommittee and the Board going into 2018.
In relation to fair pay, we have already chosen to publish our pay ratios on page 49 of this report, two years in advance of the Government requirements to reflect the ratios between the pay of our Group Chief Executive and our UK employees. We will continue to review our fair pay policies and practices to ensure that they remain appropriate as this important topic continues to evolve.
We will also continue to work on the remuneration aspects of changes associated with Structural Reform, such as the addition of Remuneration Committees representing the two main subsidiary businesses.
We will, of course, continue to engage constructively with regulators, shareholders and regulators as we do so.other stakeholders and value the insight these discussions provide.
Our Remuneration report
We have provided an ‘At a glance’ summary of 20152017 performance and pay on the next page. The Annualannual report on Directors’ remuneration provides further details. An abridged version of the DRP, as approved at the 2017 AGM, is set out on pages 58 to 60 for information.
The report has been prepared in accordanceIn line with the remuneration disclosures required byUK regulations, we are seeking shareholder approval at the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The2018 AGM for the Remuneration report (other than the part containing the Directors’ remuneration policy) will be subject to an advisory vote by shareholders at the 2016 AGM.
On behalfabridged version of the Board
DRP). Further details can be found in the 2018 AGM Notice of Meeting.
Crawford Gillies
Chairman, Board Remuneration Committee
2921 February 20162018
Governance: Remuneration report
At a Glanceglance – Performanceperformance and pay for 2017
How did we performGroup performance and pay
Key strategic highlights ◾ Non-Core closed early ◾ BAGL sell down and subsequent accounting deconsolidation ◾ Launch of the Group Service Company ◾ Preparatory work to establish UK ring-fenced entity | £3,541m Profit before tax up 10% | 5.6% Group RoTE ex. litigation and conduct and other material items* | 73% Cost: income ratio favourable 3% | |||||||
Pay outcomes ◾ Group incentive pool has reduced by 57% since 2010 ◾ Group compensation to net income ratio reduced to 38.0% from 39.0% | £7,123m Total compensation costs down 4% | £1,506m Group incentive pool down 2% | ||||||||
* | Material items consist of charges for PPI, losses relating to the sell down of BAGL and a one-off net charge due to the re-measurement of US deferred tax assets. |
Executive Directors: Performance outcomes |
Annual bonus | 2015-2017 Long-term incentive plan | |||
(a) Jes Staley | (b) Tushar Morzaria | (Tushar Morzaria only) | ||
£1,065k 48.5% of maximum | £747k 50.5% of maximum | £882k* 52.7% of maximum | ||
* By reference to Q4 2017 average share price | ||||
Executive Directors: Remuneration outcomes | ||
Jes Staley* | Tushar Morzaria | |
* Jes Staley was not a participant in 2015?the 2014-2016 and 2015-2017 LTIP cycles; the LTIP figures for 2016 and 2017 are therefore zero for him.
Executive Directors: Share ownership Shareholding requirement policy: ◾ minimum of 200% of Total fixed pay* (i.e. Fixed Pay plus Pension) within 5 years from date of appointment ◾ shareholding requirement for 2 years post termination of 100% of Total Fixed Pay (or pro-rata thereof) introduced from 2017. * Equivalent to 457% of salary for Jes Staley under the previous DRP. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 53 |
Governance: Remuneration report
2017 Group incentives
This section provides details of how the 2017 total incentive award decisions were made. |
2017 pay and performance headlines
The key performance considerations which the Committee took into account in making its remuneration decisions for 2017 are highlighted below:
◾ | Significant strategic progress was made in 2017 with restructuring completed including: |
– | the closure of Non-Core |
– | completion of BAGL sell down |
– | launch of the Group Service Company |
– | preparatory work to establish the UK ring-fenced entity |
◾ | Group profit before tax was up 10% at £3,541m (2016: £3,230m). Group profit before tax (excluding material items) was up 16% at £4,242m (2016: £3,649m*) |
◾ | Group RoTE was negative 3.6% (2016: positive 3.6%). Excluding litigation and conduct and other material items, Group RoTE was 5.6% |
◾ | Group CET1 ratio was up to13.3% (2016: 12.4%). |
The pay outcomes and decisions can be summarised as follows:
◾ | total compensation costs decreased 4% to £7,123m (2016: £7,445m) |
◾ | the Group incentive pool was down 2% at £1,506m (2016: £1,533m) |
◾ | Group compensation to net income ratio was 38.0% (2016: 39.0%) |
◾ | Corporate and Investment Bank (CIB) front office incentive awards were also slightly down at £864m (2016: £875m). CIB front office compensation to net income ratio was 26.1% (2016: 26.7%) |
◾ | robust differentiation based on business and individual performance. |
* Material items in 2016 included provisions for UK customer redress (£1bn), gain on disposal of Barclays’ share of Visa Europe Limited (£615m) and own credit (£35m).
2017 incentive award decisions
The Committee’s 2015 pay2017 incentives decisions took full consideration of financial and non-financial performance. Statutory profit before tax decreased between 2014performance and 2015 by 8%, whilealso the absolute reduction in the Group incentive pool was 10%.
material repositioning of incentives undertaken since 2010. Since 2010, the Group incentive pool has declined steadily, from £3,484m in 2010 to £1,669m£1,506m in 20152017 – a decrease of more than 50%57% over fiveseven years. Over the same period, Group statutory profit before tax is down 65%
Notes a Part of the reduction in incentive pools in 2014 was due to the introduction of Role Based Pay (RBP). b The 2015 Group incentive pool has been restated from £1,669m to reflect the treatment of BAGL as a discontinued operation. The 2010 – 2014 Group incentive pools have not been restated. |
Total incentive awards granted – current year
Barclays Group | ||||||||||||
Year ended 31.12.17 £m | Year ended £m | % change | ||||||||||
Incentive awards granted | ||||||||||||
Incentive pool | 1,432 | 1,459 | 2 | |||||||||
Commissions and other incentives | 74 | 74 | - | |||||||||
Total incentive awards granted | 1,506 | 1,533 | 2 | |||||||||
Reconciliation of incentive awards granted to income statement charge: | ||||||||||||
Less: deferred bonuses granted but not charged in current year | (304 | ) | (300 | ) | (1 | ) | ||||||
Add: current year charges for deferred bonuses from previous years | 462 | 690 | 33 | |||||||||
Othera | 26 | (26 | ) | |||||||||
Income statement charge for performance costs | 1,690 | 1,897 | 11 | |||||||||
Total compensation costs | 7,123 | 7,445 | 4 | |||||||||
Proportion of incentive pool that is deferred | 31% | 30% |
Note
a Difference between incentive awards granted and income statement charge for commissions and other incentives.
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How much were executive Directors paid in 2015?
All of the Committee’s 2015 decisions in relation to executive Directors’ remuneration were made within the parameters of the Directors’ remuneration policy which was approved at the 2014 AGM.
| Antony Jenkinsa £000 |
| Tushar Morzaria £000 |
| | Jes Staleyb £000 | | |||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | ||||||||||||||
Fixed Pay | ||||||||||||||||||
Salary | 598 | 1,100 | 800 | 800 | 100 | |||||||||||||
Role Based Pay (RBP) | 516 | 950 | 750 | 750 | 96 | |||||||||||||
Benefits | 89 | 100 | 82 | 95 | 48 | |||||||||||||
Pension | 197 | 363 | 200 | 200 | 33 | |||||||||||||
Variable pay | ||||||||||||||||||
Annual Bonusc | 505 | 1,100 | 701 | 900 | – | |||||||||||||
LTIPd | 1,494 | 1,854 | – | – | – | |||||||||||||
Total pay | 3,399 | 5,467 | 2,533 | 2,745 | 277 |
Notes
How will executive Directors’ pay be structured?
2016 Fixed pay
| Salary £000 | | | RBP £000 | | | Pension £000 | | ||||
Jes Staley | 1,200 | 1,150 | 396 | |||||||||
Tushar Morzaria | 800 | 750 | 200 |
Salary, RBP, pension and benefits are unchanged from 2015.
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Tushar Morzaria is the only participant in the 2016-2018 LTIP cycle.
Governance: Remuneration report
Remuneration policy for all employees
This section sets out Barclays’ remuneration policy for all employees, explaining the philosophy underlying the structure of remuneration packages, and how this links remuneration to the achievement of sustained high performance and long-term value creation.
This section sets out Barclays’ remuneration policy for all employees, explaining the philosophy underlying the structure of remuneration packages, and how this links remuneration to the achievement of sustained high performance and long-term value creation. |
Remuneration philosophy
In October 2015, the Committee formally adopted a revised, simplified remuneration philosophy which articulates Barclays’ overarching remuneration approach and is set out below.
Barclays’ | ||
Attract and retain talent needed to deliver Barclays’ strategy |
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Align pay with investor interests | Ensure employees’ interests are aligned with those of investors (equity and debt holders), both in structure and the appropriate balance of returns
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Reward sustainable performance | Sustainable performance means making a positive contribution to stakeholders, in both the short and longer term, playing a valuable role in society
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Support Barclays’ Values and culture | Results must be achieved in a manner consistent with our Values. Our Values and culture should drive the way that business is conducted
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Align with risk appetite, risk exposure and conduct expectations | Designed to reward employees for achieving results in line with the Bank’s risk appetite and conduct expectations
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Be clear, transparent and as simple as possible | All employees and stakeholders should understand how we reward our employees. Remuneration structures should be as simple as possible so that everyone can understand how they work and the behaviours they reward
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RemunerationPerformance and performanceremuneration
Barclays’ remuneration philosophy links remuneration to achieving sustained high performance and creating long-term value. Our remuneration philosophy applies to all employees globally across Barclays and aims to reinforce our belief that effective performance management is critical to enabling the wholedelivery of Barclays. It ensures that all employeesour business strategy in line with our Values. Employees who adhere to the Barclays’ Values and contribute to Barclays’ success are aligned with and support the achievement of Barclays’ Group priorities.rewarded accordingly.
This is achieved by linking remuneration to a broadbasing performance assessment of performance, based on expectedclear standards of delivery and behaviour, which are discussedand starts with employees at the start of, and throughout, the performance year. Under the Barclays’ performance management approach, employees are encouraged to align each ofaligning their objectives (‘what’ they will deliver) to business and team goals in order to support the delivery of the business strategy and behaviouralgood client/customer outcomes. Behavioural expectations (‘how’ people will achieve their objectives) are set in relation tothe context of our Values. This ensures that clear expectations are set for not only ‘what’ employees are expected to deliver, but also ‘how’ they are expected to go about it.
Individual performancePerformance is then evaluatedassessed against both financial and non-financial criteria. Other factors are also taken into consideration within the overall performance assessment, including core job responsibilities, behaviours towards risk and control, colleague and stakeholder feedback as well as input from the Risk and Compliance functions, where appropriate.
Through our approach to performance, the equal importance of both ‘what’ (performance against objectives)an individual has delivered as well as ‘how’ the individual has achieved this is emphasised, encouraging balanced consideration of each dimension. Both of these elements are assessed and the ‘how’ (demonstrationrated independently of our Values). This evaluation takes into account various factors including:
each other. There is no specific weightingrequirement to have an overall rating which allows for more robust and reflective conversations between managers and team members on the financial and non-financial considerations for employees because allindividual components of them are important to the determinationperformance.
A key part of the overall performance assessment.philosophy promotes ongoing quality dialogue throughout the year. This helps manage performance messages effectively and allows for more timely recognition as well as appropriate coaching, feedback and support where needed.
LinkingBy linking individual performance assessment and remuneration decisions to both the Barclays’ business strategy and our Values and, in this way promotes the delivery of sustainable individual and business performance, and establishesturn, to remuneration decisions, a clear alignment between what we are striving to achieve, how we go about this, and ultimately, how we recognise this in individual financial terms is achieved.
Risk, conduct and remuneration
Another key feature of our remuneration philosophy is the alignment of remuneration with our risk appetite and with the conduct expectations of Barclays, our regulators and stakeholders. The Committee takes risk and conduct events very seriously and ensures that there are appropriate adjustments to individual remuneration and, where necessary, the incentive pool.
The Remuneration Review Panel, which reports to the Committee, supports the Committee in this process. The Panel is chaired by the Chief Risk Officer and includes senior representatives from the key control functions of Risk, Compliance, Internal Audit, Legal and HR as well as the CEOs of Barclays UK and Barclays International. It sets the policy and Barclays’processes for assessing compensation adjustments for risk and conduct events.
We have robust processes for considering risk and conduct as part of individual performance management processes with outcomes reflected in individual remuneration decisions. Line managers have primary accountability for ensuring that risk and conduct issues are considered when assessing performance and making remuneration decisions. In addition, there is a secondary review by the control functions for individuals involved in significant failures of risk management, conduct issues, regulatory actions or other major incidents which impact either the Group or business to ensure these issues are also considered. When considering individual responsibility, a variety of factors are taken into account such as whether an individual was directly responsible or whether the individual, by virtue of seniority, could be deemed indirectly responsible, including staff who drive the Group’s culture and set its strategy.
Barclays PLC and Barclays Bank PLC |
Governance: Remuneration report
Remuneration policy for all employees
Remuneration structure
The remuneration structure for employees is aligned with that for executive Directors, set out in detail in the Directors’ remuneration policy which was approved by shareholders at the 2014 AGM. A full copy of the policy can be found on the Barclays PLC website. An abridged version is at pages 75 to 83 of this Report.
Employees receive salary, pension and other benefits and are eligible to be considered for an annual bonus. Employees in some customer-facing businesses participate in incentive plans including plans based on a balanced scorecard of performance which has good customer outcomes at its centre. The plans also recognise how results have been achieved in line with Barclays’ Values. Some senior employees receive Role Based Pay (RBP). Remuneration of PRA Material Risk Takers (MRTs) is subject to the 2:1 maximum ratio of variable to fixed pay. A total of 1,523 (2014: 1,277) individuals were MRTs in 2015.
Barclays is a long standing supporter of the Living Wage. As an accredited Living Wage employer, Barclays commits to ensure that all permanent UK employees and those UK employees of third party contractors who provide services to us at our sites, are paid at least the current London or UK Living Wage. This is a commitment which we have also extended to all our UK employed apprentices.
Fixed remuneration
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Variable remuneration
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For MRTs: | For non-MRTs: | For Managing Directors in the Investment Bank: | ||||||||||||||
Incentive award | Amount deferred | Incentive award | Amount deferred | Incentive award | Amount deferred | |||||||||||
< £500,000 | 40% | Up to £65,000 | 0% | All values | 100% | |||||||||||
³ £500,000 | 60% | > £65,000 | Graduated level of deferral |
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Clawback |
Clawback applies to any variable remuneration awarded to a | |
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Governance: Remuneration report
2015 incentives
This section provides details of how 2015 total incentive award decisions were made.
2015 pay and performance headlines
The key performance considerations which the Committee took into account in making its remuneration decisions for 2015 are highlighted below:
The pay outcomes and decisions can be summarised as follows:
2015 pay – Questions and answers
How do you justify a 2015 incentive pool of £1,669m?
The Committee remains focused on aligning pay to performance and setting pay at a level which is no more than necessary but is motivational to ensure that we accelerate the delivery of shareholder value.
In line with our financial performance, the final 2015 incentive pool at £1,669m is down 10% on 2014.
The following chart illustrates the reduction in variable remuneration over the period from 2010.
Barclays incentive pools
Notes
What have you done in terms of conduct adjustments in 2015?
A key feature of our revised remuneration philosophy is the alignment of remuneration with risk appetite and with the conduct expectations of Barclays, our regulators and stakeholders. The Committee takes risk and conduct events very seriously and ensures that there are appropriate adjustments to individual remuneration and, where necessary, the incentive pool.
The Remuneration Review Panel, which reports to the Committee, supports the Committee in this process. The Panel is chaired by the Chief Risk Officer and includes senior representatives from the key control functions of Risk, Compliance, Internal Audit, Legal and HR. It sets the policy and processes and is responsible for assessing and recommending to the Committee compensation adjustments for risk and conduct events.
We have a robust process for considering risk and conduct as part of individual performance management reviews with outcomes reflected in individual incentive decisions. When considering individual responsibility, a variety of factors are taken into account such as:
Individuals who were directly or indirectly accountable for an event have had their remuneration adjusted as appropriate. This includes reductions in current year bonus levels and reductions in vesting amounts of deferred awards through the application of malus. In addition, a number of employees have been terminated for responsibility and accountability for risk and conduct events resolved during the year. The Committee fully acknowledges the impact such risk and conduct events have on shareholders and believes it is wholly appropriate that this should be reflected in incentive decisions for those whose performance and conduct falls short of Barclays’ standards.
The Committee recognises that conduct events continue to weigh on Group performance, impacting profitability and returns, so in addition to reductions to individuals’ incentive outcomes, materialbonuses, the Committee considers and makes collective adjustments have also been made to the incentive pool for conduct. These included, but were not limited to,specific risk and conduct events. For 2017, the settlement reached with the New York State Departmentimpact of Financial Services in respect of its investigation into electronic trading of Foreign Exchange, the settlements reached with the US Securities and Exchange Commission and New York State Attorney General in respect of those agencies’ investigations relating to the operation of LX (an alternative trading system), and the settlement reached with the FCA following an investigation into whether Barclays carried out the appropriate due diligence in connection with a transaction it executed in 2012.
The Committee also made a further adjustment in respect of the settlements reached with a number of authorities in May 2015 in relation to investigations into certain sales and trading practices in the Foreign Exchange market and the setting of the US Dollar ISDAFIX benchmark, over and above the substantialthese collective adjustments, made in 2014 as part of the Committee’s prudent approach towards incentive funding. The Committee took a similar prudent approach in determining 2015 incentive funding.
The overall impact on the incentive pool resulting from both the direct financial impact on performance and the additional adjustments applied by the Committee, is a reduction in excess of £600m.c. £180m.
We have also in addition to the adjustment for specific risk and conduct issues, adjusted the incentive pool to take account of an overall assessment of a wide range of future risks (including Conduct),including conduct, non-financial factors that can support the delivery of a strong risk management, control and conduct culture and other factors including reputation, impact on customers, markets and other stakeholders.
Total incentive awards granted – current year and deferred (audited)
Barclays Group | Investment Bank | |||||||||||||||||||||||
| Year ended 31.12.15 £m | |
| Year ended 31.12.14 £m |
| % change | | Year ended 31.12.15 £m | |
| Year ended 31.12.14 £m |
| % change | |||||||||||
Total current year bonus | 839 | 885 | 5 | 367 | 381 | 4 | ||||||||||||||||||
Total deferred bonus | 661 | 757 | 13 | 579 | 634 | 9 | ||||||||||||||||||
Bonus pool | 1,500 | 1,642 | 9 | 946 | 1,015 | 7 | ||||||||||||||||||
Commissions, commitments and other incentives | 169 | 218 | 22 | 30 | 38 | 21 | ||||||||||||||||||
Total incentive awards granted | 1,669 | 1,860 | 10 | 976 | 1,053 | 7 | ||||||||||||||||||
Proportion of bonus that is deferred | 44% | 46% | 61% | 62% | ||||||||||||||||||||
Total employees (full time equivalent) | 129,400 | 132,300 | 2 | 21,000 | 20,500 | (2 | ) | |||||||||||||||||
Average bonus per employee | £12,900 | £14,100 | 9 | £46,500 | £51,400 | 10 |
Deferral levels vary according to The Committee was supported in its consideration of this adjustment by the incentive award quantum. With reductions in incentive award levels, this has reduced the proportion of the bonus that is deferred.
Deferred bonuses are delivered, subject to the rules, and only once an employee meets certain conditions, including continued service. This creates a timing difference between the communication of the bonus poolBoard Risk Committee and the chargesBoard Reputation Committee.
Fair pay agenda
Barclays continues to look holistically at different aspects of how we pay our people, to ensure that appearwe deliver fair and effective pay for performance, with pay decisions that are aligned with Barclays’ Values.
This can be described as our fair pay agenda, which incorporates a number of themes currently highlighted by the government and the media, although in the income statement which are reconciled in the table below:practice our approaches to many of these aspects have evolved over many years.
ReconciliationOur main areas of total incentive awards granted to income statement charge (audited)
Barclays Group | Investment Bank | |||||||||||||||||||||||
| Year ended 31.12.15 £m | |
| Year ended 31.12.14 £m |
| % change |
| Year ended 31.12.15 £m |
| | Year ended 31.12.14 £m | | % change | |||||||||||
Total incentive awards for 2015 | 1,669 | 1,860 | 10 | 976 | 1,053 | 7 | ||||||||||||||||||
Less: deferred bonuses awarded in 2015 | (661 | ) | (757 | ) | 13 | (579 | ) | (634 | ) | 9 | ||||||||||||||
Add: current year charges for deferred bonuses from previous years | 874 | 1,067 | 18 | 736 | 854 | 14 | ||||||||||||||||||
Othera | 2 | (108 | ) | 51 | 12 | |||||||||||||||||||
Income statement charge for performance costs | 1,884 | 2,062 | 9 | 1,184 | 1,285 | 8 |
Note
a Difference between incentive awards granted and income statement charge for commissions, commitments and other incentives
◾ | Fair pay for the lowest paid | |
– Ensuring our people receive a fair day’s pay for a fair day’s work | ||
– Since 2004, Barclays has been a Living Wage accredited employer, with all UK permanent employees and those UK employees of third party contractors who provide services to us at our sites being paid at least the current National or London Living Wage. This is a commitment we have also extended to all our UK employed apprentices. By March 2018, the entry level pay for permanent, non-apprentice employees, will already be above the Living Wage target level set for 2020 by the Government, two years early. Similarly, Barclays will meet the 2020 target Living Wage level for its apprentice population by 2019 | ||
– Our current pay deal with Unite (2017-2019) commits to a 7.5% agreed salary increase budget for the Unite recognised population. As part of the pay deal, our commitment to track the Living Wage and continue to progress junior pay will provide a 10% increase across the three years for the most junior employees. | ||
◾ | Ensuring every individual has the opportunity to progress through the organisation and earn more | |
– Supporting initiatives to eliminate any ‘glass ceiling’ and ensure equal opportunities for progression for every individual | ||
– We are an equal opportunities employer and have a number of initiatives in place to support diversity in our workplace e.g. increasing female representation at all levels across Barclays remains a core focus of our talent management and leadership succession processes | ||
– Barclays has published its UK Gender Pay Gap for the first time this year (page 49), as well as continuing to report the proportion of women at our more senior corporate grades. | ||
◾ | Equal pay | |
– Barclays fully supports equal pay legislation (in place in the UK since 1970) | ||
– Barclays is committed to ensuring all employees are fairly paid for the work they do, and that men and women receive equal pay for the same or similar roles. We are explicit with those who make pay decisions that those pay decisions must not, directly or indirectly, take into account an individual’s gender, age, ethnicity, religion, sexual orientation, marital status, pregnancy, maternity, shared parental, paternity or parental leave, veteran status or disability | ||
– To ensure our pay decisions are fair, and reflect our legal obligations, Barclays has a number of policies and processes in place to ensure that line management decisions that are made at the beginning on hiring and throughout the employment cycle are free from unlawful bias. This includes ensuring that our internal policies and processes are neutral in their application and free from any conscious or unconscious bias. We also share key data annually with Unite concerning their recognised population on pay distribution. | ||
◾ | Ensuring employees, like any other stakeholders, are appropriately represented in remuneration decision-making | |
– Employee views are represented by senior management to the Committee. We continue to review potential approaches to build on this | ||
– Employees are represented by their management through our internal remuneration decision-making processes. We are also proud of our long-standing relationship with Unite, through which we engage positively on remuneration. |
56 |
Governance: Remuneration report
2015 incentives
◾ | Ensuring executive pay and employee pay are linked to business performance | |
– The view that executive and employee remuneration should both be linked to the performance of the company is one shared by the Committee | ||
– Pay approaches for our executive Directors are demonstrably aligned to business performance through financial, non-financial performance and risk based performance measures, as described in the DRP | ||
– Similar performance considerations are made by the Committee when determining the appropriate level of incentive funding for all of our people. |
Remuneration structure
The remuneration structure for employees is closely aligned with that for executive Directors, set out in detail in the DRP which can be found on pages 108 to 120 of the 2016 Annual Report. The primary exception being that the executive Directors participate in the Barclays’ LTIP and receive part of their Fixed Pay in Barclays PLC shares.
Employees receive salary, pension and other benefits and are eligible to be considered for an annual bonus. Employees in some customer-facing businesses participate in formulaic incentive plans, including plans which have good customer outcomes as the primary performance measure. The plans also recognise how results have been achieved in line with Barclays’ Values. Some senior employees also receive Role Based Pay (RBP). Remuneration of MRTs is subject to the 2:1 maximum ratio of variable to fixed remuneration. A total of 1,641 (2016: 1,561) individuals were MRTs in 2017. Capital requirements regulation (CRR) quantitative disclosures on MRTs are set out on pages 189 to 191 of Barclays PLC 2017 Pillar 3 Report.
The remuneration of employees engaged in control functions is determined independently from the business they support and within the parameters of the incentive pool allocated to them by the Committee. Remuneration for control function employees is less weighted towards variable remuneration as compared to front office employees and variable remuneration is typically limited to one times fixed remuneration. This leads to less volatility in overall control function remuneration as compared to front office outcomes.
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Salary | Salaries reflect individuals’ skills and experience and are reviewed annually in the context of annual performance assessment. They are increased where justified by role change, increased responsibility or a |
A small number of senior employees receive a class of fixed pay called RBP to recognise the |
Income statement charge (audited)
Barclays Group | Investment Bank | |||||||||||||||||||||||
| Year ended 31.12.15 £m | |
| Year ended 31.12.14 £m |
| % change |
| Year ended 31.12.15 £m |
| | Year ended 31.12.14 £m | | % change | |||||||||||
Deferred bonus charge | 874 | 1,067 | 18 | 736 | 854 | 14 | ||||||||||||||||||
Current year bonus charges | 839 | 885 | 5 | 367 | 381 | 4 | ||||||||||||||||||
Commissions, commitments and other incentives | 171 | 110 | (55) | 81 | 50 | (62) | ||||||||||||||||||
Performance costs | 1,884 | 2,062 | 9 | 1,184 | 1,285 | 8 | ||||||||||||||||||
Salariesa | 4,954 | 4,998 | 1 | 1,847 | 1,749 | (6) | ||||||||||||||||||
Social security costs | 594 | 659 | 10 | 248 | 268 | 7 | ||||||||||||||||||
Post retirement benefitsbc | 545 | 624 | 13 | 112 | 120 | 7 | ||||||||||||||||||
Allowances and trading incentives | 147 | 170 | 14 | 56 | �� | 64 | 13 | |||||||||||||||||
Other compensation costs | 215 | 378 | 43 | (24) | 134 | |||||||||||||||||||
Total compensation costsd | 8,339 | 8,891 | 6 | 3,423 | 3,620 | 5 | ||||||||||||||||||
Other resourcing costs | ||||||||||||||||||||||||
Outsourcing | 1,034 | 1,055 | 2 | 15 | 9 | (67) | ||||||||||||||||||
Redundancy and restructuring | 134 | 358 | 63 | 84 | 239 | 65 | ||||||||||||||||||
Temporary staff costs | 697 | 530 | (32) | 248 | 176 | (41) | ||||||||||||||||||
Other | 185 | 171 | (8) | 51 | 42 | (22) | ||||||||||||||||||
Total other resourcing costs
| 2,050 | 2,114 | 3 | 398 | 466 | 15 | ||||||||||||||||||
Total staff costs | 10,389 | 11,005 | 6 | 3,821 | 4,086 | 6 | ||||||||||||||||||
Compensation as % of adjusted net income | 37.2% | 37.7% | 45.5% | 47.6% | ||||||||||||||||||||
Compensation as % of statutory net income | 35.7% | 38.5% | 45.5% | 47.6% | ||||||||||||||||||||
Compensation as % of adjusted income | 34.0% | 34.6% | 45.2% | 47.7% | ||||||||||||||||||||
Compensation as % of statutory income | 32.8% | 35.2% | 45.2% | 47.7% |
Notes
The provision of a |
Annual bonuses incentivise and reward the achievement of Group, business and individual objectives, and reward employees for demonstrating individual behaviours in line with Barclays’ Values. | ||||||||||
The ability to recognise performance through variable remuneration enables the Group to control its cost base flexibly and to react to events and market circumstances. Bonuses remain a |
The typical deferral structures are: | ||||||||||
For non-MRTs: | ||||||||||
Incentive award | Amount deferred | Incentive award | Amount deferred | |||||||
< £500,000 | 40% of total award | Up to £65,000 | 0% | |||||||
£500,000 to £1,000,000 | 60% of total award | > £65,000 | Graduated level of deferral | |||||||
> £1,000,000 | 60% up to £1,000,000 | |||||||||
100% above £1,000,000 | ||||||||||
Deferred bonuses are generally delivered in equal portions as deferred cash and | ||||||||||
Where dividend equivalents cannot be delivered on deferred bonus shares, the | ||||||||||
Share plans | Alignment of senior employees with shareholders is achieved through deferral of incentive pay. We also encourage wider employee shareholding through the all-employee share plans. 86% of the global employee population is eligible to participate (up from 82% in 2016). | |||||||||
Deferred bonuses awarded are expected to be charged to the income statement in the years outlined in the table that follows.
Barclays PLC and Barclays Bank PLC |
��Governance: Remuneration report
Directors’ remuneration policy
Year in which income statement chargeThis section sets out a summary of the Barclays’ forward-looking DRP and is expectedprovided for information only. The DRP was approved at the 2017 AGM held on 10 May 2017 and applies for three years from that date. The full DRP can be found on pages 108 to be taken for deferred bonuses awarded to datea120 of the 2016 Annual Report or at home.barclays/annualreport.
Remuneration policy summary – executive Directors
Actual | Expectedb | |||||||||||||||
| Year ended 31.12.14 £m | | | Year ended 31.12.15 £m | | | Year ended 31.12.16 £m | | | 2017 and beyond £m | | |||||
Barclays Group | ||||||||||||||||
Deferred bonuses from 2012 and earlier bonus pools | 488 | 117 | 13 | – | ||||||||||||
Deferred bonuses from 2013 bonus pool | 579 | 293 | 111 | 17 | ||||||||||||
Deferred bonuses from 2014 bonus pool | – | 464 | 194 | 100 | ||||||||||||
Deferred bonuses from 2015 bonus pool | – | – | 370 | 247 | ||||||||||||
Income statement charge for deferred bonuses | 1,067 | 874 | 688 | 364 | ||||||||||||
Investment Bank | ||||||||||||||||
Deferred bonuses from 2012 and earlier bonus pools | 398 | 101 | 11 | – | ||||||||||||
Deferred bonuses from 2013 bonus pool | 456 | 239 | 93 | 13 | ||||||||||||
Deferred bonuses from 2014 bonus pool | – | 396 | 167 | 80 | ||||||||||||
Deferred bonuses from 2015 bonus pool | – | – | 341 | 217 | ||||||||||||
Income statement charge for deferred bonuses | 854 | 736 | 612 | 310 |
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Total compensation is benchmarked against comparable roles in banks. 50% of Fixed Pay is delivered in cash (paid monthly), and 50% is delivered in shares. The shares are delivered quarterly and are subject to a holding period with restrictions lifting over five years (20% each year). As the executive Directors beneficially own the shares, they will be entitled to any dividends paid on those shares. There are no performance measures. Malus and clawback provisions do not apply to Fixed Pay. | No change from 2017.
◾ Tushar Morzaria: £1,650,000 These amounts are fixed and will not change during the policy period for these individuals. | |||||||
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Pension To enable executive Directors to build long-term retirement savings | Executive Directors receive an annual cash allowance in lieu of participation in a pension arrangement. | No change from 2017. ◾ Jes Staley: £396,000 ◾ Tushar Morzaria: £200,000 These amounts are fixed and will not change during the policy period for these individuals. | |||||||
To provide a competitive and cost effective benefits package appropriate to the role and location | Executive Directors’ benefits provision includes, but is not restricted to, private medical cover, annual health check, life and ill health income protection, car cash allowance, and use of a Company vehicle and driver when required for business purposes. In addition to the above, if an executive Director were to relocate, additional support would be provided for a defined and limited period of time in line with Barclays’ general employee mobility policy. Barclays will pay the tax on relocation costs but will not tax equalise and will also not pay tax on any other employment income. | No change from 2017. |
Notes
Annual bonus To reward delivery of short-term financial targets set each year, the individual performance of the executive Directors in achieving those targets, and their contribution to delivering Barclays’ strategic objectives Delivery in part in shares with a holding period increases alignment with shareholders. Deferred bonuses encourage longer term focus and retention | The The performance measures include financial and Annual bonuses are delivered as a combination of cash and shares, a proportion of which may be deferred and/or subject to a holding period. Deferral proportions and vesting profiles will be structured so that, in combination with any LTIP award, the proportion of variable pay that is deferred is no less than that required by regulations. Dividend equivalents are payable on vested deferred bonus shares. If dividend equivalents are not permissible under regulations, the number of shares to be awarded will be determined using a share price discounted by reference to the expected dividend yield. A notional discount may be applied to deferred bonuses for the purposes of calculating the 2:1 cap to the extent permitted by regulations. Awards are subject to | Details of performance measures are set out on page 67. Shares issued are subject to a holding period of one year after vesting. As dividend equivalents are not permissible under regulations, the |
58 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Element and purpose | Operation | Implementation in 2018 | ||||
Annual bonus continued | Non-deferred cash components of any bonus are paid following the performance year to which they relate, normally in March. Non-deferred share bonuses are also awarded normally in March and are subject to a holding period (after the payment Deferred share bonuses are structured so that no deferred shares vest faster than permitted by regulations (currently in five equal tranches with the |
Long Term Incentive Plan (LTIP) award To reward execution of Barclays’ strategy over a multi-year period Long-term performance measurement, deferral and holding periods encourage a long-term view and align executive Directors’ interests with those of shareholders. Malus and clawback provisions discourage excessive risk-taking and inappropriate behaviours | The Forward-looking performance measures will be based on financial performance and other long-term strategic measures. Financial measures will be at least 70% of the total opportunity. Straight line vesting applies between threshold and maximum for the financial measures with no more than 25% vesting at threshold performance. LTIP awards are structured so that when combined with the annual bonus the proportion of variable pay that is deferred is no less than that required by regulations. The Committee has discretion to vary the measures year on year and their respective weighting within each category. The Committee also has discretion to amend targets, measures and the number of awards in exceptional circumstances and to reduce the vesting of any award, including to nil, if it deems that the outcome is not consistent with performance. Dividend equivalents are payable on vested deferred shares. If dividend equivalents are not permissible under the regulations, the number of shares to be awarded will be determined using a share price discounted by reference to the expected dividend yield. A notional discount may be applied to LTIP awards for the purposes of calculating the 2:1 cap to the extent permitted by regulations. Awards are subject to malus during the vesting period No LTIP award vests before the third anniversary of grant and an award vests no faster than permitted by regulations (currently in five equal tranches with the first tranche vesting on or around the third anniversary of grant and the last tranche vesting on or around the seventh anniversary of the grant date). Any shares that vest are | Details of performance measures and targets for awards to be made in 2018 (in respect of 2017) are set out on page 65. For awards to be made in respect of 2018, the measures and targets will be determined at the end of 2018 for the performance period commencing on 1 January 2019. On vesting, the award is subject to a holding period of one year. As dividend equivalents are not permissible under regulations, the number of shares to be awarded will be calculated using a share price discounted to reflect the absence of dividend equivalents during the vesting period. | ||||
Shareholding requirement To further enhance the alignment of shareholders’ and executive Directors’ interests in long-term value creation | Executive Directors must build up a shareholding of 200% of Total fixed pay (i.e. Fixed Pay plus Pension) within five years from the date of appointment as executive Director. Executive Directors must also continue to hold a shareholding of 100% of Total fixed pay (or pro-rata thereof) for two years post-termination. | No change from 2017. (Equivalent to 457% of salary for the Group Chief Executive under the previous DRP.) |
Executive Directors are also entitled to participate in all employee share plans, for example Barclays Sharesave and Barclays Sharepurchase, on the same basis as all other employees.
Barclays PLC and Barclays Bank PLC |
Governance: Remuneration report
Directors’ remuneration policy
Remuneration policy summary – non-executive Directors
Element and purpose | Operation | Implementation In 2018 | ||
Fees Reflect individual responsibilities and membership of Board Committees and are set to attract non-executive Directors who have relevant skills and experience to oversee the implementation of our strategy Fees are set at a level which reflects the role, responsibilities and time commitment which are expected from the Chairman, Deputy Chairman and non-executive Directors | The Chairman and Deputy Chairman are paid an all-inclusive fee for all Board responsibilities. The Chairman has a minimum time commitment equivalent to at least 80% of a full-time role. The other non-executive Directors receive a basic Board fee, with additional fees payable where individuals serve as a member or Chairman of a Committee of the Board. Fees are reviewed each year by the Board as a whole. Other than in exceptional circumstances, fees will not increase by more than 20% above the current fee levels during this policy period (basic fees last increased in 2011). £30,000 (Chairman: £100,000) after tax and national insurance contributions per annum of each non-executive Director’s basic fee is used to purchase Barclays’ shares which are retained on the non-executive Director’s behalf until they retire from the Board. Some non-executive Directors may also receive fees as directors of subsidiary companies of Barclays PLC. | No change from 2017. | ||
Benefits | The Chairman is provided with private medical cover subject to the terms of the Barclays’ scheme rules from time to time, and is provided with the use of a Company vehicle and driver when required for business purposes. Benefits which are minor in nature and do not exceed a cost of £500 may be provided to non-executive Directors in specific circumstances. | No change from 2017. | ||
Expenses | The Chairman and non-executive Directors are reimbursed for any reasonable and appropriate expenses incurred for business reasons. Any tax that arises on these reimbursed expenses is paid by Barclays. | No change from 2017. |
Service contracts and letters of appointment
All executive Directors have a service contract whereas all non-executive Directors have a letter of appointment. Copies of the service contracts and letters of appointment are available for inspection at the Company’s registered office. The dates of the current Directors’ service contracts and letters of appointment are shown in the table below.
Effective date | ||
Chairman | ||
John McFarlane | 1 January 2015 (non-executive Director), 24 April 2015 (Chairman) | |
Executive Directors | ||
Jes Staley | 1 December 2015 | |
Tushar Morzaria | 15 October 2013 | |
Non-executive Directors | ||
Mike Ashley | 18 September 2013 | |
Tim Breedon | 1 November 2012 | |
Sir Ian Cheshire | 3 April 2017 | |
Mary Francis | 1 October 2016 | |
Crawford Gillies | 1 May 2014 | |
Sir Gerry Grimstone | 1 January 2016 | |
Reuben Jeffery III | 16 July 2009 | |
Matthew Lester | 1 September 2017 | |
Dambisa Moyo | 1 May 2010 | |
Diane Schueneman | 25 June 2015 | |
Mike Turner | 1 January 2018 |
60 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Governance: Remuneration report
Annual report on Directors’ remuneration
This section explains how our Directors’ remuneration policy was implemented during 2017. |
This section explains how our Directors’ remuneration policy was implemented during 2015.
Executive Directors
Executive Directors: Single total figure for 20152017 remuneration (audited)
The following table shows a single total figure for 20152017 remuneration in respect of qualifying service for each executive Director together with comparative figures for 2014.2016.
| Salary £000 |
| | Role Based Pay £000 | | | Taxable benefits £000 | | Annual bonus £000 |
| LTIP £000 |
|
| Pension £000 |
| Total £000 |
| |||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||
Antony Jenkinsa | 598 | 1,100 | 516 | 950 | 89 | 100 | 505 | 1,100 | 1,494 | 1,854 | 197 | 363 | 3,399 | 5,467 | ||||||||||||||||||||||||||||||||||||||||||||||||
Tushar Morzaria | 800 | 800 | 750 | 750 | 82 | 95 | 701 | 900 | – | – | 200 | 200 | 2,533 | 2,745 | ||||||||||||||||||||||||||||||||||||||||||||||||
Jes Staleyb | 100 | – | 96 | – | 48 | – | – | – | – | – | 33 | – | 277 | – |
Fixed Paya | Taxable benefits | Annual bonus | LTIP | Pension | Total | |||||||||||||||||||||||||||||||||||||||||||
£000 | £000 | £000 | £000 | £000 | £000 | |||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||
Jes Staleyb | 2,350 | 2,350 | 62 | 169 | 1,065 | 1,318 | – | – | 396 | 396 | 3,873 | 4,233 | ||||||||||||||||||||||||||||||||||||
Tushar Morzariac | 1,614 | 1,550 | 44 | 44 | 747 | 854 | 882 | 1,008 | 200 | 200 | 3,487 | 3,656 |
Notes
John McFarlane was appointed Executive Chairmana The 2016 figures for Fixed Pay relate to Salary and RBP.
b Jes Staley’s 2016 benefits figure includes relocation expenses.
c Tushar Morzaria’s Fixed Pay increased to £1,650,000 with effect from 17 July 2015 pending the appointment of a new Group Chief Executive. At his request, he received no increase in fees. Details of his fees are provided on page 67. John McFarlane is not eligible to participate in Barclays’ cash, share or long-term incentive plans or pension plans.10 May 2017.
Additional information in respect of each element of pay for the executive Directors (audited)
SalaryFixed Pay
Jes Staley commenced employment as Group Chief Executive on 1 December 2015 on a salary of £1,200,000 per annum. Tushar MorzariaFixed Pay was paid a salary of £800,000 per annum as Group Finance Director. Antony Jenkins was paid a salary of £1,100,000 per annum.
Role Based Pay (RBP)
Executive Directors receiveintroduced for 2017, replacing Salary and RBP, whichand is delivered quarterly50% in cash and 50% in shares subject(subject to a 5 year holding period with restrictions lifting over five years (20% each year)pro-rata). The value shown is of shares at the date awarded.
Taxable benefits
Taxable benefits include private medical cover, life and ill health income protection, tax advice, relocation, home leave related costs, car allowance, the use of a companyCompany vehicle and driver when required for business purposes and other benefits that are considered minor in nature.
Annual bonus
Annual bonuses are discretionary and are typically awarded in Q1 following the financial year to which they relate. The 2015 bonus awards reflect the Committee’s assessment of the extent to whichCommittee considered the executive Directors achieved their Financial (50%Directors’ performance against the financial (60% weighting) and Balanced Scorecard (35%strategic/non-financial (20% weighting) performance measures andwhich had been set to reflect company priorities for 2017. Performance against their individual personal objectives (15%(20% weighting) was assessed on an individual basis.
2017 annual bonus outcomes
Financial (60% weighting)
The approach taken to assessing financial performance against each of the financial measures was based on a straight-line outcome between 25% for threshold performance and 100% applicable to each measure for achievement of maximum performance.
The formulaic outcome from 2017 performance against the financial measures set at the beginning of the year gave a total of 22.5% out of 60% being payable attributable to those measures. A summary of the assessment is provided in the following table.
Financial performance measure | Weighting | Threshold 25% | Maximum 100% | 2017 Actual | 2017 Outcome | |||||||||||||||
Profit before tax (excluding material items) | 22.5% | £5.10bn | £6.20bn | £4.24bn | 0% | |||||||||||||||
CET1 ratio | 22.5% | 12.6% | 13.0% | 13.3% | 22.5% | |||||||||||||||
Cost: income ratio (excluding material items) | 15.0% | 67.0% | 63.0% | 70.0% | 0% | |||||||||||||||
Total Financial | 60% | 22.5% |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 61 |
Governance: Remuneration report
Annual report on Directors’ remuneration
Strategic (20% weighting)
Progress in relation to each of the strategic measures, organised around three main categories, was assessed by the Committee. The Committee used the following scale in relation to each measure: 0% to 1% firmly below performance expectations, 1.5% to 3% slightly below performance expectations, 3.5% to 5.5% meeting or slightly exceeding performance expectations, and 6% to 7% clearly above performance expectations. Based on this approach to assessing performance against 2017 Group Performance Measurement Framework milestones, the Committee agreed a 13% outcome out of a maximum of 20%. More informationThe assessment is provided in the following table.
Measure | 2017 Outcome | |||||
Customer and Client | ◾ We have continued to make progress with our customer and client agenda. However, complaints remain an ongoing area of focus for management and the Board | 3.0% | ||||
◾ Barclays Relationship Net Promoter Score (NPS) ended the year with an improved score of +14 (2016: +10) while Barclaycard UK Relationship NPS remained relatively flat (2017: +9). Barclaycard International business also continued to perform well on Relationship NPS | ||||||
◾ Underlying UK complaint volumes (Barclays UK, excluding PPI) reduced 13% year on year, however, there has been a small increase in PPI complaints (up 2% year on year) driven largely by the FCA deadline announcement. Barclays UK complaint volumes, including PPI, were down 7% year on year. Barclays International complaints reduced by 19% year on year. Complaints reduction remains a priority across the Group, and despite improvements in 2017, Barclays has more work to do, as can be seen from our position in the H1 2017 FCA complaints tables in the UK | ||||||
◾ The number of customers and clients in the UK using our digital services on a regular basis has increased to over 10 million customers (2016: nearly 9.5m) | ||||||
◾ In our home markets of the UK and US, our CIB ranked 6th place by fee share across M&A, equity and debt capital markets and syndicated loan transactions (2016: 5th); and we were highly encouraged by the 1st place CIB ranking in the UK (Dealogic). | ||||||
Colleague | ◾ Overall this has been a year of progress on increasing the diversity of our workforce and in building an inclusive and engaged culture | 4.5% | ||||
◾ Employee sustainable engagement improved by 3% year on year to 78%, with the majority of key survey question results recording improvements and the rest remaining stable | ||||||
◾ We remain focused on improving our gender diversity. We have made a 1% improvement in the percentage of female Managing Directors and Directors to 23% (on a like for like basis excluding Africa). Recognising the importance of strengthening our talent pipeline, we also have an ambition for 50% female graduate hires and have ended 2017 at 40% | ||||||
◾ External recognition includes: Stonewall recognising Barclays as one of 12 Top Global Employers; the Human Rights Campaign awarding Barclays 100% on their corporate equality index; Working Families UK recognising Barclays as one of the top 10 Employers for Working Families in 2017; and Barclays was acknowledged as a Top 50 Employer through the Social Mobility Employer Index in 2017. | ||||||
Citizenship | ◾ This has been a very positive year in the Citizenship space, with further progress in many areas ◾ We helped upskill over 2.1 million people (2016 1.7 million), driven by a range of regional employability partnerships and our flagship LifeSkills programme in the UK | 5.5% | ||||
◾ Barclays delivered £31.7bn in financing for selected social and environmental segments (2016: £30.5bn) | ||||||
◾ We helped empower around 205,000 people (2016: 249,000) through initiatives such as: Barclaycard Initial for those with a limited credit history; our Digital Eagles network, comprised of specially trained Barclays’ employees working to provide free technology support to customers and non-customers; and the continued development of learning platforms | ||||||
◾ We reduced carbon emissions by 26.1% against the 2015 baseline, making good progress against our target of 30% reduction by 2018 | ||||||
◾ We also achieved 89% (2016: 88%) on-time payment by value to our suppliers, ahead of our target of 85%, and published an updated Statement on Modern Slavery. | ||||||
13% out of 20% |
Further details on the Group Performance Measurement Framework can be found on pages 15 to 22.
62 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Individual outcomes including assessment of personal objectives
Performance against each of the executive Directors’ individual personal objectives (20% weighting overall) was assessed by the Committee on an individual basis.
(i) Jes Staley
A summary of the assessment for Jes Staley against his specific performance measures andis provided in the outcomes for the 2015 bonuses isfollowing table.
Performance measure | Weighting | 2017 Outcome | ||||
Financial | See table on page 61 | 60% | 22.5% | |||
Strategic | See table on page 104 | 20% | 13.0% | |||
Personal objectives | Judgemental assessment – see below | 20% | 13.0% | |||
Total | 100% | 48.5% | ||||
Final outcome approved by the Remuneration Committee | 48.5% |
The Committee assessed Jes Staley’s performance against his 2017 personal objectives (as set out on pages 60page 126 of the 2016 Annual Report). In relation to the joint personal objectives, the Committee has taken account of delivery against financial commitments including achieving the end state target range for the CET1 ratio as well as improvements to our cost: income ratio, while recognising that there is still some way to go in getting returns where management, the Board and 61.our investors expect them to be. The Committee has also recognised the early closure of Non-Core and successful reintegration of remaining assets/businesses into Core as well as the achievement of the accounting deconsolidation and proportional regulatory consolidation of BAGL. It noted that the Structural Reform programme has been well executed, with the launch of the Group Service Company achieved. The Committee noted the significant work that has taken place in planning following the EU referendum outcome. Risk and control have also continued to be managed effectively, with further progress in resolving legacy conduct and litigation matters.
In relation to his individual objectives, the Committee recognises that Jes Staley was not eligiblehas made continued progress towards ensuring a high performing culture in line with our Values, and employee engagement has been strengthened in 2017. Barclays has made improvements in some customer and client metrics such as a reduction in customer complaints, while noting the need for further improvement. Succession planning for senior roles has been improved, and continued progress made in improving the percentage of women in senior leadership roles (5th consecutive year increasing the percentage of female Managing Directors and Directors). Finally, significant improvements have been made to the Group's control environment, with a 2015 bonus.focus on operations and technology infrastructure, particularly through the establishment of the Group Service Company.
60%While recognising the strong strategic delivery, given some of each executive Director’s 2015 bonus will be deferred in the formremaining challenges, particularly around returns, the Committee judged that 13% of a share awardmaximum of 20% attributable to individual objectives was appropriate.
In aggregate, the performance assessment for Jes Staley resulted in an overall formulaic outcome of 48.5% of maximum bonus opportunity being achieved. The Committee considered the outcome and agreed that a 2017 annual bonus of £1,065,000 (48.5% of maximum) was appropriate, of which 62.4% is deferred under the Share Value Plan vesting over three yearsin line with one third vestingthe Group-wide deferral structure.
(ii) Tushar Morzaria
A summary of the assessment for Tushar Morzaria against his specific performance measures is provided in the following table.
Performance measure | Weighting | 2017 Outcome | ||||
Financial | See table on page 61 | 60% | 22.5% | |||
Strategic | See table on page 104 | 20% | 13.0% | |||
Personal objectives | Judgemental assessment – see below | 20% | 15.0% | |||
Total | 100% | 50.5% | ||||
Final outcome approved by the Remuneration Committee | 50.5% |
The Committee assessed Tushar Morzaria’s performance against his 2017 personal objectives (as set out on page 126 of the 2016 Annual Report). In relation to the joint personal objectives, the Committee recognised Tushar Morzaria's contribution to the financial outcomes, including achieving the end state target range for the CET1 ratio as well as improvements to our cost: income ratio. The Committee also recognised that Tushar Morzaria had been instrumental in the execution of the strategy including the closure of Non-Core, the accounting deconsolidation and proportional regulatory consolidation of BAGL and the Structural Reform programme in the UK. He has also made significant contributions to Barclays' planning in response to the EU referendum outcome and plays a key leadership role in managing risk and control as well as settling legacy conduct and litigation issues.
In relation to his individual objectives, the Committee recognises that he is extremely well respected by both internal and external stakeholders including the Board, regulators, stakeholders, investors and colleagues across the organisation, effectively managing external relationships and the reputation of the Group. He has also continued to strengthen his team within Finance and has exemplified the Values expected by the Board - he is tireless in his commitment to the organisation and defines the notion of partnership. Given his strong personal performance during 2017, the Committee judged that 15% of a maximum 20% attributable to individual objectives was appropriate.
In aggregate, the performance assessment for Tushar Morzaria resulted in an overall formulaic outcome of 50.5% of maximum bonus opportunity being achieved. The Committee considered the outcome and agreed that a 2017 annual bonus of £747,000 (50.5% of maximum) was appropriate, of which 46.5% is deferred under the Share Value Plan in line with the Group-wide deferral structure.
In line with the DRP, and due to the regulations prohibiting dividend equivalents being paid on unvested deferred share awards, the number of shares awarded to each year. 20%executive Director under the Share Value Plan will be paidcalculated using a share price at the date of award, discounted to reflect the absence of dividend equivalents during the vesting period. The valuation will be aligned to IFRS 2, with the market expectations of dividends during the deferral period being assessed by an independent adviser. These shares will vest in cash and 20% delivered in shares.five equal tranches from the third to seventh anniversary (subject to the rules of the Share Value Plan as amended from time to time). All shares (whether deferred or not deferred)not) are subject to a further six monthone year holding period from the point of release. 20152017 bonuses are subject to clawback provisions and, additionally, unvested deferred 20152017 bonuses are subject to malus provisions which enable the Committee to reduce the vesting level of deferred bonuses (including to nil).
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 63 |
Governance: Remuneration report
Annual report on Directors’ remuneration
LTIP
The LTIP amount included in Antony Jenkins’ 2015Tushar Morzaria’s 2017 single total figure is the value of the amount scheduled to be released in relation to the LTIP award granted in 20132015 in respect of performance period 2013-2015.2015-2017 (by reference to Q4 2017 average share price). As Tushar Morzaria and Jes Staley werewas not participantsa participant in this cycle, the LTIP figure in the single figure table is shown as zero for them.him. Release is dependent on, amongstamong other things, performance over the period from 1 January 20132015 to 31 December 2015.2017 with straight-line vesting applied between the threshold and maximum points. The performance achieved against the performance targets is as follows.follows:
Performance measure | Weighting | Threshold | Maximum vesting | Actual | % of award vesting | Weighting | Threshold | Maximum vesting | Actual | % of award vesting | ||||||||||||
Return on risk weighted assets (RoRWA) | 50% | 13% of award vests for average annual RoRWA of 1.1% | Average annual RoRWA of 1.6% | 0.21% | 0% | |||||||||||||||||
Net generated equitya | 30% | 7.5% of award vests for Net generated equity of £1,363m | Net generated equity of £1,844m | £3,427m | 30.0% | |||||||||||||||||
Core return on risk weighted assets (RoRWA) excluding own credit | 20% | 5% of award vests for average annual Core RoRWA of 1.34% | Average annual Core RoRWA of 1.81% | 0.68% | 0.0% | |||||||||||||||||
Non-Core drag on return on equity (RoE) excluding material items | 10% | 2.5% of award vests for Non-Core drag on RoE of -4.02% | Non-Core drag on RoE of -2.97% | -3.85% | 3.7% | |||||||||||||||||
Loan loss rate | 30% | 10% of award vests for average annual loan loss rate of 75bps | Average annual loan loss rate of 60bps or below | 53bps | 30% | 10% | 2.5% of award vests for average annual loan loss rate of 70bps | Average annual loss rate of 55bps or below | 54bps | 10.0% | ||||||||||||
Balanced Scorecard | 20% | Performance against the Balanced Scorecard was assessed by the Committee to determine the percentage of the award that may vest between 0% and 20%. Each of the 5Cs in the Balanced Scorecard has equal weighting. | See below | 9% | 30% | Performance against the Balanced Scorecard was assessed by the Committee to determine the percentage of the award that may vest between 0% and 30%. Each of the 5Cs in the Balanced Scorecard has equal weighting. | See below | 9.0% | ||||||||||||||
Total | 39% | 52.7% |
Note
a Net generated equity is a metric which converts changes in the CET1 ratio into an absolute capital equivalent measure. The measure is expressed as an average over the period.
A summary of the Committee’s assessment against the Balanced Scorecard performance measure over the three year performance period is provided below.
| ||||
| ||||
Category | Weighting | Performance | Vesting out of maximum 6% for each ‘C’ | |||||
Customer and Client | 6% | ◾ Barclays UK Relationship NPS ended the year with a score +14, with improvement also seen in Barclaycard UK Relationship NPS (c.+2). However, performance against peers remained 4th throughout the period, below our 2018 target of 1st
◾ Client Franchise Rank remained stable at 5th throughout the period. While this is a positive result given our shift in strategy to focus more narrowly on geographies and businesses of strength in the Investment Bank, we are not on track to achieve the 2018 target of Top 3. | 1% | |||||
Colleague | 6% | ◾ Continued improvement of +1% per year in the female representation across senior leadership roles (on a like for like basis excluding Africa) to 23% at the end of 2017
◾ Colleague engagement improved from 74% in 2014 to 75% in 2015 and 2016 and to 78% in 2017. However engagement remains significantly below our 2018 targets. | 2% | |||||
Citizenship | 6% | ◾ Met or exceeded 10/11 initiatives in 2015 and 6/6 Shared Growth Ambition goals in 2016 and 2017. Of particular note:
– Financing to social and environmental segments rising to £31.7bn in 2017
– Global carbon emissions decreased 26.1% against the 2015 baseline
– Supplier payment on time exceeded target of 85% throughout the period. | 4% | |||||
Conduct | 6% | ◾ Conduct reputation, as measured by the YouGov survey, has remained at 5.4 over the period and below our 2018 target of 6.5. | 0% | |||||
Company | 6% | ◾ Significant strengthening in the CET1 ratio over the period, with the CET1 ratio now within our end-state target range | 2% | |||||
◾ However, returns excluding material items (both RoE and RoTE) were below target through much of the period | ||||||||
◾ Cost: income ratio improved but still below long term target. | ||||||||
Total | 30% | 9% |
The LTIP award is also subject to a discretionary underpin whereby the Committee must be satisfied with the underlying financial health of the Group based on profit before tax.Group. The Committee was satisfied that this underpin was met, and accordingly determined that the award should be considered for release to the extent of 39%at 52.7% of the maximum number of shares under the total award. The shares are scheduled to be released in March 2016.2018. After release, the shares are subject to an additional two year holding period.
Pension
Executive Directors are paid cash in lieu of pension contributions. This is market practiceThe cash allowance in 2017 was £396,000 for senior executives in comparable roles.
2015 Annual bonus outcomes
The Committee considered each ofJes Staley and £200,000 for Tushar Morzaria. No other benefits were received by the eligible executive Directors’ performance against the financial and non-financial measures which had been set to reflect the strategic priorities for 2015. Performance against their individual personal objectives (15% weighting overall) is assessed on an individual basis. The Committee may exercise its discretion to amend the formulaic outcome of assessment against the targets.
Financial (50% weighting)
The approach taken to assessing financial performance against each of the financial measures is based on a straight line outcome between 25% for threshold performance and 100% applicable to each measure for achievement of maximum performance.
The formulaic outcomeDirectors from 2015 performance against the financial measures gave a total of 22.1% out of 50% being payable attributable to those measures. A summary of the assessment is provided in the following table.
Financial performance measure | Weighting | Threshold 25% | Maximum 100% | 2015 Actual | | 2015 Outcome | | |||||||||||||||
Adjusted profit before tax | 20% | £5,801m | £7,022m | £5,403m | 0.0% | |||||||||||||||||
Adjusted costs (ex CTA) | 10% | £16,780m | £15,182m | £16,205m | 5.2% | |||||||||||||||||
CET1 ratio | 10% | 10.47% | 11.34% | 11.4% | 10.0% | |||||||||||||||||
Leverage ratio | 10% | 4.17% | 4.72% | 4.5% | 6.9% | |||||||||||||||||
Total Financial | 50% | 22.1% |
Governance: Remuneration report
Annual report on Directors’ remuneration
Balanced Scorecard (35% weighting)
Progress in relation to each of the five ‘Cs’ of the Balanced Scorecard was assessed by the Committee. The Committee took an approach based on a three-point scale in relation to each measure, with 0% to 3% for ‘below’ target, 4% or 5% for a ‘met’ target, and 6% or 7% for ‘above’ target progress against a particular Balanced Scorecard component.
Based on this approach to assessing performance against 2015 Balanced Scorecard milestones, the Committee agreed a 15% outcome out of a maximum of 35%. A summary of the assessment is provided in the following table.
Balanced Scorecard – 5 Cs | Weighting | Metric | | 2015 Target | | | 2015 Actual | | 2015 Assessment by the Committee | 2015 Outcome out of maximum 7% for each ‘C’ | ||||||||
Customer and Client | 7% | PCB, Barclaycard and Africa Banking weighted average ranking of Relationship Net Promoter Score v peer sets Client Franchise Risk | 4th | 4th | Met target | 4.0% | ||||||||||||
5th | 5th | Met target | ||||||||||||||||
Colleague | 7% | Sustained engagement of colleagues’ score | 82-88% | 75% | Below target | |||||||||||||
% women in senior leadership | 23% | 23% | Met target | 2.0% | ||||||||||||||
Citizenship | 7% | Citizenship Plan – initiatives | 11/11 | 10/11 | Below target | 3.0% | ||||||||||||
Conduct | 7% | Conduct Reputation (You Gov Survey) | 5.6/10 | 5.4/10 | Below target | 3.0% | ||||||||||||
Company | 7% | Adjusted return on equity | 5.9% | 4.9% | Below target | |||||||||||||
CET1 ratio | 11.0% | 11.4% | Above target | 3.0% | ||||||||||||||
Total Balanced Scorecard | 35% | 15.0% |
Individual outcomes including assessment of personal objectives
Performance against each of the executive Directors’ individual personal objectives (15% weighting overall) was assessed by the Committee on an individual basis.
(i) Antony Jenkins
A summary of the assessment for Antony Jenkins against his specific performance measures is provided in the following table.
Performance measure | Weighting | Outcome | ||||||||
Financial | See table on page 60 | 50% | 22.1% | |||||||
Balanced Scorecard – 5Cs | See table above | 35% | 15.0% | |||||||
Personal objectives | Judgemental assessment – see below | 15% | 11.0% | |||||||
Total | 100% | 48.1% | ||||||||
Final outcome approved by the Remuneration Committee | 48.1% |
The Committee determined at the time of his departure that he would remain eligible for a pro rated 2015 bonus for the part of the year in which he was Group Chief Executive, subject to an assessment post year end of the relevant performance measures and the general discretion of the Committee. Although it was deemed the appropriate time for Barclays to change Group Chief Executive in mid-2015, the Committee recognised that during the first half of the year Antony Jenkins showed full commitment to continuing to embed a customer and client focused culture backed by the Barclays’ Values and to delivering on financial commitments with particular focus on capital accretion, reducing costs and continuing the run-down of Non-Core. He was also responsible for ensuring that the Conduct Risk Framework was embedded into the business. Given Antony Jenkins’ overall personal performance in the first half of the year, the Committee judged that 11% of a maximum of 15% was appropriate.
In aggregate, the performance assessment resulted in an overall formulaic outcome of 48.1% of maximum bonus opportunity being achieved. The resulting 2015 bonus, pro rated for service, is £505,000.
(ii) Tushar Morzaria
A summary of the assessment for Tushar Morzaria against his specific performance measures is provided in the following table.
Performance measure | Weighting | Outcome | ||||||||
Financial | See table on page 60 | 50% | 22.1% | |||||||
Balanced Scorecard – 5Cs | See table above | 35% | 15.0% | |||||||
Personal objectives | Judgemental assessment – see below | 15% | 13.0% | |||||||
Total | 100% | 50.1% | ||||||||
Final outcome approved by the Remuneration Committee | 50.1% |
The Committee concluded that Tushar Morzaria had delivered a strong personal performance throughout the year, and noted that during the second half of the year (pending Jes Staley’s arrival) this was achieved while discharging considerably increased executive responsibilities. During 2015, Tushar Morzaria continued to drive transformational change, encouraging focus on the simplification of the operating model, including improved process and technology. He managed external relationships very effectively, in particular with shareholders, investors and regulators. He personally worked hard on improving colleague engagement and diversity and actively participated in supporting and promoting Barclays’ Citizenship agenda. He has managed risk effectively and embedded a positive risk culture. He has also fully embedded the Conduct Risk Framework into the activities of Group Finance, Tax and Treasury. The Committee, in particular, recognised Tushar Morzaria’s role in the significant improvement in the Bank’s capital position and in driving further focus on close and effective cost management during 2015. Given this strong personal performance, the Committee judged that 13% of a maximum of 15% attributable to individual objectives was appropriate.
As a result, the formulaic outcome for Tushar Morzaria would be 50.1% of maximum bonus opportunity. The resulting 2015 bonus is £701,000.
Executive Directors: other LTIP awards
The Directors’ remuneration reporting regulations require inclusion in the single total figure of only the value of the LTIP awards whose last year of performance ends in the relevant financial year and whose vesting outcome is known. For 2015,2017, this is the award to Antony JenkinsTushar Morzaria under the 2013-20152015-2017 LTIP cycle and further details are set out on page 59.64. This section sets out other LTIP cycles in which the executive Directors participate, the outcome of which remains dependent on future performance.
LTIP awards to be granted during 20162018
The Committee decided to make an award under the 2016-20182018-2020 LTIP cycle to Jes Staley and Tushar Morzaria (based on their performance in 2017) with a face value at grant of 120% of histheir respective Total fixed pay at 31 December 2015. Jes Staley is not eligible for a grant under the 2016-2018 LTIP cycle.2017.
The 2016-20182018-2020 LTIP award will be subject to the following forward-looking performance measures.
Performance measure | Weighting | Threshold | Maximum vesting | |||
equity (RoTE) excluding | 50% | 10% of award vests for average RoTE of 7.75% (based on an assumed CET1 ratio of c.13%) | Average RoTE of 10.25% | |||
material items | Vesting of this element will depend on CET1 levels during the performance period: ◾ If CET1 goes below the mandatory distribution restrictions (MDR) hurdlea in any year of the period, no part of the RoTE element will vest ◾ If CET1 goes below the MDR hurdle +150bps but remains above the hurdle during the period, the Committee will exercise its discretion to determine what portion of the RoTE element should vest, based on the causes of the CET1 reduction. | |||||
Average cost: income ratio excluding material items | 20% | 4% of award vests for average cost: income ratio of 62.5% | Average cost: income ratio of 58% | |||
Risk Scorecard | 15% | The Risk Scorecard captures a range of risks and is aligned with the annual incentive risk alignment framework reviewed with the regulators. The current framework measures performance against three broad categories - Capital and Liquidity, Control Environment and Conduct - using a combination of quantitative and qualitative metrics. The framework may be updated from time to time in line with the Group’s risk strategy. Specific targets within each of the categories are deemed to be commercially sensitive. Retrospective disclosure will be made in the 2020 Remuneration report, subject to commercial sensitivity no longer remaining. | ||||
Strategic/Non-financial | 15% | The evaluation will focus on key performance measures from the Group Performance Measurement Framework, with a detailed retrospective narrative on progress throughout the period against each category. Performance against the Strategic/Non-financial measures will be assessed by the Committee to determine the percentage of the award that may vest between 0% and 15%. The measures are organised around three main categories: Customer and Client, Colleague and Citizenship. Each of the three main categories has equal weighting. Measures will likely include, but will not be limited to, the following: ◾ Customer and Client: NPS for consumer businesses, client rankings and market shares for the CIB, complaints performance and volume of lending provided to customers and clients. ◾ Colleague: Diversity and Inclusion statistics (including women in senior leadership), Employee sustainable engagement survey scores and conduct and culture measures. ◾ Citizenship: Delivery against our Shared Growth Ambition, Colleague engagement in Citizenship activities and external benchmarks and surveys. |
Note
a The CET1 ratio underpin in 2018 will reference the expected end-state MDR hurdle, currently expected to be 11.4%.
Straight-line vesting applies between the threshold and maximum points in respect of the financial measures.
The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 65 |
Governance: Remuneration report
Annual report on Directors’ remuneration
Outstanding LTIP awards
(i) LTIP awards granted during 2016
The performance measures for the awards made under the 2016-2018 LTIP cycle are as follows:
Performance measure | Weighting | Threshold | Maximum vesting | |||
Return on tangible equity | 25% | 6.25% of award vests for average | ||||
(RoTE) excluding material | of 7.5% | |||||
items | CET1 ratio must remain at or above an acceptable level for any of this element to vest. The threshold will be reviewed and set annually based on market conditions and regulatory requirements | |||||
CET1 ratio as at 31 December | ||||||
| 25% | 6.25% of award vests for CET1 ratio of 11.6% | CET1 ratio of 12.7% | |||
Cost:income ratio excluding | 20% | 5% of award vests for average cost:income | ||||
material items | ratio of 66% | |||||
Risk Scorecard | 15% | Performance against the Risk Scorecard is assessed by the Committee, with input from the Group Risk function, Board Risk Committee and Board Reputation Committee as appropriate, to determine the percentage of the award that may vest between 0% and 15%. | ||||
Balanced Scorecard | 15% | Performance against the Balanced Scorecard is assessed by the Committee to determine the percentage of the award that may vest between 0% and 15%. Each of the 5Cs in the Balanced Scorecard has equal weighting. Assessment will be made against progress towards the 2018 targets. | ||||
Straight-line vesting applies between the threshold and maximum points in respect of the financial measures. The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group. (ii) LTIP awards granted during 2017 An award was made to Jes Staley and Tushar Morzaria on 23 June 2017 under the 2017-2019 LTIP cycle at a share price on the date of grant of £1.9545, in accordance with our DRP. This is the price used to calculate the face value below. |
% of Total fixed pay | Number of shares | Face value at grant | Performance period | |||||||||||||
Jes Staley | 120% | 1,685,955 | 3,295,200 | 2017-2019 | ||||||||||||
Tushar Morzaria | 120% | 1,074,443 | 2,100,000 | 2017-2019 |
The performance measures for the 2017-2019 LTIP awards are as follows:
Performance measure | Weighting | Threshold | Maximum vesting | |||
Return on tangible equity (RoTE) excluding material | 25% | 6.25% of award vests for average RoTE excluding material items of 7.5% | Average RoTE excluding material items of 9.5% | |||
items | CET1 ratio must remain at or above an acceptable level for any of this element to vest. The threshold will be reviewed and set annually based on market conditions and regulatory requirements (11.3% on 31 December 2018) | |||||
CET1 ratio as at 31 December 2019 | 25% | 6.25% of award vests for CET1 ratio 100 basis points above the MDR hurdle | CET1 ratio 200 basis points above the MDR hurdle | |||
Cost: income ratio excluding | 20% | 5% of award vests for average cost: | Average cost: income ratio of 58% | |||
material items | income ratio of 63% | |||||
Risk Scorecard | 15% | The Risk Scorecard captures a range of risks and is aligned with the annual incentive risk alignment framework reviewed with the regulators. The current framework measures performance against three broad categories – Capital and Liquidity, Control Environment and Conduct – using a combination of quantitative and qualitative metrics. The framework may be updated from time to time in line with the Group’s risk strategy. Specific targets within each of the categories are deemed to be commercially sensitive. Retrospective disclosure will be made in the 2019 Remuneration report. | ||||
Strategic/Non-Financial | 15% | The evaluation will focus on key performance measures from the Group Performance Measurement Framework, with a detailed retrospective narrative on progress throughout the period against each category. Performance against the Strategic/Non-financial measures will be assessed by the Committee to determine the percentage of the award that may vest between 0% and 15%. The measures are organised around three main categories: Customer and Client, Colleague and Citizenship. Each of the three main categories has equal weighting. Measures will likely include, but will not be limited to, the following: ◾ Customer and Client: NPS for consumer businesses, Client rankings and market shares for the Corporate and Investment Bank, complaints performance and volume of lending provided to customers and clients. ◾ Colleague: Diversity and Inclusion statistics (including women in senior leadership), Employee sustainable engagement survey scores and conduct and culture measures. ◾ Citizenship: Delivery against our Shared Growth Ambition, Colleague engagement in Citizenship activities and external benchmarks and surveys. |
Straight line
66 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Straight-line vesting applies between the threshold and maximum points in respect of the financial measures.
The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group.
Outstanding LTIP awards
(i) LTIP awards granted during 2014Executive Directors: Statement of implementation of remuneration policy in 2018
The performance measuresexecutive Directors’ package for the awards made under the 2014-2016 LTIP cycle are shown below.2018 can be summarised as follows. Further details can be found on pages 58 to 59.
Straight line vesting applies between the threshold and maximum points in respect of the RoRWA and loan loss rate measures. If the Committee is satisfied with the underlying financial health of the Group based on profit before tax, depending on the extent of its satisfaction, the percentage of Barclays shares that may be considered for release by the Committee under the RoRWA measure can be increased or decreased by 10% of the total award, subject always to a maximum of 50% of the award. Performance outcome will be determined at the end of the performance period. For Antony Jenkins, the resulting number of shares will then be pro-rated to his termination date.
(ii) LTIP awards granted during 2015
Awards were made on 16 March 2015 under the 2015-2017 LTIP cycle at a share price on the date of grant of £2.535, in accordance with our remuneration policy to the executive Directors. This is the price used to calculate the face value below.
% of fixed pay | Number of shares | Face value at grant | Performance period | |||||||||||||
Antony Jenkins | 120% | 1,142,248 | £2,895,599 | 2015-2017 | ||||||||||||
Tushar Morzaria | 120% | 828,402 | £2,099,999 | 2015-2017 |
Governance: Remuneration report
Annual report on Directors’ remuneration
The performance measures for the 2015-2017 LTIP awards are as follows:
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Note
Straight line vesting applies between the threshold and maximum points in respect of the financial and risk measures. The award is subject to a discretionary underpin by which the Committee must be satisfied with the underlying financial health of the Group. For Antony Jenkins, the resulting number of shares will then be pro-rated to his termination date.
Executive Directors: pension (audited)
Jes Staley and Tushar Morzaria receive cash in lieu of pension. The 2015 cash in lieu of pension shown below for Jes Staley is for the period 1 December 2015 to 31 December 2015.
Antony Jenkins left the UK pension scheme in April 2012, and then started receiving cash in lieu of pension. He has benefits in both the final salary 1964 section and in the cash balance Afterwork section. The accrued pension shown below relates to his 1964 section pension only. The other pension entries relate to his benefits in both sections. Antony Jenkins ceased to be an executive Director on 16 July 2015. The 2015 cash in lieu of pension shown below is for the period 1 January 2015 to 16 July 2015.
| Accrued pension at 31 December 2015 £000 |
| | Increase in value of accrued pension over year net of inflation £000 | |
| Normal retirement date |
| | Pension value in 2015 from DB Scheme £000 | | | 2015 Cash in lieu of pension £000 | | | 2015 Total £000 | | |||||||
Antony Jenkins | 4 | 0 | 11 July 2021 | 0 | 197 | 197 | ||||||||||||||||||
Tushar Morzaria | – | – | – | 200 | 200 | |||||||||||||||||||
Jes Staley | – | – | – | 33 | 33 |
Executive Directors: Statement of implementation of remuneration policy in 2016
The introduction of new deferral and LTIP requirements in the Remuneration part of the PRA Rulebook and EBA Guidelines will require some structural changes as to how the approved Directors’ remuneration policy will be implemented in 2016. It is therefore our intent to consult with shareholders over proposed changes once formulated. This section explains how the approved Directors’ remuneration policy would be implemented in 2016 under the current framework.
£ | £ | 1,650,000 | No change from | |||||
£ | £ | |||||||
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Maximum LTIP | 120% of Total fixed paya | 120% of Total fixed paya | ||||||
Bonus and LTIP combined for regulatory | ||||||||
Note
a Total Fixed Pay
The Directors’ remuneration policy sets out the policy on RBP for executive Directors. Following the EBA Guidelines, published in December 2015, and despite the formal power to reduce RBP in the Directors’ remuneration policy, the Committee has agreed, as they also did in 2015, that total fixed pay (salary and RBP elements) will not be reduced in 2016. The Committee will review the structure of RBP in light of the change in regulation and any changes will be reflected in the Directors’ remuneration policy which will be presented to shareholders for approval at the 2017 AGM.is defined as Fixed Pay plus Pension.
Clawback and malus
Clawback applies to any variable remuneration awarded to the executive Directors on or after 1 January 2015. Barclays may apply clawback if at any time during the seven year period from the date on which any variable remuneration is awarded: (i) there is reasonable evidence of individual misbehaviour or material error, and/or (ii) the firm suffers a material failure of risk management, taking account of the individual’s proximity to and responsibility for, that incident. For variable remuneration awards granted to executive Directors in respect of 2016 onwards, the clawback period may be extended to 10 years in circumstances where the Company or a regulatory authority has commenced an investigation which could potentially lead to the application of clawback.
As set out in the Directors’ remuneration policy, malus provisions will continue to apply to unvested deferred awards.
Deferral
A seven year deferral period (with no vesting prior to the third anniversary of award, and vesting no faster than on a pro rata basis between the third and seventh year), will apply to any deferred variable remuneration awarded to the executive Directors in respect of the 2016 performance year onwards.
20162018 Annual bonus performance measures
Performance measures with appropriately stretching targets have been selected to cover a range of financial and non-financial goals that support the key strategic objectives of the Company. The performance measures and weightings are shown below.
Financial |
| Proffit before tax | ||||
| Payout of this element will depend on the CET1 ratio during the performance year: | |||||
A performance target range has been set for each financial measure. | – | |||||
– | If CET1 goes below the end-state MDR hurdle + 150bps but remains above the hurdle during the period, the Committee will exercise its discretion to determine what portion of this element should pay out, based on the causes of the CET1 reduction | |||||
◾ | Cost: income ratio excluding material items (20% weighting). | |||||
Strategic/Non-financial (20%
|
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| Measures will likely include, but will not be limited to, the following: | |||||
◾ | Customer and Client: NPS for consumer businesses, Client rankings and market shares for the Corporate and Investment Bank, complaints performance and volume of lending provided to customers and clients | |||||
◾ | Colleague: Diversity and Inclusion statistics (including women in senior leadership), Employee sustainable engagement survey scores and conduct and culture measures | |||||
◾ | Citizenship: Delivery against our Shared Growth Ambition, Colleague engagement in Citizenship activities and external benchmarks and surveys. | |||||
Personal (20% weighting) | The executive Directors have the following joint personal objectives for | |||||
| deliver on | |||||
| seek opportunities for further cost savings and optimise the | |||||
| complete the Structural Reform programme successfully, ensuring the UK ring-fenced bank is fully operational | |||||
| finalise the implementation plan for an effective Brexit outcome | |||||
◾ | continue to drive strategic initiatives to enhance growth in shareholder value in the medium term | |||||
◾ | manage risk and | |||||
In addition, individual personal objectives for
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| continue to strengthen the Bank’s cyber readiness, operational and financial controls | |||||
| further improve customer and | |||||
◾ | as part of the ongoing succession planning for Group and Business Unit/Functional Executive Committees, continue the focus on improving the percentage of women in senior leader positions. | |||||
Tushar Morzaria: | ||||||
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◾ |
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◾ | demonstrate effective management of external relationships and reputation. |
Note
a The end-state MDR hurdle is currently expected to be 11.4%.
Detailed calibration of the Financial and Balanced Scorecard targets is commercially sensitive and it is not appropriate to disclose this information externally on a prospective basis. Disclosure of achievement against the targets will be made in the 20162018 Annual Report subject to the targets no longer being commercially sensitive. The Committee may exercise its discretion to amend the formulaic outcome of assessment against the targets. Any exercise of discretion will be disclosed and explained.
Governance: Remuneration report
Annual report on Directors’ remuneration
Illustrative scenarios for executive Directors’ remuneration
The charts below show the potential value of the current executive Directors’ 20162018 total remuneration in three scenarios: ‘Minimum’ (i.e. fixed pay only)Fixed Pay, Pension and benefits), ‘Maximum’ (i.e. fixed payFixed Pay, Pension, benefits and the maximum variable pay that may be awarded) and ‘Mid-point’ (i.e. fixed payFixed Pay, Pension, benefits and 50% of the maximum variable pay that may be awarded). For the purposes of these charts, the value of benefits is based on an estimated annual value.value for 2018. The scenarios do not reflect share price movement between award and vesting. LTIP is included at face value; the amount received and included in the single total figure for remuneration will depend on performance over the performance period.
A significant proportion of the potential remuneration of the executive Directors is variable and is therefore performance related.performance-related. It is also subject to deferral, additional holding periods, malus and clawback.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 67 |
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Governance: Remuneration report
Annual report on Directors’ remuneration
In the above illustrative scenarios, benefits include regular contractual benefits. Additional ad hoc benefits may arise, for example, overseas relocation of executive Directors, but will always be provided in line with the Directors’ remuneration policy.DRP.
Performance graph and table
The performance graph below illustrates the performance of Barclays over the financial years from 2009 to 20152017 in terms of total shareholder return compared with that of the companies comprising the FTSE 100 index. The index has been selected because it represents a cross-section of leading UK companies.
In addition, the table below provides a summary of the total remuneration of the relevant Group Chief Executive over the same period as the previousabove graph. For the purpose of calculating the value of the remuneration of the Group Chief Executive, data has been collated on a basis consistent with the ‘single figure’ methodology.
The table also provides pay ratios of the Group Chief Executive’s total remuneration to average remuneration for UK employees and the Group Executive Committee (Group ExCo) respectively.
Year | 2009 | 2010 | 2011 | 2012 | 2012 | 2013 | 2014 | | 2015 | | 2015 | 2015 | ||||||||||||||||||||||||||||
Group Chief Executive | | John Varley | | | John Varley | | | Bob Diamond | | | Bob Diamonda | | | Antony Jenkinsb | | | Antony Jenkins | | | Antony Jenkins | |
| Antony Jenkinsb |
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| John McFarlanec |
| | Jes Staleyd | | ||||||||||
Group Chief Executive single figure of total remuneration £000s | 2,050 | 4,567 | 11,070e | 1,892 | 529 | 1,602 | 5,467f | 3,399 | 305 | 277 | ||||||||||||||||||||||||||||||
Annual bonus against maximum opportunity % | 0% | 100% | 80% | 0% | 0% | 0% | 57% | 48% | N/A | N/A | ||||||||||||||||||||||||||||||
Long-term incentive vesting against maximum opportunity % | 50% | 16% | N/Af | 0% | N/Ag | N/Ag | 30% | 39% | N/Ag | N/Ag |
Year | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||
Group Chief Executive | | John Varley | | | John Varley | | | Bob Diamond | | | Bob Diamond | a | | Antony Jenkins | b | | Antony Jenkins | | | Antony Jenkins | | | Antony Jenkins | b | | John McFarlane | c | | Jes Staley | d | | Jes Staley | | | Jes Staley | | ||||||||||||
Group Chief Executive single figure of total remuneration £000s | 2,050 | 4,567 | 11,070 | e | 1,892 | 529 | 1,602 | 5,467 | f | 3,399 | 305 | 277 | 4,233 | 3,873 | ||||||||||||||||||||||||||||||||||
Annual bonus against maximum opportunity % | 0% | 100% | 80% | 0% | 0% | 0% | 57% | 48% | N/A | N/A | 60% | 48.5% | ||||||||||||||||||||||||||||||||||||
Long-term incentive vesting against maximum opportunity % | 50% | 16% | N/A | g | 0% | N/A | g | N/A | g | 30% | 39% | N/A | g | N/A | g | N/A | g | N/A | g | |||||||||||||||||||||||||||||
Ratio of single figure of total remuneration to: | ||||||||||||||||||||||||||||||||||||||||||||||||
UK employee median | 75 x | 165 x | 391 x | 84 x | 54 x | 175 x | 126 x | 137 x | 119 x | |||||||||||||||||||||||||||||||||||||||
UK employee mean | 39 x | 86 x | 204 x | 44 x | 29 x | 94 x | 69 x | 73 x | 65 x | |||||||||||||||||||||||||||||||||||||||
Ratio of single figure of total remuneration to: | ||||||||||||||||||||||||||||||||||||||||||||||||
Group ExCo median | 0.5 x | 1.0 x | 2.4 x | 1.2 x | 0.4 x | 2.2 x | 1.6 x | 1.1 x | 1.0 x | |||||||||||||||||||||||||||||||||||||||
Group ExCo mean | 0.3 x | 0.5 x | 1.3 x | 0.8 x | 0.4 x | 2.0 x | 1.3 x | 1.1 x | 0.7 x |
Notes
a | Bob Diamond left the Board on 3 July 2012. |
b | Antony Jenkins became Group Chief Executive on 30 August 2012 and left the Board on 16 July 2015. |
c | John McFarlane was Executive Chairman from 17 July 2015 to 30 November 2015. His fees, which remained unchanged, have been pro-rated for his time in the position. He was not eligible to receive a bonus or LTIP. |
d | Jes Staley became Group Chief Executive on 1 December 2015. |
e | This figure includes £5,745k tax equalisation as set out in the 2011 Remuneration report. Bob Diamond was tax equalised on tax above the UK rate where that could not be offset by a double tax treaty. |
f | Antony Jenkins’ 2014 pay is higher than in earlier years since he declined a bonus in 2012 and 2013 and did not have LTIP vesting in those years. |
g | Not a participant in a long-term incentive award which vested in the period. |
As we focus on our fair pay agenda, we are publishing our CEO pay ratios two years in advance of the disclosure becoming a statutory requirement. The pay ratios compare amounts disclosed in the single total figure table for the Group Chief Executive to (a) the median and mean annual total compensation of all UK employees, and (b) the median and mean annual total compensation of the Group ExCo. Where there was more than one Group Chief Executive in a given year (2012 and 2015), the pay ratio references the sum of the Group Chief Executive single total figure for that year.
68 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
It is worth noting that the ratios can be volatile. This is a result of a number of factors, including the tenure of our Group Chief Executives and the variation in LTIP payouts (in some years, the Group Chief Executive may not be a participant in a vesting LTIP). Our current Group Chief Executive’s Fixed Pay is fixed for the duration of the current DRP, his 2017 bonus has reduced from 2016 and he has no LTIP vesting this year. This contrasts with the outcome for more junior populations where average fixed pay and average bonuses have increased between 2016 and 2017.
Percentage change in Group Chief Executive’s remuneration
The table below shows how the percentage change in the Group Chief Executive’s salary, benefits and bonus between 20142016 and 2015 compares2017 compared with the percentage change in the average of each of those components of pay for UK based employees.
Salary | Role Based Pay | Benefits | Annual bonus | |||||||||
Group Chief Executivea | 0.0% | 0.0% | 20.0%b | (15.6%) | ||||||||
Average based on UK employeesc | 3.0% | 12.2%d | 0.0% | (8.0%) |
Fixed Pay | Benefits | Annual bonus | ||||||||||
Group Chief Executive | 0% | -63.3% | -19.2% | |||||||||
Average based on UK employeesa | 3.3% | 0.6% | 1.2% |
NotesNote
a Certain populations were excluded to enable a meaningful like for like comparison.
We have chosen UK based employees as the comparator group as it is the most representative group for pay structure comparisons.
Relative importance of spend on pay
A year on year comparison of the relative importance of payGroup compensation costs and distributions to shareholders is shown below. 2015 Group compensation costs have reduced by 6% and dividends to shareholders have increased 2% from 2014.
Total remuneration of the employees in the Barclays Group
The table below shows the number of employees in the Barclays Group as at 31 December 2016 and 2017 in bands by reference to total remuneration. Total remuneration comprises salary, RBP, other allowances, bonus and the value at award of LTIP awards.
Total remuneration of the employees in the Barclays Group
Number of employees | ||||||||||||
2017 | 2016 | 2016 | ||||||||||
Remuneration band | Constant currency | Actual | ||||||||||
£0 to £25,000 | 31,406 | 33,434 | 33,989 | |||||||||
£25,001 to £50,000 | 24,280 | 23,081 | 22,927 | |||||||||
£50,001 to £100,000 | 17,604 | 16,942 | 17,063 | |||||||||
£100,001 to £250,000 | 9,818 | 9,453 | 9,098 | |||||||||
£250,001 to £500,000 | 2,113 | 2,183 | 2,093 | |||||||||
£500,001 to £1,000,000 | 811 | 829 | 771 | |||||||||
£1,000,001 to £2,000,000 | 262 | 273 | 264 | |||||||||
£2,000,001 to £3,000,000 | 70 | 65 | 61 | |||||||||
£3,000,001 to £4,000,000 | 21 | 26 | 21 | |||||||||
£4,000,001 to £5,000,000 | 5 | 7 | 7 | |||||||||
£5,000,001 to £6,000,000 | 7 | 9 | 9 | |||||||||
Above £6,000,000 | 4 | 3 | 2 |
Barclays is a global business. Of those employees earning above £1m in total remuneration for 2017 in the table above, 61% are based in the US, 32% in the UK, and 7% in the rest of the world.
The number of employees paid above £1m is down year on year on a constant currency basis (369 in 2017 vs. 383 in 2016).
Barclays PLC and Barclays Bank PLC |
Governance: Remuneration report
Annual report on Directors’ remuneration
Chairman and non-executive Directors
Remuneration for non-executive Directors reflects their responsibilities and time commitment and the level of fees paid to non-executive Directors of comparable major UK companies.
Chairman and non-executive Directors: Single total figure for 20152017 fees (audited)
Fees | Benefits | Total | ||||||||||||||||||||||
| 2015 £000 | | | 2014 £000 | | | 2015 £000 | | | 2014 £000 | | | 2015 £000 | | | 2014 £000 | | |||||||
Chairman | ||||||||||||||||||||||||
John McFarlanea | 628 | – | 11 | – | 639 | – | ||||||||||||||||||
Sir David Walkerb | 285 | 750 | 6 | 19 | 291 | 769 | ||||||||||||||||||
Non-executive Directors | ||||||||||||||||||||||||
Mike Ashley | 207 | 213 | – | – | 207 | 213 | ||||||||||||||||||
Tim Breedon | 232 | 240 | – | – | 232 | 240 | ||||||||||||||||||
Crawford Gilliesc | 178 | 91 | – | – | 178 | 91 | ||||||||||||||||||
Reuben Jeffery III | 135 | 160 | – | – | 135 | 160 | ||||||||||||||||||
Wendy Lucas-Bulld | 358 | 367 | – | – | 358 | 367 | ||||||||||||||||||
Dambisa Moyo | 152 | 151 | – | – | 152 | 151 | ||||||||||||||||||
Frits van Paasschen | 88 | 80 | – | – | 88 | 80 | ||||||||||||||||||
Sir Michael Rakee | 250 | 250 | – | – | 250 | 250 | ||||||||||||||||||
Diane de Saint Victor | 135 | 135 | – | – | 135 | 135 | ||||||||||||||||||
Diane Schuenemanfk | 74 | – | – | – | 74 | – | ||||||||||||||||||
Sir John Sunderlandg | 60 | 190 | – | – | 60 | 190 | ||||||||||||||||||
Steve Thiekehk | 184 | 131 | – | – | 184 | 131 | ||||||||||||||||||
Fulvio Contii | – | 37 | – | – | – | 37 | ||||||||||||||||||
Simon Fraserj | – | 47 | – | – | – | 47 | ||||||||||||||||||
Total | 2,966 | 2,842 | 17 | 19 | 2,983 | 2,861 |
Fees | Benefits | Total | ||||||||||||||||||||||
2017 £000 | 2016 £000 | 2017 £000 | 2016 £000 | 2017 £000 | 2016 £000 | |||||||||||||||||||
Chairman | ||||||||||||||||||||||||
John McFarlane | 800 | 800 | 2 | 1 | 802 | 801 | ||||||||||||||||||
Non-executive Directors | ||||||||||||||||||||||||
Mike Ashley | 215 | 207 | – | – | 215 | 207 | ||||||||||||||||||
Tim Breedon | 225 | 220 | – | – | 225 | 220 | ||||||||||||||||||
Sir Ian Cheshirea | 360 | – | – | – | 360 | – | ||||||||||||||||||
Mary Francisb | 135 | 29 | – | – | 135 | 29 | ||||||||||||||||||
Crawford Gillies | 195 | 195 | – | – | 195 | 195 | ||||||||||||||||||
Sir Gerry Grimstonec | 375 | 250 | – | – | 375 | 250 | ||||||||||||||||||
Reuben Jeffery III | 120 | 120 | – | – | 120 | 120 | ||||||||||||||||||
Matthew Lesterd | 45 | – | – | – | 45 | – | ||||||||||||||||||
Dambisa Moyo | 135 | 135 | – | – | 135 | 135 | ||||||||||||||||||
Diane de Saint Victore | 38 | 118 | – | – | 38 | 118 | ||||||||||||||||||
Diane Schuenemanfg | 308 | 232 | – | – | 308 | 232 | ||||||||||||||||||
Steve Thiekefh | 87 | 221 | – | – | 87 | 221 | ||||||||||||||||||
Wendy Lucas-Bulli | – | 64 | – | – | – | 64 | ||||||||||||||||||
Frits van Paasschenj | – | 35 | – | – | – | 35 | ||||||||||||||||||
Total | 3,038 | 2,626 | 2 | 1 | 3,040 | 2,627 |
Non-executive Directors are reimbursed expenses that are incurred for business reasons. Any tax that arises on these reimbursed expenses is paid by Barclays.
The Chairman is provided with private medical cover and the use of a companyCompany vehicle and driver when required for business purposes.
Notes
a |
b | Mary Francis joined the Board as a non-executive Director with effect from 1 |
c |
d | Matthew Lester joined the Board as a non-executive Director with effect from 1 |
Diane de Saint Victor retired from the Board with effect from 10 May 2017. |
f | Diane Schueneman and Steve Thieke both served in 2016 on the US Governance Review Board and subsequently the board of the US intermediate holding company on its formation. The |
g | Diane Schuneneman was appointed Chair of the Group Service Company Board on 1 September 2017. The 2017 figure |
h | Steve Thieke retired from the Board with effect from 10 May 2017. |
i | Wendy Lucas-Bull retired from the Board with effect from 1 March 2016. 2016 figures include fees received by Wendy Lucas-Bull for her role as Chairman of |
Chairman and non-executive Directors: Statement of implementation of remuneration policy in 20162018
20162018 fees, subject to annual review in line with policy, for the Chairman and non-executive Directors are shown below.
| 1 January 2016 £000 | | | 1 January 2015 £000 | | | Percentage Increase | | 1 January 2018 £000 | 1 January 2017 £000 | ||||||||||
Chairmana | 800b | 750 | – | 800 | 800 | |||||||||||||||
Deputy Chairmana | 250 | 250 | 0 | |||||||||||||||||
Board member | 80 | 80 | 0 | |||||||||||||||||
Deputy Chairmanb | 250 | 250 | ||||||||||||||||||
Board memberc | 80 | 80 | ||||||||||||||||||
Additional responsibilities | ||||||||||||||||||||
Senior Independent Director | 30 | 30 | 0 | 30 | 30 | |||||||||||||||
Chairman of Board Audit or Board Remuneration Committee | 70 | 70 | 0 | 70 | 70 | |||||||||||||||
Chairman of Board Risk Committee | 60 | 60 | 0 | 70 | 70 | |||||||||||||||
Chairman of Board Reputation Committee | 50 | 50 | 0 | 50 | 50 | |||||||||||||||
Membership of Board Audit or Board Remuneration Committee | 30 | 30 | 0 | 30 | 30 | |||||||||||||||
Membership of Board Reputation or Board Risk Committee | 25 | 25 | 0 | 25 | 25 | |||||||||||||||
Membership of Board Nominations Committee | 15 | 15 | 0 | 15 | 15 |
Notes
a | The Chairman |
b |
c | The basic Board member fee payable to non-executive Directors was |
70 Barclays PLC and Barclays Bank PLC |
Payments to former Directors
Former Group Chief Executive: Antony Jenkins
Antony Jenkins ceased to be Group Chief Executive on 16 July 2015. In accordance with his contractual entitlements, Antony Jenkins will receive base salary, RBP, benefits and pension until 7 July 2016 (the Termination Date). These payments are being made in instalments and are subject to mitigation in the event that Antony Jenkins brings his termination date forward.
The Committee carefully considered the circumstances of Antony Jenkins’ departure, taking into account his contribution in bringing the Group to a much stronger position during a difficult period for the Group. Against that background, the Committee agreed to exercise its discretion to treat Antony Jenkins as an eligible leaver for the purposes of his variable pay in accordance with the Directors’ remuneration policy approved by shareholders at the 2014 AGM. The Committee agreed that:
The Company has paid £106k in respect of outplacement services and legal costs in connection with Antony Jenkins’ termination of employment in line with the approved Directors’ remuneration policy on terminations.
Former Group Finance Director: Chris Lucas
In 2015,2017, Chris Lucas continued to be eligible to receive life assurance cover, private medical cover and payments under the Executive Income Protection Plan (EIPP). Full details of his eligibility under the EIPP were disclosed in the 2013 Directors’ Remuneration report (page 91 of 2013 Form 20-F).report. Chris Lucas did not receive any other payment or benefit in 2015.2017.
Other policy information
Outside appointments
During the period while he was Executive Chairman, John McFarlane retained fees in respect of external directorships at Westfield Corporation Limited of $62k and at Old Oak Holdings Limited of £37k.
Directors’ shareholdings and share interests
Executive Directors’ shareholdings and share interests
The chart below shows the value of Barclays’ shares held beneficially by Jes Staley and Tushar Morzaria as at 2619 February 20162018 that count towards the shareholding requirement of, as a minimum, Barclays’ shares worth four times salary.200% of Total fixed pay (i.e. Fixed Pay plus Pension). The current executive Directors have five years from their respective date of appointment to meet this requirement. At close of business on 2619 February 2016,2018, the market value of BarclaysBarclays’ ordinary shares was £1.6910.
Jes Staley (£000)
Tushar Morzaria (£000)
Tushar Morzaria (£000) | ||||||||||||||||||||||
Requirement | £ | 5,492 | Requirement | £3,700 | ||||||||||||||||||
Actual | £9,132 | Actual | £4,354 | |||||||||||||||||||
Governance: Remuneration report
Annual report on Directors’ remuneration
Interests in Barclays PLC shares
The table below shows shares owned beneficially by all the Directors and shares over which executive Directors hold awards which are subject to either deferral terms and/or performance measures. The shares shown below that are subject to performance measures are based on the maximum number of shares that may be released (before pro-rating for Antony Jenkins).
Interests in Barclays PLC shares (audited)released.
| Total as at 31 December 2015 (or date |
| ||||||||||||||||||
Unvested | ||||||||||||||||||||
Owned outright | | Subject to performance measures | | | Not subject to performance measures | | | of retirement from the Board, if earlier) | | | Total as at 26 February 2016 | | ||||||||
Executive Directors | ||||||||||||||||||||
Antony Jenkinsa | 5,540,236 | 4,579,983 | 260,355 | 10,380,574 | – | |||||||||||||||
Tushar Morzaria | 931,310 | 2,204,213 | 741,829 | 3,877,352 | 3,877,352 | |||||||||||||||
Jes Staleyb | 2,812,997 | – | 896,450 | 3,709,447 | 3,709,447 | |||||||||||||||
Chairman | ||||||||||||||||||||
John McFarlanec | 11,995 | – | – | 11,995 | 11,995 | |||||||||||||||
Sir David Walkerd | 151,455 | – | – | 151,455 | – | |||||||||||||||
Non-executive Directors | ||||||||||||||||||||
Mike Ashley | 23,547 | – | – | 23,547 | 23,547 | |||||||||||||||
Tim Breedon | 19,196 | – | – | 19,196 | 19,196 | |||||||||||||||
Crawford Gillies | 58,856 | – | – | 58,856 | 58,856 | |||||||||||||||
Reuben Jeffery III | 184,988 | – | – | 184,988 | 184,988 | |||||||||||||||
Wendy Lucas-Bull | 14,672 | – | – | 14,672 | 14,672 | |||||||||||||||
Dambisa Moyo | 40,696 | – | – | 40,696 | 40,696 | |||||||||||||||
Frits van Paasschen | 17,184 | – | – | 17,184 | 17,184 | |||||||||||||||
Sir Michael Rakee | 75,670 | – | – | 75,670 | – | |||||||||||||||
Diane de Saint Victor | 21,579 | – | – | 21,579 | 21,579 | |||||||||||||||
Diane Schuenemanf | 2,000 | – | – | 2,000 | 2,000 | |||||||||||||||
Sir John Sunderlandg | 139,081 | – | – | 139,081 | – | |||||||||||||||
Steve Thieke | 23,123 | – | – | 23,123 | 23,123 | |||||||||||||||
Sir Gerry Grimstoneh | – | – | – | – | 97,045 |
Unvested | Total as at | |||||||||||||||||||
Owned outright | Subject to performance measures | Not subject to performance measures | 31 December 2017 (or date of retirement from the Board, if earlier) | Total as at 19 February 2018 | ||||||||||||||||
Executive Directors | ||||||||||||||||||||
Jes Staley | 4,543,088 | 3,172,878 | 492,782 | 8,208,748 | 8,208,748 | |||||||||||||||
Tushar Morzaria | 2,166,204 | 1,685,955 | 398,406 | 4,250,565 | 4,250,565 | |||||||||||||||
Chairman | ||||||||||||||||||||
John McFarlane | 72,043 | – | – | 72,043 | 72,043 | |||||||||||||||
Non-executive Directors | ||||||||||||||||||||
Mike Ashley | 73,517 | – | – | 73,517 | 73,517 | |||||||||||||||
Tim Breedon | 37,124 | – | – | 37,124 | 37,124 | |||||||||||||||
Sir Ian Cheshirea | 82,851 | – | – | 82,851 | 82,851 | |||||||||||||||
Mary Francis | 14,099 | – | – | 14,099 | 14,099 | |||||||||||||||
Crawford Gillies | 77,796 | – | – | 77,796 | 77,796 | |||||||||||||||
Sir Gerry Grimstone | 110,972 | – | – | 110,972 | 110,972 | |||||||||||||||
Reuben Jeffery III | 211,189 | – | – | 211,189 | 211,189 | |||||||||||||||
Matthew Lesterb | 10,000 | – | – | 10,000 | 10,000 | |||||||||||||||
Dambisa Moyo | 59,036 | – | – | 59,036 | 59,036 | |||||||||||||||
Diane de Saint Victorc | 42,823 | – | – | 42,823 | – | |||||||||||||||
Diane Schueneman | 27,255 | – | – | 27,255 | 27,255 | |||||||||||||||
Steve Thieked | 59,724 | – | – | 59,724 | – | |||||||||||||||
Mike Turnere | – | – | – | – | – |
Notes
a |
b |
c |
d | Steve Thieke retired from the Board as a non-executive Director with effect from 10 May 2017. |
e | Mike Turner joined the Board as a non-executive Director with effect from 1 January |
Barclays PLC and Barclays Bank PLC |
Governance: Remuneration report
Annual report on Directors’ remuneration
Barclays Board Remuneration Committee
The Board Remuneration Committee is responsible for overseeing Barclays’ remuneration as described in more detail below.
Terms of Reference
The role of the Committee is to:
set the overarching principles and parameters of remuneration policy across the |
consider and approve the remuneration arrangements of (i) the Chairman, (ii) the executive Directors, (iii) members of the Barclays Group Executive Committee and any other senior executives specified by the Committee from time to time, and |
exercise oversight for remuneration issues. |
The Committee considers all aspects of the design and operation of remuneration policy to ensure a coherent approach is taken in respect of all employees. In discharging this responsibility the Committee seeks to ensure that the policy assesses, among other things, the impact of pay arrangements on culture and all elements of risk management. The Committee also considersapproves incentive pools for all major businesses and approves buy-outs of forfeited rights for new hires of £2m or more, and packages on termination where the total discretionary value is £1m or more. Itfunctions, reviews the policy relating to all remuneration plans including pensions,design and provision of retirement benefits, and considers and approves measures designed to promote the alignment of the interests of shareholders and employees. ItThe Committee and its members work as necessary with other Board Committees, and is also responsible for the selectionauthorised to select and appointment ofappoint its independent remuneration adviser.own advisers as required.
The Terms of Reference can be found at home.barclays/corporategovernance or from the Company Secretary on request.
Chairman and members
The Chairman and members of the Committee are as follows:
Crawford Gillies, Committee member since 1 May 2014 and Chairman since 24 April 2015 |
Tim Breedon, Committee member since 1 December 2012 |
Dambisa Moyo, Committee member since 1 September |
Former Chairman and members
Members who left the Committee during 2015 were as follows:
All current members are considered independent by the Board.
Remuneration Committee attendance in 20152017
| Number of meetings eligible to attend | | | Number of meetings attended | | |||
Crawford Gillies | 7 | 7 | ||||||
Tim Breedon | 7 | 7 | ||||||
Steve Thieke | 7 | 7 | ||||||
Dambisa Moyo | 4 | 4 | ||||||
Sir John Sunderland | 1 | 1 | ||||||
Sir David Walker | 1 | 1 |
Meetings attended/eligible to attend | ||||
Crawford Gillies | 7/7 | |||
Tim Breedon | 7/7 | |||
Mary Francis | 7/7 | |||
Dambisa Moyo | 7/7 |
The performance of the Committee is reviewed each year as part of the Board Effectiveness Review. The December 2015results of the January 2018 review were positive and concluded that Board members have confidence in the effectivenessCommittee is composed of the Committee.right level of experience and skills. Full details of the Board Effectiveness reviewReview can be found on pages 33 and 34.page 36.
Advisers to the Remuneration Committee
During 2015,Between February 2016 and September 2017, the Board Remuneration Committee did not engage an independent adviser.
PricewaterhouseCoopers (PwC) was appointed as the independent adviser to the Committee in October 2017. Prior to the appointment of KPMG as auditors on 31 March 2017 (and formally approved at the 2017 AGM in May 2017), PwC was advised by Towers Watson (now known as Willis Towers Watson.the Group’s external auditor. The Committee is satisfied that the advice provided by Towers WatsonPwC to the Committee is independent. Towers Watsonindependent and objective. PwC is a signatory to, and its appointment as adviser to the Committee is conditional on adherence to the voluntary UK Code of Conduct for executive remuneration consultants.
Throughout 2017, Willis Towers Watson’s work in 2015 included advisingWatson continued to provide the Committee and providing the latestwith market data on compensation and trends when considering incentive levels and remuneration packages. A representative from
PwC and Willis Towers Watson attends Committee meetings. When requested by the Committee, Towers Watson is available to advise and meet with the Committee members separate from management.
Fees for Committee work are charged on a time/cost basis and Towers Watson waswere paid a total of £195,000£78,000 in aggregate (excluding VAT) in fees for itstheir advice to the Committee in 20152017 relating to the executive Directors (either exclusively or along with other employees within the Committee’s Terms of Reference).
Towers Watson provides pensionsIn addition to advising the Committee, PwC provided unrelated consulting advice advice on health and benefits provision, assistance and technology support for employee surveys and performance management, and remuneration data to the Group. Towers Watson also provides pensions adviceGroup in respect of corporate taxation, climate-related financial disclosures, data strategy, technology consulting and administration services to the Barclays Bank UK Retirement Fund.
The Committee regularly reviews the objectivity and independence of the advice it receives from Towers Watson.internal audit.
In the course of its deliberations, the Committee also considers the views of the Group Chief Executive, the Group Human Resources Director and the Group Reward and Performance Director. The Group Finance Director and the Chief Risk Officer provide regular updates on Group and business financial performance and the Group’s risk profile respectively.
No Barclays‘Barclays’ employee or Director participates in discussions with, or decisions of, the Committee relating to his or her own remuneration. No other advisers provided significant services to the Committee in the year.
Governance: Remuneration report
Annual report on Directors’ remuneration
Remuneration Committee activities in 20152017
The following provides a summary of the Committee’s activities during 20152017 and at the January and February 20162018 meetings when 2015at which 2017 remuneration decisions were finalised.
Meeting | Fixed and variable pay issues | Governance, risk and other mattersa | ||||||
January 2017 |
| 2016 incentive funding proposals including risk adjustments | ||||||
| 2016 bonus proposals for senior executives | |||||||
◾ | Barclays deferral approach | |||||||
February 2017 | ◾ | Approved executive Directors’ and senior executives’ | ◾ | Approved 2016 Remuneration report | ||||
|
Review of
| |||||||
| Approved | |||||||
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| Approved final | |||||||
| Approved proposals for executive Directors’ and senior executives’ | |||||||
April 2017
| ||||||||
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| Consideration of whistleblowing event
| ||||||
May 2017 | ◾ | Non-executive Directors’ fees for subsidiary boards
| ||||||
July 2017 | ◾ | Incentive funding approach | ◾ | Structural Reform update | ||||
◾ | 2017 ex ante risk adjustment methodology | ◾ | Gender Pay Gap reporting | |||||
|
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|
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| Non-executive Directors’ fees for subsidiary boards
| |||||||
October 2017 | ◾ | 2017 incentive funding projections including risk adjustments | ◾ | US benefits arrangements | ||||
◾ | Annual review of Group Chairman’s remuneration
|
| BAGL – approach for 2017 pay round | |||||
December 2017 | ◾ | Initial considerations on executive Directors’ and senior executives’ 2017 bonuses and 2018 fixed pay and bonus approach | ◾ | Review of Committee activity, Terms of Reference and Control Framework | ||||
◾ | 2018 LTIP performance measures | |||||||
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2017 incentive funding proposals including risk adjustments |
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January 2018 | ◾ | 2017 incentive funding proposals including risk adjustments | ◾ | Non-executive Directors’ fees for subsidiary boards | ||||
◾ | 2017 bonus proposals for senior executives | |||||||
February 2018 | ◾ | Approved executive Directors’ and senior executives’ 2018 fixed pay | ◾ | Approved 2017 Remuneration report | ||||
◾ | Review of Committee effectiveness | |||||||
◾ | Approved 2018 executive Directors’ annual bonus performance measures | |||||||
◾ | Group fixed pay budgets for 2018 | |||||||
◾ | Approved final 2017 incentive funding including risk adjustments | |||||||
◾ | Approved proposals for executive Directors’ and senior executives’ 2017 bonuses and 2018-2020 LTIP awards for executive Directors |
Regular items: market and stakeholder updates including PRA/FCA, US Federal Reserve and other regulatory matters; updates fromNote
a | The Committee is also provided with updates at each scheduled meeting on: regulatory and stakeholder matters, Finance and Risk, Remuneration Review Panel meetings, operation of the Committee’s Control Framework on hiring, retention and termination, headcount and employee attrition, and extant LTIP performance. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 73 |
Governance: Remuneration Review Panel meetings; operation of the Committee’s Control Framework on hiring, retention and termination; and LTIP performance updates.report
Statement of shareholder voting at Annual General Meeting
The table below shows the voting result in respect of our remuneration arrangements at the AGM held on 23 April 2015 and the last policy vote at10 May 2017:
For % of votes cast | Against % of votes cast | Withheld Number | ||||||||||
Advisory vote on the 2016 Remuneration report | 97.22% | 2.78% | ||||||||||
11,879,285,601 | 339,664,546 | 152,439,545 | ||||||||||
Binding vote on the Directors’ remuneration policy | 97.91% | 2.09% | ||||||||||
12,062,616,141 | 257,416,828 | 51,369,054 |
At the AGM held on 24 April 2014:
For % of votes cast Number | Against % of votes cast Number | Withheld Number | ||||
Advisory vote on the 2014 Remuneration report | 97.50% | 2.50% | ||||
11,385,216,004 | 291,926,107 | 63,613,057 | ||||
Binding vote on the Directors’ remuneration policy | 93.21% | 6.79% | ||||
9,936,116,114 | 723,914,712 | 154,598,278 |
74 Barclays PLC and Barclays Bank PLC |
Governance: Remuneration report
Additional remuneration disclosures
This section contains voluntary disclosures about levels of remuneration for our eight most highly paid senior executive officers and levels of remuneration of employees in the Barclays Group.
2015 total remuneration of the eight highest paid senior executive officers below Board level
The table below shows remuneration for the eight highest paid senior executive officers below Board level who were Key Management Personnel in 2015.
Eight highest paid senior executive officers below Board level
| 1 2015 | | | 2 2015 | | | 3 2015 | | | 4 2015 | | | 5 2015 | | | 6 2015 | | | 7 2015 | | | 8 2015 | | |||||||||
Fixed Pay (salary and RBP) | 3,150 | 1,500 | 1,700 | 1,300 | 2,050 | 1,192 | 878 | 661 | ||||||||||||||||||||||||
Current year cash bonus | – | 600 | 320 | 320 | 100 | 140 | 180 | 204 | ||||||||||||||||||||||||
Current year share bonus | – | 600 | 320 | 320 | 100 | 140 | 180 | 204 | ||||||||||||||||||||||||
Deferred cash bonus | 3,150 | 900 | 480 | 480 | 150 | 210 | 270 | 306 | ||||||||||||||||||||||||
Deferred share bonus | 3,150 | 900 | 480 | 480 | 150 | 210 | 270 | 306 | ||||||||||||||||||||||||
Total remuneration | 9,450 | 4,500 | 3,300 | 2,900 | 2,550 | 1,892 | 1,778 | 1,681 |
Total remuneration of the employees in the Barclays Group
The table below shows the number of employees in the Barclays Group in 2014 and 2015 in bands by reference to total remuneration. Total remuneration comprises salary, RBP, other allowances, bonus and the value at award of LTIP awards.
Total remuneration of the employees in the Barclays Group
Number of employees | ||||||||
Remuneration band | 2015 | 2014 | ||||||
£0 to £25,000 | 71,886 | 72,262 | ||||||
£25,001 to £50,000 | 31,804 | 33,760 | ||||||
£50,001 to £100,000 | 21,196 | 20,491 | ||||||
£100,001 to £250,000 | 9,903 | 9,000 | ||||||
£250,001 to £500,000 | 2,266 | 2,323 | ||||||
£500,001 to £1,000,000 | 761 | 871 | ||||||
£1,000,001 to £2,500,000 | 268 | 301 | ||||||
£2,500,001 to £5,000,000 | 50 | 55 | ||||||
Above £5m | 5 | 3 |
Barclays is a global business. Of those employees earning above £1m in total remuneration for 2015 in the table above, 55% are based in the US, 34% in the UK, and 11% in the rest of the world.
The number of employees paid above £1m has reduced from 359 in 2014 to 323 in 2015.
Governance: Remuneration reportRisk review
Additional remuneration disclosuresContents
Outstanding share plan and long-term incentive plan awards (audited)
Plan | | Number of shares under award at 1 January 2015 (maximum) | | | Number of shares awarded in year (maximum) | | | Market price on award date | | | Number of shares released | | | Market price on release date | | |||||
Antony Jenkins | ||||||||||||||||||||
Barclays LTIP 2012-2014 | 1,139,217 | – | £1.81 | 332,286 | £2.67 | |||||||||||||||
Barclays LTIP 2012-2014 | 1,371,280 | – | £1.86 | 400,030 | £2.67 | |||||||||||||||
Barclays LTIP 2013-2015 | 1,545,995 | – | £3.06 | – | – | |||||||||||||||
Barclays LTIP 2014-2016 | 1,891,740 | – | £2.31 | – | – | |||||||||||||||
Barclays LTIP 2015-2017 | – | 1,142,248 | £2.54 | – | – | |||||||||||||||
Share Value Plan 2012 | 332,377 | – | £2.53 | 332,377 | £2.54 | |||||||||||||||
Share Value Plan 2012 | 1,079,970 | – | £1.86 | 1,079,970 | £2.54 | |||||||||||||||
Share Value Plan 2015 | – | 260,355 | £2.54 | – | – | |||||||||||||||
Tushar Morzaria | ||||||||||||||||||||
Barclays LTIP 2014-2016 | 1,375,811 | – | £2.31 | – | – | |||||||||||||||
Barclays LTIP 2015-2017 | – | 828,402 | £2.54 | – | – | |||||||||||||||
Share Value Plan 2013 | 733,877 | – | £2.51 | 411,437 | £2.54 | |||||||||||||||
Share Value Plan 2014 | 309,557 | – | £2.31 | 103,185 | £2.54 | |||||||||||||||
Share Value Plan 2015 | – | 213,017 | £2.54 | – | – | |||||||||||||||
Jes Staley | ||||||||||||||||||||
Share Value Plan 2015 | – | 896,450 | £2.34 | – | – | |||||||||||||||
The interests shown in the table above are the maximum number of Barclays’ shares that may be received under each plan (before pro-rating for Antony Jenkins). Executive Directors do not pay for any share plan or long-term incentive plan awards. Antony Jenkins received 178,527 dividend shares from Share Value Plan (SVP) and LTIP awards and Tushar Morzaria received 19,669 dividend shares from SVP awards released in 2015.
The SVP 2015 award granted to Jes Staley was made in respect of awards he forfeited as a result of accepting employment at Barclays. This award was made in line with the Barclays’ recruitment policy and was made on no more favourable terms than those forfeited awards.
Outstanding Cash Value Plan (CVP) awards (audited) |
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Plan |
| Value under award at 1 January 2015 (maximum) £000 |
| | Value paid in year £000 | |
| Value under award at 31 December 2015 ((maximum) £000 |
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Antony Jenkins | ||||||||||||||||||||
Cash Value Plan 2012 | 750 | 750 | – |
A ‘service credit’ was added, on the final vesting date, to the third and final vesting amount which, for the award shown, was 10% of the original award amount. Antony Jenkins received the CVP award as part of his 2011 bonus, which was awarded in respect of performance in his role as CEO of Retail and Business Banking.
Number of shares lapsed in 2015 | Number of shares under award at 31 December 2015 (maximum) | Value of release £000 | End of performance period or first scheduled release date | Last scheduled release date | ||||||
806,931 | – | 887 | – | – | ||||||
971,250 | – | 1,068 | – | – | ||||||
– | 1,545,995 | – | 31/12/2015 | 14/03/2016 | ||||||
– | 1,891,740 | – | 31/12/2016 | 06/03/2017 | ||||||
– | 1,142,248 | – | 31/12/2017 | 05/03/2018 | ||||||
– | – | 844 | – | – | ||||||
– | – | 2,743 | – | – | ||||||
– | 260,355 | – | 14/03/2016 | 05/03/2018 | ||||||
– | 1,375,811 | – | 31/12/2016 | 06/03/2017 | ||||||
– | 828,402 | – | 31/12/2017 | 05/03/2018 | ||||||
– | 322,440 | 1,045 | 17/03/2014 | 05/03/2018 | ||||||
– | 206,372 | 262 | 16/03/2015 | 06/03/2017 | ||||||
– | 213,017 | – | 14/03/2016 | 05/03/2018 | ||||||
– | 896,450 | – | 14/03/2016 | 14/03/2016 |
Governance: Remuneration report
Directors’ remuneration policy (abridged)
Barclays’ forward looking remuneration policy for Directors was approved at the 2014 AGM held on 24 April 2014 and applies for three years from that date. The full policy can be found on pages 76 to 86 of the 2013 Form20-F or at home.barclays/annualreport.
This section sets out an abridged version of the Directors’ remuneration policy and is provided for information only.
This remuneration policy sets out the framework for how the Committee’s remuneration strategy will be executed for the Directors over the three years beginning on the date of the 2014 AGM. This is to be achieved by having a remuneration policy that seeks to:
Remuneration policy for executive Directors
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The execution of Barclays’ strategy. The material risks and uncertainties the Group portfolios are
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Remuneration policy for executive Directors continued
Overview of Barclays’ approach to risk |
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management. A detailed overview together | ◾ Principal Risks | 77 | |||||
with more specific information on policies | ◾ Risk Appetite for the Principal Risks | 77 | |||||
that the Group determines to be of particular | ◾ Roles and responsibilities in the management of risk | 77 | |||||
significance in the current operating | ◾ Barclays’ Risk Culture | 78 | |||||
environment can be found in Barclays PLC | |||||||
Pillar 3 Report 2017 or at Barclays.com. | |||||||
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Governance: Remuneration report
Directors’ remuneration policy (abridged)
Remuneration policy for executive Directors continued
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Governance: Remuneration report
Directors’ remuneration policy (abridged)
Notes to the table on pages 75 to 78:
Performance measures and targets
The Committee selected the relevant financial and risk based performance measures because they are key to the bank’s strategy and are important measures used by the executive Directors to oversee the direction of the business. The Balanced Scorecard has been selected as it demonstrates the performance and progress of Barclays as measured across the following dimensions (5Cs): Customers & Clients, Colleagues, Citizenship, Conduct and Company. Each of the 5Cs in the Balanced Scorecard will have equal weighting. All targets are set to be stretching but achievable and aligned to enhancing shareholder value.
The Committee is of the opinion that the performance targets for the annual bonus and Balanced Scorecard element of the LTIP are commercially sensitive in respect of the Company and that it would be detrimental to the interests of the Company to disclose them before the start of the relevant performance period. The performance against those measures will be disclosed after the end of the relevant financial year in that year’s remuneration report subject to the sensitivity no longer remaining.
Differences between the remuneration policy of the executive Directors and the policy for all employees of the Barclays Group
The structure of total remuneration packages for executive Directors and for the broader employee population is similar. Employees receive salary, pension and benefits and are eligible to be considered for a bonus and to participate in all employee share plans. The broader employee population typically does not have a contractual limit on the quantum of their remuneration and does not receive RBP which is paid only to some, but not all, Code Staff. Executive Director RBP is determined on a similar basis to other Code Staff.
The Committee approaches any salary increases for executive Directors by benchmarking against market data for named banks. Incremental annual salary increases remain more common among employees at less senior levels.
As with executive Directors, bonuses for the broader employee population are performance based. Bonuses for executive Directors and the broader employee population are subject to deferral requirements. Executive Directors and other Code Staff are subject to deferral at a minimum rate of 40% (for bonuses of no more than £500,000) or 60% (for bonuses of more than £500,000) but the Committee may choose to operate higher deferral rates. For non-Code Staff, bonuses in excess of £65,000 are subject to a graduated level of deferral. The terms of deferred bonus awards for executive Directors and the wider employee population are broadly the same, in particular the vesting of all deferred bonuses (subject to service and malus conditions).
The broader employee population is not eligible to participate in the Barclays LTIP.
How shareholder views and broader employee pay are taken into account by the Committee in setting policy and making remuneration decisions
We recognise that remuneration is an area of particular interest to shareholders and that in setting and considering changes to remuneration it is critical that we listen to and take into account their views. Accordingly, a series of meetings are held each year with major shareholders and shareholder representative groups (including the Association of British Insurers, National Association of Pension Funds and ISS). The Committee Chairman attends these meetings, accompanied by senior Barclays’ employees (including the Reward and Performance Director and the Company Secretary). The Committee notes that shareholder views on some matters are not always unanimous, but values the insight and engagement that these interactions and the expression of sometimes different views provide. This engagement is meaningful and helpful to the Committee in its work and contributes directly to the decisions made by the Committee.
The Committee takes account of the pay and employment conditions of the broader employee base when it considers the remuneration of the executive Directors. The Committee receives and reviews analysis of remuneration proposals for employees across all of the Group’s businesses. This includes analysis by corporate grade and by performance rating and information on proposed bonuses and salary increases across the employee population and individual proposals for Code Staff and highly paid individuals. When the Committee considers executive Director remuneration, it therefore makes that consideration in the context of a detailed understanding of remuneration for the broader employee population and uses the all employee data to compare remuneration and ensure consistency throughout the Group. Employees are not consulted directly on the Directors’ remuneration policy.
Executive Directors’ policy on recruitment
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Where a senior executive is promoted to the Board, his or her existing contractual commitments agreed prior to his or her appointment may still be honoured in accordance with the terms of the relevant commitment including vesting of any pre-existing deferred bonus or long-term incentive awards.
Governance: Remuneration report
Directors’ remuneration policy (abridged)
Executive Directors’ policy on payment for loss of office (including a takeover)
The Committee’s approach to payments in the event of termination is to take account of the individual circumstances including the reason for termination, individual performance, contractual obligations and the terms of the deferred bonus plans and long-term incentive plans in which the executive Director participates.
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Governance: Remuneration report
Directors’ remuneration policy (abridged)
Remuneration policy for non-executive Directors
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In accordance with the policy table above, any new Chairman and Deputy Chairman would be paid an all-inclusive fee only and any new non-executive Director would be paid a basic fee for their appointment as a Director, plus fees for their participation on and/or chairing of any Board committees, time apportioned in the first year as necessary. No sign-on payments are offered to non-executive Directors.
Discretion
In addition to the various operational discretions that the Committee can exercise in the performance of its duties (including those discretions set out in the Company’s share plans), the Committee reserves the right to make either minor or administrative amendments to the policy to benefit its operation or to make more material amendments in order to comply with new laws, regulations and/or regulatory guidance. The Committee would only exercise this right if it believed it was in the best interests of the Company to do so and where it is not possible, practicable or proportionate to seek or await shareholder approval in General Meeting.
Risk review
Contents
The management of risk plays a central role in the execution of Barclays’ strategy and insight into the level of risk across businesses and portfolios and the material risks and uncertainties the Group face are key areas of management focus.
For a more detailed breakdown of our Risk performance and Risk management contents please see pages 336-409.
Material existing and emerging risks | |||||||||
Insight into the level of risk across our business and portfolios, the material existing and emerging risks and uncertainties we face and the key areas of management focus. | |||||||||
◾Material existing and emerging risks potentially impacting more than one Principal Risk | 79 | ||||||||
◾ Credit risk | 81 | ||||||||
◾ Market risk | 81 | ||||||||
◾ Treasury and capital risk | 82 | ||||||||
◾ Operational risk | 82 | ||||||||
◾ Model risk | 83 | ||||||||
◾ Conduct risk | 83 | ||||||||
◾ Reputation risk | 84 | ||||||||
◾ Legal risk and legal, competition and regulatory matters | 84 | ||||||||
Principal Risk management | |||||||||
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each Principal Risk with focus on | ◾ Management of credit risk mitigation techniques and counterparty credit risk | 326 | |||||||
organisation and structure and roles and | ◾ Market risk management | 87 | |||||||
responsibilities. | ◾ Management of securitisation exposures | 338 | |||||||
◾ Treasury and capital risk management | 88 | ||||||||
◾ Operational risk management | 90 | ||||||||
◾ Model risk management | 92 | ||||||||
◾ Conduct risk management | 93 | ||||||||
◾ Reputation risk management | 94 | ||||||||
| Legal risk management | 95 | |||||||
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Risk performance | |||||||||
Credit risk: The risk of | ◾Credit risk overview and summary of performance | 97 | |||||||
◾Analysis of the balance sheet | 97 | ||||||||
counterparties, including sovereigns, to fully honour their obligations to the firm, including the whole and timely payment of principal, interest, collateral and other receivables. |
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| The Group’s approach to | 100 | |||||||
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◾Loans and advances to customers and banks | 105 | ||||||||
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Analysis of specific portfolios and asset types | 106 | ||||||||
◾ Analysis of problem loans | 109 | ||||||||
◾ Impairment | 114 | ||||||||
◾ Analysis of debt securities | 115 | ||||||||
| Analysis of | ||||||||
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Market risk: The risk of a | �� | ◾ Market risk overview and summary of | |||||||
potential adverse changes in the value of the | |||||||||
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◾Traded | 120 | ||||||||
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Risk review
Contents
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The Pillar 3 report of Barclays published on 1 March 2016 contains additional information on Barclays’ risk as well as capital management. Readers may access the complete Pillar 3 report at the Barclays investor relations web site. The Pillar 3 report is not incorporated by reference into and is not part of the 2015 20-F.
Barclays PLC and Barclays Bank PLC |
Risk review
Contents
Risk performance continued | Annual Report | |||
Treasury and capital risk – Liquidity:The | ◾ Liquidity risk overview and summary of performance | 124 | ||
risk that the firm is unable to meet its | ◾ Liquidity risk stress testing | 124 | ||
contractual or contingent obligations or that | ◾ Liquidity pool | 126 | ||
it does not have the appropriate amount, | ◾ Funding structure and funding relationships | 127 | ||
tenor and composition of funding and | ◾ Encumbrance | 129 | ||
liquidity to support its assets. | ◾ Credit ratings | 132 | ||
◾ Contractual maturity of financial assets and liabilities | 133 | |||
Treasury and capital risk – Capital:The risk | ◾ Capital risk overview and summary of performance | 137 | ||
that the firm has an insufficient level or | ◾ Regulatory minimum capital and leverage requirements | 138 | ||
composition of capital to support its normal | ◾ Analysis of capital resources | 139 | ||
business activities and to meet its regulatory | ◾ Analysis of risk weighted assets | 141 | ||
capital requirements under normal operating | ◾ Analysis of leverage ratio and exposures | 142 | ||
environments or stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This includes the risk from the firm’s pension plans. | ◾ Foreign exchange risk | 143 | ||
◾ Pension risk review | 144 | |||
◾ Minimum requirement for own funds and eligible liabilities | 145 | |||
Treasury and capital risk – Interest rate risk | ◾ Interest rate risk in the banking book overview and summary of performance | 146 | ||
in the banking bookThe risk that the firm is | ◾ Net interest income sensitivity | 147 | ||
exposed to capital or income volatility | ◾ Economic capital by business unit | 147 | ||
because of a mismatch between the interest | ◾ Analysis of equity sensitivity | 148 | ||
rate exposures of its (non-traded) assets and | ◾ Volatility of the available for sale portfolio in the liquidity pool | 148 | ||
liabilities. | ||||
Operational risk:The risk of loss to the firm | ◾ Operational risk overview and summary of performance | 149 | ||
from inadequate or failed processes or | ◾ Operational risk profile | 150 | ||
systems, human factors or due to external events (for example fraud) where the root cause is not due to credit or market risks. | ||||
Model risk:The risk of the potential adverse | ◾ Model risk overview and summary of performance | 151 | ||
consequences from financial assessments or decisions based on incorrect or misused model outputs and reports. | ||||
Conduct risk:The risk of detriment to | ◾ Conduct risk overview and summary of performance | 152 | ||
customers, clients, market integrity, competition or Barclays from the inappropriate supply of financial services, including instances of wilful or negligent misconduct. | ||||
Reputation risk:The risk that an action, | ◾ Reputation risk overview and summary of performance | 153 | ||
transaction, investment or event will reduce trust in the firm’s integrity and competence by clients, counterparties, investors, regulators, employees or the public. | ||||
Legal risk:The risk of loss or imposition of | ◾ Legal risk overview and summary of performance | 154 | ||
penalties, damages or fines from the failure of the firm to meet its legal obligations including regulatory or contractual requirements. | ||||
Supervision and regulation:The Group’s | ◾ Supervision of the Group | 155 | ||
operations, including its overseas offices, | ◾ Global regulatory developments | 156 | ||
subsidiaries and associates, are subject to a | ◾ Financial regulatory framework | 157 | ||
significant body of rules and regulations. | ◾ Structural reform | 162 |
76 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Risk review
Risk management
Barclays’ risk management strategy
Introduction
Barclays engages in activities which entail risk taking, every day, throughout its business. This section introduces these risks, and outlines key governance arrangements for managing them. These include roles and responsibilities, frameworks, policies and standards, assurance and lessons learned processes. The Group’s approach to fostering a strong Risk Culture is also described.
Enterprise Risk Management Framework (ERMF)
The ERMF sets the strategic direction for risk management by defining standards, objectives and responsibilities for all areas of Barclays. It supports the Chief Executive Officer (CEO) and Group Chief Risk Officer (CRO) in embedding effective risk management and a strong Risk Culture.
The ERMF sets out:
◾ | Principal Risks faced by the Group |
◾ | Risk Appetite requirements |
◾ | Roles and responsibilities for risk management |
◾ | Risk Committee structure. |
Principal Risks
The ERMF identifies eight Principal Risks and sets out associated responsibilities and risk management standards.
Risk appetite for the Principal Risks
Risk Appetite is defined as the level of risk which the Group is prepared to accept in the conduct of its activities. The Risk Appetite of the Group specifies the level of risk we are willing to take and why, to enable specific risk taking activities.
Risk Appetite is approved and disseminated across legal entities and businesses, including by use of Mandate and Scale limits to enable and control specific activities that have material concentration risk implications for the Group.
Roles and responsibilities in the management of risk
The Three Lines of Defence
All colleagues are responsible for understanding and managing risks within the context of their individual roles and responsibilities, as set out in the “Three Lines of Defence”.
First Line of Defence
The First Line comprises all employees engaged in the revenue generating and client facing areas of the Group and all associated support functions, including Finance, Treasury, Human Resources and the Chief Operating Officer (COO) function. Employees in the First Line are responsible for:
◾ | identifying all the risks and developing appropriate policies, standards and controls to govern their activities |
◾ | operating within any and all limits which the Risk and Compliance functions establish in connection with the Risk Appetite of the Group |
◾ | escalating risk events to senior managers in Risk and Compliance. |
Second Line of Defence
Employees of Risk and Compliance comprise the Second Line of Defence. The role of the Second Line is to establish the limits, rules and constraints under which First Line activities shall be performed, consistent with the Risk appetite of the Group, and to monitor the performance of the First Line against these limits and constraints.
Third Line of Defence
Employees of Internal Audit comprise the Third Line of Defence. They provide independent assurance to the Board and Executive Management over the effectiveness of governance, risk management and control over current, systemic and evolving risks.
The Legal function does not sit in any of the three lines, but supports them all. The Legal function is, however, subject to oversight from Risk and Compliance, with respect to operational and conduct risks.
Risk Committees
Business Risk Committees consider Risk matters relevant to their business, and escalate as required to the Group Risk Committee (GRC), whose Chairman in turn escalates to Board Committees and the Board.
There are three Board-level forums which oversee the application of the ERMF and review and monitor risk across the Group. These are: the Board Risk Committee, the Board Audit Committee, and the Board Reputation Committee. Additionally, the Board Remuneration Committee oversees pay practices focusing on aligning pay to sustainable performance. Finally, the main Board of Barclays receives regular information on the risk profile of the Group, and has ultimate responsibility for risk appetite and capital plans.
The Chairman of each Committee prepares a statement each year on the Committee’s activities, which are included in this report on pages 3 to 37.
The Board
One of the Board’s (Board of Directors of Barclays Bank PLC) responsibilities is the approval of Risk Appetite (see page 126 of the Barclays PLC Pillar 3 Report 2017). The Group CRO regularly presents a report to the Board summarising developments in the risk environment and performance trends in the key portfolios. The Board is also responsible for the ERMF.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 77 |
Risk review
Risk management
Barclays’ risk management strategy
The Board Risk Committee (BRC)
The BRC monitors the Group’s risk profile against the agreed financial appetite. Where actual performance differs from expectations, the actions taken by management are reviewed to verify that the BRC is comfortable with them. After each meeting, the Chairman of the BRC prepares a report for the next meeting of the Board. All members are independent non-executive directors. The Group Finance Director (GFD) and the Group CRO attend each meeting as a matter of course.
The BRC also considers the Group’s Risk Appetite statement for operational risk and evaluates the Group’s operational risk profile and operational risk monitoring.
The BRC receives regular and comprehensive reports on risk methodologies, the effectiveness of the risk management framework, and the Group’s risk profile, including the key issues affecting each business portfolio and forward risk trends. The Committee also commissions in-depth analyses of significant risk topics, which are presented by the Group CRO or senior risk managers in the businesses.
The Board Audit Committee (BAC)
The BAC receives regular reports on the effectiveness of internal control systems, quarterly reports on material control issues of significance, and quarterly papers on accounting judgements (including impairment). It also receives a half-yearly review of the adequacy of impairment allowances, which it reviews relative to the risk inherent in the portfolios, the business environment, the Group’s policies and methodologies. The Chairman of the BAC also sits on the BRC.
The Board Reputation Committee (RepCo)
The RepCo reviews management’s recommendations on conduct and reputation risk and the effectiveness of the processes by which the Group identifies and manages these risks. It also reviews and monitors the effectiveness of Barclays’ citizenship strategy, including the management of Barclays’ economic, social and environmental contribution.
The Board Remuneration Committee (RemCo)
The RemCo receives a detailed report on risk management performance and risk profile, and proposals on ex-ante and ex-post risk adjustments to variable remuneration. These inputs are considered in the setting of performance incentives.
Summaries of the relevant skills, experience and background of the Directors of the Board are presented in the Board of Directors section on pages 5 to 6. The terms of reference and additional details on membership and activities for each of the principal Board Committees are available from the Corporate Governance section of Barclays’ website at:home.barclays/about-barclays/barclays-corporate-governance.html.
Barclays’ Risk Culture
Risk Culture can be defined as “norms, attitudes and behaviours related to risk awareness, risk taking and risk management”. At Barclays this is reflected in how we identify, escalate and manage risk matters.
Our Code of Conduct – the Barclays Way Globally, all colleagues must attest to the “Barclays Way”, our Code of Conduct, and all frameworks, policies and standards applicable to their roles. The Code of Conduct outlines the Purpose and Values which govern our Barclays Way of working across our business globally. It constitutes a reference point covering all aspects of colleagues’ working relationships, specifically (but not exclusively) with other Barclays employees, customers and clients, governments and regulators, business partners, suppliers, competitors and the broader community.
Embedding of a values-based, conduct culture
The Group Executive Committee reconfirmed Conduct, Culture and Values as one of its execution priorities for 2017 with the aim of embedding the cultural measurement tool developed in 2016. The effectiveness of the Risk and Control environment, for which all colleagues are responsible, depends on the continued embedment of strong values. Please see the Board Reputation Committee report on pages 27 to 32 for further details.
Induction programmes support new colleagues in understanding how risk management culture and practices support how the Group does business and the link to Barclays’ values. The Leadership Curriculum covers the building, sustaining and supporting of a trustworthy organisation and is offered to colleagues globally.
Other Risk Culture drivers
In addition to values and conduct, we consider the following determinants of Risk Culture:
◾ | Management and governance:This means a consistent tone from the top and clear responsibilities to enable identification and challenge. |
◾ | Motivation and incentives:The right behaviours are rewarded and modelled. |
◾ | Competence and effectiveness:This means that colleagues are enabled to identify, co-ordinate, escalate and address risk and control matters. |
◾ | Integrity: Colleagues are willing to meet their risk management responsibilities; colleagues escalate issues on a timely basis. |
78 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Risk review
Material existing and emerging risks
This section describes the material risks which senior management is currently focused on and believe could cause the Group’s future results of operations, financial condition and prospects to differ materially from current expectations.
Risk review
Material existing and emerging risks
Material existing and emerging risks to the Group’s future performance
This section describes the materialMaterial risks are those to which senior management payspay particular attention and which they believe could cause the future resultsdelivery of the Group’s strategy, results of operations, financial condition andand/or prospects to differ materially from current expectations.
Emerging risks are those that have largely unknown components, the impact of which could crystallise over a longer time horizon. These expectations include the ability to pay dividends, maintain appropriate levels of capital and meet capital and leverage ratio targets, and achieve stated commitments. In addition, risks relating to the Group that are notcould currently known, or that are currently deemedbe considered immaterial but over time may individually or cumulatively have the potential to materially affect the future resultsGroup’s strategy and cause the same outcomes as detailed above regarding material risks. In addition, certain factors beyond the Group’s control, including escalation of terrorism or global conflicts, natural disasters and similar calamities, although not detailed below, could have a similar impact on the Group.
The risks described below are material risks that senior management has identified with respect to the Group, which is defined as Barclays PLC and its consolidated subsidiaries (including the Barclays Bank PLC Group). In connection with the planned implementation in the first half of 2018 of ring-fencing certain of the Group’s operations, financial conditionUK businesses, Barclays Bank PLC will transfer what are materially the assets and prospects.
Materialbusiness of the Barclays UK division to another subsidiary of the Group, Barclays Bank UK PLC. Senior management expects that upon this transfer, the material risks and their impact are described belowwith respect to the Barclays Bank PLC Group will be the same in two sections: i)all material respects as those risks whichwith respect to the Group. For more information on certain risks senior management believes are likelyhas identified with respect to impact a single Principal Risk; and ii) risks which senior management believes are likely to affect more than one Principal Risk. Certain risks below have been classified as an ‘emerging risk’, which is a risk that has the potential to have a significant detrimental effect on the Group’s performance, but currently the outcome and the time horizon for the crystallisation of its possible impact is more uncertain and more difficult to predict than for other risk factors that are not identified as emerging risks.
More information on the management of risks may be found in Barclays’ Approach to Managing Risk in the Barclays Bank PLC 2015 Pillar 3 Report.Group, see v) Certain potential consequences of ring-fencing to Barclays Bank PLC.
Material existing and emerging risks bypotentially impacting more than one Principal Risk
i) Business conditions, general economy and geopolitical issues
The financial conditionGroup offers a broad range of services, including to retail, institutional and government customers, in a large number of countries. The breadth of these operations means that deterioration in the Group’s customers, clients and counterparties, including governments and other financial institutions,economic environment, or an increase in political instability in countries where the Group is active, or in any systemically important economy, could adversely affect the Group.Group’s operating performance, financial condition and prospects.
The GroupAlthough economic activity continued to strengthen globally in 2017 a change in global economic conditions and the reversal of the improving trend may suffer financial loss if anyresult in lower client activity of its customers, clients or market counterparties fails to fulfil their contractual obligations to the Group. The Group may also suffer loss when the value of its investment in the financial instruments of an entity falls as a result of that entity’s credit rating being downgraded. In addition, the Group may incur significant unrealised gains and/or losses due to changes in the Group’s credit spreads or those of third parties, as these changes affect the fair valuean increase of the Group’s derivative instruments, debt securitiesdefault rates, delinquencies, write-offs, and impairment charges, which in turn could adversely affect the Group’s performance and prospects.
In several countries, reversals of capital inflows, as well as fiscal austerity, have already caused deterioration in political stability. This could be exacerbated by a renewed rise in asset price volatility or sustained pressure on government finances. In addition, geopolitical tensions in some areas of the world, such as the Korean Peninsula, the Middle East and Eastern Europe, are already acute and at risk of further deterioration, thus potentially increasing market uncertainties and adverse global economic and market conditions.
In the US, there is uncertainty around the policy platform of the administration which took office in 2017. There is the possibility of significant changes in policy in sectors including trade, healthcare and commodities which may have an impact on associated Barclays portfolios. A significant proportion of the Group’s portfolio is located in the US, including a major credit card portfolio and a range of corporate and investment banking exposures. Stress in the US economy, weakening GDP, an unexpected rise in unemployment and/or an increase in interest rates could lead to increased levels of impairment.
Most major central banks have indicated that they expect prevailing loose monetary policies to tighten. Should ‘normalisation’ paths diverge substantially, flows of capital between countries could alter significantly, placing segments with sizeable foreign currency liabilities, in particular emerging markets, under pressure. In addition, possible divergence of monetary policies between major advanced economies risks triggering further financial market volatility (see also ii) Interest rate rises adversely impacting credit conditions, below).
In the UK, the vote in favour of leaving the EU (see iii) Process of UK withdrawal from the European Union, below) has given rise to political uncertainty with attendant consequences for investment and market confidence. The initial impact was a depreciation of Sterling resulting in higher costs for companies exposed to imports and a more favourable environment for exporters. Rising domestic costs resulting from higher import prices may impact household incomes and the affordability of consumer loans and mortgages. In turn this may affect businesses dependent on consumers for revenue. There has also been a reduction in activity in both commercial and residential real estate markets which has the potential to impact value of real estate assets and adversely affect mortgage assets.
Sentiment towards emerging markets as a whole continues to be driven in large part by developments in China, where there is some concern around the ability of authorities to manage growth while transitioning from manufacturing towards services. Although the Chinese government’s efforts to stably increase the weight of domestic demand have had some success, the pace of credit growth remains a concern, given the high level of leverage and despite regulatory action. A stronger than expected slowdown could result if authorities fail to appropriately manage the end of the investment and credit-led boom.
Deterioration in emerging markets could affect the Group holds or issues, and loans held at fair value.
i) Deterioration in political and economic environment
The Group’s performance is at risk from deterioration in the economic and political environment which may result from a number of uncertainties, including the following:
a) Specific regions
Political instability, economic uncertainty or deflation in regions in which the Group operates could weaken growth prospects and have an adverse impact on customers’ ability to service debt and so resultif it results in higher impairment charges for the Group. These include:Group via sovereign or counterparty defaults.
China (emerging risk)
Economic uncertaintyMore broadly, a deterioration of conditions in China continues tothe key markets where the Group operates could affect performance in a number of emerging economies, particularly those with high fiscal deficits and those reliant on short-term external financing and/ways including, for example: (i) deteriorating business, consumer or investor confidence leading to reduced levels of client activity, including demand for borrowing from creditworthy customers, or indirectly, a material reliance on commodity exports. Their vulnerability has been further impacted by the fall, and sustained volatility in oil prices, the strong US dollar and the winding down of quantitative easing policies by some central banks. Theadverse impact on GDP growth in significant markets and therefore on Group performance; (ii) higher levels of default rates and impairment; (iii) mark to market losses in trading portfolios resulting from changes in factors such as credit ratings, share prices and solvency of counterparties (iv) reduced ability to obtain capital from other financial institutions for the Group may vary depending on the vulnerabilities present in each country, but the impact may result in increased impairment charges through sovereign defaults, or the inability or unwillingnessoperations; and (v) lower levels of clientsfixed asset investment and counterparties in that country to meet their debt obligations.productivity growth overall.
South Africa
The negative economic outlook in South Africa continues, with a challenging domestic and external environment. Recent political events including changes to leaders in the Finance Ministry have added to the domestic challenges. Real GDP growth remains low as a result of declining global demand, in particular China, prices for key mineral exports, a downturn in tourism, persistent power shortages and slowing
house price growth. In the retail sector, concerns remain over the level of consumer indebtedness and affordability as the slowdown in China impacts the mining sector with job losses increasing. Emerging market turmoil has added further pressure on the Rand, which has continued to depreciate against major currencies. The decline in the economic outlook may impact a range of industry sectors in the corporate portfolio, with clients with higher leverage being impacted most.
b)ii) Interest rate rises including as a result of slowing of monetary stimulus, could impact consumer debt affordability and corporate profitabilityadversely impacting credit conditions
To the extent that central banks increase interest rates in certain developed markets, particularly in ourthe Group’s main markets, in the UK and the US, they are expectedthere could be an impact on consumer debt affordability and corporate profitability.
While interest rate rises could positively impact the Group’s profitability, as retail and corporate business income may increase due to be small and gradual in scale during 2016, albeit following differing timetables. The first of these occurred in the US with a quarter point rise in December 2015. While an increase may support Group income, any sharpermargin de-compression, future interest rate increases, if larger or more frequent than expected changesexpectations, could cause stress in the loan portfolio and underwriting activity of the Group, particularly in relation to non-investment grade lending, leading to the possibility of the Group incurring higher impairment.Group. Higher credit losses and a requirement to increase the Group’s level ofdriving an increased impairment allowance would most notably occurimpact retail unsecured portfolios and wholesale non-investment grade lending.
Interest rates rising faster than expected could also have an adverse impact on the value of high quality liquid assets which are part of the Group Treasury function’s investment activity that could consequently create more volatility through the Group’s available for sale reserves than expected.
iii) Process of UK withdrawal from the European Union
The uncertainty and increased market volatility following the UK’s decision to leave the EU in 2019 is likely to continue until the exact nature of the future trading relationship with the EU becomes clear. The potential risks associated with an exit from the EU include:
◾ | Increased market risk with the impact on value of trading book positions, mainly in Barclays International, expected to be driven predominantly by currency and interest rate volatility. |
◾ | Potential for credit spread widening for UK institutions which could lead to reduced investor appetite for Barclays’ debt securities, which could negatively impact the cost of and/or access to funding. Potential for continued market and interest rate volatility could affect the interest rate risk underlying, and potentially affect the value of, the assets in the banking book, as well as |
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Risk review
Material existing and emerging risks
securities held by Barclays for liquidity purposes.
◾ | Changes in the long-term outlook for UK interest rates which may adversely affect IAS 19 pension liabilities and the market value of equity investments funding those liabilities. |
◾ | Increased risk of a UK recession with lower growth, higher unemployment and falling UK house prices. This would likely negatively impact a number of Barclays’ portfolios, particularly in Barclays UK, notably: higher Loan-to-Value mortgages, UK unsecured lending including credit cards and Commercial Real Estate exposures. |
◾ | Changes to current EU “Passporting” rights which will likely require adjustments to the current model for the Group’s cross-border banking operation which could increase operational complexity and/or costs. |
◾ | The ability to attract, or prevent the departure of, qualified and skilled employees may be impacted by the UK’s future approach to the EU freedom of movement and immigration from the EU countries and this may impact Barclays’ access to the EU talent pool. |
◾ | The legal framework within which Barclays operates could change and become more uncertain as the UK takes steps to replace or repeal certain laws currently in force, which are based on EU legislation and regulation (including EU regulation of the banking sector). Certainty of existing contracts, enforceability of legal obligations and uncertainty around the outcome of disputes may be affected until the impacts of the loss of the current jurisdictional arrangements between UK and EU courts and the universal enforceability of judgements across the EU (including the status of existing EU case law) are fully known. |
iv) Regulatory change agenda and impact on business model
The Group remains subject to ongoing significant levels of regulatory change and scrutiny in many of the countries in which it operates (including, in particular, the UK and the US). As a result, regulatory risk will remain a focus for senior management and consume significant levels of business resources. Furthermore, a more intensive regulatory approach and enhanced requirements together with the uncertainty (particularly in light of the UK’s decision to withdraw from the EU) and potential lack of international regulatory co-ordination as enhanced supervisory standards are developed and implemented may adversely affect the Group’s business, capital and risk management strategies and/or may result in the Group deciding to modify its legal entity structure, capital and funding structures and business mix, or to exit certain business activities altogether or not to expand in areas despite otherwise attractive potential.
The most significant of the regulatory reforms affecting the Group in 2018 is the creation of the ring-fenced Bank under the Bank’s structural reform programme (for more on Structural Reform, see Supervision and Regulation on page 162).
The implementation of these changes involves a number of risks which include:
◾ | The Group is restructuring its intra-group and external capital, funding and liquidity arrangements to meet regulatory requirements and support business needs. The changes will impact the sources of funding available to the different entities including their respective ability to access the capital markets. These changes may affect funding costs. |
◾ | The changes to the Group structure may negatively impact the assessment made by credit rating agencies and creditors over time. The risk profile and key risk drivers of the ring-fenced bank and the non ring-fenced bank will be specific to the activities and risk profile of each entity. As a result, different Group entities such as Barclays Bank PLC may also be assessed differently in future which could result in differences in credit ratings. Changes to the credit assessment at the Group or individual entity level, including the potential for ratings downgrades and ratings differences across entities, could impact access and cost of certain sources of funding. |
◾ | Implementation of ring-fencing introduces a number of execution risks. Technology change could result in outages or operational errors. Legal challenge to the ring-fence transfer scheme may delay the transfer of assets and liabilities to the ring-fenced bank. Delayed delivery could increase reputational risk or result in regulatory non-compliance. |
◾ | There is a risk that Barclays does not meet regulatory requirements across the new structure. Failure to meet these requirements may have an adverse impact on the Group’s profitability, operating flexibility, flexibility of deployment of capital and funding, return on equity, ability to pay dividends, credit ratings, and/or financial condition. |
In addition to Structural Reform there are several other significant pieces of legislation/areas of focus which will require significant management attention, cost and resource:
◾ | Changes in prudential requirements, including the proposals for amendment of the CRD IV and the BRRD (as part of the EU’s risk reduction measures package) may impact minimum requirements for own funds and eligible liabilities (MREL) (including requirements for internal MREL), leverage, liquidity or funding requirements, applicable buffers and/or add-ons to such minimum requirements and risk weighted assets calculation methodologies all as may be set by international, EU or national authorities from time to time. Such or similar changes to prudential requirements or additional supervisory and prudential expectations, either individually or in aggregate, may result in, among other things, a need for further management actions to meet the changed requirements, such as: increasing capital, MREL or liquidity resources, reducing leverage and risk weighted assets; restricting distributions on capital instruments; modifying the terms of outstanding capital instruments; modifying legal entity structure |
(including with regard to issuance and deployment of capital, MREL and funding for the Group); changing the Group’s business mix or exiting other businesses; and/or undertaking other actions to strengthen the Group’s position. (See Treasury and capital risk on pages 122 to 148 and Supervision and Regulation on pages 158 to 159 for more information). |
◾ | The derivatives market has been the subject of particular focus for regulators in recent years across the G20 countries and beyond, with regulations introduced which require the reporting and clearing of standardised over-the-counter (OTC) derivatives and the mandatory margining of non-cleared OTC derivatives. Reforms in this area are ongoing with further requirements expected to be implemented in the course of 2018. More broadly, the recast Markets in Financial Instruments Directive in Europe (MiFID II), which came into force in January 2018, has fundamentally changed the European regulatory framework, and entails significant operational changes for market participants in a wide range of financial instruments as well as changes in market structures and practices. In addition, the EU Benchmarks Regulation which also came into force in January 2018 regulates the administration and use of benchmarks in the EU. Compliance with this evolving regulatory framework entails significant costs for market participants and is having a significant impact on certain markets in which the Group, notably Barclays International, operates. Other regulations applicable to swap dealers, including those promulgated by the US Commodity Futures Trading Commission, have imposed significant costs on the Group’s derivatives business. These and any future requirements, including the US SEC’s regulations relating to security-based swaps and the possibility of overlapping and/or contradictory requirements imposed on derivative transactions by regulators in different jurisdictions, are expected to continue to impact such business. |
◾ | The Group and certain of its members are subject to supervisory stress testing exercises in a number of jurisdictions. These exercises currently include the programmes of the BoE, the EBA, the FDIC and the FRB. These exercises are designed to assess the resilience of banks to adverse economic or financial developments and enforce robust, forward-looking capital and liquidity management processes that account for the risks associated with their business profile. Assessment by regulators is on both a quantitative and qualitative basis, the latter focusing on the Group’s or certain of its members’ business model, data provision, stress testing capability and internal management processes and controls. The stress testing requirements to which the Group and its members are subject are becoming increasingly stringent. Failure to meet requirements of regulatory stress tests, or the failure by regulators to approve the stress test results and capital plans of the Group, could result in the Group being |
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required to enhance its capital position, limit capital distributions or position additional capital in specific subsidiaries. For more information on stress testing, please see Supervision and Regulation on page 158. |
◾ | The introduction and implementation of both PSD2 and the Open API standards and data sharing remedy imposed by the UK Competition and Markets Authority following its Retail Banking Market Investigation Order (together “Open Banking”) from January 2018 is anticipated to transform the traditional UK banking model and conventional relationship between a customer and their bank. It will do this by providing customers with the ability to share their transactional data with authorised third party service providers either for aggregation or payment services. It is anticipated that these aggregation or payment services will be offered by third parties to Barclays customers. Members of the Barclays Group will be able to offer these same services to customers of other banks. A failure to comply with Open Banking requirements could expose Barclays to regulatory sanction, potential financial loss and reputational detriment. While Open Banking will affect the Group as a whole, the impact is likely to be particularly relevant for Barclays UK. |
v) Certain potential consequences of ring-fencing to Barclays Bank PLC
In connection with the planned implementation in the first half of 2018 of ring fencing certain of the Group’s retail unsecuredbusinesses, Barclays Bank PLC will transfer what are materially the assets and secured portfoliosbusiness of the Barclays UK division to another subsidiary of the Group, Barclays Bank UK PLC. Senior management expects that upon this transfer, the material risks with respect to the Barclays Bank PLC Group will be the same in all material respects as those risks with respect to the Group. However, senior management has identified certain potential differences in risks with respect to the Barclays Bank PLC Group as compared to risks to the Group.
The transfer of the assets and liabilities of the Barclays UK division from Barclays Bank PLC will mean that the Barclays Bank PLC Group will be less diversified than the Group as a whole. Barclays Bank PLC will not be the parent of Barclays Bank UK PLC and thus will not have recourse to the assets of Barclays Bank UK PLC. Relative to the Group, the Barclays Bank PLC Group will be, among other things:
◾ | more focused on businesses outside the UK, particularly in the US, and thus more exposed to the US economy and more affected by movements in the US dollar (and other non-sterling currencies) relative to sterling, with a relatively larger portion of its business exposed to US regulation; |
◾ | more focused on wholesale businesses, such as corporate and investment banking and capital markets, which expose Barclays Bank PLC Group to a broader range of market conditions and to counterparty and operational risks and thus the financial performance of Barclays Bank PLC may be subject to greater fluctuations relative to that |
of the Group as a whole or that of the ring-fenced bank; |
◾ | more dependent on wholesale funding sources, as the UK retail deposit base will be transferred to the ring-fenced bank. The UK retail mortgage assets will also be transferred to the ring-fenced bank, which reduces Barclays Bank PLC’s access to funding sources reliant on residential mortgage collateral. The Barclays Bank PLC Group may therefore experience more difficult financing conditions and/or higher costs of funding including in situations of stress. As a result of the implementation of ring-fencing, different Group entities, such as Barclays Bank PLC, may be assessed differently by credit rating agencies, which may result in different, and possibly more negative, assessments of Barclays Bank PLC’s credit and thus in lower credit ratings than the credit ratings of the Group, which in turn could adversely affect the sources and costs of funding for Barclays Bank PLC; and |
◾ | potentially subject to different regulatory obligations, including different liquidity requirements and capital buffers. |
As a result of any or all of the foregoing, implementation of ring-fencing may adversely affect the market value and/or liquidity of securities issued by Barclays Bank PLC.
Material existing and emerging risks impacting individual Principal Risks
i) Credit risk
a) Impairment
The introduction of the impairment requirements ofIFRS 9 Financial Instruments, implemented on 1 January 2018, results in higher impairment loss allowances that are recognised earlier, on a more forward looking basis and on a broader scope of financial instruments than is the case under IAS 39 and, as a result, ofwill have a reduction in recoverability and value ofmaterial impact on the Group’s assets, coupledfinancial condition. Measurement involves increased complex judgement and impairment charges will tend to be more volatile. Unsecured products with a decline in collateral values.
Interest rate increases in developed markets may also negativelylonger expected lives, such as revolving credit cards, are the most impacted. The capital treatment on the increased reserves has the potential to adversely impact emerging economies, asregulatory capital flowsratios. In addition, the move from incurred to mature marketsexpected credit losses has the potential to take advantage ofimpact the higher returns and strengtheningGroup’s performance under stressed economic fundamentals.conditions or regulatory stress tests. For more information please refer to Note 1 on pages 195 to 200.
ii)b) Specific sectors
The Group is subject to risks arising from changes in credit quality and recovery rate of loans and advances due from borrowers and counterparties in a specific portfolio. Any deterioration in credit quality could lead to lower recoverability and higher impairment in a specific sector. The following provides examples ofare areas of uncertainties to the Group’s portfolio which could have a material impact on performance.
◾ | UK real estate market.With UK property representing a significant portion of the overall UK Corporate and Retail credit exposure, the Group is at risk from a fall in property prices in both the residential and commercial sectors in the UK. |
a) UK property
With UK property representing the most significant portion of the overall PCB credit exposure, the Group is at risk from a fall in property prices in both the residential and commercial sectors in the UK. Strong house price growth in London and the South East of the UK, fuelled by foreign investment, strong buy to letbuy-to-let (BTL) demand and subdued housing supply, has resulted in affordability levels reaching record levels; averagemetrics becoming stretched. Average house prices as at the end of 20152017 were more than seven5.6 times average earnings. A fall in house prices, particularly in London and the South East of the UK, would lead to higher impairment and negative capital impact as loss given default (LGD) rates increase. Potential losses would likely be most pronounced in the higher loan to value (LTV) segments.
The proposal on BTL properties announced by the UK Chancellor of the Exchequer in 2015, changing both the level of tax relief on rental income and increasing levels of stamp duty from April 2016, may cause some dislocation in the BTL market. Possible impacts include a reduced appetite in the BTL market and an influx of properties for sale causing downward pricing pressure, as well as reduced affordability as increased tax liabilities reduce net retail yields. As a consequence this may lead to an increase in BTL defaults at a time when market values may be suppressed, with the potential that, while the Group carefully manages such exposures, it may experience increased credit losses and impairment from loans with high LTV ratios.
b) Natural Resources (emerging risk)
The risk of losses and increased impairment is more pronounced where leverage is higher, or in sectors currently subject to strain, notably oil and gas, mining and metals and commodities. Sustained oil price depression continues and is driven by ongoing global excess supply. While the positioning of these portfolios is relatively defensive and focuses on investment grade customers or collateralised positions, very severe stress in this market does have the potential to significantly increase credit losses and impairment.
◾ |
◾ | Leverage finance underwriting.The Group takes on sub-investment grade underwriting exposure, including single name risk, particularly in the US and Europe. The Group is exposed to credit events and market volatility during the underwriting period. Any adverse events during this period may potentially result in loss for the Group, mainly through Barclays International, or an increased capital requirement should there be a need to hold the exposure for an extended period. |
c) Large single name lossesii) Market risk
The Group has large individual exposures to single name counterparties. The default of such counterparties could haveMarket volatility
Elevated market volatility, which can be triggered and/or aggravated by disappointment in economic data, divergent monetary policies, political uncertainty or conflicts, would likely entail a significant impactdeflation of assets which in turn may put under strain counterparties and have knock-on effects on the carrying value of these assets. bank.
In addition, where such counterparty risk has been mitigated by taking collateral, credit risk may remain high if the collateral held cannot be realised, or has to be liquidated at prices which are insufficient to recover the full amount of the loan or derivative exposure. Any such defaults could have a material adverse effect on the Group’s results due to, for example, increased credit losses and higher impairment charges.
d) Leverage Finance underwriting
The Group takes on significant sub-investment grade underwriting exposure, including single name risk, particularly focused in the US and Europe and to a lesser extent in South Africa and other regions. The Group is exposed to credit events and market volatility during the underwriting period. Any adverse events during this period may potentially result in loss for the Group or an increased capital requirement should there be a need to hold the exposure for an extended period.
The Group’s financial position may be adversely affected by changes in both the level and volatility of prices leading to lower revenues, or reduced capital:
i) Concerns of major unexpected changes in monetary policy and quantitative easing programmes, foreign exchange movements or slowdown in emerging market economies spilling over to global markets (emerging risk)
The trading business model is focused on client facilitation in wholesale markets, involving market making activities, risk management solutions and execution.
The Group’s trading business is generally exposed to a rapid unwindingprolonged period of quantitative easing programmes and deterioration inelevated asset price volatility, particularly if it negatively affects the macro environment driven by concerns in global growth. An extremely high leveldepth of volatility in asset pricesmarketplace liquidity. Such a scenario could affect market liquidity and cause excess market volatility, impactingimpact the Group’s ability to execute client trades and may also result in lower client flow-driven income and/or market-based losses on its existing portfolio losses.
A sudden and adverse volatility in interest or foreign currency exchange rates also has the potentialof market risks. These can include having to detrimentally impact the Group’s incomeabsorb higher hedging costs from non-trading activity.
This is because the Group has exposure to non-traded interest rate risk, arising from the provision of retail and wholesale non-traded banking products and services, including, products which do not have a defined maturity date and have an interest raterebalancing risks that does not change in line with base rate movements, e.g. current accounts. The level and volatility of interest rates can impact the Group’s net interest margin, which is the interest rate spread earned between lending and borrowing costs. The potential for future volatility and margin changes remains in key areas such as in the UK benchmark interest rate to the extent such volatility and margin changes are not fully addressed by hedging programmes.
The Group is also at risk from movements in foreign currency exchange rates as these impact the sterling equivalent value of foreign currency denominated assets in the banking book, exposing it to currency translation risk.
ii) Adverse movements in the pension fund
Adverse movements between pension assets and liabilities for defined benefit pension schemes could contribute to a pension deficit. The liabilities discount rate is a key driver and, in accordance with International Financial Reporting Standards (IAS 19), is derived from the yields of high quality corporate bonds (deemedneed to be those with AA ratings)managed dynamically as market levels and consequently includes exposure to both risk-free yieldstheir associated volatilities change.
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Risk review
Material existing and credit spreads. Therefore, the Group’s defined benefits scheme valuation would be adversely affected by a prolonged fall in the discount rate or a persistent low rate and/or credit spread environment. Inflation is another significant risk driver to the pension fund, as the liabilities are adversely impacted by an increase in long term inflation expectation. However in the long term, inflation and rates risk tend to be negatively correlated and therefore partially offset each other.emerging risks
Fundingiii) Treasury and capital risk
The ability of the Group to achieve its business plans may be adversely impacted if it does not effectively manage its capital (including leverage), liquidity and other regulatory requirements.
The Group may not be able to achieve its business plans due to: i)to, among other things: a) being unable to maintain appropriate capital ratios; ii)b) being unable to meet its obligations as they fall due; iii)c) rating agency methodology changes resulting in ratings downgrades; and iv)d) adverse changes in foreign exchange rates on capital ratios.ratios; e) adverse movements in the pension fund; f) non-traded market risk/interest rate risk in the banking book.
i) a) Inability to maintain prudential ratios and other regulatory requirements
Inability to maintain appropriate prudential ratios
Should the Group be unable to maintain or achieve appropriate capital ratios this could lead to: an inability to support business activity; a failure to meet regulatory capital requirements including any additional capital add-ons or the requirements of regulator set for regulatory stress tests; increased cost of funding due to deterioration in investor appetite or credit ratings; restrictions on distributions including the ability to meet dividend targets; and/or the need to take additional measures to strengthen the Group’s capital or leverage position. While the requirements in CRD IV are now in force in the UK, further changes to capital requirements could occur, whether as a result of (i) further changes to EU legislation by EU legislators (for example, implementation of Bank of International Settlements (BIS) regulatory update recommendations), (ii) relevant binding regulatory technical standards updates by the European Banking Authority (EBA), (iii) changes to UK legislation by the UK government, (iv) changes to PRA rules by the PRA, or (v) additional capital requirements through Financial Policy Committee (FPC) recommendations. Such changes, either individually and/or in aggregate, may lead to further unexpected additional requirements in relation to the Group’s regulatory capital.
Additional prudential requirements may also arise from other regulatory reforms, including UK, EU and the US proposals on bank structural reform and current proposals for ‘Minimum Requirement for own funds and Eligible Liabilities (MREL) under the EU Bank Recovery and Resolution Directive (BRRD). Included within these reforms are the BoE proposals on MREL requirements for UK banks which were published in December 2015. The BoE stated its intentions to communicate MREL requirements to UK banks during 2016. Many of the proposals are still subject to finalisation and implementation and may have a different impact when in final form. The impact of these proposals is still being assessed. Overall, it is likely that these changes in law and regulation will have an impact on the Group as they are likely, when implemented, to require changes to the legal entity structure of the Group and how businesses are capitalised and funded. Any such increased prudential requirements may also constrain the Group’s planned activities, lead to forced asset sales and balance sheet reductions and could increase the Group’s costs, impact on the Group’s earnings and restrict the Group’s ability to pay dividends. Moreover, during periods of market dislocation, as currently seen, or when there is significant competition for the type of funding that the Group needs, increasing the Group’s capital resources in order to meet targets may prove more difficult and/or costly.
ii)b) Inability to manage liquidity and funding risk effectively
FailureInability to manage its liquidity and funding risk effectively may result in the Group either not having sufficient financial resources to meet its payment obligations as they fall due or, although solvent, only being able to meet these obligations at excessive cost. This could cause the Group to fail to meet regulatory liquidity standards, be unable to support day-to-day banking activities (including meeting deposit withdrawals or funding new loans) or no longer be a going concern.
The stability of the Group’s current funding profile, in particular that part which is based on accounts and savings deposits payable on demand or at short notice, could be affected by the Group failing to preserve the current level of customer and investor confidence. The Group also regularly accesses the capital markets to provide long-term funding to support its operations. Several factors, including adverse macroeconomic conditions, adverse outcomes in legal, regulatory or conduct matters and loss of confidence by investors, counterparties and/ or customers in the Group, can affect the ability of the Group to access the capital markets and/ or the cost and other terms upon which the Group is able to obtain market funding.
iii)c) Credit rating changes and the impact on funding costs
AAny potential or actual credit rating assesses the creditworthiness of the Group, its subsidiaries and branches and is based on reviews of a broad range of business and financial attributes including risk management processes and procedures, capital strength, earnings, funding, liquidity, accounting and governance. Any adverse event to one or more of these attributes may lead to a downgrade, which in turnagency downgrades could result in contractual outflows to meet contractual requirements on existing contracts.
Risk review
Material existing and emerging risks
Material existing and emerging risks tosignificantly increase the Group’s future performance
Furthermore, outflows related to a multiple notchborrowing costs, credit rating downgrade are included in the LRA stress scenariosspreads and a portion of the liquidity pool held against this risk. There is a risk that any potential downgrades could impactmaterially adversely affect the Group’s performance should borrowing costsinterest margins and liquidity changeposition which may, as a result, significantly versusdiverge from current expectations.
For further information, please refer to Credit Ratings in Such adverse changes would also have a negative impact on the Liquidity Risk Performance section on page 166.Group’s overall performance.
iv)d) Adverse changes in foreign exchangeFX rates onimpacting capital ratios
The Group has capital resources, and risk weighted assets and leverage exposures denominated in
foreign currencies. Therefore changesChanges in foreign currency exchange rates may adversely impact the sterlingSterling equivalent value of foreign currency denominated capital resources and risk weighted assets.these items. As a result, the Group’s regulatory capital ratios are sensitive to foreign currency movements, and aany failure to appropriately manage the Group’s balance sheet to take account of foreign currency movements could result in an adverse impact on regulatory capital and leverage ratios.
e) Adverse movements in the pension fund
Adverse movements in pension assets and liabilities for defined benefit pension schemes could result in a pension deficit which, depending on the specific circumstance, may require the Group to make substantial additional contributions to its pension plans. The liabilities discount rate is a key driver and, in accordance with International Financial Reporting Standards (IAS 19), is derived from the yields of high quality corporate bonds (deemed to be those with AA ratings) and consequently includes exposure to both UK sovereign gilt yields and corporate credit spreads.
Therefore, the valuation of the Group’s defined benefits schemes would be adversely affected by a prolonged fall in the discount rate due to a persistent low rate and/or credit spread environment. Inflation is another significant risk driver to the pension fund, as the liabilities are adversely impacted by an increase in long-term inflation expectations.
f) Non-traded market risk/interest rate risk in the banking book
A liquidity buffer investment return shortfall could increase the Bank’s cost of funds and impact the capital ratios. The impact is difficult to predict with any accuracy, but it may have a material adverse effectBank’s structural hedge programmes for interest rate risk in the banking book rely heavily on the Group if capital and leverage ratios fall below required levels.
The operational risk profile of the Group may changebehavioural assumptions, as a result, the success of human factors, inadequatethe hedging strategy is not guaranteed. A potential mismatch in the balance or failed internal processes and systems, or external events.duration of the hedge assumptions could lead to earnings deterioration.
iv) Operational risk
a) Cyber threat
The Group is exposed to many typesfrequency of operational risk. This includes: fraudulent and other internal and external criminal activities; breakdowns in processes, controls or procedures (or their inadequacy relative to the size and scope of the Group’s business); systems failures or an attempt, by an external party, to make a service or supporting infrastructure unavailable to its intended users, and the risk of geopolitical cyber threat activity which destabilises or destroys the Group’s information technology, or critical infrastructure the Group depends upon but does not control. The Group is also subject to the risk of business disruption arising from events wholly or partially beyond its control, for example, natural disasters, acts of terrorism, epidemics and transport or utility failures, which may give rise to losses or reductions in service to customers and/or economic loss to the Group. All of these risks are also applicable where the Group relies on outside suppliers or vendors to provide services to it and its customers. The operational risks that the Group is exposed to could change rapidly and there is no guarantee that the Group’s processes, controls, procedures and systems are sufficient to address, or could adapt promptly to, such changing risks to avoid the risk of loss.
i) Cyber attacks (emerging risk)
The risk posed by cyber attacks continues to grow. grow on an annual basis and is a global threat and is inherent across all industries, including the financial sector. As the financial sector remains a primary target for cyber criminals, 2017 saw a number of highly publicised attacks involving ransomware, theft of intellectual property, customer data and service unavailability across a wide range of organisations.
The proliferationcyber threat increases the inherent risk to the availability of online marketplaces trading criminalthe Group’s services and stolento the Group’s data has reduced barriers of entry for criminals to perpetrate cyber attacks, while at the same time increasing motivation.
Attacker capabilities continue to evolve as demonstrated by a marked increase in denial of service attacks, and increased sophistication of targeted fraud attacks by organised criminal networks. We face a growing threat to our information (whether it is held by usthe Group or in ourits supply chain), to the integrity of our financial transactions, and to the availability of our services. All of these necessitate a broad intelligence and response capability.
Given the level of increasing global sophistication and scope of potential cyber attacks, future attacks may lead to significant breaches of security which jeopardise the sensitive information and financial transactions of the Group, its clients, counterparties or customers, or cause disruption to systems performing critical functions.and customers. Failure to adequately manage cyber threatsthis threat and to continually reviewevolve enterprise security and update processes inprovide an active cyber security response to new threatscapability could result in increased fraud losses, inability to perform critical economic functions, customer detriment, potential regulatory
censure and penalty, legal liability, reduction in shareholder value and reputational damage.
b) Service resilience
Loss of or disruption to the Group’s business processing, whether arising through impacts on technology systems, real estate services, personnel availability or the support of major suppliers, represents a material inherent risk theme for the Group.
Building resilience into business processes and into the services of technology, real estate and suppliers on which those processes depend can reduce disruption to the Group’s business activities or avoid it altogether. Failure to do so may result in significant customer detriment, cost to reimburse losses incurred by our customers, potential regulatory censure or penalty, and reputational damage.
c) Outsourcing
The Group depends on suppliers for the provision of many of its services and the development of future technology driven product propositions, though the Group continues to be accountable for risk arising from the actions of such suppliers. Failure to monitor and control the Group’s suppliers could potentially lead to client information, or critical infrastructures and services, not being adequately protected or available when required.
The dependency on suppliers and sub-contracting of outsourced services introduces concentration risk where the failure of specific suppliers could have an impact on our ability to continue to provide services that are material to the Group, especially for those individual businesses within the Group to which many services are provided centrally by the newly established Group Service Company.
Failure to adequately manage outsourcing risk through control environments which remain robust to ever changing threats and challenges could result in increased losses, inability to perform critical economic functions, customer detriment, potential regulatory censure and penalty, legal liability and reputational damage.
ii) Infrastructured) Operational precision and technology resiliencepayments
As the dependency on digital channels and other technologies grows, the impact of technology issues can become more material and immediate. This is also the case in many other industries and organisations but particularly impactful in the banking sector.
The Group’srisk of material errors in operational processes, including payments, are exacerbated during the present period of significant levels of structural and regulatory change, the evolving technology real-estatelandscape, and supplier infrastructure is criticala transition to the operation of its businesses and to the delivery of products and services to customers and clients and to meet our market integrity obligations. Sustained disruption to services provided by Barclays, either directlydigital channel capabilities.
Material operational or through third parties,payment errors could have a significant impact to customers and todisadvantage the Group’s reputationcustomers, clients or counterparties and may also lead to potentially large costs to rectify the issue and reimburse losses incurred by customers, as well as possiblecould result in regulatory censure and penalties.penalties, legal liability, reputational damage and financial loss by the bank.
iii)e) New and emergent technology
Technological advancements present opportunities to develop new and innovative ways of doing business across the Group, with new solutions being developed both in-house and in association with third party companies. Introducing new forms of technology has the potential to increase inherent risk.
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Failure to closely monitor risk exposure could lead to customer detriment, loss of business, regulatory censure, missed business opportunity and reputational damage.
f) Fraud
Fraud is a constantly evolving risk to the Group. This is exacerbated during periods of significant change, including the digitisation of products, which carry higher levels of inherent risk. As the Group continues to invest in new and upgraded fraud systems, criminals continually adapt and become ever more sophisticated in their approach. Risks from social engineering and attempts to trick customers into authorising payments also continue to grow and increasing regulatory focus is placing more responsibility on the industry to protect consumers.
In addition, internal fraud arising from areas such as failure of the Group’s trading controls could result in high profile material losses together with regulatory censure / penalties and significant reputational damage.
g) Ability to hire and retain appropriately qualified employees
The Group requireshas resource requirements to support existing revenue streams, moves into new business models and to deliver complex multi-year regulatory commitments and mandatory change. These commitments require diversified and specialist skilled colleagues and Barclays’ ability to attract, develop and retain such a diverse mix of highly skilledtalent is key to the delivery of its core business activity and qualified colleagues to deliver its strategy and so is dependent on attracting and retaining appropriately qualified individuals. Barclays ability to attract and retain such talentstrategy. This is impacted by a range of external and internal factors.
External regulatory changesregulation such as the introduction of the Individual Accountability Regime and the required deferral and claw backclawback provisions of our compensation arrangements may make Barclays a less attractive proposition relative to both our international competitors and other industries. Similarly, meeting the requirementsimpact of structural reform may increaseexit of the competitivenessUK from the EU, in March 2019 (see Process of UK withdrawal from the market for talent. Internally, restructuring of our businesses and functions, and an increased focusEuropean Union on costs may allpage 79), could potentially have ana more immediate impact on employee engagementour ability to hire and retention.retain key employees.
Failure to attract or prevent the departure of appropriately qualified and skilled employees who are dedicated to overseeing and managing current and future regulatory standards and expectations, or who have the necessary diversified skills required to deliver the Group strategy, could negatively impact our financial performance, control environment and level of employee engagement. Additionally, this may result in disruption to service which could in turn lead to disenfranchising certain customer groups, customer detriment and reputational damage.
iv) Losses due to additional tax chargesh) Tax risk
The Group is subjectrequired to comply with the domestic and international tax laws inand practice of all countries in which it operates, including tax laws adopted at the EU level, andhas business operations. There is impacted by a number of double taxation agreements between countries. There is risk that the Group could suffer losses due to additional tax charges, other financial costs or reputational damage due toas a rangeresult of possible factors. This includes a failurefailing to comply with such laws and
practice, or correctly assessby failing to manage its tax affairs in an appropriate manner, with much of this risk attributable to the applicationinternational structure of relevantthe Group. The Tax Cuts and Jobs Act has introduced substantial changes to the US tax law,system, including the introduction of a failure to deal withnew tax, authorities inthe Base Erosion Anti-Abuse Tax. These changes have increased the Group’s tax compliance obligations and require a timelynumber of system and effective manner or an incorrect calculationprocess changes which introduce additional operational risk. In addition, increasing customer tax reporting requirements around the world and the digitisation of the administration of tax estimates for reported and forecast tax numbers. Such charges, or the conduct of any dispute with a relevant tax authority, could leadhas potential to adverse publicity, reputational damage and potentially to costs materially exceeding current provisions, which could have an adverse effect onincrease the Group’s operations, financial conditions and prospects.tax compliance burden further.
v)i) Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise judgement in applying relevant accounting policies. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the consolidated and individual financial statements include provisions for conduct and legal, competition and regulatory matters, fair value of financial instruments, credit impairment charges for amortised cost assets, impairment and valuationtaxes, fair value of available for sale investments, calculation of current and deferred tax and accounting forfinancial instruments, pensions and post-retirements benefits.post-retirement benefits, and provisions including conduct and legal, competition and regulatory matters. There is a risk that if the judgement exercised, or the estimates or assumptions used, subsequently turn out to be incorrect, this could result in significant loss to the Group, beyond what was anticipated or provided for.
As part of the assets in the Non-Core business, the Group holds a UK portfolio of generally longer term loans to counterparties in ESHLA sectors, which are measured on a fair value basis. The valuation of this portfolio is subject to substantial uncertainty due to the long dated nature of the portfolios, the lack of a secondary market in the relevant loans and unobservable loan spreads. As a result of these factors, the Group may be required to revise the fair values of these portfolios to reflect, among other things, changes in valuation methodologies due to
changes in industry valuation practices and as further market evidence is obtained in connection with the Non-Core asset rundown and exit process. For further information refer to Note 18 Fair value of assets and liabilities of the Group’s consolidated financial statements.
The further development of standards and interpretations under IFRS could also significantly impact the financial results, condition and prospects of the Group.
j) Data management & information protection
The introductionGroup holds and processes large volumes of data, including personally identifiable information, intellectual property, and financial data. Failure to accurately collect and maintain this data, protect it from breaches of confidentiality and interference with its availability exposes the Bank to the risk of loss or unavailability of data (including customer data covered under vi), c) Data protection and privacy below), data integrity issues and could result in regulatory censure, legal liability and reputational damage.
v) Model risk
a)Enhanced model risk management requirements
Barclays relies on models to support a broad range of business and risk management activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures (including the calculation of impairment), conducting stress testing, assessing capital adequacy, supporting new business acceptance and risk/ reward evaluation, managing client assets, and meeting reporting requirements.
Models are, by their nature, imperfect and incomplete representations of reality because they rely on assumptions and inputs, and so
they may be subject to errors affecting the accuracy of their outputs. For instance, the quality of the impairment requirementsdata used in models across Barclays has a material impact on the accuracy and completeness of IFRS 9 Financial Instruments willour risk and financial metrics.
Models may also be misused. Model errors or misuse may result in impairmentthe Group making inappropriate business decisions and being recognised earlier thansubject to financial loss, regulatory risk, reputational risk and/or inadequate capital reporting.
vi) Conduct risk
There is the case under IAS 39 becauserisk of detriment to customers, clients, market integrity, competition or Barclays from the inappropriate supply of financial services, including instances of wilful or negligent misconduct. This risk could manifest itself in a variety of ways:
a) Product governance and life cycle
Ineffective product governance, including design, approval and review of products, inappropriate controls over internal and third party sales channels and post sales services could lead to poor customer outcomes, as well as regulatory sanctions, financial loss and reputational damage.
b) Financial crime
The Group may be adversely affected if it requires expected lossesfails to effectively mitigate the risk that its employees or third parties facilitate, or that its products and services are used to facilitate financial crime (money laundering, terrorist financing, bribery and corruption and sanctions evasion). A major focus of US and UK government policy relating to financial institutions continues to be recognised beforecombating money laundering and enforcing compliance with US and EU economic sanctions. The failure to comply with such regulations may result in enforcement actions by the loss event arises. Measurement will involve increased complexityregulators and judgement including estimationin the imposition of probabilities of defaults, losses given default,severe penalties, with a range of unbiased future economic scenarios, estimation of expected lives, estimation of exposures at defaultconsequential impact on the Group’s reputation and assessing increases in credit risk. It is expected to have a material financial impact, but it will not be practical to disclose reliable financial impact estimates until the implementation programme is further advanced.results.
For more information please referc) Data protection and privacy
Proper handling of personal data is critical to Note 1 Significant accounting policiessustaining long-term relationships with our customers and clients and to meeting privacy laws and obligations. Failure to protect personal data can lead to potential detriment to our customers and clients, reputational damage, regulatory sanctions and financial loss, which under the new EU Data Protection Regulation may be substantial.
d) Regulatory focus on pagesculture and accountability218
Regulators around the world continue to 220.emphasise the importance of culture and personal accountability and the adoption and enforcement of adequate internal reporting and whistleblowing procedures in helping to promote appropriate conduct and drive positive outcomes for customers, clients and markets. Failure to meet the requirements and expectations of the UK Senior Managers Regime, Certification Regime and Conduct Rules may lead to regulatory sanctions, both for the individuals and the firm.
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Risk review
Material existing and emerging risks
vii) Reputation risk
vi)a) Barclays’ association with sensitive sectors and its impact on reputation
A risk arising in one business area can have an adverse effect upon Barclays’ overall reputation; any one transaction, investment or event that, in the perception of key stakeholders reduces their trust in the Group’s integrity and competence, has the potential to give rise to reputation risk for Barclays and may result in loss of business, regulatory censure and missed business opportunity.
Barclays’ association with sensitive sectors is an area of concern for stakeholders and the following topics are of regular interest:
◾ | Disclosure of climate risks and opportunities, including the activities of certain sections of the client base. This is becoming the subject of increased scrutiny from regulators, NGOs and other stakeholders. |
◾ | The risks of association with human rights violations through the perceived indirect involvement in human rights abuses committed by clients and customers. |
◾ | The manufacture and export of military and riot control goods and services by clients and customers. |
viii) Legal risk and legal, competition and regulatory matters
Legal disputes, regulatory investigations, fines and other sanctions relating to conduct of business and financial crimebreaches of legislation and/or regulations may negatively affect the Group’s results, reputation and ability to conduct its business. Legal outcomes can arise as a consequence of legal risk or because of past and future actions, behaviours and business decisions as a result of other Principal Risks.
The Group conducts diverse activities in a highly regulated global market and therefore is therefore exposed to the risk of fines and other sanctions relating to the conduct of its business. In recent years, authorities have increasingly investigated past practices, vigorously pursued alleged breaches and imposed heavy penalties on financial services firms. This trend is expected to continue. In relation to financial crime, aA breach of applicable legislation and/or regulations could result in the Group or its staff being subject to criminal prosecution, regulatory censure, fines and other sanctions in the jurisdictions in which it operates, particularly in the UK and the US. Where clients, customers or other third parties are harmed by the Group’s conduct, this may also give rise to legal proceedings, including class actions. Other legal disputes may also arise between the Group and third parties relating to matters such as breaches, enforcement of legal rights or obligations arising under contracts, statutes or common law. Adverse findings in any such matters may result in the Group being liable to third parties seeking damages, or may result in the Group’s rights not being enforced as intended.
Details of material legal, competition and regulatory matters to which the Group is currently exposed are set out in Note29 Legal, competition and regulatory matters. 29. In addition to those material ongoing matters specifically described in Note 29, the Group is engaged in various other legal proceedings in
the UK and US and a number of other overseas jurisdictions which arise in the ordinary course of business. The Group is also subject to requests for information, investigations and other reviews by regulators, governmental and other public bodies in connection with business activities in which the Group is or has been engaged. In light ofThe Group is cooperating with the uncertainties involvedrelevant authorities and keeping all relevant agencies briefed as appropriate in legal, competitionrelation to these matters and regulatory matters, there can be no assurance that the outcome of a particular matter or matters will not be material to the Group’s results, operations or cash flow for a particular period, dependingothers described in Note 29 on among other things, the amount of the loss resulting from the matter(s) and the amount of income otherwise reported for the period.an ongoing basis.
The outcome of material, legal, competition and regulatory matters, both those to which the Group is currently exposed and any others which may arise in the future, is difficult to predict. However, it is likely that in connection with any such matters the Group willmay incur significant expense, regardless of the ultimate outcome, and any such matters could expose the Group to any of the following:following outcomes: substantial monetary damages, settlements and/or fines; remediation of affected customers and clients; other penalties and injunctive relief; additional litigation; criminal prosecution in certain circumstances; the loss of any existing agreed protection from prosecution; regulatory restrictions on the Group’s business operations including the withdrawal of authorisations; increased regulatory compliance requirements; suspension of operations; public reprimands; loss of significant assets or business; a
negative effect on the Group’s reputation; loss of investor confidence by investors, counterparties, clients and or customers; risk of credit rating agency downgrades; potential negative impact on the availability and/or cost of funding and liquidity; and/or dismissal or resignation of key individuals. In light of the uncertainties involved in legal, competition and regulatory matters, there can be no assurance that the outcome of a particular matter or matters will not be material to the Group’s results of operations or cash flow for a particular period, depending on, among other things, the amount of the loss resulting from the matter(s) and the amount of income otherwise reported for the period.
In January 2017, Barclays PLC was sentenced to serve three years of probation from the date of the sentencing order in accordance with the terms of its May 2015 plea agreement with the DOJ. During the term of probation Barclays PLC must, among other things, (i) commit no crime whatsoever in violation of the federal laws of the US, (ii) implement and continue to implement a compliance program designed to prevent and detect the conduct that gave rise to the plea agreement and (iii) strengthen its compliance and internal controls as required by relevant regulatory or enforcement agencies. Potential consequences of breaching the plea agreement include the imposition of additional terms and conditions on the Group, an extension of the agreement, or the criminal prosecution of Group entities, which could, in turn, entail further financial penalties and collateral consequences and have a material adverse effect on the Group’s business, operating results or financial position.
There is also a risk that the outcome of any legal, competition or regulatory matters in
which the Group is involved may give rise to changes in law or regulation as part of a wider response by relevant law makers and regulators. An adverseA decision in any one matter, either against the Group or another financial institution facing similar claims, could lead to further claims against the Group.
vii) Risks arising from regulation of the financial services industry
The financial services industry continues to be the focus of significant regulatory change and scrutiny which may adversely affect the Group’s business, financial performance, capital and risk management strategies. For further information on regulations affecting the Group, including significant regulatory developments, see the section on Supervision and Regulation.
a) Regulatory change
The Group, in common with much of the financial services industry, remains subject to significant levels of regulatory change and increasing scrutiny in many of the countries in which it operates (including, in particular, the UK and the US). This has led to a more intensive approach to supervision and oversight, increased expectations and enhanced requirements. As a result, regulatory risk will remain a focus for senior management and consume significant levels of business resources. Furthermore, this more intensive approach and the enhanced requirements, uncertainty and extent of international regulatory coordination as enhanced supervisory standards are developed and implemented may adversely affect the Group’s business, capital and risk management strategies and/or may result in the Group deciding to modify its legal entity structure, capital and funding structures and business mix, or to exit certain business activities altogether or not to expand in areas despite otherwise attractive potential.
b) Changes in prudential requirements, including changes to CRD IV
The Group’s results and ability to conduct its business may be negatively affected by changes to, or additional supervisory expectations.
In July 2015, the Financial Policy Committee (FPC) of the BoE published a policy statement directing the PRA to require all major UK banks and building societies to hold enough Tier 1 capital to satisfy a minimum leverage ratio of 3% and a countercyclical leverage ratio buffer of 35% of the institution-specific countercyclical capital buffer rate. The FPC also directed that UK G-SIBs and domestically systemically important banks should meet a supplementary leverage buffer ratio of 35% of corresponding risk-weighted capital buffer rates. The PRA published a policy statement, finalised rules and a supervisory statement implementing the FPC’s directions in December 2015 and the new leverage ratio framework came into force on 1 January 2016.
In January 2016, the BCBS endorsed a new market risk framework, including rules made as a result of its fundamental review of the trading book, which will take effect in 2019. Barclays continues to monitor the potential effects on its capital position arising from these rules and from (i) revisions to the BCBS’s standardised rules for credit risk, counterparty credit risk, CVA volatility risk and operational risk; and (ii) the BCBS considering the position regarding the limitation of the use of internal models in certain areas (for example, removing the Advanced Measurement Approach for operational risk) and applying RWA floors based on the standardised approaches.
Changes to, or additional supervisory expectations, in relation to capital and/or leverage ratio requirements either individually or in aggregate, may lead to unexpected enhanced requirements in relation to the Group’s capital, leverage, liquidity and funding ratios or alter the way such ratios are calculated. This may result in a need for further management actions to meet the changed requirements, such as: increasing capital or liquidity resources, reducing leverage and risk weighted assets; modifying legal entity structure (including with regard to issuance and deployment of capital and funding for the Group); changing the Group’s business mix or exiting other businesses; and/or undertaking other actions to strengthen the Group’s position.
Risk review
Material existing and emerging risks
Material existing and emerging risks to the Group’s future performance
c) Market infrastructure reforms
The derivatives markets are subject to extensive and increasing regulation in many of the Group’s markets, including, in particular, Europe pursuant to the European Market Infrastructure Regulation (EMIR) and in the US under the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA). Certain of these increased regulatory requirements have already come into force, with further provisions expected to become effective in stages, including through a new recast version of the Markets in Financial Instruments Directive and a new regulation (the Markets in Financial Instruments Regulation) in Europe.
It is possible that additional regulations, and the related expenses and requirements, will increase the cost of and restrict participation in the derivatives markets, thereby increasing the costs of engaging in hedging or other transactions and reducing liquidity and the use of the derivatives markets.
Changes in regulation of the derivatives markets could adversely affect the business of the Group and its affiliates in these markets and could make it more difficult and expensive to conduct hedging and trading activities, which could in turn reduce the demand for swap dealer and similar services of the Group and its subsidiaries. In addition, as a result of these increased costs, the new regulation of the derivatives markets may also result in the Group deciding to reduce its activity in these markets.
d) Recovery and resolution planning
There continues to be a strong regulatory focus on ‘resolvability’ from regulators, particularly in the UK, the US and South Africa. The Group made its first formal Recovery and Resolution Plan (RRP) submissions to the UK and US regulators in mid-2012 and made its first Recovery Plan submission to the South African regulators in 2013. Barclays continues to work with the relevant authorities to identify and address potential impediments to the Group’s ‘resolvability’.
In the UK, RRP work is considered part of continuing supervision. Removal of potential impediments to an orderly resolution of the Group or one or more of its subsidiaries is considered as part of the BoE and PRA’s supervisory strategy for each firm, and the PRA can require firms to make significant changes in order to enhance resolvability. Barclays provides the PRA with a Recovery Plan annually and with a Resolution Pack every other year.
In the US, Barclays is one of several systemically important banks required to file resolution plans with the Board of Governors of the Federal Reserve System (Federal Reserve) and the Federal Deposit Insurance Corporation (FDIC) (collectively, the Agencies) under provisions of the DFA. Pursuant to the resolution plan regulation in the US, a joint determination by the Agencies that a resolution plan is not credible or would not facilitate an orderly resolution under the US Bankruptcy Code may result in a bank being made subject to more stringent capital, leverage, or liquidity requirements, or restrictions on growth, activities or operations in the US.
Additionally, there are further resolution-related proposals in the US, such as the Federal Reserve’s proposed regulation requiring internal total loss absorbing capital (TLAC) for Barclays’ US Intermediate Holding Company (IHC) that will be established during 2016, and increased record keeping and reporting requirements for obligations under qualified financial contracts (QFC proposal) that may, depending on final rules, materially increase the operational and financing costs of Barclays’ US operations.
In South Africa, the South African Treasury and the South Africa Reserve Bank are considering material new legislation and regulation to adopt a resolution and depositor guarantee scheme in alignment with FSB principles. Barclays Africa Group Limited (BAGL) and its primary subsidiary Absa Bank Limited, will be subject to these schemes when they are adopted. It is not clear what shape these schemes will take, or when the schemes will be adopted, but current proposals for a funded deposit insurance scheme and for operational continuity may result in material increases in operational and financing costs for the BAGL group.
While the Group believes that it is making good progress in reducing potential impediments to resolution, should the relevant authorities ultimately determine that the Group or any significant subsidiary could
not be resolved in an orderly manner, the impact of potential structural changes that may be required to address such a determination (whether in connection with RRP or other structural reform initiatives) may impact capital, liquidity and leverage ratios, as well as the overall profitability of the Group, for example, due to duplicated infrastructure costs, lost cross-rate revenues and/or additional funding costs.
viii) Regulatory action in the event of a bank failure
The EU Bank Recovery and Resolution Directive (BRRD) contains provisions similar to the Banking Act on a European level, many of which augment and increase the powers which national regulators are required to have in the event of a bank failure.
The UK Banking Act 2009, as amended (the Banking Act) provides for a regime to allow the BoE (or, in certain circumstances, HM Treasury) to resolve failing banks in the UK. Under the Banking Act, these authorities are given powers to make share transfer orders and property transfer orders. Amendments introduced by the Banking Reform Act gave the BoE statutory bail-in power from 1 January 2015. This power enables the BoE to recapitalise a failed institution by allocating losses to its shareholders and unsecured creditors. It also allows the BoE to cancel liabilities or modify the terms of contracts for the purposes of reducing or deferring the liabilities of the bank under resolution, and gives it the power to convert liabilities into another form (e.g. equity). In addition to the bail-in power, relevant UK resolution authorities are granted additional powers under the Banking Act including powers to direct the sale or transfer of a relevant financial institution or all or part of its business in certain circumstances. Further, parallel developments such as the implementation in the UK of the FSB’s TLAC requirements may result in increased risks that a bank would become subject to resolution authority requirements by regulators seeking to comply with international standards in this area. Please see Funding risk, inability to maintain appropriate prudential ratios on page 88.
If any of these powers were to be exercised, or there is an increased risk of exercise, in respect of the Group or any entity within the Group, this might result in a material adverse effect on the rights or interests of shareholders and creditors including holders of debt securities and/or could have a material adverse effect on the market price of shares and other securities issued by the Group. Such effects could include losses of shareholdings/associated rights including, the dilution of percentage ownership of the Group’s share capital, and may result in creditors, including debt holders, losing all or a part of their investment in the Group’s securities.
Barclays is committed to Group-wide changes to business practices, governance and mindset and behaviours so that good customer outcomes and protecting market integrity are integral to the way Barclays operates. Improving our reputation will demonstrate to customers that in Barclays they have a partner they can trust. Conduct risk is the risk that detriment is caused to the Group’s customers, clients, counterparties or the Group itself because of inappropriate judgement in the execution of our business activities.
During 2015 potential customer impact and reputation risk inherent in varied emerging risks has been managed across the Group and escalated to senior management for discussion. These risks will remain prevalent in 2016 and beyond and the most significant of these include:
i) Organisational change
The Group is at risk of not being able to meet customer and regulatory expectations due to a failure to appropriately manage the: i) complexity in business practice, processes and systems; ii) challenges faced in product suitability, automation and portfolio-level risk monitoring; iii) resilience of its technology; and, iv) execution strategy, including the failure to fulfil the high level of operational precision required for effective execution in order to deliver positive customer outcomes.
ii) Legacy issues
Barclays remains at risk from the potential outcomes of a number of investigations relating to our past conduct. While we are continuing to embed cultural change and improved governance, many stakeholders
will remain sceptical and so until there is clear and sustained evidence of consistent cultural and behavioural change, the risk to Barclays’ reputation will remain. Barclays continues to work to rebuild customer trust and market confidence impacted by legacy issues.
For further information in respect of such investigations and related litigation and discussion of the associated uncertainties, please see the Legal, competition and regulatory matters note on page 261.
iii) Market integrity
There are potential risks arising from conflicts of interest, including those related to the benchmark submission process. While primarily relevant to the Investment Bank, these potential risks may also impact the corporate and retail customer base. The Group may be adversely affected if it fails to mitigate the risk of individuals making such inappropriate judgement by the enhancing of operating models, and effective identification and management of conflicts of interest, controls and supervisory oversight.
iv) Financial crime
The Group, as a global financial services firm, is exposed to the risks associated with money laundering, terrorist financing, bribery and corruption and sanctions. As a result, the Group may be adversely affected if it fails to effectively mitigate the risk that its employees or third parties facilitate, or that its products and services are used to facilitate financial crime.
Any one, or combination, of the above risks could have significant impact on the Group’s reputation and may also lead to potentially large costs to both rectify this issue and reimburse losses incurred by customers and regulatory censure and penalties.
Material existing and emerging risks potentially impacting more than one Principal Risk
i) Structural reform (emerging risk)
The UK Financial Services (Banking Reform) Act 2013 (the UK Banking Reform Act) and associated secondary legislation and regulatory rules, require the separation of the Group’s UK and EEA retail and SME deposit taking activities into a legally, operationally and economically separate and independent entity and restrict the types of activity such an entity may conduct (so-called ‘ring fencing’).
The PRA issued a policy statement (PS10/15) in May 2015 setting up legal structures and governance requirements that the UK regulator considers as ‘near-final’. A PRA Consultation was issued in October 2015 relating to post ring fencing prudential requirements and intra-group arrangements among other matters. PRA final rules are expected in 2016. UK ring fencing rules will become binding from January 2019 and Barclays has an internal structural reform programme to implement the changes required by these new regulations (alongside other group structural requirements applicable to or in the course of development for the Group both in the UK and other jurisdictions in which the Group has operations – such as the proposed move towards a single point of entry (Holding Company) resolution model under the BoE’s preferred resolution strategy and the requirement under section 165 of the DFA to create a US intermediate holding company (IHC) to hold the Group’s US banking and non-banking subsidiaries) and to evaluate the Group’s strategic options in light of all current and proposed global structural reform initiatives. Changes resulting from this work will have a material impact in the way the Group operates in the future through increased cost and complexity associated with changes required by ring fencing laws and regulations. Specifically, in order to comply with the UK Banking Reform Act and the DFA, it is proposed that:
Implementation of these changes involves a number of risks related to both the revised Group entity structure and also the process of transition to that revised Group structure. Those risks include the following:
These, and other regulatory changes and the resulting actions taken to address such regulatory changes, may have an adverse impact on the Group’s profitability, operating flexibility, flexibility of deployment of capital and funding, return on equity, ability to pay dividends, credit ratings, and/or financial condition.
ii) Business conditions, general economy and geopolitical issues
The Group’s performance could be adversely affected in relation to more than one Principal Risk by a weak or deteriorating global economy or political instability. These factors may also occur in one or more of the Group’s main countries of operation.
The Group offers a broad range of services to retail, institutional and government customers, in a large number of countries. The breadth of
Risk review
Material existing and emerging risks
Material existing and emerging risks to the Group’s future performance
these operations means that deterioration in the economic environment, or an increase in political instability in countries where it is active, or any other systemically important economy, could adversely affect the Group’s performance.
Global growth is expected to remain modest, with low single digit growth in advanced economies alongside a slowdown in emerging markets. This moderate economic performance, lower commodity prices and increased geopolitical tensions mean that the distribution of risks to global economic activity continues to be biased to the downside.
As the US Federal Reserve embarks on monetary policy tightening, the increasing divergence of policies between major advanced economies risks triggering further financial market volatility. The sharp change in value of the US dollar during 2015 reflected this and, has played a major role in driving asset price volatility and capital reallocation as markets adjusted. Changes to interest rate expectations risk igniting further volatility and US dollar appreciation, particularly if the US Federal Reserve were to increase rates faster than markets currently expect.
Emerging markets have already seen growth slow following increased capital outflows, but a deeper slowdown in growth could emerge if tighter US interest rate policy drives further reallocation of capital. Moreover, sentiment towards emerging markets as a whole continues to be driven in large part by developments in China, where there is significant concern around the ability of authorities to manage the growth transition towards services. A stronger than expected slowdown could result if authorities fail to appropriately manage the end of the investment and credit-led boom, while the consequences from a faster slowdown would flow through both financial and trade channels into other economies, and affect commodity markets.
Commodity prices, particularly oil prices, have already fallen significantly, but could fall further if demand growth remains weak or supply takes longer than expected to adjust. At the same time, countries with high reliance on commodity related earnings have already experienced a tightening of financial conditions. A sustained period of low prices risks triggering further financial distress, default and contagion.
In several countries, reversals of capital inflows, as well as fiscal austerity, have already caused deterioration in political stability. This could be exacerbated by a renewed rise in asset price volatility or sustained pressure on government finances. In addition, geopolitical tensions in some areas of the world, including the Middle East and Eastern Europe are already acute, and are at risk of further deterioration.
While in Europe, risks of stagnation, entrenched deflation and a Eurozone break up have diminished, they remain a risk.
In the UK, the referendum on EU membership gives rise to some political uncertainty and raises the possibility of a disruptive and uncertain exit from the EU, with attendant consequences for investment and confidence. Following the referendum in June 2016, in the event that there is a vote in favour of leaving the EU, a period of negotiation is likely, widely anticipated to be around two years, with unpredictable implications on market conditions.
A drop in business or consumer confidence related to the aforementioned risks may have a material impact on GDP growth in one or more significant markets and therefore Group performance. At the same time, even if output in most advanced economies does grow, it would also be likely to advance at a slower pace than seen in the pre-crisis period. Growth potential could be further eroded by the low levels of fixed asset investment and productivity growth.
For the Group, a deterioration of conditions in its key markets could affect performance in a number of ways including, for example: (i) deteriorating business, consumer or investor confidence leading to reduced levels of client activity; (ii) higher levels of default rates and impairment; and (iii) mark to market losses in trading portfolios resulting from changes in credit ratings, share prices and solvency of counterparties.
iii) Business change/execution (emerging risk)
As Barclays moves towards a single point of entry (Holding Company) resolution model and implementation of the structural reform programme execution, the expected level of structural and strategic change to be implemented over the medium term will be disruptive and is likely to increase funding and operational risks for the Group and could impact its revenues and businesses. These changes will include: the creation and rundown of Non-Core; the delivery against an extensive agenda of operational and technology control and infrastructure improvements; and, planned cost reductions. Execution may be adversely impacted by external factors (such as a significant global macroeconomic downturn or further significant and unexpected regulatory change in countries in which the Group operates) and/or internal factors (such as availability of appropriately skilled resources or resolution of legacy issues). Moreover, progress in regard to Barclays’ strategic plans is unlikely to be uniform or linear and progress on certain targets may be achieved more slowly than others.
If any of the risks outlined above were to occur, singly or in aggregate, they could have a material adverse effect on the Group’s business, results of operations and financial condition.
Risk review
Principal Risk management
Credit risk management
Credit risk (audited)
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The risk of loss to the firm from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the firm, including the whole and timely payment of principal, interest, collateral and other receivables.
Risk review
A more comprehensive overview, together with more specific information on Group policies, can be found in Barclays PLC 2015 Pillar 3 Report or at home.barclays/annualreport
This section outlines the Group’s strategy for managing risk and how risk culture has been developed to ensure that there is a set of objectives and practices which are shared across the Group. It provides details of the Group’s governance, specific information on policies that the Group determines to be of particular significance in the current operating environment, committee structures and how responsibilities are assigned.
The Group has clear risk management objectives and a well established strategy to deliver them through core risk management processes.
At a strategic level, the Group’s risk management objectives are to:
A key element in the setting of clear management objectives is the ERMF, which sets out key activities, tools, techniques and organisational arrangements so that material risks facing the Group are identified and understood, and that appropriate responses are in place to protect Barclays and prevent detriment to its customers, employees or community. This will help the Group meet its goals, and enhance its ability to respond to new opportunities.
The ERMF covers those risks incurred by the Group that were foreseeable, continuous and material enough to merit establishing specific Group-wide control frameworks. These are known as Principal and Key Risks. See Principal and Key Risks on page 98 for more information.
The aim of the risk management process is to provide a structured, practical and easily understood set of three steps, Evaluate, Respond and Monitor (the E-R-M process), that enables management to identify and assess risks, determine the appropriate risk response, and then monitor the effectiveness of the response and changes to the risk profile.
1. Evaluate: risk evaluation must be carried out by those individuals, teams and departments who manage the underlying operational or business process, and so are best placed to identify and assess the potential risks, and also include those responsible for delivering the objectives under review.
2. Respond: the appropriate risk response effectively and efficiently ensures that risks are kept within appetite, which is the level of risk that the Group is prepared to accept while pursuing its business strategy. There are three types of response: i) accept the risk but take necessary mitigating actions such as use of risk controls; ii) stop the existing activity/do not start the proposed activity; or iii) continue the activity but transfer risks to another party via the use of insurance.
Barclays risk management strategy
3. Monitor: once risks have been identified and measured, and controls put in place, progress towards objectives must be tracked. Monitoring must be ongoing and can prompt re-evaluation of the risks and/or changes in responses. Monitoring must be carried out proactively. In addition to ‘reporting’, it includes ensuring risks are maintained within risk appetite, and checking that controls are functioning as intended and remain fit for purpose.
The process is orientated around material risks impacting delivery of objectives, and is used to promote an efficient and effective approach to risk management. This three step risk management process:
Risk exists when the outcome of taking a particular decision or course of action is uncertain and could potentially impact whether, or how well, the Group delivers on its objectives.
The Group faces risks throughout its business, every day, in everything it does. Some risks are taken after appropriate consideration – such as lending money to a customer. Other risks may arise from unintended consequences of internal actions, for example an IT system failure or poor sales practices. Finally, some risks are the result of events outside the Group but which impact its business – such as major exposure through trading or lending to a market counterparty which later fails.
All employees must play their part in the Group’s risk management, regardless of position, function or location. All employees are required to be familiar with risk management policies that are relevant to their activities, know how to escalate actual or potential risk issues, and have a role appropriate level of awareness of the ERMF (see Risk governance and assigning responsibilities for more information on page 97), risk management process and governance arrangements.
Board oversight and flow of risk related information
Furthermore, from March 2016 members of the Board, Executive Committee and a limited number of specified senior individuals will be subject to additional rules included within the Senior Managers Regime (SMR), which clarifies their accountability and responsibilities. Members of the SMR are held to four additional specific rules of conduct in which they must:Overview
There are three key board-level forums which review and monitor risk across the Group. These are: the Board itself; the Board Risk Committee and the Board Reputation Committee.
The Board
One of the Board’s (Board of Directors of Barclays PLC) responsibilities is the approval of risk appetite, which is the level of risk the Group chooses to take in pursuit of its business objectives. The Chief Risk Officer regularly presents a report to the Board summarising developments in the risk environment and performance trends in the key portfolios. The Board is also responsible for the Internal Control and Assurance Framework (Group Control Framework). It oversees the management of the most significant risks through regular review of risk exposures and related key controls. Executive management responsibilities relating to this are set out in the ERMF.
The Board Risk Committee (BRC)
The BRC monitors the Group’s risk profile against the agreed financial appetite. Where actual performance differs from expectations, actions being taken by management are reviewed to ensure that the BRC is comfortable with them. After each meeting, the Chair of the BRC prepares a report for the next meeting of the Board. All members are non-executive directors. The Group Finance Director (GFD) and the Chief Risk Officer (CRO) attend each meeting as a matter of course.
The BRC also considers the Group’s risk appetite statement for operational risk and evaluates the Group’s operational risk profile and operational risk monitoring.
The BRC receives regular and comprehensive reports on risk methodology, the effectiveness of the risk management framework, and the Group’s risk profile, including the key issues affecting each business portfolio and forward risk trends. The Committee also commissions in-depth analyses of significant risk topics, which are presented by the CRO or senior risk managers in the businesses. The Chair of the Committee prepares a statement each year on its activities.
The Board Audit Committee (BAC)
The BAC receives regular reports on the effectiveness of internal control systems, quarterly reports on material control issues of significance, quarterly papers on accounting judgements (including impairment). It also receives a half yearly review of the adequacy of impairment allowances, which it reviews relative to the risk inherent in the portfolios, the business environment, the Group’s policies and methodologies and the performance trends of peer banks. The Chairman of the BAC also sits on the BRC.
The Board Reputation Committee (RepCo)
The RepCo reviews management’s recommendations on conduct and reputational risk and the effectiveness of the processes by which the Group identifies and manages these risks. It also reviews and monitors the effectiveness of Barclays’ Citizenship strategy, including the management of Barclays’ economic, social and environmental contribution.
In addition, the Board Audit and Board Remuneration Committees receive regular risk reports to assist them in the undertaking of their duties.
The Board Remuneration Committee (RemCo)
The RemCo receives a detailed report on risk management performance from the BRC, regular updates on the risk profile and proposals for the ex-ante and ex-post risk adjustments to variable remuneration. These inputs are considered in the setting of performance incentives.
Summaries of the relevant business, professional and risk management experience of the Directors of the Board are presented in the Board of Directors section on pages 3 and 4. The terms of reference and additional details on membership and activities for each of the principal Board Committees are available from the Corporate Governance section at: home.barclays/corporategovernance.
The CRO manages the independent Risk function and chairs the Financial Risk Committees (FRC) and the Operational Risk Review Forum (ORRF), which monitor the Group’s financial and non-financial risk profile relative to agreed risk appetite.
The Group Treasurer heads the Treasury function and chairs the Treasury Committee which manages the Group’s liquidity, maturity transformation and structural interest rate exposure through the setting of policies and controls, monitors the Group’s liquidity and interest rate maturity mismatch, monitors usage of regulatory and economic capital, and has oversight of the Group’s capital plan.
The Head of Compliance chairs the Conduct and Reputational Risk Committee (CRRC) which assesses the quality of the application of the Reputation and Conduct Risk Control Frameworks. It also recommends conduct risk appetite, sets policies to ensure consistent adherence to that appetite, and reviews known and emerging reputational and conduct related risks to consider if action is required.
Risk review
Risk management
Risk governance and assigning responsibilities
Responsibility for risk management resides at all levels of the Group, from the Board and the Executive Committee down through the organisation to each business manager and risk specialist. These responsibilities are distributed so that risk/return decisions are taken at the most appropriate level, as close as possible to the business, and are subject to robust and effective review and challenge. Responsibilities for effective review and challenge also reside at all levels.
The ERMF articulates a clear, consistent, comprehensive and effective approach for the management of all risks in the Group and creates the context for setting standards and establishing the right practices throughout the Group. The ERMF sets out a philosophy and approach that is applicable to the whole bank, all colleagues and to all types of risk. It sets out the key activities required for all employees to operate Barclays risk and control environment, with specific requirements for key individuals, including the CRO and CEO, and the overall governance framework designed to support its effective operation. See Risk Culture in Barclays PLC 2015 Pillar 3 Report for more information.
The ERMF supports risk management and control by ensuring that there is a:
Three lines of defence
The enterprise risk management process is the ‘defence’, and organising businesses and functions into three ‘lines’ enhances the E-R-M process by formalising independence and challenge, while still promoting collaboration and the flow of information between all areas. The three lines of defence operating model enables the Group to separate risk management activities:
First line: manage operational and business processes; design, implement, operate, test and remediate controls.
First line activities are characterised by:
Second line: oversee and challenge the first line and provide second line risk management activity.
Second line activities are characterised by:
Third line: provide assurance that the E-R-M process is fit for purpose, and that it is being carried out as intended.
Third line activities are characterised by:
Following the annual review, in 2016, we have further refined the three lines of defence model by clarifying that responsibilities for risk management and control are defined in relation to the activities individuals undertake as part of their role. The three key activities are: ‘Setting Policy and Conformance’ (second line); ‘Managing Operational or Business Process’ (first and second line); and ‘Providing Independent Assurance’ (third line). Second and third line activities have not changed, however we have emphasised the key responsibilities of the first line, which includes colleagues’ responsibility for understanding and owning the process end to end, and designing, operating, testing and remediating appropriate controls to manage those risks. Performed appropriately and by all colleagues, together these responsibilities will drive a stronger risk and control environment at Barclays, benefitting our customers, clients, shareholders and regulators.
Reporting and control
Principal Risks comprise individual Key Risks to allow for more granular analysis. As at 31 December 2015, the five Principal Risks were: i) Credit; ii) Market; iii) Funding; iv) Operational; and v) Conduct. Since the beginning of 2015, Reputation Risk has been recognised as a Key Risk within Conduct Risk given their close alignment and the fact that as separate Principal Risks they had a common Principal Risk Officer.
Risk management responsibilities for Principal and Key Risks are set out in the ERMF. The ERMF creates clear ownership and accountability; ensures the Group’s most significant risk exposures are understood and managed in accordance with agreed risk appetite and risk tolerances; and ensures regular reporting of risk exposures and control effectiveness.
For each Key Risk, the Key Risk Officer is responsible for developing a risk appetite statement and overseeing and managing the risk in line with the ERMF. This includes the documentation, communication and maintenance of a Key Risk Control Framework which sets out, for every business across the firm, the mandated control requirements in managing exposures to that Key Risk. These control requirements are given further specification, according to the business or risk type, to provide a complete and appropriate system of internal control.
Business and Function Heads are responsible for obtaining ongoing assurance that the key controls they have put in place to manage the risks to their business objectives are operating effectively. Reviews are undertaken on a six-monthly basis and support the regulatory requirement for the Group to make an annual statement about its system of internal controls. At the business level, executive management hold specific Business Risk Oversight Meetings to monitor all Principal Risks.
Key Risk Officers report their assessments of the risk exposure and control effectiveness to Group-level oversight committees and their assessments form the basis of the reports that go to the:
Board Risk Committee:
Board Reputation Committee:
The following sections provide an overview of each of the five Principal Risks, and details of the structure and organisation of the relevant management function and its roles and responsibilities, including how the impact of the risk to the Group may be minimised.
Risk review
Risk management
Credit risk
The risk of suffering financial loss should any of the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations to the Group.
The granting of credit is one of the Group’s major sources of income and, as a Principal Risk, the Group dedicates considerable resources to its control. The credit risk that the Group faces arises mainly from wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts with clients. Other sources of credit risk arise from trading activities, including: debt securities, settlement balances with market counterparties, available for sale assets and reverse repurchase agreements (reverse repos).loans.
Credit risk management objectives are to:
maintain a framework of controls to |
identify, assess and measure credit risk clearly and accurately across the Group and within each separate business, from the level of individual facilities up to the total |
control and plan credit |
monitor credit risk and adherence to agreed |
More information ofcovering the reporting of credit risk can be found in Barclays PLC 2015 Pillar 3 Report.Report 2017.
Wholesale and retail portfolios are managed separately to reflect the differing nature of the assets; wholesale balances tend to be larger and are managed on an individual basis, while retail balances are larger in number but smaller in value and are, therefore, managed on a homogenoushomogeneous portfolio basis.
Credit risk management responsibilities have been structured so that decisions are taken as close as possible to the business, while ensuringenforcing robust review and challenge of performance, risk infrastructure and strategic plans. The credit risk management teams in each business are accountable to the relevant Business Credit Risk Officer (BCRO)CRO who, in turn, reports to the Group CRO.
Board oversight and flow of risk related information
Organisation and structure
The responsibilities of the credit risk management teams in the businesses, the sanctioning team and other shared services include: sanctioning new credit agreements (principally wholesale); setting policies for approval of transactions (principally retail); setting risk appetite; monitoring risk against limits and other parameters; maintaining robust processes, data gathering, quality, storage and reporting methods for effective credit risk management; performing effective turnaround and workout scenarios for wholesale portfolios via dedicated restructuring and recoveries teams; maintaining robust collections and recovery processes/units for retail portfolios; and review and validation of credit risk measurement models.
For wholesale portfolios, credit risk approval is undertaken by experienced credit risk professionals operating within a clearly defined delegated authority framework, with only the most senior credit officers entrusted with the higher levels of delegated authority. The largest credit exposures, which are outside the Risk Sanctioning Unit or Risk Distribution Committee authority require the support of the Group Senior Credit Officer (GSCO)Officers (GSCOs), the Group’s most senior credit risk sanctioner.sanctioners. For exposures in excess of the GSCO’sGSCOs’ authority, approval byfrom the Group CRO is required. In the wholesale portfolios, credit risk managers are organised in sanctioning teams by geography, industry and/or product.
The role of the Central Risk function is to provide Group-wide direction, oversight and challenge of credit risk taking.risk-taking. Central Risk sets the Credit Risk Control Framework, which provides the structure within which credit risk is managed, together with supporting credit risk policies.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 85 |
Risk review
Principal Risk management
Credit risk management
Credit risk mitigation
The Group employs a range of techniques and strategies to actively mitigate the counterparty credit risks. These can broadly be divided into three types: netting and set-off; collateral; and risk transfer.
◾ | netting and set-off |
◾ | collateral |
◾ | risk transfer |
Netting and set-off
In most jurisdictions in which the Group operates, credit risk exposures can be reduced by applying netting and set-off. In exposure terms, this credit risk mitigation technique has the largest overall impact on net exposure to derivative transactions, compared with other risk mitigation techniques.
For derivative transactions, the Group’s normal practice is to enter into standard master agreements with counterparties (e.g. ISDAs). These master agreements typically allow for netting of credit risk exposure to a counterparty resulting from a derivative transactiontransactions against the Group’s obligations to the counterparty in the event of default, and so produce a lower net credit exposure. These agreements may also reduce settlement exposure (e.g. for foreign exchange transactions) by allowing payments on the same day in the same currency to be set-off against one another.
Collateral
The Group has the ability to call on collateral in the event of default of the counterparty, comprising:
home loans:a fixed charge over residential property in the form of houses, flats and other |
wholesale lending:a fixed charge over commercial property and other physical assets, in various |
other retail lending:includes charges over motor |
derivatives:the Group also often seeks to enter into a margin agreement (e.g. Credit Support |
reverse repurchase agreements:collateral typically comprises highly liquid securities which have been legally transferred to the Group subject to an agreement to return them for a fixed |
financial guarantees and similar |
Risk transfer
A range of instruments including guarantees, credit insurance, credit derivatives and securitisation can be used to transfer credit risk from one counterparty to another. These mitigate credit risk in two main ways:
if the risk is transferred to a counterparty which is more |
where recourse to the first counterparty remains, both counterparties must default before a loss materialises. This is less likely than the default of either counterparty individually so credit risk is reduced. |
Detailed policies are in place to ensure thatappropriately recognise and record credit risk mitigation is appropriately recognised and recorded and more information can be found in the Barclays PLC 2015 Pillar 3 Report.Report 2017.
Risk review
Principal Risk management
Market risk management
Market risk (audited)
The risk of a reductionloss arising from potential adverse changes in the value of the firm’s assets and liabilities from fluctuation in market variables including, but not limited to, earnings or capital due to volatility of trading book positions or as a consequence of running a banking book balance sheetinterest rates, foreign exchange, equity prices, commodity prices, credit spreads, implied volatilities and liquidity pools.asset correlations.
Overview
Traded market risk
Traded marketMarket risk arises primarily as a result of client facilitation in wholesale markets, involving market making activities, risk management solutions and execution of syndications. Upon execution of a trade with a client, the Group will look to hedge against the risk of the trade moving in an adverse direction. Mismatches between client transactions and hedges result in market risk due to changes in asset prices.
Non-tradedOrganisation and structure
Market risk in the businesses resides primarily in Barclays International and Group Treasury. These businesses have the mandate to incur market risk. Market risk oversight and challenge is provided by business Committees and Group Committees, including the Market Risk Committee.
Banking book operations generate non-tradedRoles and responsibilities
The objectives of market risk primarily through interest rate risk arising from the sensitivity of net interest margins due to changes in interest rates. The principal banking businesses engage in internal derivative trades with Treasury to manage their interest rate risk to within its defined risk appetite. However, the businesses remain susceptible to market risk from four key sources:management are to:
To meet the above objectives, a well established governance structure is in place to manage these risks consistent with the ERMF. See page 77 on risk management strategy, governance and risk culture.
The BRC recommends market risk appetite to the Board for their approval. The Market Risk Principal Risk Lead (PR Lead) is responsible for the Market Risk Control Framework and, under delegated authority from the Group CRO, agrees with the Business CROs a limit framework within the context of the approved market risk appetite.
The Market Risk Committee approves and makes recommendations concerning the Group-wide market risk profile. This includes overseeing the operation of the Market Risk Framework and associated standards and policies; reviewing arising market or regulatory issues, limits and utilisation; and risk appetite levels to the Board. The Committee is chaired by the PR Lead and attendees include the business heads of market risk, business aligned market risk managers and Internal Audit.
The head of each business is accountable for all market risks associated with its activities, while the head of the market risk team covering each business is responsible for implementing the risk control framework for market risk.
More information on market risk management can be found in Barclays PLC Pillar 3 Report 2017.
Management Value at Risk
◾ | estimates the |
◾ | differs from the Regulatory value at risk (VaR) used for capital purposes in scope, confidence level and horizon |
◾ | backtesting is performed to test the model is fit for purpose. |
VaR is an estimate of the potential loss arising from unfavourable market movements if the current positions were to be held unchanged for one business day. For internal market risk management purposes, a historical simulation methodology with a two-year equally weighted historical period, at the 95% confidence level is used for all trading books and some banking books.
The Management VaR model in some instances may not appropriately measure some market risk exposures, especially for market moves that are not directly observable via prices. Market risk managers are required to identify risks which are not adequately captured in VaR (‘risks not in VaR’ or ‘RNIVs’).
When reviewing VaR estimates, the following considerations are taken into account:
◾ | the historical simulation uses the most recent two years of past data to generate possible future market moves, but the past may not be a good indicator of the future; |
◾ | the one-day time horizon may not fully capture the market risk of positions that cannot be closed out or hedged within one day; |
◾ | VaR is based on positions as at close of business and consequently, it is not an appropriate measure for intra-day risk arising from a position bought and sold on the same day; |
◾ | VaR does not indicate the potential loss beyond the VaR confidence level. |
Limits are applied at the total level as well as by risk factor type, which are then cascaded down to particular trading desks and businesses by the market risk management function.
See page 120 for a review of management VaR in 2017.
Organisation and structure
Risk review
Principal Risk management
Treasury and capital risk management
Treasury and capital risk
Liquidity risk:The risk that the firm is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets
Capital risk:The risk that the firm has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This includes the risk from the firm’s pension plans
Interest rate risk in the banking book:The risk that the firm is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities.
Overview
Barclays Treasury manages treasury and capital risk on a day-to-day basis with the Treasury Committee acting as the principal management body. To enforce effective oversight and segregation of duties and in line with the ERMF, the Treasury and capital Risk function is responsible for oversight of key capital, liquidity, interest rate risk in the banking book (IRRBB) and pension risk management activities. The following describes the structure and governance associated with the risk types within the Treasury and capital Risk function.
Liquidity risk management (audited)
Overview
The efficient management of liquidity is essential to the Group in retaining the confidence of the financial markets and maintaining that the business is sustainable. There is a control framework in place for managing liquidity risk and this is designed to meet the following objectives:
◾ | To maintain liquidity resources that are sufficient in amount and quality and a funding profile that is appropriate to meet the liquidity risk appetite as expressed by the Board |
◾ | To maintain market confidence in the Group’s name. |
This is achieved via a combination of policy formation, review and governance, analysis, stress testing, limit setting and monitoring. Together, these meet internal and regulatory requirements.
Roles and responsibilities
The Treasury and Capital Risk function is responsible for the management and governance of the liquidity risk mandate defined by the Board and the production of ILAAPs. Treasury has the primary responsibility for managing liquidity risk within the set risk appetite. The CRO for treasury and capital risk reports to the Group CRO.
Barclays’ comprehensive control framework for managing the Group’s liquidity risk is designed to deliver the appropriate term and structure of funding consistent with the Liquidity Risk Appetite (LRA) set by the Board.
The Board sets the LRA based on the internal liquidity risk model and external regulatory requirements namely the Liquidity Coverage Ratio (LCR). The LRA is represented as the level of risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The approved LRA is implemented in line with the control framework and policy for liquidity risk.
The control framework incorporates a range of ongoing business management tools to monitor, limit and stress test the Group’s balance sheet and contingent liabilities and the Recovery Plan. Limit setting and transfer pricing are tools that are designed to control the level of liquidity risk taken and drive the appropriate mix of funds. Together, these tools reduce the likelihood that a liquidity stress event could lead to an inability to meet the Group’s obligations as they fall due. The control framework is subject to internal conformance testing and internal audit review.
The liquidity stress tests assess the potential contractual and contingent stress outflows under a range of scenarios, which are then used to determine the size of the liquidity pool that is immediately available to meet anticipated outflows if a stress occurs.
The Group maintains a range of management actions for use in a liquidity stress, these are documented in the Group Recovery Plan. Since the precise nature of any stress event cannot be known in advance, the actions are designed to be flexible to the nature and severity of the stress event and provide a menu of options that can be drawn upon as required. The Barclays Group Recovery Plan also contains more severe recovery options to generate additional liquidity in order to facilitate recovery in a severe stress. Any stress event would be regularly monitored and reviewed using key management information by key Treasury, Risk and business representatives.
Organisation and structure | Capital risk management (audited) Overview | |
Capital risk is managed through ongoing monitoring and management of the capital position, regular stress testing and a robust capital governance framework. Roles and responsibilities The management of capital risk is integral to the Group’s approach to financial stability and sustainability management, and is embedded in the way businesses and legal entities operate. Capital risk management is underpinned by a control framework and policy. The capital |
88 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
management strategy, outlined in the Group and legal entity capital plans, is developed in alignment with the control framework and policy for capital risk, and is implemented consistently in order to deliver on the Group’s objectives.
The Board approves the Group capital plan, internal stress tests and results of regulatory stress tests, and the Group recovery plan. The Treasury Committee is responsible for monitoring and managing capital risk in line with the Group’s capital management objectives, capital plan and risk frameworks. The Treasury and Capital Risk Committee monitors and reviews the capital risk profile and control environment, providing Second Line oversight of the management of capital risk. The BRC reviews the risk profile, and annually reviews risk appetite and the impact of stress scenarios on the Group capital plan/forecast in order to agree the Group’s projected capital adequacy.
Local management assures compliance with an entity’s minimum regulatory capital requirements by reporting to local Asset and Liability Committees with oversight by the Group’s Treasury Committee, as required.
Treasury has the primary responsibility for managing and monitoring capital and reports to the Group Finance Director. The Treasury and Capital Risk function contains a Capital Risk Oversight team, and is an independent risk function that reports to the Group CRO and is responsible for oversight of capital risk and production of ICAAPs.
Pension risk
The Group maintains a number of defined benefit pension schemes for past and current employees. The ability of the pension fund to meet the projected pension payments is maintained principally through investments.
Pension risk arises because the estimated market value of the pension fund assets might decline; investment returns might reduce; or the estimated value of the pension liabilities might increase as a result of changes to the market process.increase. The Group monitors the marketpension risks arising from its defined benefit pension schemes and works with the Trustees to address shortfalls. In these circumstances the Group could be required or might choose to make extra contributions to the pension fund. The Group’s main defined benefit scheme was closed to new entrants in 2012.
Insurance riskInterest Rate Risk in the Banking Book
InsuranceOverview
Banking book operations generate non-traded market risk, is managedprimarily through the mismatch between the duration of assets and liabilities and where interest rates on products reset at different dates. As per the Group’s policy to remain within Africa Banking,the defined risk appetite, interest rate and FX risks residing in the banking books of the businesses are transferred to Treasury where four categories of insurancethey are centrally managed. Currently, these risks are transferred to Treasury via funding arrangements, interest rate or FX swaps. However, the businesses remain susceptible to market risk are recognised: short-term insurance underwriting risk, life insurance underwriting risk, life insurance mismatch risk, and life and insurance investment risk.
Insurance risk arises when:from seven key sources:
◾ | Structural risk: the change to the net interest income on hedge replenishment due to adverse movements in interest rates, assuming that the balance sheet is held static; |
◾ | Prepayment risk:the potential loss in value if actual prepayment or early withdrawal behaviour from customers deviates from the expected or contractually agreed behaviour, which may result in a hedge or funding adjustment at a cost to the bank. Exposures are typically considered (where appropriate) net of any applicable offsetting early repayment charges. This risk principally relates to early repayment of fixed rate loans or withdrawal from fixed rate savings products; |
◾ | Recruitment risk:the potential loss in value if the actual completion or drawdown behaviour from customers deviates from the expected behaviour, which may result in a hedge or funding adjustment at a cost to the bank. This risk principally relates to the completion timing around the Bank’s fixed rate mortgage pipeline process; |
◾ | Margin compression risk:the effect of internal or market forces on a bank’s net margin where, for example, in a low rate environment any fall in rates will further decrease interest income earned on the assets whereas funding cost cannot be reduced as it is already at the minimum level. |
◾ | Lag risk:arises from the delay in re-pricing customer rates for certain variable/ managed rate products, following an underlying change to market interest rates. This is typically driven by either regulatory constraint around customer notification on pricing changes, processing time for the Group’s notification systems or contractual agreements within a product’s terms and conditions. |
◾ | Asset swap spread risk: the spread between Libor and sovereign bond yields that arises from the management of the |
Furthermore, liquidity buffer investments are generally subject to Available for Sale (AFS) accounting rules, whereby changes in the value of these assets impact capital via Other Comprehensive Income, creating volatility in capital directly.
Roles and responsibilities
The Non-traded Market Risk team provides risk management oversight and monitoring of all traded and non-traded market risk in Treasury and customer banking books, which specifically includes:
◾ | interest rate risk assessment in the customer banking books, |
◾ | oversight of balance sheet hedging, |
◾ | review of residual risk in the |
Insurance entities also incur market risk (on the investment of accumulated premiums and shareholder capital), credit risk (counterparty exposure on investments and reinsurance transactions), liquidity risk and operational risk from their investments and financial operations.
◾ | proposes and monitors risk limits to manage traded and non-traded market risk within the agreed risk appetite. |
Organisation and structure
Barclays PLC and Barclays Bank PLC |
Overview of the business market risk control structure
Traded market risk in the businesses resides primarily in the Investment Bank, Treasury, Africa Banking and Non-Core. These businesses have the mandate to incur traded market risk. Non-traded market risk is mostly incurred in PCB, Barclaycard and Treasury.
Market risk oversight and challenge is provided by business committees, Group committees, including the Market Risk Committee and Group Market Risk. The chart above gives an overview of the business control structure.
The objectives of market risk management are to:
To ensure the above objectives are met, a well-established governance structure is in place to manage these risks consistent with the ERMF (evaluate-respond-monitor). See page 95 on risk management strategy, governance and risk culture.
More information on market risk management can be found in Barclays PLC 2015 Pillar 3 Report.
Risk review
Principal Risk management
Funding and capitalOperational risk management
Funding risk
The ability of the Group to achieve its business plans may be adversely impacted if it does not effectively manage its capital (including leverage) and liquidity ratios. Group Treasury manage funding risk on a day-to-day basis with the Group Treasury Committee acting as the key governance forum.
Organisation and structure
Capital risk
Capital risk is the risk that the Group has insufficient capital resources to:
Capital management is integral to the Group’s approach to financial stability and sustainability management and is therefore embedded in the way businesses and legal entities operate. Capital demand and supply is actively managed on a centralised basis, at a business level, at a local entity level and on a regional basis taking into account the regulatory, economic and commercial environment in which Barclays operates.
The Group’s capital management strategy is driven by the strategic aims of the Group and the Risk Appetite set by the Board. The Group’s objectives are achieved through well embedded capital management practices.
Capital planning
Capital forecasts are managed on a top-down and bottom-up basis through both short term (one year) and medium term (three to five years) financial planning cycles. Barclays’ capital plans are developed with the objective of maintaining capital that is adequate in quantity and quality to support the Group’s risk profile, regulatory and business needs. As a result, the Group holds a diversified capital base that provides strong loss absorbing capacity and optimised returns.
Barclays’ capital forecasts are continually monitored against relevant internal target capital ratios to ensure they remain appropriate, and consider risks to the plan including possible future regulatory changes.
Local management ensures compliance with an entity’s minimum regulatory capital requirements by reporting to local Asset and Liability Committees with oversight by the Group’s Treasury Committee, as required.
Regulatory requirements
Capital planning is set in consideration of minimum regulatory requirements in all jurisdictions in which the Group operates. Group regulatory capital requirements are determined by the PRA.
Under these regulatory frameworks, capital requirements are set in consideration of the level of risk that the firm is exposed to which is measured through both risk weighted assets (RWAs) and leverage.
Capital held to support the level of risk identified is set in consideration of minimum ratio requirements and internal buffers. Capital requirements are set in accordance with the firm’s level of risk.
Governance
The Group and legal entity capital plans are underpinned by the Capital Risk Framework, which includes capital management policies and practices approved by the Principal Risk Officer. These plans are implemented consistently in order to deliver on the Group objectives.
The Board approves the Group capital plan, stress tests and recovery plan. The Treasury Committee manages compliance with the Group’s capital management objectives. The Committee reviews actual and forecast capital demand and resources on a bi-monthly basis. The Board Risk Committee annually reviews risk appetite and then analyses the impacts of stress scenarios on the Group capital forecast in order to understand and manage the Group’s projected capital adequacy.
Monitoring and managing capital
Capital is monitored and managed on an ongoing basis through:
Stress testing: internal group-wide stress testing is undertaken to quantify and understand the impact of sensitivities on the capital plan and capital ratios arising from stressed macroeconomic conditions. Actual recent economic, market and regulatory scenarios are used to inform the assumptions of the stress tests and assess the effectiveness of mitigation strategies.
The Group also undertakes stress tests prescribed by the BoE and EBA. Legal entities undertake stress tests prescribed by their local regulators. These stress tests inform decisions on the size and quality of capital buffer required and the results are incorporated into the Group capital plan to ensure adequacy of capital under normal and severe, but plausible, stressed conditions.
Risk mitigation: as part of the stress testing process, actions are identified that should be taken to mitigate the risks that could arise in the event of material adverse changes in the current economic and business outlook.
As an additional layer of protection, the Barclays Recovery Plan defines the actions and implementation strategies available for the Group to increase or preserve capital resources in the event that stress events are more extreme than anticipated.
Senior management awareness and transparency: Treasury works closely with Risk, businesses and legal entities to support a proactive approach to identifying sources of capital ratio volatilities which are considered in the Group’s capital plan. Capital risks against firm-specific and macroeconomic early warning indicators are monitored and reported to the Treasury Committee, associated with clear escalation channels to senior management.
Capital management information is readily available at all times to support the Executive Management’s strategic and day-to-day business decision making, as may be required.
The Group submits its Board approved ICAAP document to the PRA on an annual basis, which forms the basis of the Individual Capital Guidance (ICG) set by the PRA.
Capital allocation:capital allocations are approved by the Group Executive Committee and monitored by the Treasury Committee, taking into consideration the risk appetite, growth and strategic aims of the Group. Regulated legal entities are, at a minimum, allocated adequate capital to meet their current and forecast regulatory and business requirements.
Transferability of capital: the Group’s policy is for surplus capital held in Group entities to be repatriated to BBPLC in the form of dividends and/or capital repatriation, subject to local regulatory requirements, exchange controls and tax implications. This approach provides optimal flexibility on the re-deployment of capital across legal entities. The Group is not aware of any material impediments to the prompt transfer of capital resources, in line with the above policy, or repayment of intra-Group liabilities when due.
More information on capital risk management can be found in pages 402 to 403.
Risk review
Risk management
Liquidity risk
The risk that the Group, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost. This also results in a firm’s inability to meet regulatory liquidity requirements. This risk is inherent in all banking operations and can be affected by a wide range of Group-specific and market-wide events.
The Board has formally recognised a series of risks that are continuously present in Barclays and materially impact the achievement of Barclays objectives, one of which is Funding risk. Liquidity risk is recognised as a key risk within Funding risk. The efficient management of liquidity is essential to the Group in retaining the confidence of the financial markets and ensuring that the business is sustainable. Liquidity risk is managed through the Liquidity Risk Management Framework (the Liquidity Framework) which is designed to meet the following objectives:
This is achieved via a combination of policy formation, review and governance, analysis, stress testing, limit setting and monitoring. Together, these meet internal and regulatory requirements.
Barclays Treasury operates a centralised governance control process that covers all of the Group’s liquidity risk management activities. As per the ERMF, the Key Risk Officer (KRO) approves the Key Risk Control Framework for Liquidity Risk (Key Risk Control Framework) under which the Treasury function operates. The KRO is in the Risk function. The Key Risk Control Framework is subject to annual review. The Key Risk Control Framework describes liquidity policies and controls that the Group has implemented to manage liquidity risk within the LRA and is subject to annual review.
The Board sets the LRA, over Group stress tests, being the level of risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The approved LRA is implemented and managed by the Treasury Committee through the Key Risk Control Framework.
Barclays has a comprehensive Key Risk Control Framework for managing the Group’s liquidity risk. The Key Risk Control Framework describes liquidity policies and controls that the Group has implemented to manage liquidity risk within the LRA. The Key Risk Control Framework is designed to deliver the appropriate term and structure of funding consistent with the LRA set by the Board.
Liquidity is monitored and managed on an ongoing basis through:
Group Stress test risk appetite and planning: Established Group stress test LRA together with the appropriate limits for the management of liquidity risk. This is the level of liquidity risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations.
Liquidity limits: Management of limits on a variety of on and off-balance sheet exposures and these serve to control the overall extent and composition of liquidity risk taken by managing exposure to the cash outflows.
Internal pricing and incentives: Active management of the composition and duration of the balance sheet and of contingent liquidity risk through the transfer of liquidity premium directly to the business.
Early warning indicators: Monitoring of a range of market indicators for early signs of liquidity risk in the market or specific to Barclays. These are designed to immediately identify the emergence of increased liquidity risk to maximise the time available to execute appropriate mitigating actions.
Contingency Funding Plan: Maintenance of a Contingency Funding Plan (CFP) which is designed to provide a framework where a liquidity stress could be effectively managed. The CFP provides a communication plan and includes management actions to respond to liquidity stresses of varying severity.
RRP: In accordance with the requirements of the PRA Rulebook: Recovery and Resolution, Barclays has developed a Group Recovery Plan. The key objectives are to provide the Group with a range of options to ensure the viability of the firm in a stress, set consistent early warning indicators to identify when the Recovery Plan should be invoked and to enable the Group to be adequately prepared to respond to stressed conditions. The Group continues to work with the authorities on RRP, including identifying and addressing any impediments to resolvability.
Risk review
Risk management
Operational risk
Any instance where there is a potential or actual impactThe risk of loss to the Group resultingfirm from inadequate or failed internal processes, people, systems, human factors or from andue to external event. The impactsevents (for example, fraud) where the root cause is not due to the Group can be financial, including lossescredit or an unexpected financial gain, as well as non-financial such as customer detriment, reputational or regulatory consequences.market risks.
Overview
The management of operational risk has twothree key objectives:
◾ | Deliver a consistent and aggregated measurement of operational risk that will provide clear and relevant insights, so that the right management |
The Group is committed to the management and measurement of operational risk and was granted a waiver by the FSA (now the PRA) to operate an Advanced Measurement Approachadvanced management approach (AMA) for operational risk, under Basel II, which commenced in January 2008. The majority of the Group calculates regulatory capital requirements using AMA (93%(94% of capital requirements); however, in specific areas,, except for small parts of the organisation acquired since the original permission (6% of
capital requirements) using the Basic Indicator Approach (7%) is applied.(BIA). The Group works to benchmark its internal operational risk management and measurement practices with peer banks and to drive the further development of advanced techniques.banks.
The Group is committed to operating within a strong system of internal controlcontrols that enables business to be transacted and risk taken without exposing the Group to unacceptable potential losses or reputational damage.damages. The Group has an overarching frameworkERMF that sets out the approach to internal governance. This guideThe ERMF establishes the mechanisms and processes by which the Board directs the organisation, through setting the tone and expectations from the top, delegating authority and monitoring compliance.
Operational risk comprises a number of specific Key Risksrisks defined as follows:follow:
◾ | Fraud Risk:The risk of financial loss when an internal or external party acts dishonestly with the intent to |
◾ |
Organisation and structure
90 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
◾ | Tax Risk:The risk of unexpected tax cost in relation to |
In order to ensure complete coverage of the potential adverse impacts on the Group arising from operational risk, the operational risk taxonomy extends beyond the operational key risks listed above to cover areas included within conduct risk. For more information on conduct risk please see pages 108 and 109.
These risks may result in financial and/or non-financial impacts including legal/regulatory breaches or reputational damage.
damages.
Reporting and control
Risk review
Risk management
Operational risk management
The prime responsibility for the management of operational risk and the compliance with control requirements rests with the business and functional units where the risk arises. The operational risk profile and control environment is reviewed by business unit management through specific meetings which cover governance, risk and control. Businesses are required to report their operational risks on both a regular and an event drivenevent-driven basis. The reports include a profile of the material risks that may threaten the achievement of their objectives and the effectiveness of key controls, material control issues, operational risk events and a review of scenarios.
The Group Head of Operational Risk as Principal Risk Officer, is responsible for establishing, owning and maintaining an appropriate Group-wide Operational Risk Management Framework and for overseeing the portfolio of operational risk across the Group.
Operational risk managementRisk Management (ORM) acts in a second line of defence capacity, and is responsible for defining and overseeing the implementation of the framework and monitoring Barclays operational risk events,profile. ORM alerts management when risk exposureslevels exceed acceptable ranges or risk appetite in order to drive timely decision making and material control issues.actions by the first line of defence. Through attendance at Business Unit Governance, Risk and ControlsCommittee meetings, it providesORM provide specific risk input into the issues highlighted and the overall risk profile of the business. Operational risk issues escalated from these meetings are considered by the Group Principal Risk Officer through the second line of defence review meetings, which also consider material control issues and their effective remediation.meetings. Depending on their nature, the outputs of these meetings are presented to the BRC or the BAC.
Specific reports are prepared by businesses, Key Risk Officers and Group Operational RiskFor further information on a regular basis for ORRF, BRC and BAC.
operational risk management, Risk and control self-assessmentsControl Self-assessments and key indicators
The Group identifies and assesses all material risks within each business and evaluates the key controls in place to mitigate those risks. Managers in the businesses use self-assessment techniques to identify risks, evaluate the effectiveness of key controls in place, and assess whether the risks are effectively managed within business risk appetite. The businesses are then able to make decisions on what action, if any, is required to reduce the level of riskscenarios, please refer to the Group. These risk assessments are monitored on a regular basis to ensure that each business continually understands the risks it faces.
Key Indicators (KIs) are metrics which allow the Group to monitor its operational risk profile. KIs include measurable thresholds that reflect the risk appetite of the business and are monitoredmanagement section on pages 350 to alert management when risk levels exceed acceptable ranges or risk appetite levels and drive timely decision making and actions.353.
Barclays PLC and Barclays Bank PLC |
Risk review
Principal Risk management
Model risk
The risk of the potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports.
Overview
Barclays uses models to support a broad range of activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures, conducting stress testing, assessing capital adequacy, managing client assets, and meeting reporting requirements.
Since models are imperfect and incomplete representations of reality, they may be subject to errors affecting the accuracy of their output. Model errors can result in inappropriate business decisions being made, financial loss, regulatory risk, reputational risk and/or inadequate capital reporting. Models may also be misused, for instance applied to products that they were not intended for, or not adjusted, where fundamental changes to their environment would justify re-evaluating their core assumptions. Errors and misuse are the primary sources of model risk.
Robust model risk management is crucial to assessing and managing model risk within a defined risk appetite. Strong model risk culture, appropriate technology environment, and adequate focus on understanding and resolving model limitations are crucial components.
Organisation and structure
Barclays allocates substantial resources to identify and record models and their usage, document and monitor the performance of models, validate models and adequately address model limitations. Barclays manages model risk as an enterprise level risk similar to other Principal Risks.
Barclays has a dedicated Model Risk Management (MRM) function that consists of
two main units: the Independent Validation Unit (IVU), responsible for model validation and approval, and Model Governance and Controls (MGC), covering model risk governance, controls and reporting, including ownership of model risk policy and the model inventory.
The model risk management framework consists of the model risk policy and standards. The policy prescribes group-wide, end-to-end requirements for the identification, measurement and management of model risk, covering model documentation, development, implementation, monitoring, annual review, independent validation and approval, change and reporting processes. The policy is supported by global standards covering model inventory, documentation, validation, complexity and materiality, testing and monitoring, overlays, risk appetite, as well as vendor models and stress testing challenger models.
Barclays is continuously enhancing model risk management. The function reports to the Group CRO and operates a global framework. Implementation of best practice standards is a central objective of the Group. Model risk reporting flows to senior management as depicted below:
Roles and responsibilities
The key model risk management activities include:
◾ | Correctly identifying models across all relevant areas of the firm, and recording models in the Group Models Database (GMD), the Group-wide model inventory. The heads of the relevant model ownership areas (typically, the Business Chief Risk Officers, Business Chief Executive Officers, |
the Treasurer, the Chief Financial Officer, etc.) annually attest to the completeness and accuracy of the model inventory. MGC undertakes regular conformance reviews on the model inventory. |
◾ | Enforcing that every model has a model owner who is accountable for the model. The model owner must sign off models prior to submission to IVU for validation. The model owner works with the relevant technical teams (model developers, implementation, monitoring, data services, regulatory) to maintain that the model presented to IVU is and remains fit for purpose. |
◾ | Overseeing that every model is subject to validation and approval by IVU, prior to being implemented and on a continual basis. While all models are reviewed and re-approved for continued use each year, the validation frequency and the level of review and challenge applied by IVU is tailored to the materiality and complexity of each model. Validation includes a review of the model assumptions, conceptual soundness, data, design, performance testing, compliance with external requirements if applicable, as well as any limitations, proposed remediation and overlays with supporting rationale. Material model changes are subject to prioritised validation and approval. |
◾ | Defining model risk appetite in terms of risk tolerance, and qualitative metrics which are used to track and report model risk. |
◾ | Maintaining specific standards that cover model risk management activities relating to stress testing challenger models, model overlays, vendor models, and model complexity and materiality. |
Organisation and structure
92 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Risk review
Principal Risk management
Conduct risk management
Conduct risk
The risk thatof detriment is caused to customers, clients, counterpartiesmarket integrity, competition or Barclays from the Group becauseinappropriate supply of inappropriate judgement in the executionfinancial services, including instances of our business activities.wilful or negligent misconduct.
Overview
The Group defines, manages and mitigates conduct risk with the goal of providing goodpositive customer and client outcomes, and protecting market integrity.integrity and promoting effective competition. This includes taking reasonable steps to assure the Group’s culture and strategy are appropriately aligned to these goals, products and services are reasonably designed and delivered to meet the needs of customers and clients, as well as promoting the fair and orderly operation of the markets in which the Group does business and that the Group does not commit or facilitate money laundering, terrorist financing, bribery and corruption or breaches of economic sanctions.
The Group has defined seven Key Risks thatProduct Lifecycle, Culture and Strategy and Financial Crime are the main sub risk types to Conduct Risk:categories under conduct risk.
The Conductgovernance of conduct risk within Barclays is fulfilled through management Committees and Reputation Risk Committee (CRRC) derives its authority fromforums operated by the Barclays Group HeadFirst and Second Lines of Compliance. Defence with clear escalation and reporting lines to the Board.
The purpose ofGRC is the CRRC is to reviewmost senior executive body responsible for reviewing and monitormonitoring the effectiveness of Barclays’ management of Conduct and Reputation Risk. In addition, specific committees monitor conduct risk and the control environment at the business level.risk.
The Conduct Risk Principal RiskManagement Framework (PRF)(CRMF) comprises a number of elements that allow the Group to manage and measure its conduct risk profile.
The PRF is implemented acrossSenior Managers have ownership within their areas for managing conduct risk. These individuals have a Statement of Responsibilities identifying the Group:
activities and areas for which they are accountable. The primary responsibility for managing conduct risk and compliance with control requirements sits with the business where the risk arises. The Conduct Risk Accountable Executive for each business is responsible for ensuring the implementationFirst Line Business Control Committees provide oversight of and adherencecontrols relating to the PRF.conduct risk.
The Conduct Principal RiskGroup Chief Compliance Officer is responsible for owning and maintaining an appropriate Group-wide Conduct Risk PRF andCRMF for overseeing Group-wide Conduct Riskconduct risk management. This includes defining and owning the relevant conduct risk policies and oversight of the implementation of controls to manage the risk.
Businesses are required to report their conduct risks on both a quarterly and an event drivenevent-driven basis. The quarterly reports detail conduct risks inherent within the business strategy and include forward looking horizon scanning analysis as well as backward looking evidence-based indicators from both internal and external sources. For details please refer to
The Business Unit Risk Committees and the Risk Review, Conduct Risk Performance section of this report (page 175).
Financial Crime Business level reportsOversight Committees are reviewed within Compliance. Compliance then creates Group level reportsthe primary Second Line governance forums for consideration by CRRC and RepCo. The Group periodically assesses its managementoversight of conduct risk through independent auditsprofile and addresses issues identified.
Event-driven reporting consistsimplementation of the CRMF. The responsibilities of the Business Unit Risk Committees include approval of the conduct risk tolerance and the business defined key indicators. Additional responsibilities include the identification and discussion of any emerging conduct risks or issues that breach certain thresholds for severity and probability. Any such risks or issues must be promptly escalated to the business and the appropriate KRO.exposures which have been identified.
In 2015 Reputation Risk was re-designated as a Key Risk under the Conduct Risk Principal Risk. The Reputation Key Risk Framework outlines the processes and actions required of the business. These include regular and forward looking reviews of current and emerging reputation risks so that a topical and comprehensive reputation risk profile of the organisation can be maintained.
Organisation and structure
Barclays PLC and Barclays Bank PLC |
Risk review
Principal Risk management
ConductReputation risk management
Reputation risk is
The risk that an action, transaction, investment or event will reduce trust in the riskfirm’s integrity and competence by clients, counterparties, investors, regulators, employees or the public.
Overview
A reduction of damage to the Group’s brand arising from any association, action or inaction which is perceived by stakeholders (e.g. customers, clients, colleagues, shareholders, regulators, opinion formers) to be inappropriate or unethical. Damage to the Group’s brandtrust in Barclays’ integrity and consequent erosion of our reputation reducescompetence may reduce the attractiveness of the GroupBarclays to stakeholders and maycould lead to negative publicity, loss of revenue, regulatory or legislative action, loss of existing and potential client business, reduced workforce morale and difficulties in recruiting talent. Ultimately it may destroy shareholder value.
Organisation and structure
The GRC is the most senior executive body responsible for reviewing and monitoring the effectiveness of Barclays’ management of reputation risk.
Roles and responsibilities
The Chief Compliance Officer is accountable for developing a reputation risk framework and policies including limits against which data is monitored, reported on and escalated, as required.
Reputation risk may arise inis by nature pervasive and can be difficult to quantify, requiring more subjective judgement than many different ways,other risks. The Reputation Risk Framework sets out what is required to manage reputation risk effectively and consistently across the bank.
The primary responsibility for example:identifying and managing reputation risk and adherence to the control requirements sits with the business and support functions where the risk arises.
Barclays International and Barclays UK are required to operate within established reputation risk appetite and their component businesses submit quarterly reports to the Group Reputation Management team, highlighting their most significant current and potential reputation risks and issues and how they are being managed. These reports are a key internal source of information for the quarterly reputation risk reports which are prepared for the GRC and RepCo.
Organisation and structure
Risk review
Principal Risk management
Legal risk management
Legal risk
The risk of loss or imposition of penalties, damages or fines from the failure of the firm to meet its legal obligations including regulatory or contractual requirements.
Overview
The Legal Risk Management Framework (LRMF) prescribes Group-wide requirements for the identification, escalation, measurement and management of legal risk, covering assessment, risk tolerance, key indicators and governance. The LRMF is supported by Group-wide legal risk policies and associated standards aligned to the following legal risks:
◾ | Contractual Arrangements– the Group’s |
Litigation Management– failure |
Competition/Anti-trust– failure to |
The LRMF requires businesses and functions to integrate the management of legal risk within their strategic planning and business decision making, including adopting processes to identify legal risk exposures and managing adherence to the minimum control requirements.
In addition to legal risk detailed above, legal outcomes, including losses or the imposition of penalties, damages, fines and sanctions, may arise because of past and future actions, behaviours and business decisions aligned to the Principal Risk which gave rise to the outcome, including but not limited to conduct and operational risk. Details of current contentious legal matters in relation to the Group are set out in Note 29.
Organisation and structure
Business/function risk forums have oversight of their legal risk profile and implementation of the LRMF. The Legal Executive Committee oversees, challenges and monitors legal risk across the Group. The GRC is the most senior executive body responsible for reviewing and monitoring the effectiveness of Barclays’ management of risk. Escalation paths from this forum exist to the BRC.
Roles and responsibilities
The primary responsibility for identifying and managing legal risk and adherence to the minimum control requirements sits with the businesses/functions where the risk resides.
On behalf of the businesses/functions, the aligned General Counsel or members of Legal senior management provide oversight and challenge of the legal risk profile, for example by undertaking legal risk tolerance assessments, and providing advice on legal risk management. Legal risk tolerance assessments include both quantitative and qualitative criteria such as:
◾ | Risk and control self-assessment, lessons learned, testing and monitoring processes. |
In each case,
◾ | Potential implications on the Group of forthcoming changes in the external legal and regulatory environment and/or prevailing decisions from courts and enforcing authorities as they relate to defined legal risks. |
The Group General Counsel supported by the Global Head of Legal Risk, Governance and Control is responsible for maintaining an appropriate LRMF and for overseeing Group-wide legal risk may arise from failure to comply with either stated norms, which are likely to change over time, so an assessment of reputation risk cannot be static. If not managed effectively, stakeholder expectations of responsible corporate behaviour will not be met.
Reputation risk may also arise and cause damage to the Group’s image, through association with clients, their transactions or their projects if these are perceived by external stakeholders to be environmentally damaging. Where the Group is financing infrastructure projects which have potentially adverse environmental impacts, the Group’s Client Assessment and Aggregation policy and supporting Environmental and Social Risk Standard will apply. This policy identifies the circumstances in which the Group requires due diligence to include assessment of specialist environmental reports. These reports will include consideration of a wide range of the project’s potential impacts including on air, water and land quality, on biodiversity issues, on locally affected communities, including any material upstream and downstream impacts, and working conditions together with employee and community health and safety. Adherence to the Environmental and Social Risk Standard is the mechanism by which Barclays fulfils the requirements of the Equator Principles. These Principles are an internationally recognised framework for environmental due diligence in project finance. Barclays was one of four banks which collaborated in developing the Principles, ahead of their launch in 2003 with 10 adopting banks. There are now more than 80 banks worldwide which have adopted the Equator Principles (see www.equator-principles.com).management.
Organisation and structure
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
Credit risk
Maintaining our risk profile at an acceptable and appropriate level is essential to ensure our continued performance. This section provides a review of the performance of the Group in 2015 for each of the five Principal Risks, which are credit, market, funding, operational, and conduct risk.
Summary of Contents | Page | |||||
Credit risk represents a significant risk to the Group and mainly arises from exposure to wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts entered into with clients. | ◾ Credit risk overview and summary of performance | 97 | ||||
◾ The Group’s maximum exposure and collateral and other credit enhancements | ||||||
held | 97 | |||||
◾ The Group’s approach to management and representation of credit quality | 100 | |||||
– Asset credit quality | 100 | |||||
– Debt securities | 100 | |||||
– Balance sheet credit quality | 100 | |||||
This section provides a macro view of the Group’s credit exposures. | ||||||
| ||||||
◾ Analysis of the concentration of credit risk | 102 | |||||
The Group reviews and monitors risk |
– Geographic concentrations | 102 | ||||
concentrations in a variety of ways. | – Industrial concentrations | 103 | ||||
This sections outlines performance against key | ||||||
concentration risks at a macro Group level. | ||||||
◾ Loans and advances to customers and banks | 105 | |||||
In addition to Group wide concentrations, Credit Risk monitors exposure performance across a range of specific portfolios. | ◾ Analysis of specific portfolios and asset types | 106 | ||||
– Secured home loans | 106 | |||||
– Credit cards and unsecured loans | 107 | |||||
– Wholesale loans and advances at amortised cost | 108 | |||||
The Group monitors exposures to assets where there is a heightened likelihood of default and assets where an actual default has occurred. | ◾ Analysis of problem loans | 109 | ||||
– Age analysis of loans and advances that are past due but not impaired | 109 | |||||
– Analysis of loans and advances assessed as impaired | 109 | |||||
– Potential credit risk loans and coverage ratios | 110 | |||||
– Impaired loans | 111 | |||||
This section outlines the exposure to assets that have been classified as impaired analysing the exposures between business units and by key product types. | – Forbearance | 112 | ||||
The Group, from time to time, agrees to the suspension of certain aspects of customer/client credit agreements, generally during temporary periods of financial difficulties where the Group is confident that the customer/client will be able to remedy the suspension.
| ||||||
This section outlines the Group’s current exposure to assets with this treatment. | ||||||
The Group holds impairment provisions on the balance sheet as a result of the raising of a charge against profit for incurred losses in the lending book. An impairment allowance may either be identified or unidentified and individual or collective. | ◾ Impairment | 114 | ||||
– Impairment allowances |
| |||||
– Management adjustments to models for impairment | 114 | |||||
◾ Analysis of debt securities | ||||||
◾ Analysis of derivatives | 115 | |||||
This section outlines the movements in allowance for impairment by asset class exposure, material management adjustments to model output, analysis of debt securities and derivatives. | ||||||
|
Risk review
Risk performance
Credit risk is the risk of the Group suffering financial loss should any of its customers, clients, or market counterparties fail to fulfil their contractual obligations to the Group.
This section details the Group’s credit risk profile and provides information on the Group’s exposure to loans and advances to customer and banks, maximum exposures with collateral held, and net impairment charges raised in the year. It provides information on balances that are categorised as credit risk loans, balances in forbearance, as well as exposure to and performance metrics for specific portfolios and asset types.
Key metrics
+£32m Group Core
Loan impairment broadly stable reflecting benign economic conditions in the UK and US
+£30m Retail Core
Performance across key portfolios has remained stable and within expectations
+£2m Wholesale Core
Performance benefiting from economic conditions in the UK and US markets offset by impact of stress in Oil and Gas portfolios
-£139m Non-Core
Lower charge reflects sale of Spanish business and higher recoveries in Portugal
Credit risk
Credit risk is theThe risk of loss to the Group suffering financial loss should anyfirm from the failure of itsclients, customers clients or market counterparties, failsincluding sovereigns, to fulfilfully honour their contractual obligations to the Group.firm, including the whole and timely payment of principal, interest, collateral and other receivables.
All disclosures in this section (pages 112-137)97 to 116) are unaudited unless otherwise statedstated.
Key metrics
Loan impairment charges in 2017 were 1% lower than 2016:
Group | -£19m | |
Loan impairment reduced slightly reflecting lower charges in Barclays UK and in the Barclays International wholesale portfolios partially offset by an adjustment relating to an asset sale in US cards | ||
Retail | +£42m | |
Overall the retail portfolios have remained stable and broadly within expectations. Notwithstanding this, impairment charges increased primarily due to an adjustment relating to an asset sale in US cards | ||
Wholesale | -£61m | |
Impairment charges have decreased, despite a large single name impairment. The lower impairment outcome was driven by a range of releases and materially lower charges to the Oil sector. |
Overview
Credit risk represents a significant risk to the Group and mainly arises from exposure to wholesale and retail loans and advances together with the counterparty credit risk arising from derivative contracts entered into with clients. A summary of performance may be found below.
This section provides an analysis of areas of particular interest or potentially of higher risk, including: i) balance sheet, including the maximum exposure, and collateral, credit quality and loans and advances; ii) areas of concentrations, including the Eurozone;concentrations; iii) exposure to and performance metrics for specific portfolios and assets types, including home loans and credit cards and UK commercial real estate;cards; iv) exposure and performance of loans on concession programmes, including forbearance; v) problem loans, including credit risk loans (CRLs); and vi)forbearance; and v) impairment, including impairment stockallowances and management adjustments to model outputs.
The topics covered in this section may be found inPlease see the credit risk section of the contents on page 84. Please see risk management section on pages 94-10985 to 86 for details of governance, policies and procedures.
Summary of performance in the period
CreditLoan impairment charges in 2015 fell 2%decreased £19m to £2.1bn which principally reflected the benign economic conditions in the UK and US and effective risk management, including the strengthening of the Retail Impairment Policy. These supported generally stable delinquency rates in retail and lower default rates in wholesale where large single names were limited in number and focused on the Oil and Gas sector.
The level of CRL reduced to £7.8bn principally due to a reduction in Non-Core and Personal and Corporate Banking. The coverage ratios for home loans, unsecured retail portfolios and corporate loans remain broadly in line with expected severity rates for these types of portfolios.
Net£2,333m. Total loans and advances net of impairment decreased by £34.1bn to customers and banks reduced 6% to £440.6bn reflecting a£415.4bn net £12.7bn decrease in Non-Core businesses,cash collateral and settlement balances and a £21.4bn decrease in other lending, primarily in Corporate and Investment Bankbank. Overall, this resulted in a 4bps increase in the LLR to 57bps.
Credit risk loans (CRLs) decreased to £6.0bn (December 2016: £6.5bn) and Africa Banking offset by increases in Personal and Corporate Banking.the CRL coverage ratio increased to 78% (December 2016: 71%) mainly within retail portfolios.
The loan loss rate was broadly stable at 47bps (2014: 46bps).
Analysis of the balance sheetBalance Sheet
The
Group’s maximum exposure and collateral and other credit enhancements held
Basis of preparation
The following tables present a reconciliation between the Group’s maximum exposure and its net exposure to credit risk; reflecting the financial effects of collateral, credit enhancements and other actions taken to mitigate the Group’s exposure.
For financial assets recognised on the balance sheet, maximum exposure to credit risk represents the balance sheet carrying value after allowance for impairment. For off-balance sheet guarantees, the maximum exposure is the maximum amount that the Group 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 is the full amount of the committed facilities.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 97 |
Risk review
Risk performance
Credit risk
Maximum exposure and effects of collateral and other credit enhancements (audited) | ||||||||||||||||||||||||
| Maximum exposure £m |
| | Netting and set-off £m |
| Collateral | ||||||||||||||||||
Cash | Non-cash | Risk transfer | Net exposure | |||||||||||||||||||||
As at 31 December 2017 | £m | £m | £m | £m | ||||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 171,082 | – | – | – | – | 171,082 | ||||||||||||||||||
Items in the course of collection from other banks | 2,153 | – | – | – | – | 2,153 | ||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||
Debt securities | 51,200 | – | – | – | – | 51,200 | ||||||||||||||||||
Traded loans | 3,140 | – | – | (128 | ) | – | 3,012 | |||||||||||||||||
Total trading portfolio assets | 54,340 | – | – | (128 | ) | – | 54,212 | |||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||
Loans and advances | 11,037 | – | (440 | ) | (5,497 | ) | (344 | ) | 4,756 | |||||||||||||||
Debt securities | 15 | – | – | – | – | 15 | ||||||||||||||||||
Reverse repurchase agreements | 100,040 | – | (426 | ) | (99,428 | ) | – | 186 | ||||||||||||||||
Other financial assets | 519 | – | – | – | – | 519 | ||||||||||||||||||
Total financial assets designated at fair value | 111,611 | – | (866 | ) | (104,925 | ) | (344 | ) | 5,476 | |||||||||||||||
Derivative financial instruments | 237,669 | (184,265 | ) | (33,092 | ) | (6,170 | ) | (5,885 | ) | 8,257 | ||||||||||||||
Loans and advances to banks | 35,663 | – | (6 | ) | (583 | ) | (37 | ) | 35,037 | |||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||
Home loans | 147,002 | – | (158 | ) | (146,554 | ) | – | 290 | ||||||||||||||||
Credit cards, unsecured and other retail lending | 55,767 | – | (241 | ) | (3,995 | ) | (16 | ) | 51,515 | |||||||||||||||
Corporate loans | 162,783 | (6,617 | ) | (224 | ) | (45,819 | ) | (4,341 | ) | 105,782 | ||||||||||||||
Total loans and advances to customers | 365,552 | (6,617 | ) | (623 | ) | (196,368 | ) | (4,357 | ) | 157,587 | ||||||||||||||
Reverse repurchase agreements and other similar secured lending | 12,546 | – | – | (12,226 | ) | – | 320 | |||||||||||||||||
Financial investments - debt securities | 57,129 | – | – | (463 | ) | (853 | ) | 55,813 | ||||||||||||||||
Other assets | 869 | – | – | – | – | 869 | ||||||||||||||||||
Total on-balance sheet | 1,048,614 | (190,882 | ) | (34,587 | ) | (320,863 | ) | (11,476 | ) | 490,806 | ||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 19,012 | – | (318 | ) | (1,482 | ) | (228 | ) | 16,984 | |||||||||||||||
Documentary credits and other short-term trade-related transactions | 812 | – | (27 | ) | (11 | ) | (4 | ) | 770 | |||||||||||||||
Standby facilities, credit lines and other commitments | 314,761 | – | (46 | ) | (31,058 | ) | (1,753 | ) | 281,904 | |||||||||||||||
Total off-balance sheet | 334,585 | – | (391 | ) | (32,551 | ) | (1,985 | ) | 299,658 | |||||||||||||||
Total | 1,383,199 | (190,882 | ) | (34,978 | ) | (353,414 | ) | (13,461 | ) | 790,464 |
This and subsequent analyses of credit risk include only financial assets subject to credit risk. They exclude other financial assets not subject to credit risk, mainly equity securities held for trading, as available for sale or designated at fair value, and traded commodities. Assets designated at fair value in respect of linked liabilities to customers under investment contracts have also 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 not result in a loss to the Group. For off-balance sheet exposures certain contingent liabilities not subject to credit risk such as performance guarantees are excluded.
The Group mitigates the credit risk to which it is exposed through netting and set-off, collateral and risk transfer. Further detail on the Group’s policies to each of these forms of credit enhancement is presented on pages 100.in the Barclays PLC Pillar 3 Report 2017.
Overview
As at 31 December 2015,2017, the Group’s net exposure to credit risk after taking into account netting and set-off, collateral and risk transfer decreased 6%increased 7% to £701.4bn, reflecting a decrease in maximum exposure of 14% and a reduction in the level of mitigation held by 21%.£790.5bn. Overall, the extent to which the Group holds mitigation against its total exposure reduced slightlydecreased to 48% (2014: 53%43% (2016: 47%).
Of the remaining exposure left unmitigated, a significant portion relates to cash held at central banks, available for salefinancial investment debt securities issued by governments and cash collateral and settlement balances, all of which are considered to be lower risk. Increases in cash held at central banks and financial investment debt securities in the period have driven the increase in the Group’s net exposure to credit risk. Trading portfolio liability positions, which to a significant extent economically hedge trading portfolio assets but which are not held specifically for risk management purposes, are excluded from the analysis. The credit quality of counterparties to derivative, available for salederivatives, financial investments and wholesale loan assets are predominantly investment grade. Further analysis on the credit quality of assets is presented on pages 115-116.100 to 101.
Where collateral has been obtained in the event of default, the Group does not, as a rule, use such assets for its own operations and they are usually sold on a timely basis. The carrying value of assets held by the Group as at 31 December 2015,2017, as a result of the enforcement of collateral, was £69m (2014: £161m)£nil (2016: £16m).
Risk review
Risk performance
Credit risk
Maximum exposure and effects of collateral and other credit enhancements (audited) | ||||||||||||||||||||||||
Maximum | Netting |
| Collateral |
| Risk | Net | ||||||||||||||||||
exposure | and set-off | Cash | Non-cash | transfer | exposure | |||||||||||||||||||
As at 31 December 2015 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 49,711 | – | – | – | – | 49,711 | ||||||||||||||||||
Items in the course of collection from other banks | 1,011 | – | – | – | – | 1,011 | ||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||
Debt securities | 45,576 | – | – | – | – | 45,576 | ||||||||||||||||||
Traded loans | 2,474 | – | – | (607) | (1) | 1,866 | ||||||||||||||||||
Total trading portfolio assets | 48,050 | – | – | (607) | (1) | 47,442 | ||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||
Loans and advances | 17,913 | – | (21) | (5,850) | (515) | 11,527 | ||||||||||||||||||
Debt securities | 1,383 | – | – | – | – | 1,383 | ||||||||||||||||||
Reverse repurchase agreementsa | 49,513 | – | (315) | (49,027) | – | 171 | ||||||||||||||||||
Other financial assets | 375 | – | – | – | – | 375 | ||||||||||||||||||
Total financial assets designated at fair value | 69,184 | – | (336) | (54,877) | (515) | 13,456 | ||||||||||||||||||
Derivative financial instruments | 327,709 | (259,582) | (34,918) | (7,484) | (5,529) | 20,196 | ||||||||||||||||||
Loans and advances to banks | 41,349 | – | (4) | (4,072) | (64) | 37,209 | ||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||
Home loans | 155,863 | – | (221) | (154,355) | (634) | 653 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | 67,840 | (12) | (1,076) | (14,512) | (1,761) | 50,479 | ||||||||||||||||||
Corporate loans | 175,514 | (8,399) | (593) | (45,788) | (4,401) | 116,333 | ||||||||||||||||||
Total loans and advances to customers | 399,217 | (8,411) | (1,890) | (214,655) | (6,796) | 167,465 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 28,187 | – | (166) | (27,619) | – | 402 | ||||||||||||||||||
Available for sale debt securities | 89,278 | – | – | (832) | (811) | 87,635 | ||||||||||||||||||
Other assets | 1,410 | – | – | – | – | 1,410 | ||||||||||||||||||
Total on-balance sheet | 1,055,106 | (267,993) | (37,314) | (310,146) | (13,716) | 425,937 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 20,576 | – | (604) | (1,408) | (104) | 18,460 | ||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 845 | – | (33) | (57) | (3) | 752 | ||||||||||||||||||
Forward starting reverse repurchase agreementsb | 93 | – | – | (91) | – | 2 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 281,369 | – | (313) | (24,156) | (662) | 256,238 | ||||||||||||||||||
Total off-balance sheet | 302,883 | – | (950) | (25,712) | (769) | 275,452 | ||||||||||||||||||
Total | 1,357,989 | (267,993) | (38,264) | (335,858) | (14,485) | 701,389 |
Notes
Maximum exposure and effects of collateral and other credit enhancements (audited) | ||||||||||||||||||||||||
Maximum | Netting | Collateral | ||||||||||||||||||||||
As at 31 December 2016 | exposure £m | and set-off £m | Cash £m | Non-cash £m | Risk transfer £m | Net exposure £m | ||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 102,353 | – | – | – | – | 102,353 | ||||||||||||||||||
Items in the course of collection from other banks | 1,467 | – | – | – | – | 1,467 | ||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||
Debt securities | 38,789 | – | – | – | – | 38,789 | ||||||||||||||||||
Traded loans | 2,975 | – | – | (270 | ) | – | 2,705 | |||||||||||||||||
Total trading portfolio assets | 41,764 | – | – | (270 | ) | – | 41,494 | |||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||
Loans and advances | 10,519 | – | (17 | ) | (4,107 | ) | (432 | ) | 5,963 | |||||||||||||||
Debt securities | 70 | – | – | – | – | 70 | ||||||||||||||||||
Reverse repurchase agreements | 63,162 | – | (688 | ) | (62,233 | ) | – | 241 | ||||||||||||||||
Other financial assets | 262 | – | – | – | – | 262 | ||||||||||||||||||
Total financial assets designated at fair value | 74,013 | – | (705 | ) | (66,340 | ) | (432 | ) | 6,536 | |||||||||||||||
Derivative financial instruments | 346,626 | (273,602 | ) | (41,641 | ) | (8,282 | ) | (5,205 | ) | 17,896 | ||||||||||||||
Loans and advances to banks | 43,251 | – | (4 | ) | (4,896 | ) | (22 | ) | 38,329 | |||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||
Home loans | 144,765 | – | (184 | ) | (143,912 | ) | – | 669 | ||||||||||||||||
Credit cards, unsecured and other retail lending | 57,808 | – | (235 | ) | (5,258 | ) | (95 | ) | 52,220 | |||||||||||||||
Corporate loans | 190,211 | (8,622 | ) | (320 | ) | (52,029 | ) | (5,087 | ) | 124,153 | ||||||||||||||
Total loans and advances to customers | 392,784 | (8,622 | ) | (739 | ) | (201,199 | ) | (5,182 | ) | 177,042 | ||||||||||||||
Reverse repurchase agreements and other similar secured lending | 13,454 | – | (79 | ) | (13,242 | ) | – | 133 | ||||||||||||||||
Financial investments - debt securities | 62,879 | – | – | (533 | ) | (1,286 | ) | 61,060 | ||||||||||||||||
Other assets | 1,205 | – | – | – | – | 1,205 | ||||||||||||||||||
Total on-balance sheet | 1,079,796 | (282,224 | ) | (43,168 | ) | (294,762 | ) | (12,127 | ) | 447,515 | ||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 19,908 | – | (247 | ) | (1,403 | ) | (130 | ) | 18,128 | |||||||||||||||
Documentary credits and other short-term trade-related transactions | 1,005 | – | (24 | ) | (18 | ) | (3 | ) | 960 | |||||||||||||||
Standby facilities, credit lines and other commitments | 302,681 | – | (321 | ) | (26,548 | ) | (1,704 | ) | 274,108 | |||||||||||||||
Total off-balance sheet | 323,594 | – | (592 | ) | (27,969 | ) | (1,837 | ) | 293,196 | |||||||||||||||
Total | 1,403,390 | (282,224 | ) | (43,760 | ) | (322,731 | ) | (13,964 | ) | 740,711 |
Barclays PLC and Barclays Bank PLC |
Maximum exposure and effects of collateral and other credit enhancements (audited) | ||||||||||||||||||||||||
Maximum | Netting |
| Collateral |
| Risk | Net | ||||||||||||||||||
exposure | and set-off | Cash | Non-cash | transfer | exposure | |||||||||||||||||||
As at 31 December 2014 | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 39,695 | – | – | – | – | 39,695 | ||||||||||||||||||
Items in the course of collection from other banks | 1,210 | – | – | – | – | 1,210 | ||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||
Debt securities | 65,997 | – | – | – | – | 65,997 | ||||||||||||||||||
Traded loans | 2,693 | – | – | – | – | 2,693 | ||||||||||||||||||
Total trading portfolio assets | 68,690 | – | – | – | – | 68,690 | ||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||
Loans and advances | 20,198 | – | (48) | (6,657) | (291) | 13,202 | ||||||||||||||||||
Debt securities | 4,448 | – | – | – | – | 4,448 | ||||||||||||||||||
Reverse repurchase agreements | 5,236 | – | – | (4,803) | – | 433 | ||||||||||||||||||
Other financial assets | 469 | – | – | – | – | 469 | ||||||||||||||||||
Total financial assets designated at fair value | 30,351 | – | (48) | (11,460) | (291) | 18,552 | ||||||||||||||||||
Derivative financial instruments | 439,909 | (353,631) | (44,047) | (8,231) | (6,653) | 27,347 | ||||||||||||||||||
Loans and advances to banks | 42,111 | (1,012) | – | (3,858) | (176) | 37,065 | ||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||
Home loans | 166,974 | – | (274) | (164,389) | (815) | 1,496 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | 69,022 | – | (954) | (16,433) | (1,896) | 49,739 | ||||||||||||||||||
Corporate loans | 191,771 | (9,162) | (620) | (40,201) | (5,122) | 136,666 | ||||||||||||||||||
Total loans and advances to customers | 427,767 | (9,162) | (1,848) | (221,023) | (7,833) | 187,901 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 131,753 | – | – | (130,135) | – | 1,618 | ||||||||||||||||||
Available for sale debt securities | 85,539 | – | – | (938) | (432) | 84,169 | ||||||||||||||||||
Other assets | 1,680 | – | – | – | – | 1,680 | ||||||||||||||||||
Total on-balance sheet | 1,268,705 | (363,805) | (45,943) | (375,645) | (15,385) | 467,927 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 21,263 | – | (781) | (848) | (270) | 19,364 | ||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 1,091 | – | (6) | (8) | (3) | 1,074 | ||||||||||||||||||
Forward starting reverse repurchase agreements | 13,856 | – | – | (13,841) | – | 15 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 276,315 | – | (457) | (17,385) | (793) | 257,680 | ||||||||||||||||||
Total off-balance sheet | 312,525 | – | (1,244) | (32,082) | (1,066) | 278,133 | ||||||||||||||||||
Total | 1,581,230 | (363,805) | (47,187) | (407,727) | (16,451) | 746,060 |
Risk performance
Credit risk
The Group’s approach to managingmanagement and representingrepresentation of credit quality
Asset credit quality
All loans and advances are categorised as either ‘neither past due nor impaired’, ‘past due but not impaired’, or ‘past due and impaired’, which includes restructured loans. For the purposes of the disclosures in the balance sheet credit quality section below and the analysis of loans and advances and impairment section (page 117)114):
loans neither past due nor impaired consist predominantly of wholesale and retail loans that are performing. These loans, although unimpaired may carry an unidentified impairment |
the impairment allowance includes allowances against financial assets that have been individually impaired |
Home loans, unsecured loans and credit card receivables that are subject to forbearance in the retail portfolios are included in the collectively assessed impaired loans column in the tables in the analysis of loans and advances and impairment section (page 117). Included within wholesale loans that are designated as neither past due nor impaired is a portion of loans that have been subject to forbearance or similar strategies as part of the Group’s ongoing relationship with clients. The loans will have an internal rating reflective of the level of risk to which the Group is exposed, bearing in mind the circumstances of the forbearance, the overall performance and prospects of the client. Loans on forbearance programmes will typically, but not always, attract a higher risk rating than similar loans which are not. A portion of wholesale loans under forbearance is included in the past due but not impaired column, although not all loans subject to forbearance are necessarily impaired or past due. Where wholesale loans under forbearance have been impaired, these form part of individually assessed impaired loans.
The Group uses the following internal measures to determine credit quality for loans that are performing:
Default Grade | Wholesale lending Probability of default | | Credit Quality | ||||||||||
1-3 | 0.0-0.05% | Strong | |||||||||||
4-5 | 0.05-0.15% | ||||||||||||
6-8 | 0.15-0.30% | ||||||||||||
9-11 | 0.30-0.60% | ||||||||||||
12-14 | 0.60-2.15% | Satisfactory | |||||||||||
15-19 | 2.15-11.35% | ||||||||||||
20 - 21 | 11.35%+ | Higher |
For retail clients, a range of analytical tools is used to derive the probability of default of clients at inception and on an ongoing basis.
For loans that are performing, these descriptions can be summarised as follows:
Strong: there is a very high likelihood of the asset being recovered in full.
Satisfactory: while 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 unsecured retail facilities, such as credit card balances and unsecured loans, which have been classified as satisfactory, regardless of the fact that the output of internal grading models may have indicated a higher classification.facilities. 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 deterioration, mortgages with a high loan to value, and unsecured retail loans operating outside normal product guidelines.
Higher risk: 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.
Loans that are past due are monitored closely, with impairment allowances raised as appropriate and in line with the Group’s impairment policies. These loans are all considered higher risk for the purpose of this analysis of credit quality.
Debt securities
For assets held at fair value, the carrying value on the balance sheet will include, among other things, the credit risk of the issuer. Most listed and some unlisted securities are rated by external rating agencies. The Group mainly uses external credit ratings provided by Standard & Poor’s, Fitch or Moody’s. Where such ratings are not available or are not current, the Group will use its own internal ratings for the securities.
Balance sheet credit quality
The following tables present the credit quality of Group assets exposed to credit risk.
Overview
As at 31 December 2015,2017, the ratio of the Group’s assets classified as strong remained broadly stable at 85% (2014: 84%89% (2016: 86%) of total assets exposed to credit risk.
Traded assets remained mostly investment grade with the following proportions being categorised as strong: 96% (2014: 94%) of total derivative financial instruments, 95% (2014: 91%) of debt securities held for trading and 99% (2014: 98%) of debt securities held as available for sale. The credit quality of counterparties to reverse repurchase agreements held at amortised cost, and designated at fair value categorised as strong was 83% (2014: 78%). The credit risk of these assets is significantly reduced as balances are largely collateralised.
In the loan portfolios, 89% of home loans (2014: 86%) to customers are measured as strong. The majority of credit card, unsecured and other retail lending remained satisfactory, reflecting the unsecured nature of a significant proportion of the balance, comprising 76% (2014: 71%) of the total. The credit quality profile of the Group’s wholesale lending remained stable with counterparties rated strong at 72% (2014: 72%).
Further analysis of debt securities by issuer and issuer type and netting and collateral arrangements on derivative financial instruments is presented on pages 129115 and 130116 respectively.
Balance sheet credit quality (audited) |
| |||||||||||||||||||||||||||||||
| Strong (including investment grade) £m |
| | Satisfactory (BB+ to B) £m | |
| Higher risk (B- and below) £m |
| | Maximum exposure to credit risk £m | |
| Strong (including investment grade) % |
|
| Satisfactory (BB+ to B) % |
|
| Higher risk (B-and below) % |
|
| Maximum exposure to credit risk % |
| |||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Cash and balances at central banks | 49,711 | – | – | 49,711 | 100 | 0 | 0 | 100 | ||||||||||||||||||||||||
Items in the course of collection from other banks | 922 | 62 | 27 | 1,011 | 91 | 6 | 3 | 100 | ||||||||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||||||||||
Debt securities | 43,118 | 2,217 | 241 | 45,576 | 95 | 5 | 0 | 100 | ||||||||||||||||||||||||
Traded loans | 329 | 1,880 | 265 | 2,474 | 13 | 76 | 11 | 100 | ||||||||||||||||||||||||
Total trading portfolio assets | 43,447 | 4,097 | 506 | 48,050 | 90 | 9 | 1 | 100 | ||||||||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||||||||||
Loans and advances | 16,751 | 790 | 372 | 17,913 | 94 | 4 | 2 | 100 | ||||||||||||||||||||||||
Debt securities | 1,378 | 3 | 2 | 1,383 | 100 | 0 | 0 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lendinga | 41,145 | 8,352 | 16 | 49,513 | 83 | 17 | 0 | 100 | ||||||||||||||||||||||||
Other financial assets | 313 | 62 | – | 375 | 83 | 17 | 0 | 100 | ||||||||||||||||||||||||
Total financial assets designated at fair value | 59,587 | 9,207 | 390 | 69,184 | 86 | 13 | 1 | 100 | ||||||||||||||||||||||||
Derivative financial instruments | 313,114 | 13,270 | 1,325 | 327,709 | 96 | 4 | 0 | 100 | ||||||||||||||||||||||||
Loans and advances to banks | 39,059 | 1,163 | 1,127 | 41,349 | 94 | 3 | 3 | 100 | ||||||||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||||||||||
Home loans | 139,252 | 9,704 | 6,907 | 155,863 | 89 | 6 | 5 | 100 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 12,347 | 51,294 | 4,199 | 67,840 | 18 | 76 | 6 | 100 | ||||||||||||||||||||||||
Corporate loans | 125,743 | 39,600 | 10,171 | 175,514 | 72 | 22 | 6 | 100 | ||||||||||||||||||||||||
Total loans and advances to customers | 277,342 | 100,598 | 21,277 | 399,217 | 70 | 25 | 5 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 23,040 | 5,147 | – | 28,187 | 82 | 18 | 0 | 100 | ||||||||||||||||||||||||
Available for sale debt securities | 88,536 | 632 | 110 | 89,278 | 99 | 1 | 0 | 100 | ||||||||||||||||||||||||
Other assets | 1,142 | 233 | 35 | 1,410 | 81 | 17 | 2 | 100 | ||||||||||||||||||||||||
Total assets | 895,900 | 134,409 | 24,797 | 1,055,106 | 85 | 13 | 2 | 100 | ||||||||||||||||||||||||
As at 31 December 2014 | �� | |||||||||||||||||||||||||||||||
Cash and balances at central banks | 39,695 | – | – | 39,695 | 100 | 0 | 0 | 100 | ||||||||||||||||||||||||
Items in the course of collection from other banks | 1,134 | 47 | 29 | 1,210 | 94 | 4 | 2 | 100 | ||||||||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||||||||||
Debt securities | 60,290 | 5,202 | 505 | 65,997 | 91 | 8 | 1 | 100 | ||||||||||||||||||||||||
Traded loans | 446 | 1,935 | 312 | 2,693 | 16 | 72 | 12 | 100 | ||||||||||||||||||||||||
Total trading portfolio assets | 60,736 | 7,137 | 817 | 68,690 | 89 | 10 | 1 | 100 | ||||||||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||||||||||
Loans and advances | 18,544 | 844 | 810 | 20,198 | 92 | 4 | 4 | 100 | ||||||||||||||||||||||||
Debt securities | 4,316 | 130 | 2 | 4,448 | 97 | 3 | 0 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 4,876 | 346 | 14 | 5,236 | 93 | 7 | 0 | 100 | ||||||||||||||||||||||||
Other financial assets | 269 | 168 | 32 | 469 | 57 | 36 | 7 | 100 | ||||||||||||||||||||||||
Total financial assets designated at fair value | 28,005 | 1,488 | 858 | 30,351 | 92 | 5 | 3 | 100 | ||||||||||||||||||||||||
Derivative financial instruments | 414,980 | 24,387 | 542 | 439,909 | 94 | 6 | 0 | 100 | ||||||||||||||||||||||||
Loans and advances to banks | 39,453 | 1,651 | 1,007 | 42,111 | 94 | 4 | 2 | 100 | ||||||||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||||||||||
Home loans | 143,700 | 13,900 | 9,374 | 166,974 | 86 | 8 | 6 | 100 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 15,369 | 49,255 | 4,398 | 69,022 | 23 | 71 | 6 | 100 | ||||||||||||||||||||||||
Corporate loans | 137,102 | 42,483 | 12,186 | 191,771 | 72 | 22 | 6 | 100 | ||||||||||||||||||||||||
Total loans and advances to customers | 296,171 | 105,638 | 25,958 | 427,767 | 69 | 25 | 6 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 102,609 | 29,142 | 2 | 131,753 | 78 | 22 | 0 | 100 | ||||||||||||||||||||||||
Available for sale debt securities | 84,405 | 498 | 636 | 85,539 | 98 | 1 | 1 | 100 | ||||||||||||||||||||||||
Other assets | 1,336 | 282 | 62 | 1,680 | 79 | 17 | 4 | 100 | ||||||||||||||||||||||||
Total assets | 1,068,524 | 170,270 | 29,911 | 1,268,705 | 84 | 13 | 3 | 100 |
Note
Risk review
Risk performance
Credit risk
As the principal source of credit risk to the Group, loans and advances to customers and banks is analysed in detail below:
Loans and advances to customers and banks
Analysis of loans and advances and impairment to customers and banks | ||||||||||||||||||||||||||||
| Gross L&A £m |
| | Impairment allowance £m | | | L&A net of impairment £m | |
| Credit risk loans £m |
|
| CRLs % of gross L&A % |
| | Loan impairment chargesa £m | |
| Loan loss rates bps |
| ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Personal & Corporate Banking | 137,212 | 713 | 136,499 | 1,591 | 1.2 | 199 | 15 | |||||||||||||||||||||
Africa Banking | 17,412 | 539 | 16,873 | 859 | 4.9 | 273 | 157 | |||||||||||||||||||||
Barclaycard | 43,346 | 1,835 | 41,511 | 1,601 | 3.7 | 1,251 | 289 | |||||||||||||||||||||
Barclays Core | 197,970 | 3,087 | 194,883 | 4,051 | 2.0 | 1,723 | 87 | |||||||||||||||||||||
Barclays Non-Core | 11,610 | 369 | 11,241 | 845 | 7.3 | 85 | 73 | |||||||||||||||||||||
Total Group Retail | 209,580 | 3,456 | 206,124 | 4,896 | 2.3 | 1,808 | 86 | |||||||||||||||||||||
Investment Bank | 92,321 | 83 | 92,238 | 241 | 0.3 | 47 | 5 | |||||||||||||||||||||
Personal & Corporate Banking | 87,855 | 914 | 86,941 | 1,794 | 2.0 | 182 | 21 | |||||||||||||||||||||
Africa Banking | 14,955 | 235 | 14,720 | 541 | 3.6 | 80 | 53 | |||||||||||||||||||||
Head Office and Other Operations | 5,922 | – | 5,922 | – | – | – | – | |||||||||||||||||||||
Barclays Core | 201,053 | 1,232 | 199,821 | 2,576 | 1.3 | 309 | 15 | |||||||||||||||||||||
Barclays Non-Core | 34,854 | 233 | 34,621 | 345 | 1.0 | (20 | ) | (6 | ) | |||||||||||||||||||
Total Group Wholesale | 235,907 | 1,465 | 234,442 | 2,921 | 1.2 | 289 | 12 | |||||||||||||||||||||
Group Total | 445,487 | 4,921 | 440,566 | 7,817 | 1.8 | 2,097 | 47 | |||||||||||||||||||||
Traded loans | 2,474 | n/a | 2,474 | |||||||||||||||||||||||||
Loans and advances designated at fair value | 17,913 | n/a | 17,913 | |||||||||||||||||||||||||
Loans and advances held at fair value | 20,387 | n/a | 20,387 | |||||||||||||||||||||||||
Total loans and advances | 465,874 | 4,921 | 460,953 | |||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||
Personal & Corporate Bankingb,c | 136,544 | 766 | 135,778 | 1,733 | 1.3 | 215 | 16 | |||||||||||||||||||||
Africa Banking | 21,334 | 681 | 20,653 | 1,093 | 5.1 | 295 | 138 | |||||||||||||||||||||
Barclaycard | 38,376 | 1,815 | 36,561 | 1,765 | 4.6 | 1,183 | 308 | |||||||||||||||||||||
Barclays Core | 196,254 | 3,262 | 192,992 | 4,591 | 2.3 | 1,693 | 86 | |||||||||||||||||||||
Barclays Non-Core | 20,259 | 428 | 19,831 | 1,209 | 6.0 | 151 | 75 | |||||||||||||||||||||
Total Group Retail | 216,513 | 3,690 | 212,823 | 5,800 | 2.7 | 1,844 | 85 | |||||||||||||||||||||
Investment Bank | 106,377 | 44 | 106,333 | 71 | 0.1 | (14) | (1) | |||||||||||||||||||||
Personal & Corporate Bankingb | 88,192 | 873 | 87,319 | 2,112 | 2.4 | 267 | 30 | |||||||||||||||||||||
Africa Banking | 16,312 | 246 | 16,066 | 665 | 4.1 | 54 | 33 | |||||||||||||||||||||
Head Office and Other Operations | 3,240 | – | 3,240 | – | – | – | – | |||||||||||||||||||||
Barclays Core | 214,121 | 1,163 | 212,958 | 2,848 | 1.3 | 307 | 14 | |||||||||||||||||||||
Barclays Non-Core | 44,699 | 602 | 44,097 | 841 | 1.9 | 53 | 12 | |||||||||||||||||||||
Total Group Wholesale | 258,820 | 1,765 | 257,055 | 3,689 | 1.4 | 360 | 14 | |||||||||||||||||||||
Group Total | 475,333 | 5,455 | 469,878 | 9,489 | 2.0 | 2,204 | 46 | |||||||||||||||||||||
Traded loans | 2,693 | n/a | 2,693 | |||||||||||||||||||||||||
Loans and advances designated at fair value | 20,198 | n/a | 20,198 | |||||||||||||||||||||||||
Loans and advances held at fair value | 22,891 | n/a | 22,891 | |||||||||||||||||||||||||
Total loans and advances | 498,224 | 5,455 | 492,769 |
Loans and advances at amortised cost net of impairment decreased to £440.6bn (2014: £469.9bn):
CRLs decreased £1.7bn to £7.8bn primarily due to a reduction of £0.9bn in Non-Core relating to the reclassification of the Portuguese business as held for sale and improved economic conditions for Corporate portfolios.
Loan impairment charges improved 5% to £2,097m, with a loan loss rate of 47bps (2014: 46bps). This reflected higher recoveries in Europe and the sale of the Spanish business in Non-Core, lower impairments in PCB due to the benign economic environment in the UK resulting in lower default rates and charges, partially offset by increased impairment in Barclaycard driven by growth in the business and updates to impairment model methodologies. Loan loss rates for Africa Banking increased reflecting lower year-end loans and advances balances due to Rand depreciation.
Notes
Balance sheet credit quality (audited) | ||||||||||||||||||||||||||||||||
As at 31 December 2017 | Strong (including £m | Satisfactory (BB+ to B) £m | Higher risk £m | Maximum £m | Strong % | Satisfactory % | Higher risk % | Maximum % | ||||||||||||||||||||||||
Cash and balances at central banks | 171,082 | – | – | 171,082 | 100 | – | – | 100 | ||||||||||||||||||||||||
Items in the course of collection from other banks | 2,088 | 56 | 9 | 2,153 | 97 | 3 | – | 100 | ||||||||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||||||||||
Debt securities | 48,489 | 2,085 | 626 | 51,200 | 95 | 4 | 1 | 100 | ||||||||||||||||||||||||
Traded loans | 1,432 | 1,189 | 519 | 3,140 | 45 | 38 | 17 | 100 | ||||||||||||||||||||||||
Total trading portfolio assets | 49,921 | 3,274 | 1,145 | 54,340 | 92 | 6 | 2 | 100 | ||||||||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||||||||||
Loans and advances | 9,457 | 817 | 763 | 11,037 | 86 | 7 | 7 | 100 | ||||||||||||||||||||||||
Debt securities | – | 15 | – | 15 | – | 100 | – | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements | 82,263 | 17,692 | 85 | 100,040 | 82 | 18 | – | 100 | ||||||||||||||||||||||||
Other financial assets | 482 | 37 | – | 519 | 93 | 7 | – | 100 | ||||||||||||||||||||||||
Total financial assets designated at fair value | 92,202 | 18,561 | 848 | 111,611 | 82 | 17 | 1 | 100 | ||||||||||||||||||||||||
Derivative financial instruments | 229,262 | 7,863 | 544 | 237,669 | 96 | 4 | – | 100 | ||||||||||||||||||||||||
Loans and advances to banks | 34,590 | 926 | 147 | 35,663 | 97 | 3 | – | 100 | ||||||||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||||||||||
Home loans | 135,576 | 5,781 | 5,645 | 147,002 | 92 | 4 | 4 | 100 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 26,026 | 24,801 | 4,940 | 55,767 | 47 | 44 | 9 | 100 | ||||||||||||||||||||||||
Corporate loans | 113,505 | 36,786 | 12,492 | 162,783 | 70 | 22 | 8 | 100 | ||||||||||||||||||||||||
Total loans and advances to customers | 275,107 | 67,368 | 23,077 | 365,552 | 76 | 18 | 6 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 11,430 | 1,101 | 15 | 12,546 | 91 | 9 | – | 100 | ||||||||||||||||||||||||
Financial investments - debt securities | 57,107 | 18 | 4 | 57,129 | 100 | – | – | 100 | ||||||||||||||||||||||||
Other assets | 482 | 355 | 32 | 869 | 55 | 41 | 4 | 100 | ||||||||||||||||||||||||
Total assets | 923,271 | 99,522 | 25,821 | 1,048,614 | 89 | 9 | 2 | 100 | ||||||||||||||||||||||||
Balance sheet credit quality (audited) | ||||||||||||||||||||||||||||||||
As at 31 December 2016 | Strong (including £m | Satisfactory (BB+ to B) £m | Higher risk £m | Maximum £m | Strong % | Satisfactory % | Higher risk % | Maximum % | ||||||||||||||||||||||||
Cash and balances at central banks | 102,353 | – | – | 102,353 | 100 | – | – | 100 | ||||||||||||||||||||||||
Items in the course of collection from other banks | 1,328 | 130 | 9 | 1,467 | 91 | 9 | – | 100 | ||||||||||||||||||||||||
Trading portfolio assets: | ||||||||||||||||||||||||||||||||
Debt securities | 37,037 | 1,344 | 408 | 38,789 | 96 | 3 | 1 | 100 | ||||||||||||||||||||||||
Traded loans | 594 | 1,977 | 404 | 2,975 | 20 | 66 | 14 | 100 | ||||||||||||||||||||||||
Total trading portfolio assets | 37,631 | 3,321 | 812 | 41,764 | 90 | 8 | 2 | 100 | ||||||||||||||||||||||||
Financial assets designated at fair value: | ||||||||||||||||||||||||||||||||
Loans and advances | 9,692 | 533 | 294 | 10,519 | 92 | 5 | 3 | 100 | ||||||||||||||||||||||||
Debt securities | 59 | 11 | – | 70 | 84 | 16 | – | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements | 53,151 | 9,999 | 12 | 63,162 | 84 | 16 | – | 100 | ||||||||||||||||||||||||
Other financial assets | 244 | 18 | – | 262 | 93 | 7 | – | 100 | ||||||||||||||||||||||||
Total financial assets designated at fair value | 63,146 | 10,561 | 306 | 74,013 | 85 | 14 | 1 | 100 | ||||||||||||||||||||||||
Derivative financial instruments | 330,737 | 14,963 | 926 | 346,626 | 95 | 5 | – | 100 | ||||||||||||||||||||||||
Loans and advances to banks | 39,159 | 3,830 | 262 | 43,251 | 91 | 9 | – | 100 | ||||||||||||||||||||||||
Loans and advances to customers: | ||||||||||||||||||||||||||||||||
Home loans | 136,922 | 2,589 | 5,254 | 144,765 | 95 | 1 | 4 | 100 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 5,343 | 50,685 | 1,780 | 57,808 | 9 | 88 | 3 | 100 | ||||||||||||||||||||||||
Corporate loans | 140,414 | 37,170 | 12,627 | 190,211 | 74 | 19 | 7 | 100 | ||||||||||||||||||||||||
Total loans and advances to customers | 282,679 | 90,444 | 19,661 | 392,784 | 72 | 23 | 5 | 100 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 9,364 | 4,090 | – | 13,454 | 70 | 30 | – | 100 | ||||||||||||||||||||||||
Financial investments - debt securities | 62,842 | 30 | 7 | 62,879 | 100 | – | – | 100 | ||||||||||||||||||||||||
Other assets | 1,085 | 117 | 3 | 1,205 | 90 | 10 | – | 100 | ||||||||||||||||||||||||
Total assets | 930,324 | 127,486 | 21,986 | 1,079,796 | 86 | 12 | 2 | 100 |
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
Credit risk
Analysis of gross loans and advances by product | ||||||||||||||||
| Home Loans £m | |
| Credit cards, unsecured and other retail lending £m |
|
| Corporate Loans £m |
|
| Group Total £m |
| |||||
As at 31 December 2015 | ||||||||||||||||
Personal & Corporate Banking | 135,380 | 21,026 | 68,661 | 225,067 | ||||||||||||
Africa Banking | 10,368 | 7,633 | 14,366 | 32,367 | ||||||||||||
Barclaycard | – | 41,559 | 1,787 | 43,346 | ||||||||||||
Investment Bank | – | – | 92,321 | 92,321 | ||||||||||||
Head Office and Other Operations | – | – | 5,922 | 5,922 | ||||||||||||
Total Core | 145,748 | 70,218 | 183,057 | 399,023 | ||||||||||||
Barclays Non-Core | 10,633 | 1,016 | 34,815 | 46,464 | ||||||||||||
Group Total | 156,381 | 71,234 | 217,872 | 445,487 | ||||||||||||
As at 31 December 2014 | ||||||||||||||||
Personal & Corporate Banking | 136,022 | 23,837 | 64,877 | 224,736 | ||||||||||||
Africa Banking | 12,959 | 8,375 | 16,312 | 37,646 | ||||||||||||
Barclaycard | – | 38,376 | – | 38,376 | ||||||||||||
Investment Bank | – | – | 106,377 | 106,377 | ||||||||||||
Head Office and Other Operations | – | – | 3,240 | 3,240 | ||||||||||||
Total Core | 148,981 | 70,588 | 190,806 | 410,375 | ||||||||||||
Barclays Non-Core | 18,540 | 1,779 | 44,639 | 64,958 | ||||||||||||
Group Total | 167,521 | 72,367 | 235,445 | 475,333 |
Analysis of the concentration of credit risk
A concentration of credit risk exists when a number of counterparties are located in a geographical region or 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 Group implements limits on concentrations in order to mitigate the risk. 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. Further detail on the Group’s policies with regard to managing concentration risk is presented on page 126 of the Barclays PLC 2015 Pillar 3 Report.311.
Geographic concentrations
As at 31 December 2015,2017, the geographic concentration of the Group’s assets remained broadly consistent with 2014. 40% (2014: 38%) of the exposure2016. Exposure is concentrated in the UK 31% (2014: 31%42% (2016: 41%), in the Americas 33% (2016: 33%) and 20% (2014: 22%Europe 21% (2016: 21%) in Europe.
Information on exposures to selected Eurozone countries is presented on page 119..
Credit risk concentrations by geography (audited) | ||||||||||||||||||||||||
As at 31 December 2015 | | United Kingdom £m | |
| Europe £m |
| | Americas £m | | | Africa and Middle East £m | |
| Asia £m |
|
| Total £m |
| ||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 14,061 | 19,094 | 13,288 | 2,055 | 1,213 | 49,711 | ||||||||||||||||||
Items in the course of collection from other banks | 543 | 72 | – | 396 | – | 1,011 | ||||||||||||||||||
Trading portfolio assets | 7,150 | 10,012 | 23,641 | 2,111 | 5,136 | 48,050 | ||||||||||||||||||
Financial assets designated at fair value | 22,991 | 5,562 | 35,910 | 3,039 | 1,682 | 69,184 | ||||||||||||||||||
Derivative financial instruments | 99,658 | 103,498 | 101,592 | 3,054 | 19,907 | 327,709 | ||||||||||||||||||
Loans and advances to banks | 10,733 | 9,918 | 13,078 | 2,900 | 4,720 | 41,349 | ||||||||||||||||||
Loans and advances to customers | 239,086 | 47,372 | 69,803 | 33,461 | 9,495 | 399,217 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lendinga | 5,905 | 4,361 | 15,684 | 915 | 1,322 | 28,187 | ||||||||||||||||||
Available for sale debt securities | 20,509 | 40,344 | 20,520 | 3,999 | 3,906 | 89,278 | ||||||||||||||||||
Other assets | 868 | 4 | 131 | 314 | 93 | 1,410 | ||||||||||||||||||
Total on-balance sheet | 421,504 | 240,237 | 293,647 | 52,244 | 47,474 | 1,055,106 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 9,543 | 3,020 | 5,047 | 2,505 | 461 | 20,576 | ||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 594 | 58 | – | 193 | – | 845 | ||||||||||||||||||
Forward starting reverse repurchase agreementsb | 9 | 5 | 65 | – | 14 | 93 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 104,797 | 34,370 | 125,456 | 13,600 | 3,146 | 281,369 | ||||||||||||||||||
Total off-balance sheet | 114,943 | 37,453 | 130,568 | 16,298 | 3,621 | 302,883 | ||||||||||||||||||
Total | 536,447 | 277,690 | 424,215 | 68,542 | 51,095 | 1,357,989 |
Note
Credit risk concentrations by geography (audited) | ||||||||||||||||||||||||
As at 31 December 2017 | United Kingdom £m | Europe £m | Americas £m | Africa and Middle East £m | Asia £m | Total £m | ||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 53,068 | 57,179 | 56,034 | 63 | 4,738 | 171,082 | ||||||||||||||||||
Items in the course of collection from other banks | 987 | 1,166 | – | – | – | 2,153 | ||||||||||||||||||
Trading portfolio assets | 10,603 | 13,620 | 25,680 | 473 | 3,964 | 54,340 | ||||||||||||||||||
Financial assets designated at fair value | 33,922 | 23,725 | 46,288 | 1,611 | 6,065 | 111,611 | ||||||||||||||||||
Derivative financial instruments | 81,656 | 81,566 | 57,858 | 2,792 | 13,797 | 237,669 | ||||||||||||||||||
Loans and advances to banks | 10,251 | 11,847 | 8,044 | 1,714 | 3,807 | 35,663 | ||||||||||||||||||
Loans and advances to customers | 253,702 | 39,687 | 63,246 | 2,541 | 6,376 | 365,552 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 203 | 375 | 10,521 | 32 | 1,415 | 12,546 | ||||||||||||||||||
Financial Investments - debt securities | 17,471 | 23,598 | 14,110 | 114 | 1,836 | 57,129 | ||||||||||||||||||
Other assets | 592 | 13 | 148 | 33 | 83 | 869 | ||||||||||||||||||
Total on-balance sheet | 462,455 | 252,776 | 281,929 | 9,373 | 42,081 | 1,048,614 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 7,603 | 3,039 | 6,708 | 529 | 1,133 | 19,012 | ||||||||||||||||||
Documentary credits and other short-term trade related transactions | 800 | 5 | – | 7 | – | 812 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 105,112 | 36,079 | 168,003 | 1,601 | 3,966 | 314,761 | ||||||||||||||||||
Total off-balance sheet | 113,515 | 39,123 | 174,711 | 2,137 | 5,099 | 334,585 | ||||||||||||||||||
Total | 575,970 | 291,899 | 456,640 | 11,510 | 47,180 | 1,383,199 | ||||||||||||||||||
Credit risk concentrations by geography (audited) | ||||||||||||||||||||||||
As at 31 December 2016 | United Kingdom £m | Europe £m | Americas £m | Africa and Middle East £m | Asia £m | Total £m | ||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 30,485 | 40,439 | 24,859 | 77 | 6,493 | 102,353 | ||||||||||||||||||
Items in the course of collection from other banks | 969 | 498 | – | – | – | 1,467 | ||||||||||||||||||
Trading portfolio assets | 8,981 | 9,171 | 19,848 | 435 | 3,329 | 41,764 | ||||||||||||||||||
Financial assets designated at fair value | 25,821 | 10,244 | 33,181 | 733 | 4,034 | 74,013 | ||||||||||||||||||
Derivative financial instruments | 108,559 | 107,337 | 105,129 | 1,493 | 24,108 | 346,626 | ||||||||||||||||||
Loans and advances to banks | 7,458 | 12,674 | 16,894 | 1,778 | 4,447 | 43,251 | ||||||||||||||||||
Loans and advances to customers | 253,752 | 47,050 | 81,045 | 3,089 | 7,848 | 392,784 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 218 | 309 | 11,439 | 92 | 1,396 | 13,454 | ||||||||||||||||||
Financial Investments - debt securities | 18,126 | 27,763 | 12,030 | 251 | 4,709 | 62,879 | ||||||||||||||||||
Other assets | 987 | – | 137 | 10 | 71 | 1,205 | ||||||||||||||||||
Total on-balance sheet | 455,356 | 255,485 | 304,562 | 7,958 | 56,435 | 1,079,796 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Contingent liabilities | 8,268 | 3,275 | 6,910 | 702 | 753 | 19,908 | ||||||||||||||||||
Documentary credits and other short-term trade related transactions | 915 | 9 | – | 40 | 41 | 1,005 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 106,427 | 35,476 | 156,077 | 1,694 | 3,007 | 302,681 | ||||||||||||||||||
Total off-balance sheet | 115,610 | 38,760 | 162,987 | 2,436 | 3,801 | 323,594 | ||||||||||||||||||
Total | 570,966 | 294,245 | 467,549 | 10,394 | 60,236 | 1,403,390 |
Risk review
Risk performance
Credit risk
Credit risk concentrations by geography (audited) | ||||||||||||||||||||||||
As at 31 December 2014 | | United Kingdom £m | |
| Europe £m |
| | Americas £m | | | Africa and Middle East £m | |
| Asia £m |
|
| Total £m |
| ||||||
On-balance sheet: | ||||||||||||||||||||||||
Cash and balances at central banks | 13,770 | 12,224 | 9,365 | 2,161 | 2,175 | 39,695 | ||||||||||||||||||
Items in the course of collection from other banks | 644 | 158 | – | 408 | – | 1,210 | ||||||||||||||||||
Trading portfolio assets | 12,921 | 15,638 | 31,061 | 2,498 | 6,572 | 68,690 | ||||||||||||||||||
Financial assets designated at fair value | 21,274 | 1,591 | 3,986 | 2,999 | 501 | 30,351 | ||||||||||||||||||
Derivative financial instruments | 133,400 | 147,421 | 129,771 | 2,332 | 26,985 | 439,909 | ||||||||||||||||||
Loans and advances to banks | 7,472 | 12,793 | 13,227 | 3,250 | 5,369 | 42,111 | ||||||||||||||||||
Loans and advances to customers | 241,543 | 60,018 | 76,561 | 39,241 | 10,404 | 427,767 | ||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 20,551 | 22,655 | 81,368 | 928 | 6,251 | 131,753 | ||||||||||||||||||
Available for sale debt securities | 22,888 | 33,368 | 22,846 | 4,770 | 1,667 | 85,539 | ||||||||||||||||||
Other assets | 837 | – | 232 | 483 | 128 | 1,680 | ||||||||||||||||||
Total on-balance sheet | 475,300 | 305,866 | 368,417 | 59,070 | 60,052 | 1,268,705 | ||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||
Acceptances, endorsements and other contingent liabilities | ||||||||||||||||||||||||
Contingent liabilities | 10,222 | 2,542 | 5,517 | 2,757 | 225 | 21,263 | ||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 851 | 36 | – | 186 | 18 | 1,091 | ||||||||||||||||||
Forward starting reverse repurchase agreements | 4,462 | 5,936 | 701 | 2 | 2,755 | 13,856 | ||||||||||||||||||
Standby facilities, credit lines and other commitments | 108,025 | 34,886 | 116,343 | 14,911 | 2,150 | 276,315 | ||||||||||||||||||
Total off-balance sheet | 123,560 | 43,400 | 122,561 | 17,856 | 5,148 | 312,525 | ||||||||||||||||||
Total | 598,860 | 349,266 | 490,978 | 76,926 | 65,200 | 1,581,230 |
Group exposures to specific countries (audited)
The Group recognises the credit and market risk resulting from the ongoing volatility in the Eurozone and continues to monitor events closely while taking coordinated steps to mitigate the risks associated with the challenging economic environment. These contingency plans have been reviewed and refreshed to ensure they remain effective.
The following table shows Barclays’ exposure to specific Eurozone countries monitored internally as being higher risk and thus being the subject of particular management focus. The basis of preparation is consistent with that described in the 2014 Form 20-F.
The net exposure provides the most appropriate measure of the credit risk to which the Group is exposed. The gross exposure is also presented below, alongside off-balance sheet contingent liabilities and commitments.
During 2015, the Group’s net on-balance sheet exposures to Spain, Italy, Portugal, Ireland, Cyprus and Greece decreased by £17.2bn to £26.1bn primarily due to a £13.4bn reduction in Spain following the sale of the Spanish business. The £7.0bn decrease in residential mortgages relates predominantly to Portuguese and Italian loans reclassified to held for sale within the Financial institutions category.
As at 31 December 2015, the local net funding deficit in Italy was€3.8bn (2014:€9.9bn) and the deficit in Portugal was€1.4bn (2014:€1.9bn). The net funding surplus in Spain was€0.2bn (2014:€4.3bn).
Net exposure by country and counterparty (audited) | ||||||||||||||||||||||||||||||||
| Sovereign £m | | | Financial institutions £m | | | Corporate £m | | | Residential mortgages £m | |
| Other retail lending £m |
| | Net on-balance | | | Gross on-balance sheet exposure £m | | | Contingent liabilities and commitments £m | | |||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Spain | 90 | 623 | 1,176 | 7 | 311 | 2,207 | 7,944 | 2,073 | ||||||||||||||||||||||||
Italy | 1,708 | 2,283 | 1,039 | 9,505 | 675 | 15,210 | 20,586 | 2,701 | ||||||||||||||||||||||||
Portugal | 87 | 3,346 | 152 | 6 | 700 | 4,291 | 4,555 | 1,299 | ||||||||||||||||||||||||
Ireland | 9 | 2,824 | 1,282 | 37 | 51 | 4,203 | 7,454 | 2,673 | ||||||||||||||||||||||||
Cyprus | 29 | 6 | 59 | 16 | 46 | 156 | 391 | 1 | ||||||||||||||||||||||||
Greece | 1 | 3 | 14 | 4 | 3 | 25 | 975 | – | ||||||||||||||||||||||||
Total | 1,924 | 9,085 | 3,722 | 9,575 | 1,786 | 26,092 | 41,905 | 8,747 | ||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||
Spain | 108 | 14,043 | 1,149 | 12 | 248 | 15,560 | 24,873 | 2,863 | ||||||||||||||||||||||||
Italy | 1,716 | 485 | 1,128 | 13,530 | 1,114 | 17,973 | 25,967 | 3,033 | ||||||||||||||||||||||||
Portugal | 105 | 7 | 531 | 2,995 | 1,207 | 4,845 | 5,050 | 1,631 | ||||||||||||||||||||||||
Ireland | 37 | 3,175 | 1,453 | 43 | 50 | 4,758 | 9,445 | 2,070 | ||||||||||||||||||||||||
Cyprus | 28 | 12 | 61 | 6 | 16 | 123 | 707 | 26 | ||||||||||||||||||||||||
Greece | 1 | 11 | 15 | – | – | 27 | 1,279 | – | ||||||||||||||||||||||||
Total | 1,995 | 17,733 | 4,337 | 16,586 | 2,635 | 43,286 | 67,321 | 9,623 |
Other country risks being closely monitored include exposures to Russia and China.
Net exposure to Russia of £1.4bn (2014: £1.9bn) largely consists of retail loans and advances of £1.0bn (2014: £0.6bn). The retail loans and advances are predominantly secured against property in the UK and south of France. Gross exposure to Russia was £2.5bn (2014: £3.8bn) including derivative assets with financial institutions. The gross exposure is mitigated by offsetting derivative liabilities.
Net exposure to China of £3.7bn (2014: £4.8bn) largely consists of loans and advances (mainly cash collateral and settlement balances) to sovereign of £1.4bn (2014: £1.7bn) and financial institutions of £1.1bn (2014: £1.4bn). The gross exposure to China excluding offsetting derivative liabilities was £3.9bn (2014: £5.0bn).
IndustrialIndustry concentrations (audited)
As at 31 December 2015, the industrialThe concentration of the Group’s assets by industry remained broadly consistent year on year. 42% (2014: 49%) ofAs at 31 December 2017, total assets were concentrated towards banks and other financial institutions was 36% (2016: 43%), predominantly within derivative financial instruments which decreased during the year.instruments. The proportion of the overall balance concentrated towards governments and central banks increased to 20% (2016: 14%) and towards home loans remained stable at 12% (2014: 11%) and home loans at 12% (2014: 12% (2016: 11%).
Credit risk concentrations by industry (audited) | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2015 |
| Banks £m |
| | Other financial insti- tutions £m | | | Manu- facturing £m | | | Const- ruction and property £m | |
| Govern- ment and central bank £m |
|
| Energy and water £m |
|
| Wholesale and retail distribu- tion and leisure £m |
| | Business and other services £m | |
| Home loans £m |
|
| Cards, unsecured loans and other personal lending £m |
|
| Other £m |
|
| Total £m |
| ||||||||||||
On-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | – | – | – | – | 49,711 | – | – | – | – | – | – | 49,711 | ||||||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 1,011 | – | – | – | – | – | – | – | – | – | – | 1,011 | ||||||||||||||||||||||||||||||||||||
Trading portfolio assets | 1,897 | 11,826 | 970 | 538 | 25,797 | 2,554 | 315 | 2,727 | 550 | – | 876 | 48,050 | ||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 14,015 | 35,109 | 104 | 8,642 | 7,380 | 33 | 191 | 3,402 | 229 | – | 79 | 69,184 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments | 185,782 | 114,727 | 2,701 | 2,940 | 6,113 | 4,538 | 1,063 | 5,346 | – | – | 4,499 | 327,709 | ||||||||||||||||||||||||||||||||||||
Loans and advances to banks | 36,829 | – | – | – | 4,520 | – | – | – | – | – | – | 41,349 | ||||||||||||||||||||||||||||||||||||
Loans and advances to customers | – | 80,729 | 12,297 | 23,519 | 5,940 | 7,743 | 13,830 | 25,728 | 155,863 | 60,162 | 13,406 | 399,217 | ||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lendinga | 8,676 | 18,022 | – | 1,011 | 305 | – | 35 | 138 | – | – | – | 28,187 | ||||||||||||||||||||||||||||||||||||
Available for sale debt securities | 9,745 | 6,114 | 68 | 43 | 67,645 | 182 | 107 | 5,134 | – | – | 240 | 89,278 | ||||||||||||||||||||||||||||||||||||
Other assets | 312 | 1,077 | – | – | 20 | – | – | – | – | – | 1 | 1,410 | ||||||||||||||||||||||||||||||||||||
Total on-balance sheet | 258,267 | 267,604 | 16,140 | 36,693 | 167,431 | 15,050 | 15,541 | 42,475 | 156,642 | 60,162 | 19,101 | 1,055,106 | ||||||||||||||||||||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 1,152 | 4,698 | 3,142 | 958 | 9 | 3,073 | 1,301 | 4,645 | 100 | 548 | 950 | 20,576 | ||||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 378 | 17 | 142 | 1 | – | 3 | 129 | 50 | �� | – | 123 | 2 | 845 | |||||||||||||||||||||||||||||||||||
Forward starting reverse repurchase agreementsb | 78 | 15 | – | – | – | – | – | – | – | – | – | 93 | ||||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 946 | 31,152 | 35,865 | 11,337 | 871 | 26,217 | 15,054 | 23,180 | 11,708 | 111,988 | 13,051 | 281,369 | ||||||||||||||||||||||||||||||||||||
Total off-balance sheet | 2,554 | 35,882 | 39,149 | 12,296 | 880 | 29,293 | 16,484 | 27,875 | 11,808 | 112,659 | 14,003 | 302,883 | ||||||||||||||||||||||||||||||||||||
Total | 260,821 | 303,486 | 55,289 | 48,989 | 168,311 | 44,343 | 32,025 | 70,350 | 168,450 | 172,821 | 33,104 | 1,357,989 |
Net on-balance sheet exposure to the Oil and Gas sector was £4.4bn (2014: £5.8bn), with contingent liabilities and commitments to this sector of £13.8bn (2014: £12.5bn). Impairment charges were £106m (2014: £1m). The ratio of the Group’s total net exposures classified as strong or satisfactory was 97% (2014: 99%) of the total net exposure to credit risk in this sector.
If average oil prices remained at $30 per barrel throughout 2016, estimated additional impairment of approximately £250m would result. If average oil prices were to reduce to $25 per barrel throughout 2016, estimated additional impairment of approximately £450m would result.
Note
Credit risk concentrations by industry (audited) | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2017 | Banks £m | Other financial insti- tutions £m | Manu- facturing £m | Const- ruction and property £m | Govern- £m | Energy and water £m | Wholesale £m | Business and other services £m | Home £m | Cards, unsecured loans and other personal lending £m | Other £m | Total £m | ||||||||||||||||||||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | – | – | – | – | 171,082 | – | – | – | – | – | – | 171,082 | ||||||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 2,153 | – | – | – | – | – | – | – | – | – | – | 2,153 | ||||||||||||||||||||||||||||||||||||
Trading portfolio assets | 4,682 | 10,672 | 3,311 | 807 | 26,030 | 3,900 | 598 | 3,324 | 128 | – | 888 | 54,340 | ||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 21,468 | 78,506 | 38 | 4,666 | 4,812 | 2 | 3 | 2,083 | 28 | – | 5 | 111,611 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments | 126,248 | 87,272 | 2,383 | 2,103 | 5,811 | 8,179 | 576 | 2,972 | – | – | 2,125 | 237,669 | ||||||||||||||||||||||||||||||||||||
Loans and advances to banks | 27,780 | – | – | – | 7,883 | – | – | – | – | – | – | 35,663 | ||||||||||||||||||||||||||||||||||||
Loans and advances to customers | – | 74,923 | 9,249 | 23,706 | 9,433 | 6,104 | 12,450 | 20,483 | 147,002 | 54,205 | 7,997 | 365,552 | ||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 7,241 | 4,844 | – | 153 | 307 | – | – | 1 | – | – | – | 12,546 | ||||||||||||||||||||||||||||||||||||
Financial investments - debt securities | 10,146 | 1,379 | – | – | 44,827 | 103 | – | 674 | – | – | – | 57,129 | ||||||||||||||||||||||||||||||||||||
Other assets | 147 | 701 | – | – | 21 | – | – | – | – | – | – | 869 | ||||||||||||||||||||||||||||||||||||
Total on-balance sheet | 199,865 | 258,297 | 14,981 | 31,435 | 270,206 | 18,288 | 13,627 | 29,537 | 147,158 | 54,205 | 11,015 | 1,048,614 | ||||||||||||||||||||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 1,572 | 3,556 | 3,236 | 675 | 8 | 2,605 | 969 | 4,947 | 4 | 389 | 1,051 | 19,012 | ||||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade related transactions | 524 | – | 192 | – | – | – | 71 | 23 | – | – | 2 | 812 | ||||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 1,026 | 31,427 | 37,913 | 12,956 | 384 | 31,702 | 14,436 | 34,392 | 10,785 | 126,169 | 13,571 | 314,761 | ||||||||||||||||||||||||||||||||||||
Total off-balance sheet | 3,122 | 34,983 | 41,341 | 13,631 | 392 | 34,307 | 15,476 | 39,362 | 10,789 | 126,558 | 14,624 | 334,585 | ||||||||||||||||||||||||||||||||||||
Total | 202,987 | 293,280 | 56,322 | 45,066 | 270,598 | 52,595 | 29,103 | 68,899 | 157,947 | 180,763 | 25,639 | 1,383,199 |
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
Credit risk
Credit risk concentrations by industry (audited) | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2016 | Banks £m | Other financial insti- tutions £m | Manu- facturing £m | Const- ruction and property £m | Govern- £m | Energy and water £m | Wholesale £m | Business and other services £m | Home £m | Cards, unsecured loans and other personal lending £m | Other £m | Total £m | ||||||||||||||||||||||||||||||||||||
On-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | – | – | – | – | 102,353 | – | – | – | – | – | – | 102,353 | ||||||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 1,467 | – | – | – | – | – | – | – | – | – | – | 1,467 | ||||||||||||||||||||||||||||||||||||
Trading portfolio assets | 2,231 | 7,998 | 1,625 | 565 | 21,047 | 3,733 | 324 | 2,972 | 257 | – | 1,012 | 41,764 | ||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 14,714 | 49,783 | 3 | 5,699 | 856 | 5 | 33 | 2,811 | 33 | 2 | 74 | 74,013 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments | 182,664 | 139,066 | 2,913 | 3,488 | 6,547 | 4,585 | 810 | 3,392 | – | – | 3,161 | 346,626 | ||||||||||||||||||||||||||||||||||||
Loans and advances to banks | 38,932 | – | – | – | 4,319 | – | – | – | – | – | – | 43,251 | ||||||||||||||||||||||||||||||||||||
Loans and advances to customers | – | 91,812 | 12,337 | 24,200 | 12,028 | 7,384 | 12,967 | 21,838 | 144,765 | 56,730 | 8,723 | 392,784 | ||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 2,596 | 10,568 | – | 38 | 252 | – | – | – | – | – | – | 13,454 | ||||||||||||||||||||||||||||||||||||
Financial investments - debt securities | 12,842 | 4,877 | – | – | 44,263 | – | 43 | 807 | – | – | 47 | 62,879 | ||||||||||||||||||||||||||||||||||||
Other assets | 975 | 205 | – | – | 25 | – | – | – | – | – | – | 1,205 | ||||||||||||||||||||||||||||||||||||
Total on-balance sheet | 256,421 | 304,309 | 16,878 | 33,990 | 191,690 | 15,707 | 14,177 | 31,820 | 145,055 | 56,732 | 13,017 | 1,079,796 | ||||||||||||||||||||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 1,484 | 4,232 | 3,387 | 707 | 8 | 2,649 | 1,032 | 4,847 | 40 | 531 | 991 | 19,908 | ||||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade related transactions | 433 | – | 377 | – | – | – | 157 | 38 | – | – | – | 1,005 | ||||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 1,021 | 29,329 | 38,829 | 11,876 | 400 | 29,699 | 14,741 | 26,359 | 9,610 | 126,708 | 14,109 | 302,681 | ||||||||||||||||||||||||||||||||||||
Total off-balance sheet | 2,938 | 33,561 | 42,593 | 12,583 | 408 | 32,348 | 15,930 | 31,244 | 9,650 | 127,239 | 15,100 | 323,594 | ||||||||||||||||||||||||||||||||||||
Total | 259,359 | 337,870 | 59,471 | 46,573 | 192,098 | 48,055 | 30,107 | 63,064 | 154,705 | 183,971 | 28,117 | 1,403,390 |
104 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Credit risk concentrations by industry (audited) | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2014 |
| Banks £m |
| | Other financial insti- tutions £m | | | Manu- facturing £m | | | Const- ruction and property £m | |
| Govern- ment and central bank £m |
|
| Energy and water £m |
|
| Wholesale and retail distribu- tion and leisure £m |
| | Business and other services £m | |
| Home loans £m |
|
| Cards, unsecured loans and other personal lending £m |
|
| Other £m |
|
| Total £m |
| ||||||||||||
On-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | – | – | – | – | 39,695 | – | – | – | – | – | – | 39,695 | ||||||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 1,210 | – | – | – | – | – | – | – | – | – | – | 1,210 | ||||||||||||||||||||||||||||||||||||
Trading portfolio assets | 2,894 | 17,718 | 1,466 | 593 | 39,201 | 2,745 | 385 | 2,751 | – | – | 937 | 68,690 | ||||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 5,113 | 1,548 | 70 | 9,358 | 10,378 | 73 | 207 | 3,127 | 393 | – | 84 | 30,351 | ||||||||||||||||||||||||||||||||||||
Derivative financial instruments | 257,463 | 149,050 | 2,519 | 3,454 | 7,691 | 7,794 | 1,510 | 6,227 | – | – | 4,201 | 439,909 | ||||||||||||||||||||||||||||||||||||
Loans and advances to banks | 40,265 | – | – | – | 1,846 | – | – | – | – | – | – | 42,111 | ||||||||||||||||||||||||||||||||||||
Loans and advances to customers | – | 103,388 | 11,647 | 22,842 | 7,115 | 8,536 | 13,339 | 22,372 | 166,974 | 58,914 | 12,640 | 427,767 | ||||||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 38,946 | 86,588 | – | 4,845 | 739 | – | 24 | 611 | – | – | – | 131,753 | ||||||||||||||||||||||||||||||||||||
Available for sale debt securities | 11,122 | 8,365 | 68 | 45 | 61,341 | 194 | 27 | 4,084 | – | – | 293 | 85,539 | ||||||||||||||||||||||||||||||||||||
Other assets | 635 | 995 | – | 14 | 24 | – | – | 12 | – | – | – | 1,680 | ||||||||||||||||||||||||||||||||||||
Total on-balance sheet | 357,648 | 367,652 | 15,770 | 41,151 | 168,030 | 19,342 | 15,492 | 39,184 | 167,367 | 58,914 | 18,155 | 1,268,705 | ||||||||||||||||||||||||||||||||||||
Off-balance sheet: | ||||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 1,159 | 5,177 | 2,709 | 698 | – | 2,757 | 1,157 | 6,496 | 45 | 191 | 874 | 21,263 | ||||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 470 | 12 | 197 | 14 | – | 1 | 218 | 62 | 55 | 28 | 34 | 1,091 | ||||||||||||||||||||||||||||||||||||
Forward starting reverse repurchase agreements | 2,128 | 11,724 | – | – | 4 | – | – | – | – | – | – | 13,856 | ||||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 2,643 | 29,645 | 28,589 | 11,449 | 2,400 | 24,830 | 12,771 | 24,534 | 16,119 | 110,091 | 13,244 | 276,315 | ||||||||||||||||||||||||||||||||||||
Total off-balance sheet | 6,400 | 46,558 | 31,495 | 12,161 | 2,404 | 27,588 | 14,146 | 31,092 | 16,219 | 110,310 | 14,152 | 312,525 | ||||||||||||||||||||||||||||||||||||
Total | 364,048 | 414,210 | 47,265 | 53,312 | 170,434 | 46,930 | 29,638 | 70,276 | 183,586 | 169,224 | 32,307 | 1,581,230 |
As the principal source of credit risk to the Group, loans and advances to customers and banks is analysed in detail below:
Analysis of loans and advances and impairment to customers and banks | ||||||||||||||||||||||||||||
As at 31 December 2017 | | Gross L&A £m |
| | Impairment allowance £m | | | L&A net of impairment £m | | | Credit risk loans £m |
| | CRLs % of gross L&A % | | | Loan impairment charges £m | a
| | Loan loss rates bps |
| |||||||
Barclays UK | 159,397 | 1,649 | 157,748 | 1,950 | 1.2 | 764 | 48 | |||||||||||||||||||||
Barclays International | 30,775 | 1,542 | 29,233 | 1,275 | 4.1 | 1,285 | 418 | |||||||||||||||||||||
Head Office | 9,333 | 296 | 9,037 | 710 | 7.6 | 16 | 17 | |||||||||||||||||||||
Barclays Non-Coreb | – | – | – | – | – | 30 | – | |||||||||||||||||||||
Total Group retail | 199,505 | 3,487 | 196,018 | 3,935 | 2.0 | 2,095 | 105 | |||||||||||||||||||||
Barclays UK | 28,960 | 190 | 28,770 | 432 | 1.5 | 19 | 7 | |||||||||||||||||||||
Barclays International | 170,299 | 862 | 169,437 | 1,421 | 0.8 | 219 | 13 | |||||||||||||||||||||
Head Office | 7,103 | 113 | 6,990 | 206 | 2.9 | 1 | 1 | |||||||||||||||||||||
Barclays Non-Coreb | – | – | – | – | – | (1 | ) | – | ||||||||||||||||||||
Total Group wholesale | 206,362 | 1,165 | 205,197 | 2,059 | 1.0 | 238 | 12 | |||||||||||||||||||||
Total loans and advances at amortised cost | 405,867 | 4,652 | 401,215 | 5,994 | 1.5 | 2,333 | 57 | |||||||||||||||||||||
Traded loans | 3,140 | n/a | 3,140 | n/a | ||||||||||||||||||||||||
Loans and advances designated at fair value | 11,037 | n/a | 11,037 | n/a | ||||||||||||||||||||||||
Loans and advances held at fair value | 14,177 | n/a | 14,177 | n/a | ||||||||||||||||||||||||
Total loans and advances | 420,044 | 4,652 | 415,392 | 5,994 | ||||||||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||||||
Barclays UK | 155,729 | 1,519 | 154,210 | 2,044 | 1.3 | 866 | 56 | |||||||||||||||||||||
Barclays International | 33,485 | 1,492 | 31,993 | 1,249 | 3.7 | 1,085 | 324 | |||||||||||||||||||||
Barclays Non-Core | 10,319 | 385 | 9,934 | 838 | 8.1 | 102 | 99 | |||||||||||||||||||||
Total Group retail | 199,533 | 3,396 | 196,137 | 4,131 | 2.1 | 2,053 | 103 | |||||||||||||||||||||
Barclays UK | 15,204 | 282 | 14,922 | 591 | 3.9 | 30 | 20 | |||||||||||||||||||||
Barclays International | 180,102 | 748 | 179,354 | 1,470 | 0.8 | 258 | 14 | |||||||||||||||||||||
Head Office | 4,410 | – | 4,410 | – | – | – | – | |||||||||||||||||||||
Barclays Non-Core | 41,406 | 194 | 41,212 | 299 | 0.7 | 11 | 3 | |||||||||||||||||||||
Total Group wholesale | 241,122 | 1,224 | 239,898 | 2,360 | 1.0 | 299 | 12 | |||||||||||||||||||||
Total loans and advances at amortised cost | 440,655 | 4,620 | 436,035 | 6,491 | 1.5 | 2,352 | 53 | |||||||||||||||||||||
Traded loans | 2,975 | n/a | 2,975 | n/a | ||||||||||||||||||||||||
Loans and advances designated at fair value | 10,519 | n/a | 10,519 | n/a | ||||||||||||||||||||||||
Loans and advances held at fair value | 13,494 | n/a | 13,494 | n/a | ||||||||||||||||||||||||
Total loans and advances | 454,149 | 4,620 | 449,529 | 6,491 |
Notes
a | Excluding impairment charges on available for sale investments and reverse repurchase agreements. |
b | Barclays Non-Core represents charges for the six months ended 30 June 2017, primarily relating to Italian mortgages transferred into Head Office on 1 July 2017. |
Total loans and advances decreased by £34.1bn to £415.4bn, including a net £12.7bn decrease in cash collateral and settlement balances and a £21.4bn decrease in other lending, primarily in Corporate and Investment Bank.
Credit risk loans (CRLs) decreased to £6.0bn (2016: £6.5bn) and the ratio of CRLs to gross loans and advances remained stable at 1.5% (2016: 1.5%). Loan impairment charges decreased £19m to £2,333m. Overall, this resulted in an increase of 4bps in the loan loss rate to 57bps.
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
Credit risk
Analysis of specific portfolios and asset types
This section provides an analysis of principal portfolios and businesses in the retail and wholesale segments. In particular, home loans, credit cards, overdrafts and unsecured loans are covered for retail segments while exposures in Investment Bank and PCB including watch list analysis are covered for wholesale segments.
In general, benign economic conditions in the UK and US aided better performance in 2015. South African portfolios were resilient despite challenging market conditions with economic growth being affected by weak manufacturing and low commodity prices.loans.
Secured home loans
TotalThe UK home loans to retail customers of £156bn (2014: £161bn) represented 75% (2014: 72%portfolio comprises first lien home loans and accounts for 90% (2016: 89%) of the Group’s total retailhome loan balances. The reduction in balances was principally driven by: Portuguese home loans and part of the Italian home loans portfolio being redesignated as held for sale; and, South African home loans due to the depreciation of the Rand.
The two principal portfolios listed below account for 88% of home loans in the Group’s retail portfolios, and comprise first lien mortgages.
Home loans principal portfolios | ||||||||||||||||||||||||
| Gross loans and advances £m | |
| >90 day arrears % |
|
| Non- performing proportion of outstanding balances % |
|
| Gross charge-off rates % |
|
| Recoveries proportion of outstanding balances % |
|
| Recoveries impairment coverage ratio % |
| |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
PCB – UK | 127,750 | 0.2 | 0.7 | 0.3 | 0.4 | 10.1 | ||||||||||||||||||
Africa Banking – South Africa | 9,180 | 0.9 | 4.0 | 1.6 | 3.2 | 26.4 | ||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
PCB – UK | 126,668 | 0.2 | 0.6 | 0.4 | 0.4 | 8.3 | ||||||||||||||||||
Africa Banking – South Africa | 11,513 | 0.7 | 4.8 | 1.9 | 4.1 | 31.1 |
Home loans principal portfoliosa | ||||||||
Barclays UK | ||||||||
As at 31 December | 2017 | 2016 | ||||||
Gross loans and advances (£m) | 132,132 | 129,136 | ||||||
90 day arrears rate, excluding recovery book (%) | 0.1 | 0.2 | ||||||
Non-performing proportion of outstanding balances (%) | 0.4 | 0.6 | ||||||
Annualised gross charge-off rates (%) | 0.2 | 0.3 | ||||||
Recovery book proportion of outstanding balances (%) | 0.3 | 0.4 | ||||||
Recovery book impairment coverage ratio (%) | 11.2 | 9.1 |
PCB – UK:Note
a | Gross loans and advances include loans and advances to customers and banks. Risk metrics based on exposures to customers only. |
Portfolio performance remained steady reflecting the continuing low base rate environment house price appreciation, and benignstable economic conditions. The non-performing proportion of outstanding balances decreased due to an improved performance and a reduction in repossession stock. The recovery book impairment coverage ratio increased driven by a reduction in the number of customers entering recoveries, reflecting lower entries into collections and better customer payments rates from those in collections.
Within the UK home loans portfolio:
owner-occupied |
buy-to-let home loans comprised 11% (2016: 9% |
The recoveries impairment coverage increased to 10.1% (2014: 8.3%). In 2015, management adjustments to impairment allowances were better aligned to appropriate segments of the portfolio, resulting in a reduction of the impairment allocated to the recoveries book. The overall impairment coverage of the total home loans portfolio remained unchanged.
Africa Banking – South Africa:Gross loans and advances reduced by 20%, primarily driven by the depreciation of the Rand and repayments on the existing book. The improvement in the charge-off rates to 1.6% (2014: 1.9%) resulted from the focus on collections strategies and reduced rolls through delinquency cycles.
Risk review
Risk performance
Credit risk
Home loans principal portfolios – distribution of balances by LTVa | ||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution of balances | | | Impairment coverage ratio | | | Non-performing proportion of outstanding balances | | | Non-performing balances impairment coverage ratio | | | Recoveries proportion of outstanding balances | | | Recoveries impairment coverage ratio | | |||||||||||||||||||||||||||||||
As at 31 December | | 2015 % | | | 2014 % | |
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
| ||||||||||||
PCB UK | ||||||||||||||||||||||||||||||||||||||||||||||||
<=75% | 92.1 | 90.2 | 0.1 | – | 0.6 | 0.6 | 4.7 | 2.8 | 0.4 | 0.3 | 6.8 | 4.6 | ||||||||||||||||||||||||||||||||||||
>75% and <=80% | 3.4 | 4.2 | 0.2 | 0.2 | 1.0 | 1.2 | 13.5 | 6.9 | 0.8 | 0.8 | 15.7 | 9.2 | ||||||||||||||||||||||||||||||||||||
>80% and <=85% | 2.1 | 2.3 | 0.3 | 0.2 | 1.0 | 1.4 | 16.7 | 8.9 | 0.7 | 0.9 | 21.4 | 11.3 | ||||||||||||||||||||||||||||||||||||
>85% and <=90% | 1.4 | 1.4 | 0.3 | 0.4 | 1.3 | 1.7 | 15.7 | 13.0 | 1.0 | 1.3 | 17.8 | 15.9 | ||||||||||||||||||||||||||||||||||||
>90% and <=95% | 0.6 | 1.0 | 0.6 | 0.4 | 1.8 | 1.9 | 25.7 | 13.7 | 1.5 | 1.3 | 28.2 | 17.8 | ||||||||||||||||||||||||||||||||||||
>95% and <=100% | 0.2 | 0.4 | 1.3 | 1.0 | 4.0 | 2.9 | 25.4 | 21.4 | 3.5 | 2.2 | 27.9 | 26.4 | ||||||||||||||||||||||||||||||||||||
>100% | 0.2 | 0.5 | 3.4 | 2.4 | 7.0 | 6.0 | 35.6 | 28.6 | 5.6 | 4.3 | 41.2 | 36.1 | ||||||||||||||||||||||||||||||||||||
Africa Banking – | ||||||||||||||||||||||||||||||||||||||||||||||||
South Africa | ||||||||||||||||||||||||||||||||||||||||||||||||
<=75% | 76.1 | 74.6 | 0.7 | 0.7 | 0.6 | 0.5 | 13.6 | 16.2 | 1.8 | 1.9 | 17.9 | 20.4 | ||||||||||||||||||||||||||||||||||||
>75% and <=80% | 6.8 | 7.7 | 1.6 | 1.5 | 1.0 | 0.9 | 18.4 | 20.0 | 3.3 | 3.0 | 21.4 | 23.5 | ||||||||||||||||||||||||||||||||||||
>80% and <=85% | 5.3 | 5.9 | 1.9 | 2.0 | 1.0 | 1.1 | 19.2 | 21.1 | 3.5 | 4.2 | 21.1 | 23.7 | ||||||||||||||||||||||||||||||||||||
>85% and <=90% | 3.8 | 4.3 | 2.3 | 2.5 | 0.9 | 1.0 | 20.2 | 22.3 | 4.8 | 5.1 | 21.8 | 24.3 | ||||||||||||||||||||||||||||||||||||
>90% and <=95% | 2.6 | 2.5 | 3.7 | 4.3 | 1.2 | 1.4 | 23.8 | 26.3 | 5.9 | 8.7 | 24.2 | 27.6 | ||||||||||||||||||||||||||||||||||||
>95% and <=100% | 1.8 | 1.5 | 4.8 | 5.4 | 1.3 | 1.5 | 25.6 | 23.4 | 7.8 | 11.6 | 26.0 | 24.1 | ||||||||||||||||||||||||||||||||||||
>100% | 2.8 | 3.5 | 14.1 | 16.4 | 1.9 | 1.9 | 29.7 | 32.5 | 26.7 | 37.1 | 29.7 | 32.9 |
Home loans principal portfolios – Average LTV | ||||||||||||||||
PCB – UK | Africa Banking – South Africa | |||||||||||||||
As at 31 December |
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
| ||||
Portfolio marked to market LTV (%): | ||||||||||||||||
Balance weighted | 49.2 | 51.6 | 58.4 | 59.9 | ||||||||||||
Valuation weighted | 37.3 | 39.8 | 39.1 | 40.2 | ||||||||||||
Performing balances (%): | ||||||||||||||||
Balance weighted | 48.8 | 51.5 | 57.5 | 58.6 | ||||||||||||
Valuation weighted | 37.3 | 39.7 | 38.6 | 39.5 | ||||||||||||
Non-performing balances (%): | ||||||||||||||||
Balance weighted | 56.5 | 62.1 | 79.3 | 87.0 | ||||||||||||
Valuation weighted | 45.1 | 49.8 | 59.3 | 64.7 | ||||||||||||
For >100% LTVs: | ||||||||||||||||
Balances (£m) | 310 | 641 | 257 | 390 | ||||||||||||
Marked to market collateral (£m) | 260 | 558 | 218 | 324 | ||||||||||||
Average LTV: balance weighted (%) | 123.0 | 120.9 | 121.1 | 124.2 | ||||||||||||
Average LTV: valuation weighted (%) | 118.5 | 114.8 | 117.7 | 120.3 | ||||||||||||
% of balances in recoveries | 5.6 | 4.4 | 26.6 | 37.1 |
Balance weighted LTV in the UK reduced to 49.2% (2014: 51.6%) due to an increase in average house prices, particularly in London and the South East. The overall non-performing impairment coverage in the UK remained flat year on year but increased across LTV ranges, due to granular alignment of management adjustments across portfolio segments.
PCB – UK: The house price appreciation resulted in a 52% reduction in home loans that have LTV >100% to £310m (2014: £641m).
Africa Banking – South Africa: Balances with >100% LTV reduced 34% to £257m (2014: £390m), primarily due to a reduction in the size of the recovery book as older and higher risk loans were written off, in addition to the depreciation of the Rand.
Home loans principal portfolios – new lending | ||||||||||||||||
PCB – UK | Africa Banking – South Africa | |||||||||||||||
As at 31 December | 2015 | 2014 | 2015 | 2014 | ||||||||||||
New bookings (£m) | 18,812 | 20,349 | 1,621 | 1,590 | ||||||||||||
New mortgages proportion above 85% LTV (%) | 8.2 | 6.6 | 40.8 | 33.5 | ||||||||||||
Average LTV on new mortgages: balance weighted (%) | 63.9 | 64.8 | 75.7 | 74.8 | ||||||||||||
Average LTV on new mortgages: valuation weighted (%) | 55.0 | 57.0 | 66.9 | 65.4 |
PCB – UK:New lending during 2015 reduced by 8%, reflecting an unchanged risk profile against heightened market activity in the prime residential segment.
Africa Banking – South Africa:The proportion of new home loans with LTV above 85% increased to 40.8% (2014: 33.5%) due to a revised strategy which allowed a greater proportion of higher LTV loans to be booked for lower risk customers.
Home loans principal portfolios – distribution of balances by LTVa | ||||||||||||||||||||||||||||||||||||||||||||||||
Distribution of balances | Impairment coverage ratio | Non-performing proportion of outstanding balances | Non-performing balances impairment coverage ratio | Recovery book proportion of outstanding balances | Recovery book ratio | |||||||||||||||||||||||||||||||||||||||||||
As at 31 December | 2017 % | 2016 % | 2017 % | 2016 % | 2017 % | 2016 % | 2017 % | 2016 % | 2017 % | 2016 % | 2017 % | 2016 % | ||||||||||||||||||||||||||||||||||||
Barclays UK | ||||||||||||||||||||||||||||||||||||||||||||||||
<=75% | 91.1 | 91.8 | 0.1 | 0.1 | 0.5 | 0.6 | 4.3 | 4.2 | 0.2 | 0.4 | 7.5 | 5.9 | ||||||||||||||||||||||||||||||||||||
>75% and <=80% | 4.1 | 3.5 | 0.1 | 0.2 | 0.5 | 0.6 | 18.6 | 17.1 | 0.3 | 0.4 | 28.0 | 22.1 | ||||||||||||||||||||||||||||||||||||
>80% and <=85% | 2.6 | 2.1 | 0.1 | 0.2 | 0.4 | 0.8 | 16.4 | 20.4 | 0.2 | 0.6 | 27.8 | 25.0 | ||||||||||||||||||||||||||||||||||||
>85% and <=90% | 1.2 | 1.3 | 0.2 | 0.3 | 0.5 | 0.7 | 23.8 | 23.0 | 0.3 | 0.6 | 30.7 | 25.4 | ||||||||||||||||||||||||||||||||||||
>90% and <=95% | 0.6 | 0.8 | 0.4 | 0.4 | 0.9 | 1.1 | 28.7 | 28.3 | 0.6 | 0.8 | 38.9 | 33.7 | ||||||||||||||||||||||||||||||||||||
>95% and <=100% | 0.2 | 0.3 | 0.6 | 0.7 | 1.2 | 1.9 | 25.6 | 23.4 | 0.9 | 1.5 | 27.7 | 27.0 | ||||||||||||||||||||||||||||||||||||
>100% | 0.2 | 0.2 | 4.2 | 3.1 | 6.7 | 5.7 | 42.0 | 38.6 | 5.9 | 5.0 | 47.2 | 40.9 |
Note
a | Portfolio marked to market based on the most updated valuation including |
Home loans principal portfolios - Average LTV | ||||||||
Barclays UK | ||||||||
As at 31 December | 2017 | 2016 | ||||||
Portfolio marked to market LTV (%): | ||||||||
Balance weighted | 47.6 | 47.7 | ||||||
Valuation weighted | 35.2 | 35.6 | ||||||
Performing balances (%): | ||||||||
Balance weighted | 47.6 | 47.3 | ||||||
Valuation weighted | 35.6 | 35.5 | ||||||
Non-performing balances (%): | ||||||||
Balance weighted | 49.8 | 52.5 | ||||||
Valuation weighted | 39.1 | 41.7 | ||||||
For >100% LTVs: | ||||||||
Balances (£m) | 215 | 239 | ||||||
Marked to market collateral (£m) | 188 | 210 | ||||||
Average LTV: balance weighted (%) | 127.7 | 118.4 | ||||||
Average LTV: valuation weighted (%) | 118.6 | 113.1 | ||||||
% of balances in recovery book | 5.9 | 5.0 |
106 Barclays PLC and Barclays Bank PLC |
Exposure to interest only owner-occupied home loans excluding part and part interest only (P&P IO)a | ||||||||
As at 31 December | 2015 | 2014 | ||||||
Interest only balances, excluding P&P IO (£m) | 33,901 | 35,328 | ||||||
Interest only home loans maturity years (£m): | ||||||||
2016 | 703 | 864 | ||||||
2017 | 1,043 | 1,180 | ||||||
2018 | 1,131 | 1,249 | ||||||
2019 | 1,080 | 1,195 | ||||||
2020 | 1,090 | 1,176 | ||||||
2021-2025 | 7,359 | 7,632 | ||||||
Post 2025 | 21,155 | 21,104 | ||||||
Total Impairment coverage (bps) | 11 | 8 | ||||||
Marked to market LTV: total balances (%) | ||||||||
Balance weighted | 44.7 | 48.7 | ||||||
Valuation weighted | 34.7 | 37.6 | ||||||
For >100% LTVs: (£m) | ||||||||
Balances | 178 | 349 | ||||||
Marked to market collateral | 150 | 302 | ||||||
Overview of performing portfolio | ||||||||
Performing balances (£m) | 33,690 | 35,155 | ||||||
Marked to market LTV: performing balances (%) | ||||||||
Balance weighted | 44.6 | 48.6 | ||||||
Valuation weighted | 34.6 | 37.5 | ||||||
Overview of non-performing portfolio | ||||||||
Non-performing balances (£m) | 211 | 173 | ||||||
Non-performing proportion of interest only balances excluding P&P IO (%) | 0.6 | 0.5 | ||||||
Marked to market LTV: non-performing balances (%) | ||||||||
Balance weighted | 61.4 | 66.2 | ||||||
Valuation weighted | 49.8 | 54.1 |
Interest only mortgages account for £50bn (2014: £51bn) ofBalance pay down coupled with benefits from the total balance of £128bn (2014: £127bn) of UKHPI increase resulted in a 10% reduction in home loans. This comprised £40bn (2014: £42bn)loans that have LTV >100% to owner-occupied customers, and £10bn (2014: £9bn) to buy-to-let customers.£215m (2016: £239m).
Of the £40bn exposure to owner-occupied customers, £34bn (2014: £35bn) was interest only, with the remaining £6bn (2014: £7bn) representing the interest only component of part and part mortgages.
Home loans principal portfolios – new lending | ||||||||
Barclays UK | ||||||||
As at 31 December | 2017 | 2016 | ||||||
New bookings (£m) | 22,665 | 19,885 | ||||||
New mortgages proportion above 85% LTV (%) | 6.0 | 8.6 | ||||||
Average LTV on new mortgages: balance weighted (%) | 63.8 | 63.4 | ||||||
Average LTV on new mortgages: valuation weighted (%) | 56.0 | 54.4 |
The averageBarclays UK:New lending during 2017 increased by 14%, reflecting heightened market activity while maintaining a steady risk profile. Average balance weighted LTV for interest only owner-occupied balances reduced to 44.7% (2014: 48.7%) as property prices appreciated. The increase in impairment coverage to 11bps (2014: 8bps) was due to (i) enhancements in methodology, where management adjustments to impairment allowances were allocated on a more granular basis to their appropriate segments; and (ii) a broadening of the high risk definition used on interest only mortgages. The overall impairment coverage of the total home loans portfolio remained unchanged.
Exposures to mortgage current accounts (MCA) reserves
The MCA reserve is a secured overdraft facility previously available to home loan customers in the UK on either a fully amortising or interest only mortgage loan, which allows them to borrow against the equity in their home. It permits draw-down up to an agreed available limit on a separate but connected account to the main mortgage loan facility. The balance drawn must be repaid on redemption of the mortgage.
Of the total 917k home loan customers in the UK, 442k have MCA reserves, with total reserve limits of £11.3bn (2014: £17.9bn).
As at 31 December | 2015 | 2014 | ||||||
Total outstanding of home loans with MCA reserve balances (£bn) | 53.6 | 62.2 | ||||||
As a proportion of outstanding UK home loan balances (%) | 42.0 | 49.1 | ||||||
Home loan customers with active reserves (000s) | 442 | 505 | ||||||
Total reserve limits (£bn) | 11.3 | 17.9 | ||||||
Utilisation rate (%) | 48.9 | 32.3 | ||||||
Utilisation (£bn) | 5.5 | 5.8 | ||||||
Marked to market LTV: balance weighted (%) | 43.7 | 47.7 |
Total outstanding balances which are an aggregate of the mortgage account and the drawn reserve, reduced 14% to £53.6bn (2014: £62.2bn), during the period reflecting paydowns in the main mortgage account.
Reduction in portfolio reserve limits to £11.3bn (2014: £17.9bn) is due to an active limit management programme, combined with natural mortgage redemptions from the existing book during the period. As a result, the utilisation rate increased to 48.9% (2014: 32.3%). MCA balances havenew lending remained broadly stable at £5.5bn (2014: £5.8bn), while the63.8% (2016: 63.4%).
Head Office: Italian home loans of £9.2bn (2016: £10.0bn) are secured on residential property with an average balance weighted marked to market LTV reduced to 43.7% (2014: 47.7%of 61.0% (2016: 61.8%) due toand CRL coverage of 41% (2016: 36%). 90 day arrears and gross charge-off rates remained stable at 1.4% (2016: 1.2%) and 0.8% (2016: 0.8%) respectively while the CRL book coverage ratio increased, as a result of an increaseupdate in average house prices and repayment on the main mortgage loan.
Althoughcollateral valuation for accounts in the product has been withdrawn from sale, existing customers can continue to draw against their available reserves.
Note
Risk review
Risk performance
Credit riskrecovery book.
Credit cards, overdrafts,unsecured loans and unsecured loansother retail lending
The principal portfolios listed below accounted for 91% (2014:87% (2016: 88%) of the Group’s total credit cards, overdraftsunsecured loans and unsecured loans.other retail lending.
Principal portfolios | | Gross loans and advances £m | |
| 30 day arrears, excluding recoveries % |
|
| 90 day arrears, excluding recoveries % |
|
| Gross charge-off rates % |
|
| Recoveries proportion of outstanding balances % |
|
| Recoveries impairment coverage ratio % |
| ||||||
As at 31 December 2015 | ||||||||||||||||||||||||
Barclaycard | ||||||||||||||||||||||||
UK cardsa | 18,502 | 2.3 | 1.2 | 5.2 | 3.6 | 82.6 | ||||||||||||||||||
US cardsa | 16,699 | 2.2 | 1.1 | 3.9 | 2.0 | 84.8 | ||||||||||||||||||
Barclays Partner Finance | 3,986 | 1.5 | 0.6 | 2.4 | 2.5 | 85.2 | ||||||||||||||||||
Germany cards | 1,419 | 2.3 | 1.0 | 3.8 | 2.7 | 81.2 | ||||||||||||||||||
Personal & Corporate Banking | ||||||||||||||||||||||||
UK personal loans | 5,476 | 1.9 | 0.8 | 3.0 | 7.5 | 73.9 | ||||||||||||||||||
Africa Banking | ||||||||||||||||||||||||
South Africa cards | 1,886 | 8.5 | 5.0 | 8.4 | 7.4 | 72.6 | ||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
Barclaycard | ||||||||||||||||||||||||
UK cardsa | 17,447 | 2.5 | 1.2 | 4.3 | 4.9 | 87.6 | ||||||||||||||||||
US cardsa | 14,005 | 2.1 | 1.0 | 3.7 | 1.8 | 87.1 | ||||||||||||||||||
Barclays Partner Finance | 3,399 | 1.5 | 0.7 | 2.4 | 2.7 | 76.8 | ||||||||||||||||||
Germany cards | 1,355 | 2.5 | 1.1 | 3.8 | 3.4 | 82.8 | ||||||||||||||||||
Personal & Corporate Banking | ||||||||||||||||||||||||
UK personal loans | 4,953 | 2.0 | 0.9 | 3.4 | 10.0 | 76.3 | ||||||||||||||||||
Africa Banking | ||||||||||||||||||||||||
South Africa cards | 2,364 | 8.1 | 4.6 | 7.6 | 5.9 | 75.7 |
Credit cards, unsecured loans and other retail lending principal portfolios | ||||||||||||||||||||||||
| Gross loans and advances £m |
a
| | 30 day arrears, excluding recovery book % |
| | 90 day arrears, excluding recovery book % |
| | Annualised gross charge-off rate % |
| | Recovery book proportion of outstanding balances % |
| | Recovery book impairment coverage ratio % |
| |||||||
As at 31 December 2017 | ||||||||||||||||||||||||
Barclays UK | ||||||||||||||||||||||||
UK cardsb | 17,686 | 1.8 | 0.8 | 5.0 | 3.4 | 80.5 | ||||||||||||||||||
UK personal loans | 6,255 | 2.5 | 1.2 | 3.3 | 4.7 | 77.2 | ||||||||||||||||||
Barclays International | ||||||||||||||||||||||||
US cardsb | 21,350 | 2.6 | 1.3 | 5.0 | 2.8 | 82.9 | ||||||||||||||||||
Barclays Partner Finance | 3,814 | 1.3 | 0.5 | 2.6 | 2.4 | 78.1 | ||||||||||||||||||
Germany cards | 1,976 | 2.5 | 1.0 | 3.8 | 2.7 | 78.0 | ||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||
Barclays UK | ||||||||||||||||||||||||
UK cardsb | 17,833 | 1.9 | 0.9 | 5.5 | 3.0 | 83.8 | ||||||||||||||||||
UK personal loans | 6,076 | 2.1 | 0.9 | 3.1 | 4.7 | 77.2 | ||||||||||||||||||
Barclays International | ||||||||||||||||||||||||
US cardsb | 23,915 | 2.6 | 1.3 | 4.5 | 2.4 | 83.6 | ||||||||||||||||||
Barclays Partner Finance | 4,041 | 1.5 | 0.6 | 2.5 | 2.6 | 81.5 | ||||||||||||||||||
Germany cards | 1,812 | 2.6 | 1.0 | 3.7 | 2.7 | 79.0 |
UK cards: In 2015, both early and late stage arrears remained stable within UK cards. The increase in charge-off rate and the reduction in recoveries as a proportion of outstanding was due to the acceleration of delinquent accounts to charge-off prior to debt sale. The decrease in recovery coverage ratio was driven by enhancements to impairment methodology, which took into account the improvement in recoveries and the impact of debt sales.
US cards: Gross loans and advances increased 19% to £16.7bn (2014: £14bn) principally driven by increased new business volumes. Arrears and charge-off rates remained broadly in line with 2014. The decrease in recoveries impairment coverage ratio was due to enhancements to impairment methodology and improvements in recovery expectation.
UK personal loans: Arrears and charge-off rates fell despite a 11% growth in gross loans and advances and reflected the benign economic conditions in the UK.
Barclays Partner Finance: Gross loans and advances increased 17% to £4.0bn (2014: £3.4bn). Portfolio arrears and charge-off rates remained broadly steady in 2015. The recoveries impairment coverage ratio increased following a management adjustment for the secured motor segment (portfolio started in 2012), which took into account changes to expected recoveries performance as the portfolio matured.
Germany cards: The decrease in recoveries proportion of outstanding balances was due to write off of legacy accounts previously held in recoveries until system migration activities were concluded.
South Africa cards: The increased arrears reflected bookings growth in 2015 in line with business strategy and weaker economic conditions. The gross charge-off rate and the recoveries proportion of outstanding balances percentage increased during 2015 due to additional charge-off in the Edcon portfolio as it was aligned with the Group’s charge-off policy.
NoteNotes
a | Gross loans and advances includes loans and advances to customers and banks. Risk metrics based on exposures to customers. |
b | For UK and US cards, outstanding |
UK cards: The annualised gross charge-off rate, which was higher in 2016 due to accelerated asset sales, normalised in 2017 to 5.0% (2016: 5.5%) in line with expectations. The recovery book proportion of outstanding balances increased, reflecting accelerated charge-off of non-compliant forbearance plans. However, the recovery book impairment coverage ratio decreased, reflecting the one time asset sale impact of accounts with lower recovery expectations.
UK personal loans: The 30 day arrears rate increased to 2.5% (2016: 2.1%) and the 90 day arrears rate increased to 1.2% (2016: 0.9%) reflecting increased flow into delinquency from some 2016 bookings due to higher incidences of fraud and poorer performance on customers with multiple loans, coupled with a weaker performance in collections operations. Both the recovery book proportion of outstanding balances of 4.7% (2016: 4.7%) and the recovery book impairment coverage ratio of 77.2% (2016: 77.2%) remained stable.
US cards: The annualised gross charge-off rate increased to 5.0% (2016: 4.5%) broadly in line with trends across the industry and also reflecting a one-off asset sale contributing to a drop in outstanding balances. As a result, recovery book proportion of outstanding balances increased to 2.8% (2016: 2.4%).
Barclays Partner Finance: Portfolio arrears and the annualised gross charge-off rate remained broadly stable during 2017.
Germany cards: 90 day arrears and the annualised gross charge-off rate remained stable, while the recovery book coverage ratio improved reflecting better recoveries. In addition, Germany consumer loans increased to £1.4bn (2016: £1.2bn).
Barclays PLC and Barclays Bank PLC |
Exposure to UK Commercial Real Estate (CRE)
The UK CRE portfolio includes property investment, development, trading, and house builders but excludes social housing and contractors.
UK CRE summary | ||||||||
2015 | 2014 | |||||||
As at 31 December | ||||||||
UK CRE loans and advances (£m) | 11,617 | 11,681 | ||||||
Past due balances (£m) | 183 | 393 | ||||||
Balances past due as % of UK CRE balances (%) | 1.6 | 3.4 | ||||||
Impairment allowances (£m) | 99 | 100 | ||||||
Past due coverage ratio (%) | 54.1 | 25.7 | ||||||
Total collateral (£m)a | 27,062 | 25,205 | ||||||
Twelve months ended 31 December | ||||||||
Impairment charge (£m) | 4 | 23 |
Maturity analysis of exposure to UK CRE | ||||||||||||||||||||||||||||||||
Contractual maturity of UK CRE loans and advances at amortised cost | ||||||||||||||||||||||||||||||||
As at 31 December | | Past due balances £m | | | Not more than six months £m | | | Over six months but not more than one year £m | | | Over one year but not more than two years £m | | | Over two years but not more than five years £m | | | Over five years but not more than ten years £m | | | Over ten years £m | | | Total loans & advances £m | | ||||||||
2015 | 183 | 801 | 751 | 941 | 5,779 | 1,076 | 2,087 | 11,617 | ||||||||||||||||||||||||
2014 | 393 | 838 | 839 | 1,287 | 4,161 | 1,939 | 2,224 | 11,681 |
Total loans and advances at amortised cost remained broadly stable at £11.6bn (2014: £11.7bn) with growth limited to high quality assets. The total collateral increased by 7% to £27.1bn.
The UK CRE businesses operate to specific lending criteria and the portfolio of assets is continually monitored through a range of mandates and limits. The improvement in the past due coverage ratio in 2015 was driven by the sale of three unimpaired real estate loans.
UK CRE LTV analysis | ||||||||||||||||||||||||
Balances | | Balances as proportion of total | | Collateral held | ||||||||||||||||||||
As at 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2015 % |
|
| 2014 % |
|
| 2015 £m |
|
| 2014 £m |
| ||||||
Group | ||||||||||||||||||||||||
<=100% | 9,045 | 9,011 | 78 | 78 | 26,927 | 25,036 | ||||||||||||||||||
>100% and <=125% | 119 | 149 | 1 | 1 | 106 | 138 | ||||||||||||||||||
>125% | 47 | 167 | – | 1 | 29 | 31 | ||||||||||||||||||
Unassessed balancesb | 1,636 | 1,748 | 14 | 15 | – | – | ||||||||||||||||||
Unsecured balances | 770 | 606 | 7 | 5 | – | – | ||||||||||||||||||
Total | 11,617 | 11,681 | 100 | 100 | 27,062 | 25,205 |
Portfolio LTVs have reduced due to appreciating commercial property values. Unsecured balances primarily relate to working capital facilities granted to CRE companies.
Notes
Risk review
Risk performance
Credit risk
Investment Bank
Analysis of loans and advances at amortised cost | ||||||||||||||||||||||||||||
| Gross L&A £m | | | Impairment allowance £m | | | L&A net of impairment £m | |
| Credit risk loans £m |
|
| CRLs % of gross L&A % |
| | Loan impairment charges £m | |
| Loan loss rates bps |
| ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||||||
Interbank lending | 10,174 | – | 10,174 | – | – | – | – | |||||||||||||||||||||
Cash collateral and settlement balances | 7,259 | – | 7,259 | – | – | – | – | |||||||||||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||
Wholesale lending | 31,451 | 83 | 31,368 | 241 | 0.8 | 47 | 15 | |||||||||||||||||||||
Cash collateral and settlement balances | 43,437 | – | 43,437 | – | – | – | – | |||||||||||||||||||||
Total | 92,321 | 83 | 92,238 | 241 | 0.3 | 47 | 5 | |||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||||||
Interbank lending | 10,275 | – | 10,275 | – | – | (3) | (3) | |||||||||||||||||||||
Cash collateral and settlement balances | 9,626 | – | 9,626 | – | – | – | – | |||||||||||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||
Wholesale lending | 28,436 | 44 | 28,392 | 71 | 0.2 | (11) | (4) | |||||||||||||||||||||
Cash collateral and settlement balances | 58,040 | – | 58,040 | – | – | – | – | |||||||||||||||||||||
Total | 106,377 | 44 | 106,333 | 71 | 0.1 | (14) | (1) |
Non-Core Wholesale
The table below details Non-Core loans and advances which form part of the Wholesale risk portfolio.
Analysis of loans and advances at amortised cost | ||||||||||||||||||||||||||||
| Gross L&A £m | | | Impairment allowance £m | | | L&A net of impairment £m | |
| Credit risk loans £m |
|
| CRLs % of gross L&A % |
| | Loan impairment charges £m | |
| Loan loss rates bps |
| ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||||||
Interbank lending | 258 | – | 258 | – | – | (7) | (271) | |||||||||||||||||||||
Cash collateral and settlement balances | 10,131 | – | 10,131 | – | – | – | – | |||||||||||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||
Wholesale lending | 5,277 | 233 | 5,044 | 345 | 6.5 | (13) | (25) | |||||||||||||||||||||
Cash collateral and settlement balances | 19,188 | – | 19,188 | – | – | – | – | |||||||||||||||||||||
Total | 34,854 | 233 | 34,621 | 345 | 1.0 | (20) | (6) | |||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||||||
Interbank lending | 373 | – | 373 | – | – | – | – | |||||||||||||||||||||
Cash collateral and settlement balances | 11,622 | – | 11,622 | – | – | – | – | |||||||||||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||||||
Wholesale lending | 8,978 | 602 | 8,376 | 841 | 9.4 | 53 | 59 | |||||||||||||||||||||
Cash collateral and settlement balances | 23,726 | – | 23,726 | – | – | – | – | |||||||||||||||||||||
Total | 44,699 | 602 | 44,097 | 841 | 1.9 | 53 | 12 |
Wholesale lending decreased £3.7bn to £5.3bn driven by the reclassification of Portuguese loans now held for sale and rundown of legacy loan portfolios. Wholesale loans predominantly relate to capital equipment loans, legacy Collateralised Loan Obligations (CLO) and legacy Collateralised Debt Obligations (CDO).
Loan impairment charges improved £73m to a release of £20m reflecting higher recoveries in Europe and the sale of the Spanish business.
CRLs decreased to £345m (2014: £841m) as a result of the reclassification of Portuguese loans now held for sale and continued rundown of the Non-Core Investment Bank portfolio.
Wholesale loans and advances at amortised cost | ||||||||||||||||||||||||||||
Analysis of wholesale loans and advances at amortised cost | ||||||||||||||||||||||||||||
Gross £m | Impairment allowance £m | L&A net of impairment £m | Credit risk £m | CRLs % of gross L&A % | Loan impairment charges £m | Loan loss bps | ||||||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||||||
Banks | 27,520 | – | 27,520 | – | – | – | – | |||||||||||||||||||||
Other financial institutions | 73,849 | 20 | 73,829 | 108 | 0.1 | 2 | – | |||||||||||||||||||||
Manufacturing | 9,193 | 64 | 9,129 | 162 | 1.8 | (46 | ) | (50 | ) | |||||||||||||||||||
Construction | 3,180 | 34 | 3,146 | 21 | 0.7 | (6 | ) | (19 | ) | |||||||||||||||||||
Property | 20,353 | 61 | 20,292 | 256 | 1.3 | (27 | ) | (13 | ) | |||||||||||||||||||
Government and central bank | 16,403 | 1 | 16,402 | 35 | 0.2 | – | – | |||||||||||||||||||||
Energy and water | 6,214 | 124 | 6,090 | 235 | 3.8 | (21 | ) | (34 | ) | |||||||||||||||||||
Wholesale and retail distribution and leisure | 12,497 | 217 | 12,280 | 253 | 2.0 | 53 | 42 | |||||||||||||||||||||
Business and other services | 20,147 | 505 | 19,642 | 361 | 1.8 | 264 | 131 | |||||||||||||||||||||
Home loansa | 5,598 | 48 | 5,550 | 268 | 4.8 | 11 | 20 | |||||||||||||||||||||
Cards, unsecured loans and other personal lendinga | 4,452 | 33 | 4,419 | 272 | 6.1 | (4 | ) | (9 | ) | |||||||||||||||||||
Other | 6,956 | 58 | 6,898 | 88 | 1.3 | 12 | 17 | |||||||||||||||||||||
Total wholesale loans and advances at amortised cost | 206,362 | 1,165 | 205,197 | 2,059 | 1.0 | 238 | 12 | |||||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||||||
Banks | 35,979 | – | 35,979 | – | – | – | – | |||||||||||||||||||||
Other financial institutions | 91,673 | 14 | 91,659 | 89 | 0.1 | 6 | 1 | |||||||||||||||||||||
Manufacturing | 12,373 | 130 | 12,243 | 226 | 1.8 | 37 | 30 | |||||||||||||||||||||
Construction | 3,418 | 40 | 3,378 | 58 | 1.7 | 5 | 15 | |||||||||||||||||||||
Property | 20,541 | 137 | 20,404 | 464 | 2.3 | 27 | 13 | |||||||||||||||||||||
Government and central bank | 15,847 | – | 15,847 | – | – | – | – | |||||||||||||||||||||
Energy and water | 7,569 | 181 | 7,388 | 348 | 4.6 | 102 | 135 | |||||||||||||||||||||
Wholesale and retail distribution and leisure | 12,995 | 169 | 12,826 | 258 | 2.0 | 38 | 29 | |||||||||||||||||||||
Business and other services | 21,210 | 284 | 20,926 | 331 | 1.6 | 54 | 25 | |||||||||||||||||||||
Home loansa | 5,497 | 48 | 5,449 | 190 | 3.5 | 9 | 16 | |||||||||||||||||||||
Cards, unsecured loans and other personal lendinga | 5,329 | 129 | 5,200 | 207 | 3.9 | 6 | 11 | |||||||||||||||||||||
Other | 8,691 | 92 | 8,599 | 189 | 2.2 | 15 | 17 | |||||||||||||||||||||
Total wholesale loans and advances at amortised cost | 241,122 | 1,224 | 239,898 | 2,360 | 1.0 | 299 | 12 |
Wholesale Personal and Corporate Banking
The table below details Personal and Corporate Banking loans and advances which form part of the Wholesale risk portfolio.
Analysis of loans and advances at amortised cost | ||||||||||||||||||||||||||||
| Gross L&A £m | | | Impairment allowance £m | | | L&A net of impairment £m | |
| Credit risk loans £m |
|
| CRLs % of gross L&A % |
| | Loan impairment charges £m | |
| Loan loss rates bps |
| ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Banks | 3,593 | – | 3,593 | – | – | – | – | |||||||||||||||||||||
Other financial institutions | 6,321 | 16 | 6,305 | 46 | 0.7 | 2 | 3 | |||||||||||||||||||||
Manufacturing | 6,762 | 37 | 6,725 | 51 | 0.8 | 2 | 3 | |||||||||||||||||||||
Construction | 3,267 | 38 | 3,229 | 47 | 1.4 | 1 | 3 | |||||||||||||||||||||
Property | 15,309 | 166 | 15,143 | 645 | 4.2 | 2 | 1 | |||||||||||||||||||||
Government and central bank | 1,304 | – | 1,304 | – | – | – | – | |||||||||||||||||||||
Energy and water | 2,216 | 79 | 2,137 | 103 | 4.6 | 82 | 370 | |||||||||||||||||||||
Wholesale and retail distribution and leisure | 11,333 | 165 | 11,168 | 261 | 2.3 | (8 | ) | (7 | ) | |||||||||||||||||||
Business and other services | 16,536 | 223 | 16,313 | 271 | 1.6 | 54 | 33 | |||||||||||||||||||||
Home loansa | 5,730 | 20 | 5,710 | 142 | 2.5 | – | – | |||||||||||||||||||||
Cards, unsecured loans and other personal lendinga | 8,714 | 1 | 8,713 | 14 | 0.2 | 4 | 5 | |||||||||||||||||||||
Other | 6,770 | 169 | 6,601 | 214 | 3.2 | 43 | 64 | |||||||||||||||||||||
Total | 87,855 | 914 | 86,941 | 1,794 | 2.0 | 182 | 21 | |||||||||||||||||||||
As at 31 December 2014b | ||||||||||||||||||||||||||||
Banks | 5,507 | – | 5,507 | – | – | 1 | 2 | |||||||||||||||||||||
Other financial institutions | 5,357 | 13 | 5,344 | 85 | 1.6 | 26 | 49 | |||||||||||||||||||||
Manufacturing | 7,174 | 47 | 7,127 | 106 | 1.5 | – | – | |||||||||||||||||||||
Construction | 3,094 | 40 | 3,054 | 58 | 1.9 | 7 | 21 | |||||||||||||||||||||
Property | 15,480 | 194 | 15,286 | 833 | 5.4 | 36 | 23 | |||||||||||||||||||||
Government and central bank | 1,187 | – | 1,187 | – | – | – | – | |||||||||||||||||||||
Energy and water | 1,950 | 2 | 1,948 | 2 | 0.1 | 3 | 16 | |||||||||||||||||||||
Wholesale and retail distribution and leisure | 10,928 | 175 | 10,753 | 342 | 3.1 | 56 | 52 | |||||||||||||||||||||
Business and other services | 14,160 | 177 | 13,983 | 344 | 2.4 | 54 | 38 | |||||||||||||||||||||
Home loansa | 6,864 | 36 | 6,828 | 96 | 1.4 | 34 | 50 | |||||||||||||||||||||
Cards, unsecured loans and other personal lending | 9,628 | 60 | 9,568 | 16 | 0.2 | 22 | 23 | |||||||||||||||||||||
Other | 6,863 | 129 | 6,734 | 229 | 3.3 | 28 | 40 | |||||||||||||||||||||
Total | 88,192 | 873 | 87,319 | 2,111 | 2.4 | 267 | 30 |
Wholesale PCB loans and advances and CRLs remained broadly stable at £87.9bn (2014: £88.2bn) and £1.8bn (2014: £2.1bn) respectively.
Loan impairment charges improved 32% to £182m due to the benign economic environment in the UK. This led to a decrease in the loan loss rate to 21bps (2014: 30bps).
Analysis of Wholesale balances on watch list
Wholesale accounts that are deemed to contain heightened levels of risk are recorded on a graded watch list comprising four categories graded in line with the perceived severity of the risk attached to the lending, and its probability of default:
NotesNote
a | Included in the above analysis are Wealth and |
Wholesale loans and advances decreased £34.8bn to £206.4bn (2016: £241.1bn), including a net £12.7bn decrease in settlement and cash collateral balances and a £22.1bn decrease in other lending, mainly in the Corporate and Investment Bank.
CRLs decreased £0.3bn to £2.1bn (2016: £2.4bn), primarily in the property and energy sectors, with fewer large name exposures arising this year compared to 2016.
Loan impairment charges decreased to £238m (2016: £299m), reflecting the trend in CRLs. The loan loss rate remained stable at 12bps (2016: 12bps).
Analysis of problem loans
Loans that are past due or assessed as impaired within this section are reflected in the balance sheet credit quality tables on page 101 as being Higher risk.
Age analysis of loans and advances that are past due but not impaired
The following table presents an age analysis of gross loans and advances that are past due but not impaired. Loans that are past due but not impaired consist predominantly of wholesale loans that are past due but individually assessed as not being impaired. These loans although individually assessed as unimpaired may carry an unidentified impairment provision.
Loans and advances past due but not impaired (audited) | ||||||||||||||||||||||||
Past due £m | Past due 1-2 months £m | Past due 2-3 months £m | Past due months | Past due 6 months and over | Total £m | |||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||
Loans and advances designated at fair value | 653 | – | 20 | – | 10 | 683 | ||||||||||||||||||
Home loans | 3 | 1 | – | – | 22 | 26 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | – | – | 12 | 31 | 66 | 109 | ||||||||||||||||||
Corporate loans | 6,272 | 277 | 129 | 85 | 98 | 6,861 | ||||||||||||||||||
Total | 6,928 | 278 | 161 | 116 | 196 | 7,679 | ||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||
Loans and advances designated at fair value | 29 | 8 | 18 | – | 16 | 71 | ||||||||||||||||||
Home loans | 1 | – | – | 33 | 31 | 65 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | 2 | – | 2 | 11 | 77 | 92 | ||||||||||||||||||
Corporate loans | 6,962 | 1,235 | 149 | 178 | 354 | 8,878 | ||||||||||||||||||
Total | 6,994 | 1,243 | 169 | 222 | 478 | 9,106 |
Loans and advances past due but not impaired decreased by £1.4bn to £7.7bn, mainly due to fewer large corporate loans past due 1-2 months.
Analysis of loans and advances assessed as impaired
The following table presents an analysis of gross loans and advances into those collectively or individually assessed as impaired. The table includes an age analysis for loans and advances collectively assessed as impaired.
Loans that are collectively assessed as impaired consist predominantly of retail loans that are one day or more past due for which a collective allowance is raised. Wholesale loans that are past due, individually assessed as unimpaired, but which carry an unidentified impairment provision, are excluded from this category.
Loans that are individually assessed as impaired consist predominantly of wholesale loans that are past due and for which an individual allowance has been raised.
Home loans, unsecured loans and credit card receivables that are subject to forbearance in the retail portfolios are included within the collectively assessed for impairment category. Where wholesale loans under forbearance have been impaired, these form part of individually assessed impaired loans.
Loans and advances assessed as impaired (audited) | ||||||||||||||||||||||||||||||||
Past due up to 1 month £m | Past due 1-2 months £m | Past due 2-3 months £m | Past due 3-6 months £m | Past due 6 months and over £m | Total collectively assessed £m | Individually assessed for impairment £m | Total £m | |||||||||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||||||||||
Home loans | 2,622 | 465 | 200 | 304 | 477 | 4,068 | 922 | 4,990 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 989 | 344 | 245 | 511 | 1,808 | 3,897 | 302 | 4,199 | ||||||||||||||||||||||||
Corporate loans | 546 | 34 | 20 | 28 | 85 | 713 | 1,384 | 2,097 | ||||||||||||||||||||||||
Total | 4,157 | 843 | 465 | 843 | 2,370 | 8,678 | 2,608 | 11,286 | ||||||||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||||||||||
Home loans | 2,866 | 795 | 201 | 298 | 452 | 4,612 | 820 | 5,432 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 1,135 | 354 | 250 | 516 | 1,702 | 3,957 | 492 | 4,449 | ||||||||||||||||||||||||
Corporate loans | 288 | 53 | 35 | 72 | 131 | 579 | 1,580 | 2,159 | ||||||||||||||||||||||||
Total | 4,289 | 1,202 | 486 | 886 | 2,285 | 9,148 | 2,892 | 12,040 |
Loans and advances assessed as impaired decreased by £0.8bn to £11.3bn, reflecting a stable or generally improving trend in the ageing of impaired loans across the Group.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 109 |
Risk review
Risk performance
Credit risk
Potential credit risk loans (PCRLs) and coverage ratios
The Group reports potentially and actually impaired loans as PCRLs. PCRLs comprise two categories of loans: credit risk loans (CRLs) and potential problem loans (PPLs).
CRLs comprise three classes of loans:
◾ | Impaired Loans: comprises loans where an individually identified impairment allowance has been raised. This category also includes all Retail loans that have been transferred to a recovery book. See page 111 for further analysis of impaired loans. |
◾ | Accruing past due 90 days or more: comprises loans that are 90 days or more past due with respect to principal or interest. |
◾ | Restructured loans: comprises loans not included above where, for economic or legal reasons related to the debtor’s financial difficulties, a concession has been granted to the debtor that would not otherwise be considered. For information on restructured loans refer to disclosures on forbearance on pages 111 to 114. |
PPLs are loans that are currently complying with repayment terms but where serious doubt exists as to the ability of the borrower to continue to comply with such terms in the near future. If the credit quality of a wholesale loan on a watch list deteriorates to the highest category, or a Retail loan deteriorates to delinquency cycle 2 (typically when past due 60 to 90 days), consideration is given to including it within the PPL category.
Potential credit risk loans and coverage ratios by business | ||||||||||||||||||||||||
CRLs | PPLs | PCRLs | ||||||||||||||||||||||
As at 31 December | 2017 £m | 2016 £m | 2017 £m | 2016 £m | 2017 £m | 2016 £m | ||||||||||||||||||
Barclays UK | 1,950 | 2,044 | 266 | 310 | 2,216 | 2,354 | ||||||||||||||||||
Barclays International | 1,275 | 1,249 | 198 | 192 | 1,473 | 1,441 | ||||||||||||||||||
Head Office | 710 | – | 9 | – | 719 | – | ||||||||||||||||||
Barclays Non-Core | – | 838 | – | 11 | – | 849 | ||||||||||||||||||
Total retail | 3,935 | 4,131 | 473 | 513 | 4,408 | 4,644 | ||||||||||||||||||
Barclays UK | 432 | 591 | 168 | 94 | 600 | 685 | ||||||||||||||||||
Barclays International | 1,421 | 1,470 | 763 | 1,530 | 2,184 | 3,000 | ||||||||||||||||||
Head Office | 206 | – | 22 | – | 228 | – | ||||||||||||||||||
Barclays Non-Core | – | 299 | – | 59 | – | 358 | ||||||||||||||||||
Total wholesale | 2,059 | 2,360 | 953 | 1,683 | 3,012 | 4,043 | ||||||||||||||||||
Group total | 5,994 | 6,491 | 1,426 | 2,196 | 7,420 | 8,687 | ||||||||||||||||||
Impairment allowance | CRL coverage | PCRL coverage | ||||||||||||||||||||||
As at 31 December | 2017 £m | 2016 £m | 2017 % | 2016 % | 2017 % | 2016 % | ||||||||||||||||||
Barclays UK | 1,649 | 1,519 | 84.6 | 74.3 | 74.4 | 64.5 | ||||||||||||||||||
Barclays International | 1,542 | 1,492 | 120.9 | 119.5 | 104.7 | 103.5 | ||||||||||||||||||
Head Office | 296 | – | 41.7 | – | 41.2 | – | ||||||||||||||||||
Barclays Non-Core | – | 385 | – | 45.9 | – | 45.3 | ||||||||||||||||||
Total retail | 3,487 | 3,396 | 88.6 | 82.2 | 79.1 | 73.1 | ||||||||||||||||||
Barclays UK | 190 | 282 | 44.0 | 47.7 | 31.7 | 41.2 | ||||||||||||||||||
Barclays International | 862 | 748 | 60.7 | 50.9 | 39.5 | 24.9 | ||||||||||||||||||
Head Office | 113 | – | 54.9 | – | 49.6 | – | ||||||||||||||||||
Barclays Non-Core | – | 194 | – | 64.9 | – | 54.2 | ||||||||||||||||||
Total wholesale | 1,165 | 1,224 | 56.6 | 51.9 | 38.7 | 30.3 | ||||||||||||||||||
Group total | 4,652 | 4,620 | 77.6 | 71.2 | 62.7 | 53.2 |
CRLs decreased to £6.0bn (2016: £6.5bn) with the Group’s CRL coverage ratio increasing to 77.6% (2016: 71.2%) mainly within retail portfolios. The CRL coverage ratio for retail portfolios increased to 88.6% (2016: 82.2%) primarily due to movements in Barclays UK.
PPLs decreased to £1.4bn (2016: £2.2bn) primarily within Barclays International. The decrease was driven by Corporate and Investment Bank where the volume of PPL cases has decreased significantly.
110 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Watch list rating of wholesale balancesa | ||||||||||||||||||||||||||||||||||||||||
Watch list 1 | Watch list 2 | Watch list 3 | Watch list 4 | Total | ||||||||||||||||||||||||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | ||||||||||
Energy and Water | 1,247 | 160 | 314 | 1,011 | 447 | 480 | 285 | 49 | 2,293 | 1,700 | ||||||||||||||||||||||||||||||
Manufacturing | 928 | 483 | 539 | 347 | 138 | 162 | 267 | 395 | 1,872 | 1,387 | ||||||||||||||||||||||||||||||
Agriculture, Forestry, Fishing & Miscellaneous Activities | 425 | 277 | 496 | 517 | 544 | 324 | 275 | 445 | 1,740 | 1,563 | ||||||||||||||||||||||||||||||
Wholesale and Retail, Distribution and Leisure | 626 | 249 | 582 | 939 | 272 | 388 | 260 | 536 | 1,740 | 2,112 | ||||||||||||||||||||||||||||||
Property | 424 | 513 | 410 | 600 | 378 | 1,458 | 498 | 1,212 | 1,710 | 3,782 | ||||||||||||||||||||||||||||||
Business and Other Services | 220 | 241 | 516 | 583 | 639 | 214 | 149 | 157 | 1,524 | 1,196 | ||||||||||||||||||||||||||||||
Transport | 86 | 98 | 121 | 148 | 208 | 285 | 98 | 111 | 513 | 641 | ||||||||||||||||||||||||||||||
Construction | 65 | 47 | 175 | 131 | 108 | 136 | 84 | 147 | 432 | 461 | ||||||||||||||||||||||||||||||
Financial Institutions/Services | (59 | ) | 29 | 69 | 391 | 62 | 345 | 302 | 325 | 374 | 1,090 | |||||||||||||||||||||||||||||
Other | 53 | 75 | 69 | 91 | 119 | 72 | 88 | 29 | 329 | 268 | ||||||||||||||||||||||||||||||
Total | 4,015 | 2,172 | 3,291 | 4,758 | 2,915 | 3,865 | 2,306 | 3,405 | 12,527 | 14,200 | ||||||||||||||||||||||||||||||
As a percentage of total balances | 32% | 15% | 26% | 34% | 23% | 27% | 19% | 24% | 100% | 100% |
Total watch list
Impaired loans
The following table represents an analysis of impaired loans in line with the disclosure recommended by the Enhanced Disclosure Taskforce. Impaired loans are a subcomponent of CRLs and comprise loans where an individually identified impairment allowance has been raised. This category also includes all retail loans that have been transferred to a recovery book. For the majority of products, transfer to a recovery unit occurs for loans that are past due over 6 months unless a forbearance agreement is agreed. Earlier transfer points may occur depending on specific circumstances. Impaired loans may include loans that are still performing, fully collateralised loans or where indebtedness has already been written down to the expected realisable value.
Movement in impaired loans | ||||||||||||||||||||||||||||||||
At beginning £m | Classified £m | Transferred £m | Repayments £m | Amounts written off £m | Acquisitions and disposals £m | Exchange and other adjustments £m | Balance at | |||||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||||||
Home loans | 1,140 | 247 | (203 | ) | (149 | ) | (26 | ) | – | 16 | 1,025 | |||||||||||||||||||||
Credit cards, unsecured and other retail lending | 1,704 | 1,878 | (66 | ) | (214 | ) | (1,467 | ) | – | 27 | 1,862 | |||||||||||||||||||||
Corporate loans | 1,770 | 1,065 | (271 | ) | (664 | ) | (202 | ) | – | (181 | ) | 1,517 | ||||||||||||||||||||
Total impaired loans | 4,614 | 3,190 | (540 | ) | (1,027 | ) | (1,695 | ) | – | (138 | ) | 4,404 | ||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||
Home loans | 1,337 | 308 | (150 | ) | (171 | ) | (19 | ) | – | (165 | ) | 1,140 | ||||||||||||||||||||
Credit cards, unsecured and other retail lending | 2,200 | 1,761 | (17 | ) | (136 | ) | (1,605 | ) | (92 | ) | (407 | ) | 1,704 | |||||||||||||||||||
Corporate loans | 2,098 | 984 | (427 | ) | (220 | ) | (331 | ) | (15 | ) | (319 | ) | 1,770 | |||||||||||||||||||
Total impaired loans | 5,635 | 3,053 | (594 | ) | (527 | ) | (1,955 | ) | (107 | ) | (891 | ) | 4,614 |
Forbearance
Forbearance measures consist of concessions towards a debtor that is experiencing or about to experience difficulties in meeting their financial commitments (“financial difficulties”).
Analysis of forbearance programmes | ||||||||||||||||||||||||
Balances | Impairment allowance | Impairment coverage | ||||||||||||||||||||||
As at 31 December | 2017 £m | 2016 £m | 2017 £m | 2016 £m | 2017 % | 2016 % | ||||||||||||||||||
Barclays UK | 847 | 926 | 226 | 237 | 26.7 | 25.6 | ||||||||||||||||||
Barclays International | 210 | 243 | 86 | 57 | 41.0 | 23.5 | ||||||||||||||||||
Head Office | 186 | – | 11 | – | 5.9 | – | ||||||||||||||||||
Barclays Non-Core | – | 211 | – | 9 | – | 4.3 | ||||||||||||||||||
Total retail | 1,243 | 1,380 | 323 | 303 | 26.0 | 22.0 | ||||||||||||||||||
Barclays UKa | 606 | 589 | 31 | 62 | 5.1 | 10.5 | ||||||||||||||||||
Barclays Internationala | 2,347 | 2,044 | 519 | 257 | 22.1 | 12.6 | ||||||||||||||||||
Barclays Non-Core | – | 269 | – | 50 | – | 18.5 | ||||||||||||||||||
Total wholesale | 2,953 | 2,902 | 550 | 369 | 18.6 | 12.7 | ||||||||||||||||||
Group totalb | 4,196 | 4,282 | 873 | 672 | 20.8 | 15.7 |
Notes
a In 2017, ESHLA balances fell by 12%were reclassified from Barclays International to £12.5bn principallyBarclays UK reflecting the salemanagement of the corporate businessportfolio.
b Barclays Non-Core retail balances of £186m were reclassified into Head Office and £158m wholesale balances were reclassified into Barclays International.
Balances on forbearance programmes decreased 2% driven by better portfolio performance.
Retail balances on forbearance reduced 10% to £1.2bn, reflecting an overall decrease in Spain.both Barclays UK and Barclays International portfolios.
Total watch list
◾ | Barclays UK: Reduction was driven by UK cards portfolio, where balances on forbearance plans were lower due to an asset sale and application of tighter entry criteria. For the UK home loans portfolio the reduction was due to stable economic conditions and reduced forbearance entries. |
◾ | Barclays International:US cards forbearance balances decreased due to an asset sale of high risk accounts. The increase in impairment allowance was driven by updated modelling methodology. |
Wholesale balances on forbearance remained broadly stable at £3.0bn (2016: £2.9bn). Across the principal portfolios, the flow of new cases into forbearance during 2017 was offset by a range of repayments and credit improvements where clients returned to energythe performing book and water increased by 35%a modest level of write offs.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 111 |
Risk review
Risk performance
Credit risk
Retail forbearance programmes
Forbearance on the Group’s principal retail portfolios in the US and UK is presented below. The principal portfolios account for 71% (2016: 73%) of total retail forbearance balances.
Analysis of key portfolios in forbearance programmes | ||||||||||||||||||||||||||||||||||||
Balances on forbearance programmes | Marked to market LTV of forbearance balances: balance weighted % | Marked to market LTV of forbearance balances: valuation weighted % | Impairment allowances marked against balances on forbearance programmes £m | Total balances on forbearance programmes coverage ratio % | ||||||||||||||||||||||||||||||||
Of which: | ||||||||||||||||||||||||||||||||||||
Total £m | % of gross retail loans and advances % | Past due of which: | ||||||||||||||||||||||||||||||||||
Up-to-date £m | 1-90 days past due £m | 91 or more days past due £m | ||||||||||||||||||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||||||||||||||
Barclays UK | ||||||||||||||||||||||||||||||||||||
UK home loans | 355 | 0.3 | 237 | 79 | 39 | 43.2 | 31.0 | 4 | 1.1 | |||||||||||||||||||||||||||
UK cards | 302 | 1.7 | 153 | 98 | 51 | n/a | n/a | 179 | 59.3 | |||||||||||||||||||||||||||
UK personal loans | 77 | 1.2 | 48 | 21 | 8 | n/a | n/a | 30 | 39.0 | |||||||||||||||||||||||||||
Barclays International | ||||||||||||||||||||||||||||||||||||
US cards | 148 | 0.7 | 107 | 30 | 11 | n/a | n/a | 58 | 39.2 | |||||||||||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||||||||||||||
Barclays UK | ||||||||||||||||||||||||||||||||||||
UK home loans | 390 | 0.3 | 188 | 149 | 53 | 44.7 | 31.3 | 3 | 0.8 | |||||||||||||||||||||||||||
UK cards | 337 | 1.9 | 255 | 59 | 23 | n/a | n/a | 185 | 54.9 | |||||||||||||||||||||||||||
UK personal loans | 94 | 1.5 | 58 | 26 | 10 | n/a | n/a | 38 | 40.4 | |||||||||||||||||||||||||||
Barclays International | ||||||||||||||||||||||||||||||||||||
US cards | 186 | 0.8 | 139 | 35 | 12 | n/a | n/a | 38 | 20.4 |
◾ | UK home loans:Improvement driven by stable economic conditions and a reduction in forbearance entries. |
◾ | UK cards:Balances on forbearance plans reduced due to an asset sale and tighter entry criteria. The forbearance impairment coverage ratio increased due to the inclusion of additional forbearance populations in 2017 which carry higher impairment provision rates. |
◾ | UK personal loans:Impairment allowance held against forbearance stock decreased in line with the overall forbearance balance and the coverage ratio remained relatively stable. |
◾ | US cards:Balances were lower due to asset sale of high risk accounts while impairment allowance increased due to a change in methodology. |
Forbearance by type | ||||||||||||||||||||||||||||||||||
Barclays UK | Barclays International | |||||||||||||||||||||||||||||||||
UK home loans | UK cards | UK personal loans | US cards | |||||||||||||||||||||||||||||||
As at 31 December | 2017 £m | 2016 £m | 2017 £m | 2016 £m | 2017 £m | 2016 £m | 2017 £m | 2016 £m | ||||||||||||||||||||||||||
Payment concession | 94 | 96 | 84 | 45 | – | – | – | – | ||||||||||||||||||||||||||
Interest only conversion | 75 | 84 | – | – | – | – | – | – | ||||||||||||||||||||||||||
Term extension | 184 | 210 | – | – | 8 | 16 | – | – | ||||||||||||||||||||||||||
Fully amortising | – | – | – | – | 54 | 65 | 135 | 97 | ||||||||||||||||||||||||||
Repayment plana | – | – | 96 | 218 | 15 | 13 | 13 | 89 | ||||||||||||||||||||||||||
Interest rate concession | 2 | – | 122 | 74 | – | – | – | – | ||||||||||||||||||||||||||
Total | 355 | 390 | 302 | 337 | 77 | 94 | 148 | 186 |
Note
a Repayment plan represents a reduction to £2,293m (2014: £1,700m),the minimum payment due requirements and interest rate.
◾ | UK cards: The reduction in the Repayment Plan book was driven by aone-time acceleratedcharge-off of legacy accounts in addition to reduced inflow as a result of tighter entry criteria. This reduction was partially offset by the inclusion of new segments following a review of the forbearance population to better align with policy. |
112 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Wholesale forbearance programmes
The tables below detail balance information for wholesale forbearance cases.
Analysis of wholesale balances in forbearance programmesa | ||||||||||||||||||||||||||||||||
Balances on forbearance programmes | Impairment allowances marked against balances on forbearance programmes | |||||||||||||||||||||||||||||||
Of which: | Total balances on forbearance programmes coverage ratio | |||||||||||||||||||||||||||||||
Performing balances | Impaired up-to-date balances | |||||||||||||||||||||||||||||||
% of gross wholesale loans and advances | Balances between 1 and 90 days past due | Balances 91 days or more past due | ||||||||||||||||||||||||||||||
Total balances | ||||||||||||||||||||||||||||||||
£m | % | £m | £m | £m | £m | £m | % | |||||||||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||||||||||
Barclays UK | 606 | 2.1 | 378 | 8 | 89 | 131 | 31 | 5.1 | ||||||||||||||||||||||||
Barclays International | 2,347 | 1.4 | 1,587 | 300 | 57 | 403 | 519 | 22.1 | ||||||||||||||||||||||||
Total | 2,953 | 1.4 | 1,965 | 308 | 146 | 534 | 550 | 18.6 | ||||||||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||||||||||
Barclays UK | 589 | 3.9 | 187 | 93 | 78 | 231 | 62 | 10.5 | ||||||||||||||||||||||||
Barclays International | 2,044 | 1.1 | 1,285 | 567 | 33 | 159 | 257 | 12.6 | ||||||||||||||||||||||||
BarclaysNon-Core | 269 | 0.6 | 57 | 44 | 25 | 143 | 50 | 18.6 | ||||||||||||||||||||||||
Total | 2,902 | 1.2 | 1,529 | 704 | 136 | 533 | 369 | 12.7 |
Note
a In 2017, certain ESHLA balances were reclassified from Barclays International to Barclays UK reflecting the increased stressmanagement of the portfolio.
Wholesale forbearance reporting split by exposure class | ||||||||||||||||
Personal and | ||||||||||||||||
Corporate | trusts | Other | Total | |||||||||||||
£m | £m | £m | £m | |||||||||||||
As at 31 December 2017 | ||||||||||||||||
Restructure: reduced contractual cash flows | 5 | – | – | 5 | ||||||||||||
Restructure: maturity date extension | 373 | 26 | – | 399 | ||||||||||||
Restructure: changed cash flow profile (other than extension) | 297 | – | – | 297 | ||||||||||||
Restructure: payment other than cash | 16 | – | – | 16 | ||||||||||||
Change in security | 9 | – | – | 9 | ||||||||||||
Adjustments ornon-enforcement of covenants | 1,477 | 101 | 1 | 1,579 | ||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 474 | 174 | – | 648 | ||||||||||||
Total | 2,651 | 301 | 1 | 2,953 | ||||||||||||
As at 31 December 2016 | ||||||||||||||||
Restructure: reduced contractual cash flows | 32 | – | – | 32 | ||||||||||||
Restructure: maturity date extension | 411 | 107 | – | 518 | ||||||||||||
Restructure: changed cash flow profile (other than extension) | 346 | 1 | – | 347 | ||||||||||||
Restructure: payment other than cash | 10 | – | – | 10 | ||||||||||||
Change in security | 7 | – | – | 7 | ||||||||||||
Adjustments ornon-enforcement of covenants | 1,242 | 155 | – | 1,397 | ||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 438 | 153 | – | 591 | ||||||||||||
Total | 2,486 | 416 | – | 2,902 | ||||||||||||
Wholesale forbearance reporting split by business unit | ||||||||||||||||
Barclays | Barclays | |||||||||||||||
Barclays UK | International | Non-Core | Total | |||||||||||||
£m | £m | £m | £m | |||||||||||||
As at 31 December 2017 | ||||||||||||||||
Restructure: reduced contractual cash flows | 3 | 2 | – | 5 | ||||||||||||
Restructure: maturity date extension | 90 | 309 | – | 399 | ||||||||||||
Restructure: changed cash flow profile (other than extension) | 199 | 98 | – | 297 | ||||||||||||
Restructure: payment other than cash | – | 16 | – | 16 | ||||||||||||
Change in security | – | 9 | – | 9 | ||||||||||||
Adjustments ornon-enforcements of covenants | 223 | 1,356 | – | 1,579 | ||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 91 | 557 | – | 648 | ||||||||||||
Total | 606 | 2,347 | – | 2,953 | ||||||||||||
As at 31 December 2016 | ||||||||||||||||
Restructure: reduced contractual cash flows | 3 | 29 | – | 32 | ||||||||||||
Restructure: maturity date extension | 114 | 316 | 88 | 518 | ||||||||||||
Restructure: changed cash flow profile (other than extension) | 180 | 164 | 3 | 347 | ||||||||||||
Restructure: payment other than cash | – | 10 | – | 10 | ||||||||||||
Change in security | 1 | 6 | – | 7 | ||||||||||||
Adjustments ornon-enforcements of covenants | 132 | 1,212 | 53 | 1,397 | ||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 159 | 307 | 125 | 591 | ||||||||||||
Total | 589 | 2,044 | 269 | 2,902 |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 113 |
Risk review
Risk performance
Credit risk
Wholesale forbearance flows in 2017 | ||||
£m | ||||
As at 1 January 2017 | 2,902 | |||
Added to forbearance | 2,157 | |||
Removed from forbearance (credit improvement) | (632 | ) | ||
Fully or partially repaid and other movements | (1,277 | ) | ||
Written off/moved to recovery book | (197 | ) | ||
As at 31 December 2017 | 2,953 |
Impairment
Impairment allowances
Impairment allowances remained stable at £4,652m (2016: £4,620m) during the year.
Movements in allowance for impairment by asset class (audited) | ||||||||||||||||||||||||||||||||
Amounts | ||||||||||||||||||||||||||||||||
Acquisitions | Exchange | charged to | ||||||||||||||||||||||||||||||
At beginning | and | Unwind of | and other | Amounts | income | Balance at | ||||||||||||||||||||||||||
of year | disposals | discount | adjustments | written off | Recoveries | statement | 31 December | |||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||||||
Home loans | 467 | – | (5 | ) | (4 | ) | (29 | ) | – | 29 | 458 | |||||||||||||||||||||
Credit cards, unsecured and other retail lending | 3,060 | – | (43 | ) | (223 | ) | (2,042 | ) | 252 | 2,051 | 3,055 | |||||||||||||||||||||
Corporate loans | 1,093 | (5 | ) | – | (13 | ) | (258 | ) | 82 | 240 | 1,139 | |||||||||||||||||||||
Total impairment allowance | 4,620 | (5 | ) | (48 | ) | (240 | ) | (2,329 | ) | 334 | 2,320 | 4,652 | ||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||
Home loans | 518 | (3 | ) | (5 | ) | (108 | ) | (23 | ) | – | 88 | 467 | ||||||||||||||||||||
Credit cards, unsecured and other retail lending | 3,394 | (2 | ) | (70 | ) | (709 | ) | (1,806 | ) | 296 | 1,957 | 3,060 | ||||||||||||||||||||
Corporate loans | 1,009 | – | – | 81 | (364 | ) | 69 | 298 | 1,093 | |||||||||||||||||||||||
Total impairment allowance | 4,921 | (5 | ) | (75 | ) | (736 | ) | (2,193 | ) | 365 | 2,343 | 4,620 |
Management adjustments to models for impairment
Management adjustments to models for impairment are applied in order to factor in certain conditions or changes in policy that are not incorporated into the relevant impairment models, or to reflect additionally known facts and circumstances at the period end. Adjustments typically increase the model derived impairment allowance. Where applicable, management adjustments are reviewed and incorporated into future model development.
Management adjustments to models of more than £10m with respect to impairment allowance in our principal portfolios are presented below.
Principal portfolios that have management adjustments greater than £10m | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Total | Total | |||||||||||||||
management | management | |||||||||||||||
adjustments | adjustments | |||||||||||||||
to | to | |||||||||||||||
impairment | Proportion | impairment | Proportion | |||||||||||||
allowances, | of total | allowances, | of total | |||||||||||||
including | impairment | including | impairment | |||||||||||||
forbearance | allowances | forbearance | allowances | |||||||||||||
As at 31 December | £m | % | £m | % | ||||||||||||
Barclays UK | ||||||||||||||||
UK cards | 49 | 5 | 312 | 34 | ||||||||||||
UK home loans | 71 | 72 | 70 | 69 | ||||||||||||
UK business lending | 70 | 31 | 69 | 33 | ||||||||||||
Barclays International | ||||||||||||||||
Corporate Banking | 68 | 11 | 71 | 14 | ||||||||||||
Barclays Partner Finance | 37 | 24 | 59 | 37 |
UK cards:Adoption of new PD models resulted in ayear-on-year release of PMAs.
UK home Loans: To capture the potential impact from an increase in the oil and gas sector as a result of the oil price. Watch list balances in manufacturing increased duehouse price to increased stressearnings ratio, change in the automotive sector.impairment methodology and increased coverage on interest-only loans maturing in the next five years.
UK business lending: To align to impairment policy requirements, potential impact from commercial property price deterioration and the susceptibility of minimum debt service customers to interest rate rises.
Corporate banking:Most material adjustment related to the risk associated with the potential of rate rises impacting low interest cover clients.
Barclays Partner Finance: Adoption of new PD models resulted in ayear-on-year release of PMAs.
114 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Analysis of debt securities
Debt securities include government securities held as part of the Group’s treasury management portfolio for liquidity and regulatory purposes, and are for use on a continuing basis in the activities of the Group.
The following tables provide an analysis of debt securities held by the Group for trading and investment purposes by issuer type, and where the Group held government securities exceeding 10% of shareholders’ equity.
Further information on the credit quality of debt securities is presented on pages 115100 to 116. Further disclosure on sovereign exposures to selected Eurozone countries is presented on page 119.101.
Debt securities | ||||||||||||||||
2015 | 2014 | |||||||||||||||
As at 31 December | £m | % | £m | % | ||||||||||||
Of which issued by: | ||||||||||||||||
Governments and other public bodies | 96,537 | 70.9 | 106,292 | 68.1 | ||||||||||||
Corporate and other issuers | 26,166 | 19.2 | 29,557 | 19.0 | ||||||||||||
US agency | 8,927 | 6.6 | 11,460 | 7.3 | ||||||||||||
Mortgage and asset backed securities | 4,009 | 2.9 | 8,396 | 5.4 | ||||||||||||
Bank and building society certificates of deposit | 598 | 0.4 | 279 | 0.2 | ||||||||||||
Total | 136,237 | 100.0 | 155,984 | 100.0 | ||||||||||||
Government securities | ||||||||||||||||
As at 31 December |
| 2015 Fair value £m |
| | 2014 Fair value | | ||||||||||
US | 26,119 | 32,096 | ||||||||||||||
UK | 22,372 | 28,938 | ||||||||||||||
France | 8,874 | 6,259 | ||||||||||||||
Germany | 6,619 | 7,801 |
Note
Debt securities | ||||||||||||||||
2017 | 2016 | |||||||||||||||
As at 31 December | £m | % | £m | % | ||||||||||||
Of which issued by: | ||||||||||||||||
Governments and other public bodies | 69,981 | 64.5 | 64,852 | 63.7 | ||||||||||||
Corporate and other issuers | 27,955 | 25.8 | 28,284 | 27.8 | ||||||||||||
US agency | 7,868 | 7.3 | 6,208 | 6.1 | ||||||||||||
Mortgage and asset backed securities | 2,520 | 2.3 | 2,372 | 2.3 | ||||||||||||
Bank and building society certificates of deposit | 21 | 0.1 | 23 | 0.1 | ||||||||||||
Total | 108,345 | 100.0 | 101,739 | 100.0 | ||||||||||||
Government securities | ||||||||||||||||
As at 31 December | 2017 Fair value £m | 2016 Fair value £m | ||||||||||||||
United States | 21,570 | 16,284 | ||||||||||||||
United Kingdom | 19,475 | 20,145 |
Analysis of derivatives (audited)
The tables below set out the fair valuevalues of the derivative assets together with the value of those assets subject to enforceable counterparty netting arrangements for which the Group holds offsetting liabilities and eligible collateral.
Derivative assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets (audited) | Derivative assets (audited) | |||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||||||||||
As at 31 December | | Balance sheet assets £m | |
| Counterparty netting £m |
| | Net exposure £m | | | Balance sheet assets £m | |
| Counterparty netting £m |
| | Net exposure £m | | Balance £m | Counterparty £m | Net exposure £m | Balance £m | Counterparty netting £m | Net exposure £m | ||||||||||||||||||||||||
Foreign exchange | 54,936 | 40,301 | 14,635 | 74,470 | 58,153 | 16,317 | 54,943 | 42,117 | 12,826 | 79,744 | 59,040 | 20,704 | ||||||||||||||||||||||||||||||||||||
Interest rate | 231,426 | 190,513 | 40,913 | 309,946 | 253,820 | 56,126 | 153,043 | 117,559 | 35,484 | 228,652 | 185,723 | 42,929 | ||||||||||||||||||||||||||||||||||||
Credit derivatives | 18,181 | 14,110 | 4,071 | 23,507 | 19,829 | 3,678 | 12,549 | 9,952 | 2,597 | 16,273 | 12,891 | 3,382 | ||||||||||||||||||||||||||||||||||||
Equity and stock index | 13,799 | 8,358 | 5,441 | 14,844 | 10,523 | 4,321 | 14,698 | 12,702 | 1,996 | 17,089 | 12,603 | 4,486 | ||||||||||||||||||||||||||||||||||||
Commodity derivatives | 9,367 | 6,300 | 3,067 | 17,142 | 11,306 | 5,836 | 2,436 | 1,935 | 501 | 4,868 | 3,345 | 1,523 | ||||||||||||||||||||||||||||||||||||
Total derivative assets | 327,709 | 259,582 | 68,127 | 439,909 | 353,631 | 86,278 | 237,669 | 184,265 | 53,404 | 346,626 | 273,602 | 73,024 | ||||||||||||||||||||||||||||||||||||
Cash collateral held | 34,918 | 44,047 | 33,092 | 41,641 | ||||||||||||||||||||||||||||||||||||||||||||
Net exposure less collateral | 33,209 | 42,231 | 20,312 | 31,383 |
Derivative asset exposures would be £295bn (2014: £398bn)£217bn (2016: £315bn) lower than reported under IFRS if netting were permitted for assets and liabilities with the same counterparty or for which the Group holds cash collateral. Similarly, derivative liabilities would be £295bn (2014: £397bn)£217bn (2016: £317bn) lower reflecting counterparty netting and collateral placed. In addition,non-cash collateral of £7bn (2014:£6bn (2016: £8bn) was held in respect of derivative assets. The Group received collateral from clients in support of over the counter derivative transactions. These transactions are generally undertaken under International Swaps and Derivative Association (ISDA) agreements governed by either UK or New York law.
Exposure relating to derivatives, repurchase agreements, reverse repurchase agreements, stock borrowing and loan transactions is calculated using internal PRA approved models. These are used as the basis to assess both regulatory capital and capital appetite and are managed on a daily basis. The methodology encompasses all relevant factors to enable the current value to be calculated and the future value to be estimated, for example, current market rates, market volatility and legal documentation (including collateral rights).
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 115 |
Risk review
Risk performance
Credit risk
The table below sets out the fair value and notional amounts of Over the Counter (OTC)OTC derivative instruments by type of collateral arrangement.
Derivatives by collateral arrangement | ||||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
| Notional contract amount £m |
|
|
Fair value |
|
| Notional contract amount £m |
|
|
Fair value |
| |||||||||||||
| Assets £m |
|
| Liabilities £m |
|
| Assets £m |
|
| Liabilities £m |
| |||||||||||||
Unilateral in favour of Barclays | ||||||||||||||||||||||||
Foreign exchange | 15,645 | 242 | (308 | ) | 15,067 | 191 | (158 | ) | ||||||||||||||||
Interest rate | 4,365 | 846 | (65 | ) | 5,826 | 940 | (72 | ) | ||||||||||||||||
Credit derivatives | 277 | 2 | (7 | ) | 226 | 3 | (4 | ) | ||||||||||||||||
Equity and stock index | 303 | 4 | (146 | ) | 310 | 3 | (8 | ) | ||||||||||||||||
Commodity derivatives | 905 | 150 | (30 | ) | 2,455 | 158 | (120 | ) | ||||||||||||||||
Total unilateral in favour of Barclays | 21,495 | 1,244 | (556 | ) | 23,884 | 1,295 | (362 | ) | ||||||||||||||||
Unilateral in favour of counterparty | ||||||||||||||||||||||||
Foreign exchange | 50,343 | 810 | (2,107 | ) | 24,861 | 681 | (2,713 | ) | ||||||||||||||||
Interest rate | 121,231 | 4,436 | (6,981 | ) | 138,396 | 6,073 | (8,751 | ) | ||||||||||||||||
Credit derivatives | 140 | 3 | (1 | ) | 403 | 6 | (19 | ) | ||||||||||||||||
Equity and stock index | 827 | 100 | (83 | ) | 1,100 | 133 | (137 | ) | ||||||||||||||||
Commodity derivatives | 74 | – | (3 | ) | 2,881 | 359 | (138 | ) | ||||||||||||||||
Total unilateral in favour of counterparty | 172,615 | 5,349 | (9,175 | ) | 167,641 | 7,252 | (11,758 | ) | ||||||||||||||||
Bilateral arrangement | ||||||||||||||||||||||||
Foreign exchange | 2,878,125 | 46,831 | (50,899 | ) | 3,350,366 | 67,496 | (70,919 | ) | ||||||||||||||||
Interest rate | 7,315,345 | 197,900 | (188,293 | ) | 9,032,753 | 263,812 | (256,697 | ) | ||||||||||||||||
Credit derivatives | 663,090 | 13,617 | (11,985 | ) | 887,041 | 18,290 | (17,002 | ) | ||||||||||||||||
Equity and stock index | 144,108 | 4,991 | (8,297 | ) | 162,615 | 6,033 | (10,498 | ) | ||||||||||||||||
Commodity derivatives | 36,794 | 3,164 | (3,104 | ) | 68,400 | 6,254 | (6,377 | ) | ||||||||||||||||
Total bilateral arrangement | 11,037,462 | 266,503 | (262,578 | ) | 13,501,175 | 361,885 | (361,493 | ) | ||||||||||||||||
Uncollateralised derivatives | ||||||||||||||||||||||||
Foreign exchange | 271,819 | 7,008 | (5,424 | ) | 303,341 | 6,028 | (5,452 | ) | ||||||||||||||||
Interest rate | 193,565 | 6,091 | (2,907 | ) | 199,615 | 8,572 | (3,524 | ) | ||||||||||||||||
Credit derivatives | 7,881 | 467 | (700 | ) | 8,716 | 565 | (800 | ) | ||||||||||||||||
Equity and stock index | 6,672 | 2,204 | (3,075 | ) | 5,789 | 2,115 | (2,406 | ) | ||||||||||||||||
Commodity derivatives | 13,347 | 1,733 | (1,667 | ) | 26,099 | 2,806 | (2,766 | ) | ||||||||||||||||
Total uncollateralised derivatives | 493,284 | 17,503 | (13,773 | ) | 543,560 | 20,086 | (14,948 | ) | ||||||||||||||||
Total OTC derivative assets/(liabilities) | 11,724,856 | 290,599 | (286,082 | ) | 14,236,260 | 390,518 | (388,561 | ) |
Derivatives by collateral arrangement | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Notional contract amount £m | Fair value | Notional contract amount £m | Fair value | |||||||||||||||||||||
Assets £m | Liabilities £m | Assets £m | Liabilities £m | |||||||||||||||||||||
Unilateral in favour of Barclays | ||||||||||||||||||||||||
Foreign exchange | 18,280 | 484 | (345 | ) | 17,713 | 607 | (274 | ) | ||||||||||||||||
Interest rate | 5,495 | 868 | (26 | ) | 6,666 | 1,017 | (60 | ) | ||||||||||||||||
Credit derivatives | – | – | – | 174 | 3 | (2 | ) | |||||||||||||||||
Equity and stock index | 6 | 3 | – | 390 | 3 | (147 | ) | |||||||||||||||||
Commodity derivatives | 243 | – | (9 | ) | 753 | 33 | (26 | ) | ||||||||||||||||
Total unilateral in favour of Barclays | 24,024 | 1,355 | (380 | ) | 25,696 | 1,663 | (509 | ) | ||||||||||||||||
Unilateral in favour of counterparty | ||||||||||||||||||||||||
Foreign exchange | 21,052 | 720 | (1,851 | ) | 20,837 | 786 | (2,549 | ) | ||||||||||||||||
Interest rate | 74,412 | 8,458 | (9,934 | ) | 108,915 | 3,795 | (5,979 | ) | ||||||||||||||||
Credit derivatives | 283 | 6 | (3 | ) | 152 | 3 | (7 | ) | ||||||||||||||||
Equity and stock index | 1,030 | 432 | (53 | ) | 1,121 | 312 | (49 | ) | ||||||||||||||||
Commodity derivatives | 515 | 4 | (6 | ) | 1,231 | 67 | (66 | ) | ||||||||||||||||
Total unilateral in favour of counterparty | 97,292 | 9,620 | (11,847 | ) | 132,256 | 4,963 | (8,650 | ) | ||||||||||||||||
Bilateral arrangement | ||||||||||||||||||||||||
Foreign exchange | 4,318,754 | 48,660 | (46,403 | ) | 3,772,477 | 70,464 | (68,788 | ) | ||||||||||||||||
Interest rate | 8,060,574 | 135,465 | (131,334 | ) | 7,335,641 | 187,155 | (179,650 | ) | ||||||||||||||||
Credit derivatives | 404,069 | 7,337 | (5,903 | ) | 608,859 | 11,422 | (9,994 | ) | ||||||||||||||||
Equity and stock index | 144,255 | 6,178 | (9,099 | ) | 192,448 | 6,146 | (9,692 | ) | ||||||||||||||||
Commodity derivatives | 11,801 | 630 | (575 | ) | 11,766 | 1,318 | (1,442 | ) | ||||||||||||||||
Total bilateral arrangement | 12,939,453 | 198,270 | (193,314 | ) | 11,921,191 | 276,505 | (269,566 | ) | ||||||||||||||||
Uncollateralised derivatives | ||||||||||||||||||||||||
Foreign exchange | 380,823 | 4,442 | (4,256 | ) | 363,921 | 7,490 | (6,287 | ) | ||||||||||||||||
Interest rate | 202,053 | 4,215 | (1,715 | ) | 184,362 | 5,723 | (2,459 | ) | ||||||||||||||||
Credit derivatives | 6,808 | 252 | (327 | ) | 5,872 | 383 | (510 | ) | ||||||||||||||||
Equity and stock index | 16,448 | 884 | (5,917 | ) | 13,706 | 2,558 | (3,385 | ) | ||||||||||||||||
Commodity derivatives | 4,661 | 60 | (266 | ) | 16,389 | 504 | (748 | ) | ||||||||||||||||
Total uncollateralised derivatives | 610,793 | 9,853 | (12,481 | ) | 584,250 | 16,658 | (13,389 | ) | ||||||||||||||||
Total OTC derivative assets/(liabilities) | 13,671,562 | 219,098 | (218,022 | ) | 12,663,393 | 299,789 | (292,114 | ) |
Risk review
Risk performance
CreditMarket risk
Analysis of loans on concession programmes
Re-age activity
Re-age is applicable only to revolving products where a minimum due payment is required. Re-age refers to returning of a delinquent account to up to date status without collecting the full arrears (principal, interest and fees).
The following are the principal portfolios in which re-age activity occurs.
Principal portfolios – core portfolios | ||||||||||||||||||||||||
New re-ages in the year | | New re-ages as proportion of total outstanding | |
| 30 day arrears at 12 months since re-age |
| ||||||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | |
| 2015 % |
|
| 2014 % |
|
| 2015 % |
|
| 2014 % |
| ||||||
UK cards | 117 | 163 | 0.7 | 1.0 | 40.5 | 43.4 | ||||||||||||||||||
US cards | 36 | 31 | 0.2 | 0.2 | 47.2 | 46.8 | ||||||||||||||||||
UK cards: The reduction of new to re-ages in the year is due to changes in operational and qualification criteria resulting in reduced volume of accounts qualifying for re-age. Enhanced criteria has also led to lower 30 day arrears at 12 months after re-age.
US cards: The increase in new to re-ages is in line with portfolio growth, the ratio as a proportion of total outstanding remained stable at 0.2%.
Re-age activity in South Africa and Europe card portfolios are not considered to be material. For further detail on policy relating to the re-ageing of loans, please refer to page 368.
Forbearance
|
| |||||||||||||||||||||||
Analysis of forbearance programmes | ||||||||||||||||||||||||
Balances | Impairment allowance | Impairment coverage | ||||||||||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | |
| 2015 £m |
|
| 2014 £m |
|
| 2015 % |
|
| 2014 % |
| ||||||
Personal and Corporate Bankinga | 589 | 931 | 33 | 63 | 5.6 | 6.8 | ||||||||||||||||||
Africa Banking | 209 | 299 | 29 | 45 | 13.8 | 15.1 | ||||||||||||||||||
Barclaycard | 729 | 972 | 247 | 394 | 33.9 | 40.5 | ||||||||||||||||||
Barclays Core | 1,527 | 2,202 | 309 | 502 | 20.2 | 22.8 | ||||||||||||||||||
Barclays Non-Core | 246 | 419 | 20 | 49 | 8.3 | 11.7 | ||||||||||||||||||
Total retail | 1,773 | 2,621 | 329 | 551 | 18.5 | 21.0 | ||||||||||||||||||
Investment Bank | 210 | 106 | 4 | 10 | 2.1 | 9.4 | ||||||||||||||||||
Personal and Corporate Banking | 1,764 | 1,590 | 253 | 225 | 14.3 | 14.2 | ||||||||||||||||||
Africa Banking | 228 | 132 | 17 | 7 | 7.5 | 5.3 | ||||||||||||||||||
Barclays Core | 2,202 | 1,828 | 274 | 242 | 12.4 | 13.2 | ||||||||||||||||||
Barclays Non-Core | 230 | 651 | 117 | 271 | 50.7 | 41.6 | ||||||||||||||||||
Total wholesale | 2,432 | 2,479 | 391 | 513 | 16.1 | 20.7 | ||||||||||||||||||
Group total | 4,205 | 5,100 | 720 | 1,064 | 17.1 | 20.9 |
Balances on forbearance programmes reduced 18% to £4.2bn (2014: £5.1bn) driven primarily by; (i) fewer customers requiring forbearance as macroeconomic conditions improved; and (ii) the ongoing impact of enhanced qualification criteria. The decrease in impairment coverage to 17.1% (2014: 20.9%) reflected coverage reduction across both the wholesale and retail portfolios.
Retail balances on forbearance reduced by 32% to £1.8bn and reflected a decrease across all businesses.
Summary of Contents | Page | |||
Outlines key measures used to summarise the market risk profile of the bank such as value at risk (VaR). A distinction is made between management and regulatory measures. |
| 118 | ||
Provides a Group-wide overview of where assets and liabilities on the Group’s balance sheet are managed within regulatory traded andnon-traded books. |
|
The Group discloses details on management measures of market risk. Total management VaR includes all trading positions and This section also outlines the macroeconomic conditions modelled as part of the | ◾ Traded market risk | 120 |
Wholesale balances on forbearance reduced by 2% to £2.4bn as the removal of assets following the sale of the Spanish corporate business was partially offset by the migration of Business Banking forborne assets into the UK Corporate Bank. Excluding these movements, the overall level of forborne balances was broadly stable.
See over for more information on these portfolios.
Note
◾ Review of management measures | 120 | |||
– The daily average, maximum and minimum values of management VaR | 120 | |||
– Business scenario stresses | 120 | |||
◾ Review of regulatory measures | 121 | |||
The | – Analysis of | 121 | ||
– Breakdown of the | 121 | |||
Barclays PLC and Barclays Bank PLC |
Retail forbearance programmes
Forbearance on the Group’s principal retail portfolios in the UK, US and South Africa is presented below. The principal portfolios listed below account for 70% (2014: 83%) of total retail forbearance balances.
Analysis of key portfolios in forbearance programmes | ||||||||||||||||||||||||||||||||||||
Balances on forbearance programmes | Marked | Marked | Impairment | |||||||||||||||||||||||||||||||||
Of which: | to market | to market | allowances | Total | ||||||||||||||||||||||||||||||||
Past due of which: | LTV of | LTV of | marked | balances on | ||||||||||||||||||||||||||||||||
forbearance | forbearance | against | forbearance | |||||||||||||||||||||||||||||||||
% of gross | 91 or more | balances: | balances: | balances on | programmes | |||||||||||||||||||||||||||||||
loans and | 1-90 days | days past | balance | valuation | forbearance | coverage | ||||||||||||||||||||||||||||||
Total | advances | Up-to-date | past due | due | weighted | weighted | programmes | ratio | ||||||||||||||||||||||||||||
£m | % | £m | £m | £m | % | % | £m | % | ||||||||||||||||||||||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||||||
Home loans | ||||||||||||||||||||||||||||||||||||
PCB – UKa | 445 | 0.3 | 211 | 177 | 57 | 48.0 | 34.1 | 4 | 0.8 | |||||||||||||||||||||||||||
Africa Banking – South Africa | 125 | 1.3 | 50 | 64 | 11 | 67.5 | 53.6 | 7 | 5.5 | |||||||||||||||||||||||||||
Credit cards | ||||||||||||||||||||||||||||||||||||
UK | 448 | 2.4 | 414 | 31 | 3 | n/a | n/a | 159 | 35.5 | |||||||||||||||||||||||||||
US | 133 | 0.8 | 92 | 30 | 11 | n/a | n/a | 30 | 22.7 | |||||||||||||||||||||||||||
Unsecured loans | ||||||||||||||||||||||||||||||||||||
UK | 85 | 1.6 | 59 | 22 | 3 | n/a | n/a | 21 | 24.6 | |||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||
Home loans | ||||||||||||||||||||||||||||||||||||
PCB – UK | 522 | 0.4 | 257 | 206 | 59 | 52.1 | 36.8 | 3 | 0.6 | |||||||||||||||||||||||||||
Africa Banking – South Africa | 207 | 1.8 | 95 | 99 | 13 | 71.1 | 57.4 | 13 | 6.5 | |||||||||||||||||||||||||||
Credit cards | ||||||||||||||||||||||||||||||||||||
UK | 724 | 4.3 | 679 | 41 | 4 | n/a | n/a | 324 | 44.8 | |||||||||||||||||||||||||||
US | 98 | 0.7 | 67 | 22 | 9 | n/a | n/a | 22 | 22.1 | |||||||||||||||||||||||||||
Unsecured loans | ||||||||||||||||||||||||||||||||||||
UK | 121 | 2.4 | 83 | 33 | 5 | n/a | n/a | 25 | 20.9 |
Loans in forbearance in the principal home loans portfolios decreased 22% to £570m (2014: £729m).
Forbearance balances on principal credit cards, overdrafts and unsecured loan portfolios decreased by 29% to £666m.
Forbearance by type | ||||||||||||||||
Home loans – Barclays Core portfolios | ||||||||||||||||
UK | South Africa | |||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | | | 2015 £m | | | 2014 £m | | ||||
Interest only conversion | 94 | 100 | – | – | ||||||||||||
Interest rate reduction | – | – | 1 | 1 | ||||||||||||
Payment concession | 103 | 106 | 97 | 161 | ||||||||||||
Term extension | 248 | 316 | 28 | 45 | ||||||||||||
Total | 445 | 522 | 125 | 207 |
Note
Risk review
Risk performance
Market risk
CreditMarket risk
Forbearance by type | ||||||||||||||||||||||||
Credit cards and unsecured loans – Barclays Core portfolios | ||||||||||||||||||||||||
UK cards | US cards | UK personal loans | ||||||||||||||||||||||
As at 31 December | | 2015 £m | | | 2014 £m | |
| 2015 £m |
| | 2014 £m | | | 2015 £m | | | 2014 £m | | ||||||
Payment concession | 21 | 31 | – | – | – | – | ||||||||||||||||||
Term extension | – | – | – | – | 6 | 28 | ||||||||||||||||||
Fully amortising | – | – | 69 | 58 | �� | 79 | 93 | |||||||||||||||||
Repayment plana | 427 | 693 | 64 | 40 | – | – | ||||||||||||||||||
Total | 448 | 724 | 133 | 98 | 85 | 121 |
Payment concessions reduced to £21m (2014: £31m)The risk of loss arising from potential adverse changes in UK cards following its withdrawal from forbearance offering in 2014.
Repayment plan balances in UK cards decreased to £427m (2014: £693m) driven by a debt sale and the continued reduction in new repayment plan volumes, following the implementation of enhanced qualification criteria in 2012.
Wholesale forbearance programmes
The tables below detail balance information for wholesale forbearance cases.
Analysis of wholesale balances in forbearance programmes | ||||||||||||||||||||||||||||||||
Balances on forbearance programmes | Impairment | |||||||||||||||||||||||||||||||
Of which: | allowances | Total | ||||||||||||||||||||||||||||||
| Total balances £m | | | % of gross loans and advances % | | | Performing balances £m | | | Impaired up-to-date balances £m | | | Balances between 1 and 90 days past due £m | |
| Balances 91 days or more past due £m |
|
| marked against balances on forbearance programmes £m |
|
| balances on forbearance programmes coverage ratio % |
| |||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Investment Bank | 210 | 0.2 | 81 | – | 100 | 29 | 4 | 2.1 | ||||||||||||||||||||||||
Personal & Corporate Banking | 1,764 | 2.0 | 578 | 661 | 93 | 432 | 253 | 14.3 | ||||||||||||||||||||||||
Africa Banking | 228 | 1.5 | 103 | 4 | – | 121 | 17 | 7.5 | ||||||||||||||||||||||||
Total Barclays Core | 2,202 | 1.1 | 762 | 665 | 193 | 582 | 274 | 12.4 | ||||||||||||||||||||||||
Barclays Non-Core | 229 | 0.7 | 38 | 103 | 2 | 87 | 117 | 50.7 | ||||||||||||||||||||||||
Group | 2,431 | 1.0 | 800 | 768 | 195 | 669 | 391 | 16.1 | ||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||
Investment Bank | 106 | 0.1 | 52 | – | 22 | 32 | 10 | 9.4 | ||||||||||||||||||||||||
Personal & Corporate Banking | 1,590 | 2.0 | 574 | 587 | 38 | 391 | 225 | 14.1 | ||||||||||||||||||||||||
Africa Banking | 132 | 0.8 | 30 | 47 | 13 | 42 | 7 | 5.0 | ||||||||||||||||||||||||
Total Barclays Core | 1,828 | 0.9 | 656 | 634 | 73 | 465 | 242 | 13.2 | ||||||||||||||||||||||||
Barclays Non-Core | 651 | 1.5 | 36 | 336 | 41 | 238 | 271 | 41.6 | ||||||||||||||||||||||||
Group | 2,479 | 1.0 | 692 | 970 | 114 | 703 | 513 | 20.7 |
Wholesale forbearance reporting split by exposure class | ||||||||||||||||
| Corporate £m | | | Personal and trusts £m | | | Other £m | | | Total £m | | |||||
As at 31 December 2015 | ||||||||||||||||
Restructure: reduced contractual cash flows | 158 | – | – | 158 | ||||||||||||
Restructure: maturity date extension | 716 | 24 | 62 | 801 | ||||||||||||
Restructure: changed cash flow profile (other than extension) | 317 | 1 | – | 318 | ||||||||||||
Restructure: payment other than cash | 12 | – | – | 12 | ||||||||||||
Change in security | 7 | 1 | – | 8 | ||||||||||||
Adjustments or non-enforcement of covenants | 295 | 92 | – | 387 | ||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 538 | 208 | – | 746 | ||||||||||||
Total | 2,043 | 326 | 62 | 2,431 | ||||||||||||
As at 31 December 2014 | ||||||||||||||||
Restructure: reduced contractual cash flows | 180 | – | – | 180 | ||||||||||||
Restructure: maturity date extension | 600 | 79 | 4 | 683 | ||||||||||||
Restructure: changed cash flow profile (other than extension) | 335 | 25 | 4 | 364 | ||||||||||||
Restructure: payment other than cash | 7 | 9 | – | 16 | ||||||||||||
Change in security | 17 | – | – | 17 | ||||||||||||
Adjustments or non-enforcement of covenants | 383 | 53 | – | 436 | ||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 607 | 175 | 1 | 783 | ||||||||||||
Total | 2,129 | 341 | 9 | 2,479 |
Note
Wholesale forbearance reporting split by business unit | ||||||||||||||||||
| Personal & Corporate Banking £m | |
| Investment Bank £m |
|
| Africa Banking £m |
|
| Barclays Non-Core £m |
| Total £m | ||||||
As at 31 December 2015 | ||||||||||||||||||
Restructure: reduced contractual cash flows | 131 | – | 4 | 23 | 158 | |||||||||||||
Restructure: maturity date extension | 370 | 162 | 153 | 116 | 801 | |||||||||||||
Restructure: changed cash flow profile (other than extension) | 248 | 2 | 68 | – | 318 | |||||||||||||
Restructure: payment other than cash | 1 | 11 | – | – | 12 | |||||||||||||
Change in security | 8 | – | – | – | 8 | |||||||||||||
Adjustments or non-enforcements of covenants | 338 | 2 | – | 47 | 387 | |||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 668 | 33 | 3 | 43 | 747 | |||||||||||||
Total | 1,764 | 210 | 228 | 229 | 2,431 | |||||||||||||
As at 31 December 2014 | ||||||||||||||||||
Restructure: reduced contractual cash flows | 125 | – | 1 | 54 | 181 | |||||||||||||
Restructure: maturity date extension | 314 | 72 | 78 | 219 | 683 | |||||||||||||
Restructure: changed cash flow profile (other than extension) | 178 | 2 | 49 | 135 | 364 | |||||||||||||
Restructure: payment other than cash | 13 | – | – | 3 | 16 | |||||||||||||
Change in security | 11 | – | – | 6 | 17 | |||||||||||||
Adjustments or non-enforcements of covenants | 329 | – | – | 107 | 436 | |||||||||||||
Other (e.g. capital repayment holiday; restructure pending) | 620 | 32 | 4 | 127 | 783 | |||||||||||||
Total | 1,589 | 106 | 134 | 651 | 2,479 |
Wholesale forbearance decreased 2% to £2.4bn with an impairment coverage ratio of 16.1% (2014: 20.7%). Personal & Corporate Banking accounted for the largest portion with 73% (2014: 64%) of total balances held as forbearance.
Overall forbearance balances in Core portfolios rose by 20% to £2.2bn, driven primarily by the migration of forborne Business Banking assets into the PCB UK Corporate Banking portfolio from PCB Retail.
Non-Core balances remain focused on the European corporate portfolios and reduced by 65% to £230m following the salevalue of the Spanish corporate business.firm’s assets and liabilities from fluctuation in market variables including, but not limited to, interest rates, foreign exchange, equity prices, commodity prices, credit spreads, implied volatilities and asset correlations
All disclosures in this section pages118 to 121 are unaudited unless otherwise stated.
Key metrics
-10% | ||||
in 2017 at £19m (2016: £21m) remained relatively stable. |
| |||
Impaired loans and loans past due within this section are reflected in the balance sheet credit quality tables on page 116 as being Higher Risk.
Age analysis of loans and advances that are past due but not impaired (audited)
The following table presents an age analysis of loans and advances that are past due but not impaired.
Loans and advances past due but not impaired (audited) | ||||||||||||||||||||||||
| Past due up to 1 month £m | | | Past due 1-2 months £m | | | Past due 2-3 months £m | | | Past due 3-6 months £m | | | Past due 6 months and over £m | | | Total £m | | |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
Loans and advances designated at fair value | 70 | 14 | – | – | 209 | 293 | ||||||||||||||||||
Home loans | 22 | 8 | 6 | 24 | 80 | 140 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | 288 | 14 | 15 | 93 | 120 | 530 | ||||||||||||||||||
Corporate loans | 5,862 | 897 | 207 | 226 | 280 | 7,472 | ||||||||||||||||||
Total | 6,242 | 933 | 228 | 343 | 689 | 8,435 | ||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
Loans and advances designated at fair value | 594 | 48 | 1 | – | 33 | 676 | ||||||||||||||||||
Home loans | 46 | 6 | 17 | 135 | 230 | 434 | ||||||||||||||||||
Credit cards, unsecured and other retail lending | 64 | 29 | 14 | 139 | 194 | 440 | ||||||||||||||||||
Corporate loansd | 5,251 | 630 | 874 | 190 | 387 | 7,332 | ||||||||||||||||||
Total | 5,955 | 713 | 906 | 464 | 844 | 8,882 |
Notes
This small reduction was driven by a 25% decrease in average credit risk |
Risk review
Risk performance
Credit risk
Impaired loans
The following table represents an analysis of impaired loans in line with the disclosure requirements from the Enhanced Disclosure Taskforce. For further information on definitions of impaired loans refer to the identifying potential credit risk loans section of Barclays PLC 2015 Pillar 3 Report.
Movement in impaired loans | ||||||||||||||||||||||||||||||||
| At beginning of year £m |
|
| Classified as impaired during the year £m |
|
| Transferred to not impaired during the year £m |
|
| Repayments £m |
|
| Amounts written off £m |
| | Acquisitions and disposals £m | | | Exchange and other adjustmentsa £m | | | Balance at 31 December £m | | |||||||||
2015 | ||||||||||||||||||||||||||||||||
Home loans | 1,503 | 602 | (192 | ) | (272 | ) | (97 | ) | – | (207 | ) | 1,337 | ||||||||||||||||||||
Credit cards, unsecured and other retail lending | 2,613 | 2,226 | (112 | ) | (269 | ) | (1,873 | ) | – | (385 | ) | 2,200 | ||||||||||||||||||||
Corporate loans | 2,683 | 1,032 | (558 | ) | (208 | ) | (333 | ) | (43 | ) | (475 | ) | 2,098 | |||||||||||||||||||
Total impaired loans | 6,799 | 3,860 | (862 | ) | (749 | ) | (2,303 | ) | (43 | ) | (1,067 | ) | 5,635 | |||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||
Home loans | 1,983 | 762 | (352 | ) | (412 | ) | (161 | ) | – | (317 | ) | 1,503 | ||||||||||||||||||||
Credit cards, unsecured and other retail lending | 3,385 | 2,089 | (108 | ) | (361 | ) | (1,885 | ) | – | (507 | ) | 2,613 | ||||||||||||||||||||
Corporate loans | 5,142 | 1,167 | (729 | ) | (658 | ) | (1,211 | ) | – | (1,028 | ) | 2,683 | ||||||||||||||||||||
Total impaired loans | 10,510 | 4,018 | (1,189 | ) | (1,431 | ) | (3,257 | ) | – | (1,852 | ) | 6,799 | ||||||||||||||||||||
For information on restructured loans refer to disclosures on forbearance on pages 131 to 134.
Analysis of loans and advances assessed as impaired (audited) The following table presents an age analysis of loans and advances collectively impaired and total individually impaired loans.
|
| |||||||||||||||||||||||||||||||
Loans and advances assessed as impaired (audited) | ||||||||||||||||||||||||||||||||
| Past due up to 1 month £m | | | Past due 1-2 months £m | | | Past due 2-3 months £m | | | Past due 3-6 months £m | �� | | Past due 6 months and over £m | |
| Total £m |
| | Individually assessed for impairment £m | |
| Total £m |
| |||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Home loans | 3,672 | 1,036 | 278 | 364 | 812 | 6,162 | 648 | 6,810 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 1,241 | 691 | 284 | 541 | 1,792 | 4,549 | 964 | 5,513 | ||||||||||||||||||||||||
Corporate loans | 251 | 76 | 45 | 76 | 96 | 544 | 1,786 | 2,330 | ||||||||||||||||||||||||
Total | 5,164 | 1,803 | 607 | 981 | 2,700 | 11,255 | 3,398 | 14,653 | ||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||
Home loans | 5,155 | 1,424 | 335 | 470 | 1,050 | 8,434 | 455 | 8,889 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 1,196 | 738 | 299 | 532 | 2,225 | 4,990 | 800 | 5,790 | ||||||||||||||||||||||||
Corporate loans | 284 | 30 | 24 | 25 | 148 | 511 | 2,679 | 3,190 | ||||||||||||||||||||||||
Total | 6,635 | 2,192 | 658 | 1,027 | 3,423 | 13,935 | 3,934 | 17,869 |
The decrease in collectively impaired loans to £11.3bn (2014: £13.9bn) predominantly relates to home loans within the past due up to 1 month category. MCA forbearance balances previously allocated into this category (2014 MCA balances: £1.3bn) no longer form part of the forbearance programme nor collectively assessed for impairment.
Note
Potential credit risk loans (PCRLs) and coverage ratios
The Group reports potentially and actually impaired loans as PCRLs. PCRLs comprise two categories of loans: credit risk loans (CRLs) and potential problem loans (PPLs). For further information on definitions of CRLs and PPLs refer to the identifying potential credit risk loans section of the Barclays PLC 2015 Pillar 3 Report.
Potential credit risk loans and coverage ratios by business | ||||||||||||||||||||||||
CRLs | PPLs | PCRLs | ||||||||||||||||||||||
As at 31 December |
| 2015 £m |
|
| 2014 £m |
| | 2015 £m | | | 2014 £m | | | 2015 £m | |
| 2014 £m |
| ||||||
Personal & Corporate Bankinga | 1,591 | 1,733 | 263 | 264 | 1,854 | 1,997 | ||||||||||||||||||
Africa Banking | 859 | 1,093 | 154 | 161 | 1,013 | 1,254 | ||||||||||||||||||
Barclaycard | 1,601 | 1,765 | 249 | 227 | 1,850 | 1,992 | ||||||||||||||||||
Barclays Core | 4,051 | 4,591 | 666 | 652 | 4,717 | 5,243 | ||||||||||||||||||
Barclays Non-Core | 845 | 1,209 | 13 | 26 | 858 | 1,234 | ||||||||||||||||||
Total Group retail | 4,896 | 5,800 | 679 | 678 | 5,575 | 6,477 | ||||||||||||||||||
Investment Bank | 241 | 71 | 450 | 107 | 691 | 178 | ||||||||||||||||||
Personal & Corporate Bankinga | 1,794 | 2,112 | 567 | 614 | 2,361 | 2,726 | ||||||||||||||||||
Africa Banking | 541 | 665 | 245 | 94 | 786 | 759 | ||||||||||||||||||
Barclays Core | 2,576 | 2,848 | 1,262 | 815 | 3,838 | 3,663 | ||||||||||||||||||
Barclays Non-Core | 345 | 841 | 109 | 119 | 454 | 960 | ||||||||||||||||||
Total Group wholesale | 2,921 | 3,689 | 1,371 | 934 | 4,292 | 4,623 | ||||||||||||||||||
Group total | 7,817 | 9,489 | 2,050 | 1,612 | 9,867 | 11,100 | ||||||||||||||||||
Impairment allowance | CRL coverage | PCRL coverage | ||||||||||||||||||||||
As at 31 December |
| 2015 £m |
|
| 2014 £m |
| | 2015 % | | | 2014 % | | | 2015 % | |
| 2014 % |
| ||||||
Personal & Corporate Bankinga,b | 713 | 766 | 44.8 | 44.2 | 38.5 | 38.4 | ||||||||||||||||||
Africa Banking | 539 | 681 | 62.7 | 62.3 | 53.2 | 54.3 | ||||||||||||||||||
Barclaycard | 1,835 | 1,815 | 114.6 | 102.8 | 99.2 | 91.1 | ||||||||||||||||||
Barclays Core | 3,087 | 3,262 | 76.2 | 71.1 | 65.4 | 62.2 | ||||||||||||||||||
Barclays Non-Core | 369 | 428 | 43.7 | 35.4 | 43.0 | 34.7 | ||||||||||||||||||
Total Group retail | 3,456 | 3,690 | 70.6 | 63.6 | 62.0 | 57.0 | ||||||||||||||||||
Investment Bank | 83 | 44 | 34.4 | 62.0 | 12.0 | 24.7 | ||||||||||||||||||
Personal & Corporate Bankinga | 914 | 873 | 50.9 | 41.3 | 38.7 | 32.0 | ||||||||||||||||||
Africa Banking | 235 | 246 | 43.4 | 37.0 | 29.9 | 32.4 | ||||||||||||||||||
Barclays Core | 1,232 | 1,163 | 47.8 | 40.8 | 32.1 | 31.7 | ||||||||||||||||||
Barclays Non-Core | 233 | 602 | 67.5 | 71.6 | 51.3 | 62.7 | ||||||||||||||||||
Total Group wholesale | 1,465 | 1,765 | 50.2 | 47.8 | 34.1 | 38.2 | ||||||||||||||||||
Group total | 4,921 | 5,455 | 63.0 | 57.5 | 49.9 | 49.1 |
Notes
Risk review
Risk performance
Credit risk
Impairment allowances
Impairment allowances decreased 10% to £4,921m primarily within Non-Core as a result of the reclassification of impairments held against the Portuguese loans now held for sale.
Movements in allowance for impairment by asset class (audited) | ||||||||||||||||||||||||||||||||
| At beginning of year £m |
| | Acquisitions and disposals £m | | | Unwind of discount £m | | | Exchange and other adjustmentsa £m | | | Amounts written off £m | | | Recoveries £m | | | Amounts charged to income statement £m | | | Balance at 31 December £m | | |||||||||
2015 | ||||||||||||||||||||||||||||||||
Home loans | 547 | – | (32) | (64) | (94) | 7 | 154 | 518 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 3,345 | – | (105) | (170) | (1,848) | 301 | 1,871 | 3,394 | ||||||||||||||||||||||||
Corporate loans | 1,563 | – | (12) | (383) | (335) | 92 | 84 | 1,009 | ||||||||||||||||||||||||
Total impairment allowance | 5,455 | – | (149) | (617) | (2,277) | 400 | 2,109 | 4,921 | ||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||
Home loans | 788 | – | (23) | (200) | (191) | 17 | 156 | 547 | ||||||||||||||||||||||||
Credit cards, unsecured and other retail lending | 3,603 | 13 | (116) | (307) | (1,679) | 126 | 1,705 | 3,345 | ||||||||||||||||||||||||
Corporate loans | 2,867 | – | (14) | (540) | (1,167) | 78 | 339 | 1,563 | ||||||||||||||||||||||||
Total impairment allowance | 7,258 | 13 | (153) | (1,047) | (3,037) | 221 | 2,200 | 5,455 |
Management adjustments to models for impairment
Management adjustments to models for impairment are applied in order to factor in certain conditions or changes in policy that are not incorporated into the relevant impairment models, or to ensure that the impairment allowance reflects all known facts and circumstances at the period end. Adjustments typically increase the model derived impairment allowance. Where applicable, management adjustments are reviewed and incorporated into future model development.
Management adjustments to models of more than £10m with respect to impairment allowance in our principal portfolios are presented below.
Principal portfolios that have management adjustments greater than £10m (unaudited) | ||||||||||||||||
2015 | 2014 | |||||||||||||||
As at 31 December |
| Total management adjustments to impairment stock, including forbearance £m |
| | Proportion of total impairment stock % | |
| Total management adjustments to impairment stock, including forbearance £m |
| | Proportion of total impairment stock % | | ||||
PCB | ||||||||||||||||
UK home loans | 68 | 67 | 52 | 55 | ||||||||||||
UK personal loans | 75 | 16 | 48 | 10 | ||||||||||||
UK overdrafts | 37 | 29 | 30 | 19 | ||||||||||||
UK large corporate and business lending | 183 | 26 | 98 | 14 | ||||||||||||
Africa Banking | ||||||||||||||||
South Africa home loans | 22 | 17 | 22 | 11 | ||||||||||||
Barclaycard | ||||||||||||||||
UK cards | 147 | 17 | 62 | 5 | ||||||||||||
US Cards | 58 | 9 | 10 | 2 | ||||||||||||
Barclays Partner Finance | 41 | 28 | 9 | 7 | ||||||||||||
Germany Cards | 20 | 21 | 3 | 3 |
During 2015, the Retail Impairment Policy was significantly strengthened and models enhanced.
UK home loans: Adjustments to capture the potential impact from increase in the house price to earnings ratio, change in the impairment methodology and increased coverage on interest only loans maturing in the next five years.
UK personal loans: Adjustments to incorporate revised impairment policy requirements, and for updated model requirements.
UK overdrafts: Principally for updated model-related requirements and adjustments to align to revised impairment policy.
UK large corporate and business lending: In business lending to reflect policy changes affecting customers on forbearance and impairment treatment. In corporate lending to account for single name losses, adjustment to allow for small names yet to emerge within the oil and gas sector, and the susceptibility of minimum debt service customers to interest rate raises not currently captured in models.
South Africa home loans: Primarily to incorporate the uncertainty in the macroeconomic outlook. The adjustment has increased by 27% in local currency.
Barclaycard: Predominantly to align to new impairment policy requirements in models, and to increase coverage on forbearance programmes and accounts in recoveries.
Note
Risk review
Risk performance
Analysis of market risk
Market risk is the risk of a reduction in earnings or capital due to volatility of trading book positions or as a consequence of running a banking book balance sheet and liquidity pools.
This section contains key disclosures describing the Group’s market risk profile, highlighting regulatory as well as management measures.
Key metrics
Measures of traded market risk, such as Value at Risk (VaR), decreased in the year primarily due to the removal of certain banking book assets from VaR, reduced client activity, and risk reduction in Non-Core businesses.
We saw a reduction in associated risk measures and lower income from reduced activity
85%
of days generated positive trading revenue
-23%
reduction in management VaR
10%
increase in average daily trading revenue
Risk review
Risk performance
Market risk
Market risk is the risk of a reduction in earnings or capital due to volatility of trading book positions or as a consequence of running a banking book balance sheet and liquidity pool.
All disclosures in this section (page 139 to 147) are unaudited unless otherwise stated.
This section contains key statistics describing the market risk profile of the Group. This includes risk weighted assets by major business line, as well as Value at Risk (VaR) measures.bank. A distinction is made between regulatory and management measures within the section. The market risk management section on pages 376108 to 391115 provides descriptions of these metrics:
Measures of market risk in the
Group and accounting measures
Traded market risk measures such as VaR and balance sheet exposure measures have fundamental differences:
balance sheet measures show accruals-based balances or marked to market values as at the reporting date |
VaR measures also take account of current marked to market values, but in addition hedging effects between positions are considered |
market risk measures are expressed in terms of changes in value or volatilities as opposed to static values. |
For these reasons, it is not possible to present direct reconciliations of traded market risk and accounting measures. The table ‘Balance sheet view ofsplit by trading and banking books’, on page 140,119, helps the reader understand the main categories of assets and liabilities subject to regulatory market risk measures.
Summary of performance in the period
TheOverall, the Group has seenmaintained a decrease in marketsteady risk from reduced risk positions, notably in equities and interest rates, in addition to risk reduction in Non-Core businesses:profile:
measures of traded market risk |
118 Barclays PLC and Barclays Bank PLC |
Balance sheet view of trading and banking books
As defined by the regulatory rules, a trading book consists of positions held for trading intent or to hedge elements of the trading book. Trading intent must be evidenced in the basis of the strategies, policies and procedures set up by the firm to manage the position or portfolio. The table below provides a Group-wide overview of where assets and liabilities on the Group’s balance sheet are managed within regulatory traded andnon-traded books.
The balance sheet split by trading book and banking books is shown on an IFRS accounting scope of consolidation. The reconciliation between the accounting and regulatory scope of consolidation is shown in the Barclays PLC 2015 Pillar 3 Report. The reconciling items are all part of the banking book.Report 2017.
Balance sheet split by trading and banking books | ||||||||||||
As at 31 December 2015 |
| Banking book £m | a
|
| Trading book £m |
|
| Total £m |
| |||
Cash and balances at central banks | 49,711 | – | 49,711 | |||||||||
Items in course of collection from other banks | 1,011 | – | 1,011 | |||||||||
Trading portfolio assets | 3,355 | 73,993 | 77,348 | |||||||||
Financial assets designated at fair value | 25,263 | 51,567 | 76,830 | |||||||||
Derivative financial instruments | 296 | 327,413 | 327,709 | |||||||||
Available for sale financial investments | 90,267 | – | 90,267 | |||||||||
Loans and advances to banks | 39,779 | 1,570 | 41,349 | |||||||||
Loans and advances to customers | 380,406 | 18,811 | 399,217 | |||||||||
Reverse repurchase agreements and other similar secured lending | 28,187 | – | 28,187 | |||||||||
Prepayments, accrued income and other assets | 3,010 | – | 3,010 | |||||||||
Investments in associates and joint ventures | 573 | – | 573 | |||||||||
Property, plant and equipment | 3,468 | – | 3,468 | |||||||||
Goodwill and intangible assets | 8,222 | – | 8,222 | |||||||||
Current tax assets | 415 | – | 415 | |||||||||
Deferred tax assets | 4,495 | – | 4,495 | |||||||||
Retirement benefit assets | 836 | – | 836 | |||||||||
Non-current assets classified as held for disposal | 7,364 | – | 7,364 | |||||||||
Total assets | 646,658 | 473,354 | 1,120,012 | |||||||||
Deposits from banks | 45,344 | 1,736 | 47,080 | |||||||||
Items in course of collection due to other banks | 1,013 | – | 1,013 | |||||||||
Customer accounts | 401,927 | 16,315 | 418,242 | |||||||||
Repurchase agreements and other similar secured borrowing | 25,035 | – | 25,035 | |||||||||
Trading portfolio liabilities | – | 33,967 | 33,967 | |||||||||
Financial liabilities designated at fair value | 7,027 | 84,718 | 91,745 | |||||||||
Derivative financial instruments | 1,699 | 322,553 | 324,252 | |||||||||
Debt securities in issue | 69,150 | – | 69,150 | |||||||||
Subordinated liabilities | 21,467 | – | 21,467 | |||||||||
Accruals, deferred income and other liabilities | 10,610 | – | 10,610 | |||||||||
Provisions | 4,142 | – | 4,142 | |||||||||
Current tax liabilities | 903 | – | 903 | |||||||||
Deferred tax liabilities | 122 | – | 122 | |||||||||
Retirement benefit liabilities | 423 | – | 423 | |||||||||
Liabilities included in disposal groups classified as held for sale | 5,997 | – | 5,997 | |||||||||
Total liabilities | 594,859 | 459,289 | 1,054,148 |
Included within the trading book are assets and liabilities which are included in the market risk regulatory measures. For more information on these measures (VaR, SVaR, IRC and APR) see the risk management section on page 383.
Balance sheet split by trading and banking books | ||||||||||||
Banking booka | Trading book | Total | ||||||||||
As at 31 December 2017 | £m | £m | £m | |||||||||
Cash and balances at central banks | 171,082 | – | 171,082 | |||||||||
Items in course of collection from other banks | 2,153 | – | 2,153 | |||||||||
Trading portfolio assets | 1,555 | 112,205 | 113,760 | |||||||||
Financial assets designated at fair value | 7,874 | 108,407 | 116,281 | |||||||||
Derivative financial instruments | 924 | 236,745 | 237,669 | |||||||||
Financial investments | 58,916 | – | 58,916 | |||||||||
Loans and advances to banks | 32,464 | 3,199 | 35,663 | |||||||||
Loans and advances to customers | 343,771 | 21,781 | 365,552 | |||||||||
Reverse repurchase agreements and other similar secured lending | 12,546 | – | 12,546 | |||||||||
Prepayments, accrued income and other assets | 2,389 | – | 2,389 | |||||||||
Investments in associates and joint ventures | 718 | – | 718 | |||||||||
Property, plant and equipment | 2,572 | – | 2,572 | |||||||||
Goodwill and intangible assets | 7,849 | – | 7,849 | |||||||||
Current tax assets | 482 | – | 482 | |||||||||
Deferred tax assets | 3,457 | – | 3,457 | |||||||||
Retirement benefit assets | 966 | – | 966 | |||||||||
Assets included in disposal groups classified as held for sale | 1,193 | – | 1,193 | |||||||||
Total assets | 650,911 | 482,337 | 1,133,248 | |||||||||
Deposits from banks | 35,337 | 2,386 | 37,723 | |||||||||
Items in course of collection due to other banks | 446 | – | 446 | |||||||||
Customer accounts | 415,783 | 13,338 | 429,121 | |||||||||
Repurchase agreements and other similar secured borrowing | 40,338 | – | 40,338 | |||||||||
Trading portfolio liabilities | – | 37,351 | 37,351 | |||||||||
Financial liabilities designated at fair value | 4,368 | 169,350 | 173,718 | |||||||||
Derivative financial instruments | 389 | 237,956 | 238,345 | |||||||||
Debt securities in issue | 73,314 | – | 73,314 | |||||||||
Subordinated liabilities | 23,826 | – | 23,826 | |||||||||
Accruals, deferred income and other liabilities | 8,565 | – | 8,565 | |||||||||
Provisions | 3,543 | – | 3,543 | |||||||||
Current tax liabilities | 586 | – | 586 | |||||||||
Deferred tax liabilities | 44 | – | 44 | |||||||||
Retirement benefit liabilities | 312 | – | 312 | |||||||||
Liabilities included in disposal groups classified as held for sale | – | – | – | |||||||||
Total liabilities | 606,851 | 460,381 | 1,067,232 |
Note
a | The primary risk factors for banking book assets and liabilities are interest rates and to a lesser extent, foreign exchange rates. Credit spreads and equity prices will also be factors where the Group holds debt and equity securities respectively, either as financial assets designated at fair value (see Note 14) or as available for sale (see Note 16) |
Included within the trading book are assets and liabilities which are included in the market risk regulatory measures. For more information on these measures (VaR, SVaR, IRC and CRM) see page 334.
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
Market risk
Review of management measures
The following disclosures provide details on management measures of market risk. See the risk management section on page 383pages 332 to 333 for more detail on management measures and the differences when compared to regulatory measures.
The table below shows the Total managementtotal Management VaR on a diversified basis by risk factor. Total managementManagement VaR includes all trading positions in the Investment Bank, Non-Core, Africa BankingCIB and Head Office.
Limits are applied against each risk factor VaR as well as Total managementtotal Management VaR, which are then cascaded further by risk managers to each business.
The daily average, maximum and minimum values of management VaR (audited) |
| |||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Management VaR (95%) | Average | High | a | Low | a | Average | High | a | Low | a | ||||||||||||||
For the year ended 31 December | £m | £m | £m | £m | £m | £m | ||||||||||||||||||
Credit risk | 11 | 17 | 8 | 11 | 15 | 9 | ||||||||||||||||||
Interest rate risk | 6 | 14 | 4 | 11 | 17 | 6 | ||||||||||||||||||
Equity risk | 8 | 18 | 4 | 10 | 16 | 6 | ||||||||||||||||||
Basis risk | 3 | 4 | 2 | 4 | 8 | 2 | ||||||||||||||||||
Spread risk | 3 | 6 | 2 | 4 | 8 | 3 | ||||||||||||||||||
Foreign exchange risk | 3 | 6 | 1 | 4 | 23 | 1 | ||||||||||||||||||
Commodity risk | 2 | 3 | 1 | 2 | 8 | 1 | ||||||||||||||||||
Inflation risk | 3 | 5 | 2 | 2 | 4 | 2 | ||||||||||||||||||
Diversification effecta | (22 | ) | n/a | n/a | (26 | ) | n/a | n/a | ||||||||||||||||
Total management VaR | 17 | 25 | 12 | 22 | 36 | 17 |
Average interest rate VaR decreased by £5m to £6m (Dec 14: £11m) during 2015 as certain banking book positions were transferred from the Investment Bank to Head Office Treasury, reflecting the operational transferThe daily average, maximum and minimum values of responsibility (see page 143). These positions are high quality and liquid banking book assets and are now reported as non-traded market risk exposures. Similarly, lower spread risk and basis riskmanagement VaR in 2015 reflect reduced risk taking.
Management VaR (95%, one day) (audited) | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
For the year ended 31 Decembera | Average £m | Highb £m | Lowb £m | Average £m | Highb £m | Lowb £m | ||||||||||||||||||
Credit risk | 12 | 18 | 8 | 16 | 24 | 9 | ||||||||||||||||||
Interest rate risk | 8 | 15 | 4 | 7 | 13 | 4 | ||||||||||||||||||
Equity risk | 8 | 14 | 4 | 7 | 11 | 4 | ||||||||||||||||||
Basis risk | 5 | 6 | 3 | 5 | 9 | 3 | ||||||||||||||||||
Spread risk | 5 | 8 | 3 | 3 | 5 | 2 | ||||||||||||||||||
Foreign exchange risk | 3 | 7 | 2 | 3 | 5 | 2 | ||||||||||||||||||
Commodity risk | 2 | 3 | 1 | 2 | 4 | 1 | ||||||||||||||||||
Inflation risk | 2 | 4 | 1 | 2 | 3 | 2 | ||||||||||||||||||
Diversification effectb | (26 | ) | n/a | n/a | (24 | ) | n/a | n/a | ||||||||||||||||
Total management VaR | 19 | 26 | 14 | 21 | 29 | 13 |
Average equities risk VaR reduced by 20% to £8m, reflecting reduced cash portfolio activities and a more conservative risk profile maintained in the derivatives portfolio.
Average foreign exchange risk VaR decreased by 25% to £3m as a result of lower activity in the first half of the year, partially offset by higher volatility in the global foreign exchange market seen in the second half of the year.
Inflation risk VaR increased by £1m to £3m, primarily due to increased volatility in the inflation market.
Average commodity risk VaR remained stable at £2m, but the high levels reduced significantly year-on-year due to the portfolio having been largely divested, and reduced client flows impacted by lower oil prices.
|
| |||
The chart above presents the frequency distribution of our daily trading revenues for all material positions included in VaR for 2015. This includes daily trading revenue generated in the Investment Bank (except for Private Equity and Principal Investments), Treasury, Africa Banking and Non-Core.
The basis of preparation for trading revenue was changed in 2015 to align better with and reflect the portfolio structure included in Group Management VaR. 2014 figures have been presented on a comparable basis. Disclosed trading revenue includes realised and unrealised mark to market gains and losses from intraday market moves but excludes commission and advisory fees. The trading revenue measure is based on actual trading results and holding periods. In contrast, the VaR shows the volatility of a hypothetical measure. To construct this measure, positions are assumed to be held for one day, and the aggregate unrealised gain or loss is the measure. VaR and the actual revenue figure are not directly comparable. VaR informs risk managers of the risk implications of current portfolio decisions.
NoteNotes
a | Includes BAGL. |
b | Diversification effects recognise that forecast losses from different assets or businesses are unlikely to occur concurrently, hence the expected aggregate loss is lower than the sum of the expected losses from each |
The average daily net revenue increasedManagement VaR remained relatively stableyear-on-year characterised by 10% to £10.1m; there were more positive trading revenue daysa low volatility environment. Theyear-on-year reduction in 2015 than in 2014, with 85% (2014: 82%) of days generating positive trading revenue.
The dailyCredit VaR chart illustrates an average declining trend in 2015. Intermittent VaR increases were due to increased client flow in periods of heightened volatility in specific markets and subsequent risk management of the position.was driven primarily by tighter credit spreads.
Business scenario stressesScenario Stresses
As part of the Group’s risk management framework, on a regular basis the performance of the trading business in hypothetical scenarios characterised by severe macroeconomic conditions is modelled. Up to sixseven global scenarios are modelled on a regular basis, for example, a sharp deterioration in liquidity, a slowdown in the global economy, terrorist attacksglobal recession, and a sovereign peripheral crisis.sharp increase in economic growth.
Throughout 2015In 2017, the scenario analyses showed that the biggestlargest market risk related impactimpacts would be due to a severe deterioration in marketfinancial liquidity and a sovereign peripheral crisis.global recession.
120 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Review of regulatory measures
The following disclosures provide details on regulatory measures of market risk. See page 334 for more detail on regulatory measures and the differences when compared to management measures.
The Group’s market risk capital requirement comprises of two elements:
the market risk of trading book positions booked to legal entities |
the trading book positions that do not meet the conditions for inclusion within the approved internal models |
The table below summarises the regulatory market risk measures, under the internal models approach. See Table 76: MR1-A - Market Risk - own fund requirements on page 97 of the Barclays PLC Pillar 3 Report 2017 for a breakdown of capital requirements by approach.
Analysis of Regulatory VaR, SVaR, IRC and APR | ||||||||||||||||
| Year end £m | | | Average £m | | | Max £m | | | Min £m | | |||||
As at 31 December 2015 | ||||||||||||||||
Regulatory VaR | 26 | 28 | 46 | 20 | ||||||||||||
SVaR | 44 | 54 | 68 | 38 | ||||||||||||
IRC | 129 | 142 | 254 | 59 | ||||||||||||
APR | 12 | 15 | 27 | 11 | ||||||||||||
As at 31 December 2014 | ||||||||||||||||
Regulatory VaR | 29 | 39 | 66 | 29 | ||||||||||||
SVaR | 72 | 74 | 105 | 53 | ||||||||||||
IRC | 80 | 118 | 287 | 58 | ||||||||||||
APR | 24 | 28 | 39 | 24 |
Analysis of Regulatory VaR, SVaR, IRC and Comprehensive Risk Measurea | ||||||||||||||||
Year-end £m | Avg. £m | Max £m | Min £m | |||||||||||||
As at 31 December 2017 | ||||||||||||||||
Regulatory VaR(1-day) | 28 | 27 | 39 | 19 | ||||||||||||
Regulatory VaR(10-day)b | 90 | 85 | 123 | 60 | ||||||||||||
SVaR(1-day) | 59 | 63 | 105 | 41 | ||||||||||||
SVaR(10-day)b | 186 | 200 | 331 | 130 | ||||||||||||
IRC | 188 | 202 | 326 | 142 | ||||||||||||
CRM | – | 1 | 2 | – | ||||||||||||
As at 31 December 2016 | ||||||||||||||||
Regulatory VaR(1-day) | 33 | 26 | 34 | 18 | ||||||||||||
Regulatory VaR(10-day)b | 105 | 84 | 108 | 57 | ||||||||||||
SVaR(1-day) | 65 | 56 | 75 | 34 | ||||||||||||
SVaR(10-day)b | 205 | 178 | 236 | 109 | ||||||||||||
IRC | 154 | 155 | 238 | 112 | ||||||||||||
CRM | 2 | 5 | 12 | 2 |
Notes
a | Includes BAGL. |
b | The 10 day VaR is based on scaling of 1 day VaR model output since VaR is currently not modelled for a 10 day holding period. More information about Regulatory and Stressed VaR methodology is available in Barclays Pillar 3 Report 2017. |
Overall, there was a lower risk profile during 2015:an increase in IRC in 2017, with no significant movements in other internal model components:
Regulatory VaR/SVaR: |
IRC: |
Breakdown of the major regulatory risk measures by portfolio |
| |||||||||||||||||||||||||||
As at 31 December 2015 |
| Macro £m |
|
| Equities £m |
| | Credit £m | | | Client Capital Management | | | Treasury £m | | | Africa £m | | | Non-Core £m | | |||||||
Regulatory VaR | 10 | 8 | 5 | 12 | 4 | 4 | 3 | |||||||||||||||||||||
SVaR | 25 | 33 | 15 | 18 | 11 | 6 | 12 | |||||||||||||||||||||
IRC | 197 | 5 | 79 | 99 | 13 | – | 62 | |||||||||||||||||||||
APR | – | – | – | – | – | – | 12 |
Breakdown of the major regulatory risk measures by portfolioa | ||||||||||||||||||||||||||||||||
As at 31 December 2017 | Macro £m | Equities £m | Credit £m | Barclays £m | Banking £m | Group Treasury £m | Barclays Non-Core £m | Financial Managementb £m | ||||||||||||||||||||||||
Regulatory VaR(1-day) | 13 | 6 | 19 | – | 5 | 6 | – | 8 | ||||||||||||||||||||||||
Regulatory VaR(10-day) | 42 | 20 | 59 | – | 16 | 18 | – | 25 | ||||||||||||||||||||||||
SVaR(1-day) | 23 | 11 | 41 | – | 10 | 11 | – | 20 | ||||||||||||||||||||||||
SVaR(10-day) | 72 | 35 | 130 | 1 | 30 | 35 | – | 64 | ||||||||||||||||||||||||
IRC | 203 | 5 | 270 | – | 1 | 10 | – | 65 | ||||||||||||||||||||||||
CRM | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Breakdown of the major regulatory risk measures by portfolioa | ||||||||||||||||||||||||||||||||
As at 31 December 2016 | Macro £m | Equities £m | Credit £m | Barclays £m | Banking £m | Group Treasury £m | Barclays Non-Core £m | Financial Managementb £m | ||||||||||||||||||||||||
Regulatory VaR(1-day) | 14 | 12 | 6 | 14 | 12 | 5 | 6 | – | ||||||||||||||||||||||||
Regulatory VaR(10-day) | 44 | 38 | 20 | 45 | 40 | 15 | 21 | – | ||||||||||||||||||||||||
SVaR(1-day) | 22 | 43 | 7 | 30 | 18 | 9 | 22 | – | ||||||||||||||||||||||||
SVaR(10-day) | 69 | 137 | 24 | 95 | 58 | 30 | 69 | – | ||||||||||||||||||||||||
IRC | 220 | 8 | 146 | 196 | 25 | 10 | 18 | – | ||||||||||||||||||||||||
CRM | – | – | – | – | – | – | 2 | – |
Note
a | Excludes BAGL. |
b | The movement from Barclays International Treasury to Financial Resource Management was due to changes in the hierarchy. |
The table above shows the primary portfolios which are driving the trading businesses’ modelled capital requirement as at 20152017 year end. The standalone portfolio results diversify at the total level and are not necessarily additive. Regulatory VaR, SVaR, IRC and APRCRM in the prior table show the diversified results at a group level.
Risk review
Risk performance
Market risk
Overview
The non-traded market risk framework covers exposures in the banking book, mostly consisting of exposures relating to accrual accounted and available for sale instruments. The potential volatility of the net interest income of the bank is measured by an Annual Earnings at Risk (AEaR) metric that is monitored regularly and reported to senior management and the Board Risk Committee as part of the limit monitoring framework.
Net interest income sensitivity
The table below shows a sensitivity analysis on pre-tax net interest income for the non-trading financial assets and financial liabilities including the effect of any hedging. The sensitivity has been measured using the Annual Earnings at Risk (AEaR) methodology. Note that this metric is simplistic in that it assumes a large parallel shock occurs instantaneously across all major currencies and ignores the impact of any management actions on customer products.
Net interest income sensitivity (AEaR) by business unit | ||||||||||||||||||||||||
| Personal & Corporate Banking £m | | | Barclaycard £m | | | Africa £m | |
| Non-Core £m | a
|
| Treasury £m | b
| | Total £m | | |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
+200bps | 305 | (31 | ) | 28 | 27 | (131 | ) | 198 | ||||||||||||||||
+100bps | 152 | (14 | ) | 14 | 14 | (63 | ) | 103 | ||||||||||||||||
-100bps | (385 | ) | 10 | (11 | ) | – | (26 | ) | (412 | ) | ||||||||||||||
-200bps | (433 | ) | 14 | (14 | ) | – | (36 | ) | (469 | ) | ||||||||||||||
As at 31 December 2014c | ||||||||||||||||||||||||
+200bps | 464 | (59 | ) | 26 | 6 | 14 | 451 | |||||||||||||||||
+100bps | 239 | (27 | ) | 13 | 3 | 10 | 238 | |||||||||||||||||
-100bps | (426 | ) | 26 | (9 | ) | (1 | ) | (29 | ) | (439 | ) | |||||||||||||
-200bps | (430 | ) | 29 | (17 | ) | (1 | ) | (39 | ) | (458 | ) |
Overall the NII sensitivity of the Group to sudden changes in interest rates has decreased. The main drivers of the change in NII sensitivities are:
Net interest income sensitivity (AEaR) by currency (audited) | ||||||||||||||||
2015 | 2014 | |||||||||||||||
As at 31 December |
| +100 basis points £m |
|
| -100 basis points £m |
|
| +100 basis points £m |
|
| -100 basis points £m |
| ||||
GBP | 94 | (368 | ) | 184 | (406 | ) | ||||||||||
USD | (15 | ) | (30 | ) | (11 | ) | (11 | ) | ||||||||
EUR | (6 | ) | (8 | ) | 21 | 3 | ||||||||||
ZAR | 6 | (5 | ) | 10 | (8 | ) | ||||||||||
Other currencies | 24 | (1 | ) | 34 | (17 | ) | ||||||||||
Total | 103 | (412 | ) | 238 | (439 | ) | ||||||||||
As percentage of net interest income | 0.82 | % | (3.28 | )% | 1.97 | % | (3.63 | )% |
Notes
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
Treasury and capital risk
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 389.
Economic capital for non-trading risk by business unit | ||||||||||||||||||||
| Personal & Corporate Banking £m | | | Barclaycard £m | | | Africa Banking | |
| Non-Core £m | a
| | 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 143, 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
Summary of Contents | Page | |||
Liquidity risk performance | ||||
The risk that the firm, although solvent, either | ◾ Liquidity overview and summary of performance | 124 | ||
does not have sufficient financial resources | ◾ Liquidity risk stress testing | 124 | ||
available to enable it to meet its obligations | – Liquidity Risk Appetite | 125 | ||
as they fall due, or can secure such resources | – Liquidity regulation | 125 | ||
only at excessive cost. | – Internal and regulatory stress tests | 125 | ||
This section provides an overview of the | ||||
Group’s liquidity risk. | ||||
The liquidity pool is held unencumbered and | ◾ Liquidity pool | 126 | ||
is not used to support payment or clearing | – Composition of the liquidity pool | 126 | ||
requirements. The liquidity pool is intended | – Liquidity pool by currency | 126 | ||
to offset stress outflows, and comprises the | – Management of the Group liquidity pool | 126 | ||
following cash and unencumbered assets. | – Contingent liquidity | 127 | ||
The basis for sound liquidity risk | ◾ Funding structure and funding relationships | 127 | ||
management is a solid funding structure that | – Deposit funding | 127 | ||
reduces the probability of a liquidity stress | – Behavioural maturity profile | 128 | ||
leading to an inability to meet funding | – Wholesale funding | 128 | ||
obligations as they fall due. | ||||
Asset encumbrance arises from collateral | ◾ Encumbrance | 129 | ||
pledged against secured funding and other | –On-balance sheet | 130 | ||
collateralised obligations. Barclays funds a | –Off-balance sheet | 130 | ||
portion of trading portfolio assets and other | – Repurchase agreements and reverse repurchase agreements | 131 | ||
securities via repurchase agreements and other similar borrowing, and pledges a portion of customer loans and advances as collateral in securitisation, covered bond and other similar secured structures. | ||||
In addition to monitoring and managing key | ◾ Credit ratings | 132 | ||
metrics related to the | ||||
Group, Barclays solicits independent credit ratings. | ||||
These ratings assess the creditworthiness of the Group, its subsidiaries and branches and are | ||||
Provides details on the | ◾ Contractual maturity of financial assets and liabilities | 133 | ||
of all financial instruments and other assets and liabilities. |
Risk review
Risk performance
Market risk
Volatility of the available for sale portfolio in the liquidity pool
Changes in value of the available for sale exposures flow directly through capital via the equity reserve. The volatility of the value of the available for sale investments in the liquidity pool is captured and managed through a value measure rather than an earning measure, i.e. the non-traded market risk VaR.
Although the underlying methodology to calculate the non-traded VaR is the same as the one used to calculate traded management VaR, the two measures are not directly comparable. The non-traded VaR represents the volatility to capital driven by the available for sale exposures. This is used for internal management purposes and although it is not formally backtested like the regulatory VaR (as shown on page 142), it is reviewed on a regular basis by risk managers to ensure it remains adequate for risk appetite and monitoring purposes.
These exposures are in the banking book and do not meet the criteria for trading book treatment. As such available for sale volatility is a risk which is taken into account in the IRRBB internal capital assessment, which is covered by the Pillar 2 capital framework.
Page | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital risk performance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital risk is the risk that the firm has an | ◾ Capital risk overview and summary of performance | 137 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
insufficient level or composition of capital to | ◾ Regulatory minimum capital and leverage requirements | 138 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
support its normal business activities and to | – Capital | 138 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
meet its regulatory capital requirements | – Leverage | 138 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
under normal operating environments or stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This also includes the risk from the firm’s pension plans. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This section details Barclays’ capital position providing information on both capital resources and capital requirements. It also provides details of the leverage ratios and exposures. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This section outlines the Group’s capital | ◾ Analysis of capital resources | 139 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ratios, capital composition, and provides | – Capital ratios | 139 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
information on significant movements in | – Capital resources | 139 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CET1 capital during the year. | – Movement in CET1 capital | 140 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This section outlines risk weighted assets by | ◾ Analysis of risk weighted assets | 141 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
risk type, business and macro drivers. | – Risk weighted assets by risk type and business | 141 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
– Movement analysis of risk weighted assets | 141 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This section outlines the Group’s leverage | ◾ Analysis of leverage ratios and exposures | 142 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ratios, leverage exposure composition, and | – Leverage ratios and exposures | 142 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
provides information on significant movements in the IFRS and leverage balance sheet. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Group discloses the two sources of foreign | ◾ Foreign exchange risk | 143 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
exchange risk that it is exposed to. | – Transactional foreign currency exposure | 143 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
– Translational foreign exchange exposure | 143 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
– Functional currency of operations | 143 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A review focusing on the UK retirement fund, | ◾ Pension risk review | 144 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
which represents the majority of the Group’s | – Assets and Liabilities | 144 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
total retirement benefit obligation. | – IAS19 Position | 144 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
– Risk Measurement | 145 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This section outlines the Group’s Minimum | ◾ Minimum requirement for own funds and eligible liabilities | 145 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
requirement for own funds and eligible liabilities (MREL) position and ratios. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate risk in the banking book performance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A description of thenon-traded market risk framework is provided. The Group discloses a sensitivity analysis onpre-tax net interest income fornon-trading financial assets and liabilities. The analysis is carried out by Business Unit and currency. The Group measures somenon-traded market risks, in particular prepayment, recruitment, and residual risk using an Economic Capital methodology The Group discloses the overall impact of a parallel shift in interest rates on Available for Sale and cash flow hedges. The Group measures the volatility of the value of the Available for Sale instruments in the liquidity pool throughnon-traded market risk VaR. | ◾ Interest rate risk in the banking book overview and summary of performance | 146 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
◾ Net interest income sensitivity | 147 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
– by business unit | 147 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
– by currency | 147 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
◾ Economic Capital by business unit | 147 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
◾ Analysis of equity sensitivity | 148 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
◾ Volatility of the available for sale portfolio in the liquidity pool | 148 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Barclays PLC and Barclays Bank PLC |
Functional currency of operations (audited) | ||||||||||||||||||||||||
| Foreign currency net investments £m |
|
| Borrowings which hedge the net investments £m |
|
| Derivatives which hedge the net investments £m |
|
| Structural currency exposures pre-economic hedges £m |
|
| Economic hedges £m |
|
| Remaining structural currency exposures £m |
| |||||||
As at 31 December 2015 | ||||||||||||||||||||||||
USD | 24,712 | 8,839 | 1,158 | 14,715 | 7,008 | 7,707 | ||||||||||||||||||
EUR | 2,002 | 630 | 14 | 1,358 | 1,764 | (406 | ) | |||||||||||||||||
ZAR | 3,201 | 4 | 99 | 3,098 | – | 3,098 | ||||||||||||||||||
JPY | 383 | 168 | 205 | 10 | – | 10 | ||||||||||||||||||
Other | 2,927 | – | 1,294 | 1,633 | – | 1,633 | ||||||||||||||||||
Total | 33,225 | 9,641 | 2,770 | �� | 20,814 | 8,772 | 12,042 | |||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||
USD | 23,728 | 5,270 | 1,012 | 17,446 | 6,655 | 10,791 | ||||||||||||||||||
EUR | 3,056 | 328 | 238 | 2,490 | 1,871 | 619 | ||||||||||||||||||
ZAR | 3,863 | – | 103 | 3,760 | – | 3,760 | ||||||||||||||||||
JPY | 364 | 164 | 208 | (8 | ) | – | (8 | ) | ||||||||||||||||
Other | 2,739 | – | 1,198 | 1,541 | – | 1,541 | ||||||||||||||||||
Total | 33,750 | 5,762 | 2,759 | 25,229 | 8,526 | 16,703 |
During 2015, total structural currency exposure net of hedging instruments decreased by £4.7bn to £12.0bn (2014: £16.7bn). The decrease is broadly in line with the overall RWA currency profile, with a reduction in USD RWAs in the year. Foreign currency net investments remained stable at £33.2bn (2014: £33.8bn).
The UK Retirement Fund (UKRF) represents approximately 92% (2014: 92%) of the Group’s total retirement benefit obligations globally. The other material overseas schemes are in South Africa and in the US and they represent approximately 4% (2014: 4%) and 2% (2014: 2%) respectively of the Group’s total retirement benefit obligations. As such, this risk review section focuses exclusively on the UKRF. Note that the scheme is closed to new entrants.
Pension risk arises as the estimated market value of the pension fund assets might decline, or the investment returns might reduce; or the estimated value of the pension liabilities might increase.
See page 390 for more information on how pension risk is managed.
Assets
The Board of Trustees defines an overall long term investment strategy for the UKRF, with investments across a broad range of asset classes. This ensures an appropriate mix of return seeking assets to generate future returns as well as liability matching assets to better match the future pension obligations. The main market risks within the asset portfolio are due to movements in interest rates and equities, as shown by the analysis of scheme assets within Note 35 Pensions and retirement benefits.
The fair value of the UKRF plan assets was £26.8bn. See Note 35 Pensions and retirement benefits.
Risk review
Risk performance
MarketTreasury and Capital risk – Liquidity
Liabilities
The retirement benefit obligations are a series of future cash flows with relatively long duration. On an IAS 19 basis these cash flows are sensitive to changes in the expected long term inflation rate and the discount rate (AA corporate bond yield curve):
PensionLiquidity risk is generated through the Group’s defined benefit schemes and this risk is set to reduce over time as our main defined benefit schemes are closed to new entrants, and in many cases closed to future accruals. The chart below outlines the shape of the UKRF’s liability cash flow profile that takes account of future inflation indexing of payments to beneficiaries, with the majority of the cash flows (approximately 83%) falling between 0 and 40 years, peaking within the 21 to 30 year band and reducing thereafter. The shape may vary depending on changes in inflation expectation and mortality and it is updated in line with the triennial valuation process.
For more detail on liability assumptions see Note 35 to the financial statements.
Proportion of the IAS 19 liability cash flows
Risk measurement
In line with Barclays risk management framework, the assets and liabilities of the UKRF are modelled within a VaR framework to show the volatility of the pension positions on a total portfolio level. This ensures that the risks, diversification and liability matching characteristics of the UKRF obligations and investments are adequately captured. VaR is measured and monitored on a monthly basis. It is discussed at pension risk fora such as the Market Risk Committee, Pensions Management Group and Pension Executive Board. The VaR model takes into account the valuation of the liabilities following an IAS 19 basis (see Note 35 Pension and post-retirement benefits in the financial statements). The trustees receive quarterly VaR measures on a funding basis.
The pension liability is also sensitive to post-retirement mortality assumptions (see Note 35).
In addition to this, the impact of pension risk to the Group is taken into account as part of the stress testing process. Stress testing is performed internally at least on an annual basis. The UKRF exposure is also included as part of the regulatory stress tests and exercises indicated that the UKRF risk profile is resilient to severe stress events.
The defined benefit pension scheme affects capital in two ways. An IAS 19 deficit impacts the CET1 capital ratio, and pension risk is also taken into account in the Pillar 2A capital assessment.
Triennial valuation
Please see Note 35 Pensions and retirement benefits for information on the funding position of the UKRF.
Insurance risk is managed within Africa Banking primarily in the Wealth, Investment Management & Insurance (WIMI) portfolios and is reported across four significant categories. Please see page 138 of the Barclays PLC 2015 Pillar 3 Report for more information on the definitions and governance procedure.
The risk types below mainly determine the regulatory capital requirements. The year-on-year decrease in risk appetite was agreed as part of the medium-term planning process.
Analysis of insurance riska | ||||||||||||||||
2015 | 2014 | |||||||||||||||
As at 31 December | | Position £m | | | Appetite £m | | | Position £m | | | Appetite £m | | ||||
Short term insurance underwriting risk | 30 | 32 | 40 | 44 | ||||||||||||
Life insurance underwriting risk | 17 | 20 | 21 | 28 | ||||||||||||
Life insurance mismatch risk | 12 | 20 | 16 | 40 | ||||||||||||
Life and short-term insurance investment risk | 11 | 18 | 12 | 14 |
In 2015, the largest year-on-year movement was in short-term insurance underwriting risk where the reduction in the position reflected the closure of the Agriculture book to new insurance business.
For mismatch risk, the 2015 Appetite was materially lower than the 2014 Appetite as the level of mismatch between policyholder assets and policyholder liabilities decreased following the adoption of improved reserving methodologies and sign off by the independent statutory actuary function. As a result, while 2015 Position has reduced in absolute terms, the utilisation against appetite has increased.
From 2016 onwards, the methodology for assessment of Insurance Risk will change from a CAR-based approach to a Solvency Assessment and Management (SAM) based approach (the Solvency II equivalent) which is considered to be a more robust risk management approach with well-developed methodologies.
Note
Risk review
Risk performance
Analysis of capital risk
Capital risk is the risk that the Group has insufficient capital resources, which could lead to: (i) a failurefirm is unable to meet regulatory requirements; (ii) a change to credit rating;its contractual or (iii) an inabilitycontingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support business activity and growth.
This section details Barclays’ capital position providing information on both capital resources and capital requirements. It also provides detail of the leverage ratio and exposures.
Key metrics
11.4% fully loaded
Common Equity Tier 1 ratio
RWAs decreased by £44bn to £358bn. Non-Core RWAs decreased £29bn to £47bn as a result of the sale of the Spanish business and the rundown of legacy structured and credit products. Investment Bank RWAs decreased by £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.
4.5% leverage ratio
The leverage ratio increased significantly to 4.5% (2014: 3.7%) driven by a reduction in the leverage exposure of £205bn to £1,028bn predominantly due to the rundown in Non-Core of £156bn to £121bn.
Risk review
Risk performance
Funding risk – Capital
Capital risk is the risk that the Group has insufficient capital resources to:
More details on monitoring and managing capital risk may be found in the Risk Management sections on pages 103 to 104.its assets.
All disclosures in this section (pages 149124 to 153) are unaudited unless otherwise stated.
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.
The CRR and Capital Requirements Directive (CRD) implemented Basel III within the EU (collectively known as CRD IV) on 1 January 2014. The rules are supplemented by Regulatory Technical Standards and the PRA’s rulebook, including the implementation of transitional rules. However, rules and guidance are still subject to change as certain aspects of CRD IV are dependent on final technical standards and clarifications to be issued by the EBA and adopted by the European Commission and the PRA. All capital, RWA and leverage calculations reflect Barclays’ interpretation of the current rules.
Key capital ratios | ||||||
As at 31 December | 2015 | 2014 | ||||
Fully Loaded CET1 | 11.4% | 10.3% | ||||
PRA Transitional CET1a | 11.4% | 10.2% | ||||
PRA Transitional Tier 1b,c | 14.7% | 13.0% | ||||
PRA Transitional Total Capitalb,c | 18.6% | 16.5% | ||||
Capital resources (audited) | ||||||
As at 31 December |
| 2015 £m |
| 2014 £m | ||
Shareholders’ equity (excluding non-controlling interests) per the balance sheet | 59,810 | 59,567 | ||||
Less: other equity instruments (recognised as AT1 capital) | (5,305) | (4,322) | ||||
Adjustment to retained earnings for foreseeable dividends | (631) | (615) | ||||
Minority interests (amount allowed in consolidated CET1) | 950 | 1,227 | ||||
Other regulatory adjustments and deductions | ||||||
Additional value adjustments (PVA) | (1,602) | (2,199) | ||||
Goodwill and intangible assets | (8,234) | (8,127) | ||||
Deferred tax assets that rely on future profitability excluding temporary differences | (855) | (1,080) | ||||
Fair value reserves related to gains or losses on cash flow hedges | (1,231) | (1,814) | ||||
Excess of expected losses over impairment | (1,365) | (1,772) | ||||
Gains or losses on liabilities at fair value resulting from own credit | 127 | 658 | ||||
Defined benefit pension fund assets | (689) | – | ||||
Direct and indirect holdings by an institution of own CET1 instruments | (57) | (25) | ||||
Other regulatory adjustments | (177) | (45) | ||||
Fully loaded CET1 capital | 40,741 | 41,453 | ||||
Regulatory adjustments relating to unrealised gains | – | (583) | ||||
PRA transitional CET1 capital | 40,741 | 40,870 | ||||
Additional Tier 1 (AT1) capital | ||||||
Capital instruments and the related share premium accounts | 5,305 | 4,322 | ||||
Qualifying AT1 capital (including minority interests) issued by subsidiaries | 6,718 | 6,870 | ||||
Other regulatory adjustments and deductions | (130) | – | ||||
Transitional AT1 capitald | 11,893 | 11,192 | ||||
PRA transitional Tier 1 capital | 52,634 | 52,062 | ||||
Tier 2 capital | ||||||
Capital instruments and the related share premium accounts | 1,757 | 800 | ||||
Qualifying Tier 2 capital (including minority interests) issued by subsidiaries | 12,389 | 13,529 | ||||
Other regulatory adjustments and deductions | (253) | (48) | ||||
PRA transitional total regulatory capital | 66,527 | 66,343 |
Notes
Risk review
Risk performance
Funding risk – Capital
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Risk weighted assets (RWAs) by risk type and business | ||||||||||||||||||||||||||||||||
Credit risk | Counterparty credit riska | Market riskb | | Operational risk | | Total RWAs | ||||||||||||||||||||||||||
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As at 31 December 2015 | ||||||||||||||||||||||||||||||||
Personal & Corporate Banking | 31,506 | 71,352 | 242 | 1,122 | 30 | – | 16,176 | 120,428 | ||||||||||||||||||||||||
Barclaycard | 17,988 | 17,852 | – | – | – | – | 5,505 | 41,345 | ||||||||||||||||||||||||
Africa Banking | 8,556 | 17,698 | 22 | 487 | 885 | 682 | 5,604 | 33,934 | ||||||||||||||||||||||||
Investment Bank | 4,808 | 39,414 | 11,020 | 10,132 | 9,626 | 13,713 | 19,620 | 108,333 | ||||||||||||||||||||||||
Head Office and Other Operations | 1,513 | 2,763 | 32 | 59 | 48 | 1,230 | 2,104 | 7,749 | ||||||||||||||||||||||||
Total Core | 64,371 | 149,079 | 11,316 | 11,800 | 10,589 | 15,625 | 49,009 | 311,789 | ||||||||||||||||||||||||
Barclays Non-Core | 5,078 | 11,912 | 1,397 | 9,231 | 679 | 10,639 | 7,651 | 46,587 | ||||||||||||||||||||||||
Total risk weighted assets | 69,449 | 160,991 | 12,713 | 21,031 | 11,268 | 26,264 | 56,660 | 358,376 | ||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||
Personal & Corporate Banking | 32,657 | 70,080 | 238 | 1,049 | 26 | – | 16,176 | 120,226 | ||||||||||||||||||||||||
Barclaycard | 15,910 | 18,492 | – | – | – | – | 5,505 | 39,907 | ||||||||||||||||||||||||
Africa Banking | 9,015 | 21,794 | 10 | 562 | 948 | 588 | 5,604 | 38,521 | ||||||||||||||||||||||||
Investment Bank | 5,773 | 36,829 | 13,739 | 11,781 | 18,179 | 16,480 | 19,621 | 122,402 | ||||||||||||||||||||||||
Head Office and Other Operations | 506 | 2,912 | 234 | 62 | 7 | 521 | 1,326 | 5,568 | ||||||||||||||||||||||||
Total Core | 63,861 | 150,107 | 14,221 | 13,454 | 19,160 | 17,589 | 48,232 | 326,624 | ||||||||||||||||||||||||
Barclays Non-Core | 10,679 | 19,416 | 3,023 | 18,406 | 2,236 | 13,088 | 8,428 | 75,276 | ||||||||||||||||||||||||
Total risk weighted assets | 74,540 | 169,523 | 17,244 | 31,860 | 21,396 | 30,677 | 56,660 | 401,900 | ||||||||||||||||||||||||
Movement analysis of risk weighted assets | ||||||||||||||||||||||||||||||||
Risk weighted assets | | Credit risk £bn | |
| Counterparty credit risk £bn | a
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| | Total RWAs £bn | | |||||||||||||||||
As at 1 January 2015 | 244.0 | 49.1 | 52.1 | 56.7 | 401.9 | |||||||||||||||||||||||||||
Book size | 8.3 | (10.6 | ) | (9.5 | ) | – | (11.8 | ) | ||||||||||||||||||||||||
Acquisitions and disposals | (14.2 | ) | – | (0.4 | ) | – | (14.6 | ) | ||||||||||||||||||||||||
Book quality | 0.1 | (1.7 | ) | 0.7 | – | (0.9 | ) | |||||||||||||||||||||||||
Model updates | (2.1 | ) | (1.1 | ) | (2.7 | ) | – | (5.9 | ) | |||||||||||||||||||||||
Methodology and policy | 2.3 | (1.9 | ) | (2.6 | ) | – | (2.2 | ) | ||||||||||||||||||||||||
Foreign exchange movementc | (8.0 | ) | (0.1 | ) | – | – | (8.1 | ) | ||||||||||||||||||||||||
Other | – | – | – | – | – | |||||||||||||||||||||||||||
As at 31 December 2015 | 230.4 | 33.7 | 37.6 | 56.7 | 358.4 |
RWAs decreased £43.5bn to £358.4bn, driven by:
Notes
Risk review
Risk performance
Funding risk – Capital
The leverage ratio applicable to the Group has been calculated in accordance with the requirements of the CRR which was amended effective from January 2015. The leverage calculation below uses the end point CRR definition of Tier 1 capital for the numerator and the CRR definition of leverage exposure.
At 31 December 2015, Barclays’ leverage ratio was 4.5%, which exceeds the expected end point minimum requirement of 3.7% as outlined by the PRA Supervisory Statement SS45/15 and the updated PRA rulebook, comprising of the 3% minimum requirement, and the fully phased in G-SII buffer.
Leverage exposure | ||||||||
| As at 31.12.15 £bn |
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| As at 31.12.14 £bn | a
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Accounting assets | ||||||||
Derivative financial instruments | 328 | 440 | ||||||
Cash collateral | 62 | 73 | ||||||
Reverse repurchase agreements and other similar secured lending | 28 | 132 | ||||||
Financial assets designated at fair valueb | 77 | 38 | ||||||
Loans and advances and other assets | 625 | 675 | ||||||
Total IFRS assets | 1,120 | 1,358 | ||||||
Regulatory consolidation adjustments | (10 | ) | (8 | ) | ||||
Derivatives adjustments | ||||||||
Derivatives netting | (293 | ) | (395 | ) | ||||
Adjustments to cash collateral | (46 | ) | (53 | ) | ||||
Net written credit protection | 15 | 27 | ||||||
Potential Future Exposure (PFE) on derivatives | 129 | 179 | ||||||
Total derivatives adjustments | (195 | ) | (242 | ) | ||||
Securities financing transactions (SFTs) adjustments | 16 | 25 | ||||||
Regulatory deductions and other adjustments | (14 | ) | (15 | ) | ||||
Weighted off-balance sheet commitments | 111 | 115 | ||||||
Total fully loaded leverage exposure | 1,028 | 1,233 | ||||||
Fully loaded CET1 capital | 40.7 | 41.5 | ||||||
Fully loaded AT1 capital | 5.4 | 4.6 | ||||||
Fully loaded Tier 1 capital | 46.2 | 46.0 | ||||||
Fully loaded leverage ratio | 4.5% | 3.7% |
Notes
Risk review
Risk performance
Analysis of liquidity risk
Liquidity risk is the risk that a firm, although solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost.
This section details the Group’s liquidity risk profile and provides information on the way the Group manages that risk.
Key metrics
133% LCR
The Group strengthened its liquidity position during the year, increasing its surplus to internal and regulatory requirements.
£9bn Term Issuance
The Group maintains access to stable and diverse sources of funding across customer deposits and wholesale debt.
Risk review
Risk performance
Funding risk – liquidity
Liquidity risk is the risk that the Group, although solvent, either does not have sufficient financial resources available to meet its obligations as they fall due, or can secure such resources only at excessive cost. This also results in a firm’s inability to meet regulatory liquidity requirements. This risk is inherent in all banking operations and can be affected by a range of Group-specific and market-wide events.
All disclosures in this section (pages 155 to 171)136) are unaudited and exclude BAGL unless otherwise stated.
LCR | 154% | |||
The Group strengthened its liquidity position during the year, increasing its surplus to internal and regulatory requirements. | ||||
Term Issuance | £12bn | |||
The Group maintains access to stable and diverse sources of funding across customer deposits and wholesale debt. |
Overview
The Group has a comprehensive Key Risk Control Framework for managing the Group’s liquidity risk. The Liquidity Framework meets the PRA’s standards and is designed to ensuremaintain that the Group maintainsGroup’s liquidity resources that are sufficient in amount and quality, and a funding profile that is appropriate to meet the liquidity risk appetite. The Liquidity Framework is delivered via a combination of policy formation, review and governance, analysis, stress testing, limit setting and monitoring.
Liquidity risk is managed separately at Barclays Africa Group Limited (BAGL) due to local currency and funding requirements. Unless stated otherwise, all disclosures in this section exclude BAGL and they are reported on a stand-alone basis. Adjusting for local requirements, BAGL liquidity risk is managed on a consistent basis to the Group.
This section provides an analysis of the Group’s: i) summary of performance, ii) liquidity risk stress testing; ii) internal and regulatory stress tests;testing, iii) liquidity pool;pool, iv) funding structure and funding relationships;relationships, v) wholesale funding;encumbrance, vi) term financing;credit ratings, and vii) encumbrance; viii) repurchase agreements; ix) credit ratings; x) liquidity management at BAGL and xi) contractual maturity of financial assets and liabilities.
For further detail on liquidity risk governance and framework see page 105.pages 343 to 345.
Summary of performance in the period
The Group maintained a surpluscontinued to maintain surpluses to its internal and regulatory requirements in 2015.requirements. The liquidity pool was £145bn (2014: £149bn)increased to £220bn (December 2016: £165bn) reflecting the approach of holding a conservative liquidity position and through net deposit growth, the unwind of legacyNon-Core portfolios, money market borrowing and drawdown from the Bank of England Term Funding Scheme. The Liquidity Coverage Ratio (LCR) was 133% (2014: 124%increased to 154% (December 2016: 131%), equivalent to a surplus of £37bn (2014: £30bn). While the liquidity pool may reduce in future, the Group intends£75bn (December 2016: £39bn) to continue to maintain a prudent surplus to regulatory requirements.100%.
Wholesale funding outstanding excluding repurchase agreements reduced to £142bn (2014: £171bn)was £157bn (December 2016: £158bn). The Group issued £9bn£11.5bn equivalent of term funding net of early redemptions during 2015,capital and senior unsecured debt from Barclays PLC (the Parent company) of which £4bn£6.1bn was in public and private senior unsecured debt, issued byand £5.4bn in capital instruments. In the holding company, Barclays PLC. During Q415, Barclays PLC also issued EUR Tier 2 securitiessame period £6.1bn of £1bn equivalent. All the capital and debt proceeds raised by Barclays PLC have been used to subscribe for instruments at Barclays Bank PLC capital and senior public term instruments either matured or were redeemed, including the operating company with a ranking corresponding to the securities issued by Barclays PLC.$1.375bn 7.1% Series 3 USD preference shares.
Under the Liquidity Framework, the Group has established a Liquidity Risk Appetite (LRA) together with the appropriate limits for the management of the liquidity risk. This is the level of liquidity risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The key expression of the liquidity risk is through internal stress tests. It is measured with reference to the liquidity pool compared to anticipated stressed net contractual and contingentstressed outflows for each of three stressspecific scenarios.
124 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Liquidity Risk Appetite
As part of the LRA, the Group runs three primaryshort term liquidity stress scenarios, aligned to the PRA’s prescribed stresses:
Under normal market conditions, the liquidity pool is managed to be at a target of at least 100% of anticipated outflows under each of these stress scenarios. The30-day Barclays-specific combined stress scenario, results in the greatest net outflows of each of the liquidity stress tests .Thetests. The combined 30-dayLRA scenario assumes outflows consistenthas been enhanced and improved to capture a Barclays specific stress coinciding with a firm specificmarket stress forover the first two weeksfull stress horizon. As part of the LRA, Barclays also establishes the minimum LCR limit. Barclays also evaluates its long-term LRA, one year stress period, followed by relatively lower outflows consistent with a market-wide stress fortest based on prolonged closure of capital markets.
Key LRA assumptions include:
For the remainder of the stress period.
Drivers of Liquidity Risk |
Key LRA Combined stress - key assumptions include:
For the year ended 31 December 2015
Wholesale
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and | ◾ Loss of repo capacity onnon-extremely liquid repos at contractual maturity date | |
Funding Risk | ◾ Roll of repo for extremely liquid repo at wider haircut at contractual maturity date | |
◾ Withdrawal of contractual buyback obligations, excess client futures margin, Prime Brokerage client cash and overlifts | ||
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Retail and Corporate | ◾ Retail and Corporate deposit outflows as counterparties seek to diversify their deposit balances | |
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Intra-day Liquidity Risk
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Off-balance Sheet | ◾ Drawdown on committed facilities based on facility and counterparty type | |
Liquidity Risk | ◾ Collateral outflows due to a 2 notch credit rating downgrade | |
◾ Increase in the Group’s initial margin requirement across all major exchanges | ||
◾ Variation margin outflows from collateralised risk positions | ||
◾ Outflow of collateral owing but not called | ||
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Franchise-Viability Risk | ◾ Liquidity held in order to meet outflows that arenon-contractual in nature, but are necessary in order to support the firm’s ongoing franchise (e.g. debt buybacks) | |
Funding Concentration Risk |
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Liquidity regulation
Since October 2015, the Group manages its liquidity profile against the new CRD IV liquidity regime implemented by PRA. The CRD IV regime defines the liquidity risk ratio, liquidity pool asset eligibility and net stress outflow applied against Barclays reported balances.
The Group monitors its position against the CRD IV Interim LCRDelegated Act Liquidity Coverage Ratio (LCR) and the Basel III Net Stable Funding Ratio (NSFR).
The LCR is designed to promote short-term resilience of a bank’s liquidity risk profile by ensuring that it hasholding sufficient high quality liquid resourcesHigh Quality Liquid Assets to survive an acute stress scenario lasting for 30 days. The NSFR has a time horizon of at least six12 months and has been developed to promote a sustainable maturity structure of assets and liabilities.
The PRA regime requires phased compliance with theCRD IV LCR standard frombecame effective on 1 October 2015, atwith a minimum ratio requirement in the UK of 80% increasingas at 31 December 2016; this increased to 90% on 1 January 2017 and then to 100% byon 1 January 2018. The methodology forAs of 31 December 2017, the Group reported a CRD IV LCR is based off the final published Delegated Act which became EU law in October 2015.of 154% (2016: 131%).
In October 2014, the BCBS published a final standard for the NSFR with the minimum requirementrequirement. On 23 November 2016 the European Commission published draft amendments to the CRR including its proposed implementation of NSFR in the EU. This proposal made a number of changes from the Basel NSFR, particularly in the treatment of derivative and secured financing transactions. In October 2017, the BCBS agreed to allow national discretion for the NSFR’s treatment of derivative liabilities. Barclays continues to assess the impact of these changes on its NSFR ratio, and notes that NSFR is not proposed to be introduceda binding regulation in January 2018 atthe EU until two years after the European legislation is finalised. We remain above 100% on an ongoing basis. The methodology for calculating the NSFR iswell ahead of implementation timelines, based on ana conservative interpretation of the Basel standards published in October 2014 and includes a number of assumptions which are subject to change prior to adoption by the European Commission through the CRD IV.
Based on the CRD IV and Basel III standards respectively, as at 31 December 2015, the Group had a surplus to both of these metrics with a CRD IV Interim LCR of 133% (2014: 124%) and a Basel III NSFR of 106% (2014: 102%).
Risk review
Risk performancerules.
Funding risk – liquidity
Comparing internalInternal and regulatory liquidity stress tests
The LRA short term stress scenarios and the CRD IV Interim LCR are all broadly comparable, short-term stress scenarios in which the sense that adequacy of defined liquidity resources is assessed against contractual and contingentnet stressed outflows over a short term stress outflows.horizon. The CRD IV Interim LCR stress tests provide an independent assessment of the Group’s liquidity risk profile.
Stress Test | Barclays short term LRA | CRD IV | ||||
Time Horizon | 30 | 30 days | ||||
Calculation | Liquid assets to net cash outflows | Liquid assets to net cash outflows |
|
As at 31 December 2015,2017, the Group held eligible liquid assets well in excess of 100% of net stress requirementsoutflows for all threeboth the 30 day combined market and Barclays specific LRA scenariosscenario and the CRD IV Interim LCR requirement.LCR.
Compliance with internal and regulatory stress tests | ||||||||
As at 31 December 2015 |
| Barclays’ LRA (one month Barclays specific £bn |
|
| CRD IV Interim LCR £bn | b
| ||
Total eligible liquidity pool | 145 | 147 | ||||||
Asset inflows | 1 | 18 | ||||||
Stress outflows | ||||||||
Retail and commercial deposit outflows | (50 | ) | (72 | ) | ||||
Wholesale funding | (15 | ) | (12 | ) | ||||
Net secured funding | (12 | ) | (1 | ) | ||||
Derivatives | (8 | ) | (6 | ) | ||||
Contractual credit rating downgrade exposure | (6 | ) | (5 | ) | ||||
Drawdowns of loan commitments | (7 | ) | (32 | ) | ||||
Intraday | (13 | ) | – | |||||
Total stress net cash flows | (110 | ) | (110 | ) | ||||
Surplus | 35 | 37 | ||||||
Liquidity pool as a percentage of anticipated net cash flows | 131% | 133% | ||||||
As at 31 December 2014 | 124% | 124% |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 125 |
In 2015, the Group strengthened its liquidity position, building a larger surplus to its internal
Risk review
Risk performance
Treasury and regulatory requirements. Capital risk – Liquidity
Compliance with internal and regulatory stress tests | ||||||||
As at 31 December 2017 | | Barclays’ Short Term LRA (30 day combined requirement) £bn |
a,b
| | CRD IV LCR £bn | b
| ||
Eligible liquidity buffer | 220 | 215 | ||||||
Net stress outflows | (175 | ) | (140 | ) | ||||
Surplus | 45 | 75 | ||||||
Liquidity pool as a percentage of anticipated net outflows as at 31 December 2017 | 126% | 154% | ||||||
Liquidity pool as a percentage of anticipated net outflows as at 31 December 2016 | 120% | 131% |
Notes
a | Of the three stress scenarios monitored as part of the short term LRA, the 30 day combined stress scenario results in the lowest ratio at 126% (2016: 144%). This compares to 139% (2016: 134%) under the 90 day market-wide scenario and 131% (2016: 120%) under the 30 day Barclays specific scenario. |
b | 31 December 2016 reflects the Barclays specific scenario results of 120% being the lowest ratio of the three scenarios. LCR and LRA includes BAGL in 2016. |
The Group plans to maintain its surplus to the internal and regulatory stress requirements at an efficient level, while considering risks to market funding conditions and its liquidity position. The continuous reassessment of these risks may lead to appropriate actions being taken with respect to sizing of the liquidity pool.
Note
Liquidity pool
The Group liquidity pool as at 31 December 20152017 was £145bn (2014: £149bn)£220bn (2016: £165bn). During 2015,2017, themonth-end liquidity pool ranged from £142bn£165bn to £168bn (2014: £134bn£232bn (2016: £132bn to £156bn)£175bn), and themonth-end average balance was £155bn (2014: £145bn)£202bn (2016: £153bn). The liquidity pool is held unencumbered and is not used to support payment or clearing requirements. Such requirements are treated as part of our regular business funding. The liquidity pool is intended to offset stress outflows, and comprises the following cash and unencumbered assets.
Composition of the Group liquidity pool as at 31 December 2015 | ||||||||||||||||||||
Liquidity pool of which CRD IV LCR eligible | ||||||||||||||||||||
|
| |||||||||||||||||||
| Liquidity pool £bn |
|
| Cash £bn |
|
| Level 1 £bn |
|
| Level 2A £bn |
| | 2014 Liquidity pool | | ||||||
Cash and deposits with central banksa | 48 | 45 | 1 | – | 37 | |||||||||||||||
Government bondsb | ||||||||||||||||||||
AAA rated | 63 | – | 63 | – | 73 | |||||||||||||||
AA+ to AA- rated | 11 | – | 7 | 4 | 12 | |||||||||||||||
Other government bonds | 1 | – | 1 | – | – | |||||||||||||||
Total government bonds | 75 | – | 71 | 4 | 85 | |||||||||||||||
Other | ||||||||||||||||||||
Supranational bonds and multilateral development banks | 7 | – | 7 | – | 9 | |||||||||||||||
Agencies and agency mortgage-backed securities | 8 | – | 6 | 2 | 11 | |||||||||||||||
Covered bonds (rated AA- and above) | 4 | – | 2 | 2 | 3 | |||||||||||||||
Other | 3 | – | – | – | 4 | |||||||||||||||
Total Other | 22 | – | 15 | 4 | 27 | |||||||||||||||
Total as at 31 December 2015 | 145 | 45 | 87 | 8 | ||||||||||||||||
Total as at 31 December 2014 | 149 | 37 | 99 | 7 | ||||||||||||||||
The Group liquidity pool is well diversified by major currency and the Group monitors LRA stress scenarios for major currencies.
|
| |||||||||||||||||||
Liquidity pool by currency | ||||||||||||||||||||
|
USD £bn |
|
|
EUR £bn |
|
|
GBP £bn |
|
|
Other £bn |
|
|
Total £bn |
| ||||||
Liquidity pool as at 31 December 2015 | 41 | 33 | 46 | 25 | 145 | |||||||||||||||
Liquidity pool as at 31 December 2014 | 46 | 27 | 54 | 22 | 149 |
Composition of the Group liquidity pool as at 31 December 2017 | ||||||||||||||||||||
Liquidity pool of which CRD IV LCR eligible | 2016 | |||||||||||||||||||
Liquidity £bn | Cash £bn | Level 1 £bn | Level 2A £bn | Liquidity £bn | ||||||||||||||||
Cash and deposits with central banksa | 173 | 169 | – | – | 103 | |||||||||||||||
Government bondsb | ||||||||||||||||||||
AAA to AA- | 31 | – | 29 | – | ||||||||||||||||
BBB+ to BBB- | 2 | – | 2 | – | ||||||||||||||||
Other LCR Ineligible Government bonds | 1 | – | – | – | ||||||||||||||||
Total government bonds | 34 | – | 31 | – | 39 | |||||||||||||||
Other | ||||||||||||||||||||
Government Guaranteed Issuers, PSEs and GSEs | 6 | – | 5 | 2 | ||||||||||||||||
International Organisations and MDBs | 4 | – | 4 | – | ||||||||||||||||
Covered bonds | 2 | – | 2 | – | ||||||||||||||||
Other | 1 | – | 1 | – | ||||||||||||||||
Total Other | 13 | – | 12 | 2 | 23 | |||||||||||||||
Total as at 31 December 2017 | 220 | 169 | 43 | 2 | ||||||||||||||||
Total as at 31 December 2016 | 165 | 101 | 55 | 3 |
Notes
a | Of which over 99% (2016: over 98%) was placed with the Bank of England, US Federal Reserve, European Central Bank, Bank of Japan and Swiss National Bank. |
b | Of which over 84% (2016: over 90%) are comprised of UK, US, Japanese, French, German, Danish, Swiss and Dutch securities. |
The Group liquidity pool is well diversified by major currency and the Group monitors LRA stress scenarios for major currencies.
Liquidity pool by currency | ||||||||||||||||||||
USD | EUR | GBP | Other | Total | ||||||||||||||||
£bn | £bn | £bn | £bn | £bn | ||||||||||||||||
Liquidity pool as at 31 December 2017 | 70 | 55 | 71 | 24 | 220 | |||||||||||||||
Liquidity pool as at 31 December 2016 | 44 | 36 | 49 | 36 | 165 |
Management of the Group liquidity pool
The composition of the Group liquidity pool is efficiently managed. The maintenance of the liquidity pool increases the Group’s costs as the interest expense paid on the liabilities used to fund the liquidity pool is greater than the interest income received on liquidity pool assets. This cost can be reduced by investing a greater portion of the Group liquidity pool in highly liquid assets other than cash and deposits with central banks while maintaining a minimum level of cash in the liquidity pool to meet cash outflows on the first day of a Barclays-specific stress and enough cash and same day settlement securities to meet all outflows in the first three days of the stress. These assets in the liquidity pool primarily comprise highly rated government bonds, and their inclusion in the liquidity pool does not compromise the liquidity position of the Group.
The composition of the liquidity pool is subject to limits set by the Board Treasury Committee and the independent Creditliquidity risk, credit risk and Marketmarket risk functions. In addition, the investment of the liquidity pool is monitored for concentration risk by issuer, currency and asset type. Given the incremental returns generated by these highly liquid assets, the risk and reward profile is continuously managed.
The Group manages the liquidity pool on a centralised basis. As at 31 December 2015, 94%2017, 93% (2016: 91%) of the liquidity pool was located in Barclays Bank PLC (2014: 92%) and was available to meet liquidity needs across the Group. The residual liquidity pool is held predominantly within Barclays Capital Inc. (BCI)., a subsidiary of Barclays Bank PLC. The portion of the liquidity pool outside of Barclays Bank PLC is held against entity-specific stressed outflows and regulatory requirements. To the extent the use of this portion of the liquidity pool is restricted due to regulatory requirements, it is assumed to be unavailable to the rest of the Group.
Notes
Risk review
Risk performance
Funding risk – liquidity
Contingent liquidity
In addition to the Group liquidity pool, the Group has access to other unencumbered assets which provide a source of contingent liquidity. While these are not relied on in the Group’s LRA, a portion of these assets may be monetised in a stress to generate liquidity through use as collateral for secured funding or through outright sale.
In either a Barclays-specific, market-wide or market-widecombined liquidity stress, liquidity available via market sources could be severely disrupted. In circumstances where market liquidity is unavailable or available only at heavily discounted prices, the Group could generate liquidity via central bank facilities. The Group maintains a significant amount of collateralpre-positioned at central banks and available to raise funding.
For more detail on the Group’s other unencumbered assets see page 163.129.
Funding structure and funding relationships
The basis for sound liquidity risk management is a solid funding structure that reduces the probability of a liquidity stress leading to an inability to meet funding obligations as they fall due. The Group’s overall funding strategy is to develop a diversified funding base (geographically, by type and by counterparty) and maintain access to a variety of alternative funding sources, to provide protection against unexpected fluctuations, while minimising the cost of funding.
Within this, the Group aims to align the sources and uses of funding. As such, retail and commercial customercorporate loans and advances are largely funded by customer deposits, with the surplus primarily funding the liquidity pool. Other assets, together with other loans and advances to customers and unencumbered assets are funded by long-term wholesale debt and equity.
The majority of reverse repurchase agreements are matched by repurchase agreements. The liquidity pool is predominantly funded through wholesale markets. Derivative liabilities and assets are largely matched. A substantial proportion of balance sheet derivative positions qualify for counterparty netting and the remaining portions are largely offset once netted against cash collateral received and paid.
These funding relationships are summarised below:
Assets | | 2015 £bn | | | 2014 £bn | | Liabilities | | 2015 £bn | | | 2014 £bn | | |||||||
Loans and advances to customersa | 336 | 346 | Customer accountsa | 374 | 366 | |||||||||||||||
Group liquidity pool | 145 | 149 | < 1 Year wholesale funding | 54 | 75 | |||||||||||||||
> 1 Year wholesale funding | 88 | 96 | ||||||||||||||||||
Other assetsb | 135 | 153 | Equity and other liabilitiesb | 104 | 112 | |||||||||||||||
Reverse repurchase agreements and other similar secured lendingc | 178 | 271 | Repurchase agreements and other similar secured borrowingc | 178 | 271 | |||||||||||||||
Derivative financial instruments | 326 | 439 | Derivative financial instruments | 322 | 438 | |||||||||||||||
Total assets | 1,120 | 1,358 | Total liabilities and equity | 1,120 | 1,358 |
Deposit funding (Includes BAGL) (audited) |
| |||||||||||||||
2015 | 2014 | |||||||||||||||
Funding of loans and advances to customers | | Loans and advances to customers | | | Customer deposits | | | Loan to deposit ratio | | | Loan to deposit ratio | | ||||
As at 31 December 2015 | £bn | £bn | % | % | ||||||||||||
Personal and Corporate Banking | 218 | 305 | ||||||||||||||
Barclaycard | 40 | 10 | ||||||||||||||
Africa Banking | 30 | 31 | ||||||||||||||
Non-Core (retail) | 12 | 2 | ||||||||||||||
Total retail and corporate funding | 300 | 348 | 86 | 89 | ||||||||||||
Investment Bank, Non-Core (wholesale) and Other | 99 | 70 | ||||||||||||||
Total | 399 | 418 | 95 | 100 |
Assets | 2017 £bn | 2016 £bn | Liabilities | 2017 £bn | 2016 £bn | |||||||||||||||
Loans and advances to customersa | 313 | 326 | Customer accountsa | 387 | 374 | |||||||||||||||
Group liquidity pool | 220 | 165 | < 1 Year wholesale funding | 57 | 70 | |||||||||||||||
> 1 Year wholesale funding | 100 | 88 | ||||||||||||||||||
Other assetsb | 89 | 185 | Equity and other liabilities | 78 | 151 | |||||||||||||||
Reverse repurchase agreements, trading portfolio assets, cash collateral and settlement balancesc | 273 | 190 | Repurchase agreements, trading portfolio liabilities, cash collateral and settlement balances | 273 | 190 | |||||||||||||||
Derivative financial instruments | 238 | 347 | Derivative financial instruments | 238 | 340 | |||||||||||||||
Total assets | 1,133 | 1,213 | Total liabilities | 1,133 | 1,213 |
Deposit funding (audited) | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Funding of loans and advances to customers As at 31 December 2017 | Loans and advances to customers £bn | Customer deposits £bn | Loan to % | Loan to % | ||||||||||||
Barclays UK | 184 | 193 | ||||||||||||||
Barclays International | 101 | 162 | ||||||||||||||
Total retail and corporate fundingd | 285 | 355 | 80% | 89% | ||||||||||||
Barclays International and Head Office | 81 | 74 | ||||||||||||||
Total Barclays Group | 366 | 429 | 85% | 93% |
Notes
a |
b |
c |
d | ||
PCB, Barclaycard, Non-Core (Retail) and Africa Banking activities are largely funded with customer deposits. As at 31 December 2015, the loan to deposit ratio for these businesses was 86% (2014: 89%). The Group loan to deposit ratio as at 31 December 2015 was 95% (2014: 100%).
The excess of the Investment Bank’s loans and advances over customer deposits is funded with long-term debt and equity. The Investment Bank does not rely on customer retail deposit funding from PCB.
As at 31 December 2015, £129bn (2014: £128bn)2017, £153bn (2016: £139bn) of total customer deposits were insured through the UK Financial Services Compensation Scheme (FSCS) and other similar schemes. In addition to these customer deposits there were £4bn (2014:(2016: £4bn) of other liabilities are insured by governments.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 127 |
Risk review
Risk performance
Treasury and Capital risk – Liquidity
Although contractually 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 protect against unexpected fluctuations in balances. Such accounts form a stable funding base for the Group’s operations and liquidity needs. The Group assesses the behavioural maturity of both customer assets and liabilities to identify structural balance sheet funding gaps. Customer behaviour is determined by quantitative modelling combined with qualitative assessment taking into account for historical experience, current customer composition, and macroeconomic projections. These behavioural profiles represent our forward looking expectation of therun-off profile. The relatively low cash outflow within one year demonstrates that customer funding remains broadly matched with customer assets from a behavioural perspective.
Behavioural maturity profile (Includes BAGL) | ||||||||||||||||||||||||||||
Behavioural maturity profile cash outflow/(inflow) | ||||||||||||||||||||||||||||
| Loans and advances to customers £bn | | | Customer deposits £bn | |
| Customer funding surplus/ (deficit) £bn |
|
| Not more than one year £bn |
| | Over one year but not more than five years £bn | | | More than five years £bn | | | Total £bn | | ||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||
Personal and Corporate Banking | 218 | 305 | 87 | 18 | 3 | 66 | 87 | |||||||||||||||||||||
Barclaycard | 40 | 10 | (30 | ) | (10 | ) | (10 | ) | (10 | ) | (30 | ) | ||||||||||||||||
Africa Banking | 30 | 31 | 1 | 2 | 1 | (2 | ) | 1 | ||||||||||||||||||||
Non-Core (Retail) | 12 | 2 | (10 | ) | (1 | ) | (2 | ) | (7 | ) | (10 | ) | ||||||||||||||||
Total | 300 | 348 | 48 | 9 | (8 | ) | 47 | 48 | ||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||
Personal and Corporate Banking | 217 | 299 | 82 | 19 | 3 | 60 | 82 | |||||||||||||||||||||
Barclaycard | 37 | 7 | (30 | ) | (10 | ) | (10 | ) | (10 | ) | (30 | ) | ||||||||||||||||
Africa Banking | 35 | 35 | – | 2 | (2 | ) | – | – | ||||||||||||||||||||
Non-Core (Retail) | 20 | 8 | (12 | ) | – | (2 | ) | (10 | ) | (12 | ) | |||||||||||||||||
Total | 309 | 349 | 40 | 11 | (11 | ) | 40 | 40 |
Wholesale funding relationships are summarised below:
Assets |
| 2015 £bn |
| | 2014 £bn | | Liabilities | | 2015 £bn | | | 2014 £bn | | |||||||
Trading portfolio assets | 28 | 37 | Repurchase agreements | 70 | 124 | |||||||||||||||
Reverse repurchase agreements | 42 | 87 | ||||||||||||||||||
Reverse repurchase agreements | 34 | 45 | Trading portfolio liabilities | 34 | 45 | |||||||||||||||
Derivative financial instruments | 326 | 440 | Derivative financial instruments | 322 | 439 | |||||||||||||||
Liquidity pool | 97 | 109 | Less than one year wholesale debt | 54 | 75 | |||||||||||||||
Other assetsa | 103 | 122 | Greater than one year wholesale debt and equity | 150 | 157 |
Repurchase agreements fund reverse repurchase agreements and trading portfolio assets. Trading portfolio liabilities are settled by the remainder of reverse repurchase agreements (see Note 19 Offsetting financial assets and liabilities for further detail on netting).
Derivative liabilities and assets are largely matched. A substantial proportion of balance sheet derivative positions qualify for counterparty netting and the remaining portions are largely offset once netted against cash collateral received and paid.
Wholesale debt, along with the surplus of customer deposits to loans and advances to customers, is used to fund the liquidity pool. Term wholesale debt and equity largely fund other assets.
Behavioural maturity profile | ||||||||||||||||||||||||
Behavioural maturity profile cash outflow/(inflow) | ||||||||||||||||||||||||
Loans and advances to customers £bn | Customer deposits £bn | Customer funding surplus/ (deficit) £bn | Not more £bn | Over one £bn | More than five years | |||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||
Barclays UK | 184 | 193 | 9 | 1 | (19 | ) | 27 | |||||||||||||||||
Barclays Internationala | 101 | 162 | 61 | 6 | 19 | 36 | ||||||||||||||||||
Total | 285 | 355 | 70 | 7 | - | 63 | ||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||
Barclays UK | 166 | 189 | 23 | (2 | ) | (19 | ) | 44 | ||||||||||||||||
Barclays Internationala | 118 | 152 | 34 | (6 | ) | 7 | 33 | |||||||||||||||||
BarclaysNon-Core | 19 | – | (19 | ) | (1 | ) | (6 | ) | (12 | ) | ||||||||||||||
Total | 303 | 341 | 38 | (9 | ) | (18 | ) | 65 |
Note
a |
include interest earning lending balances within the investment banking business. |
Risk review
Risk performance
Funding risk – liquidity
Composition of wholesaleWholesale fundinga
The Group maintains access to a variety of sources of wholesale funds in major currencies, including those available from term investors across a variety of distribution channels and geographies, money markets, and repo markets. The Group has direct access to US, European and Asian capital markets through its global investment banking operations and long-term investors through its clients worldwide, and is an active participant in money markets. As a result, wholesale funding is well diversified by product, maturity, geography and major currency.
As at 31 December 2015,2017, the Group’s total wholesale funding outstanding (excluding repurchase agreements) was £142bn (2014: £171bn). £54bn (2014: £75bn) of wholesale funding matures in less than one year,£157.4bn (2016: £157.8bn), of which £14bn (2014: £22bn)a relates to term funding.
As at 31 December 2015, outstanding wholesale funding comprised £25bn (2014: £33bn) of£20.4bn (2016: £25.8bn) was secured funding and £117bn (2014: £138bn) of£137.0bn (2016: £132.0bn) unsecured funding.
In preparation for a Single Point of Entry resolution model, Barclays continues to issue debt capital and term senior unsecured funding out of Barclays PLC, the holding company, replacing maturing debt in Barclays Bank PLC.
Maturity profile of wholesale fundingb |
| |||||||||||||||||||||||||||||||||||||||||||
| Not more than one month £bn |
|
| Over one month but not more than three months £bn |
|
| Over three months but not more than six months £bn |
|
| Over six months but not more than one year £bn |
|
| Sub-total less than one year £bn |
|
| Over one year but not more than two years £bn |
|
| Over two years but not more than three years £bn |
|
| Over three years but not more than four years £bn |
|
| Over four years but not more than five years £bn |
|
| More than five years £bn |
|
| Total £bn |
| ||||||||||||
Barclays PLC | ||||||||||||||||||||||||||||||||||||||||||||
Senior unsecured (public benchmark) | – | – | – | – | – | – | 0.8 | 1.3 | 0.9 | 3.1 | 6.1 | |||||||||||||||||||||||||||||||||
Senior unsecured (privately placed) | – | – | – | – | – | – | 0.1 | – | – | – | 0.1 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | – | – | – | – | – | – | – | – | 0.9 | 0.9 | 1.8 | |||||||||||||||||||||||||||||||||
Barclays Bank PLC | ||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks | 9.5 | 3.1 | 1.3 | 0.8 | 14.7 | 0.1 | – | – | – | 0.3 | 15.1 | |||||||||||||||||||||||||||||||||
Certificates of deposit and commercial paper | 0.5 | 4.9 | 3.4 | 5.3 | 14.1 | 1.0 | 0.6 | 0.9 | 0.4 | 0.5 | 17.5 | |||||||||||||||||||||||||||||||||
Asset backed commercial paper | 2.2 | 3.3 | 0.2 | – | 5.7 | – | – | – | – | – | 5.7 | |||||||||||||||||||||||||||||||||
Senior unsecured (public benchmark) | – | 1.3 | – | 1.4 | 2.7 | 3.6 | – | 4.3 | 1.3 | 3.9 | 15.8 | |||||||||||||||||||||||||||||||||
Senior unsecured (privately | 0.6 | 1.6 | 2.3 | 4.8 | 9.3 | 5.1 | 5.4 | 3.7 | 3.0 | 8.5 | 35.0 | |||||||||||||||||||||||||||||||||
Covered bonds | – | – | 1.1 | – | 1.1 | 4.4 | 1.0 | 1.6 | – | 4.2 | 12.3 | |||||||||||||||||||||||||||||||||
Asset backed securities | 0.7 | – | – | – | 0.7 | 0.5 | 1.4 | 1.3 | 0.5 | 0.3 | 4.7 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | – | – | – | – | – | 1.1 | 3.0 | 0.2 | 0.9 | 14.0 | 19.2 | |||||||||||||||||||||||||||||||||
Otherd | 2.3 | 1.1 | 0.3 | 1.5 | 5.2 | 0.7 | 0.3 | 0.4 | 0.4 | 1.6 | 8.6 | |||||||||||||||||||||||||||||||||
Total as at 31 December 2015 | 15.8 | 15.3 | 8.6 | 13.8 | 53.5 | 16.5 | 12.6 | 13.7 | 8.3 | 37.3 | 141.9 | |||||||||||||||||||||||||||||||||
Of which secured | 4.2 | 3.9 | 1.6 | 0.3 | 10.0 | 5.1 | 2.4 | 2.8 | 0.5 | 4.5 | 25.3 | |||||||||||||||||||||||||||||||||
Of which unsecured | 11.6 | 11.4 | 7.0 | 13.5 | 43.5 | 11.4 | 10.2 | 10.9 | 7.8 | 32.8 | 116.6 | |||||||||||||||||||||||||||||||||
Total as at 31 December 2014 | 16.8 | 23.2 | 14.4 | 21.0 | 75.4 | 14.0 | 16.1 | 6.5 | 14.0 | 45.4 | 171.4 | |||||||||||||||||||||||||||||||||
Of which secured | 5.3 | 7.8 | 1.7 | 2.2 | 17.0 | 2.7 | 5.1 | 0.1 | 2.4 | 6.0 | 33.3 | |||||||||||||||||||||||||||||||||
Of which unsecured | 11.5 | 15.4 | 12.7 | 18.8 | 58.4 | 11.3 | 11.0 | 6.4 | 11.6 | 39.4 | 138.1 |
Outstanding wholesale Unsecured funding includes £35bn (2014: £45bn)£44.8bn (2016: £37.6bn) of privately placed senior unsecured notes in issue. These notes are issued through a variety of distribution channels including intermediaries and private banks.
During the year, the Group issued £11.5bn equivalent of capital and senior unsecured debt from Barclays PLC (the Parent company), of which £6.1bn was in public senior unsecured debt and £5.4bn in capital instruments. In the same period, £6.1bn of Barclays Bank PLC capital and senior public term instruments either matured or were redeemed, including the $1.375bn 7.1% Series 3 USD preference shares.
As at 31 December 2017 wholesale funding of £57.2bn (2016: £70.3bn) matures in less than one year, of which £13.8bnb (2016: £21.5bn) relates to term funding. Although not a requirement, the liquidity pool exceeded the wholesale funding maturing in less than one year by £91bn (2014: £74bn)£163bn (2016: £95bn).
The Group expects to continue issuing public wholesale debt in 2018 from Barclays PLC (the Parent company), in order to maintain compliance with indicative MREL requirements and maintain a stable and diverse funding base by type, currency and market.
128 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Maturity profile of wholesale fundingb | ||||||||||||||||||||||||||||||||||||||||||||
<1 month | 1-3 months | 3-6 months | 6-12 months | <1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | >5 years | Total | ||||||||||||||||||||||||||||||||||
£bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | ||||||||||||||||||||||||||||||||||
Barclays PLC | ||||||||||||||||||||||||||||||||||||||||||||
Senior unsecured (Public benchmark) | – | 0.7 | – | 0.1 | 0.8 | 1.5 | 1.0 | 4.2 | 4.0 | 9.6 | 21.1 | |||||||||||||||||||||||||||||||||
Senior unsecured (Privately placed) | – | – | – | 0.1 | 0.1 | – | – | 0.2 | – | 0.5 | 0.8 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | – | – | – | – | – | – | 1.1 | – | – | 5.4 | 6.5 | |||||||||||||||||||||||||||||||||
Barclays Bank PLC (including subsidiaries) | ||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks | 5.4 | 4.7 | 0.7 | 0.6 | 11.4 | 0.1 | 0.1 | 0.3 | – | – | 11.9 | |||||||||||||||||||||||||||||||||
Certificates of deposit and commercial paper | 2.4 | 8.1 | 7.1 | 7.0 | 24.6 | 1.2 | 0.8 | 0.6 | 0.4 | 0.1 | 27.7 | |||||||||||||||||||||||||||||||||
Asset backed commercial paper | 1.9 | 4.1 | 0.4 | – | 6.4 | – | – | – | – | – | 6.4 | |||||||||||||||||||||||||||||||||
Senior unsecured (Public benchmark) | – | – | – | – | – | 2.5 | 0.6 | 0.6 | – | 1.1 | 4.8 | |||||||||||||||||||||||||||||||||
Senior unsecured (Privately placed)c | 0.5 | 0.9 | 3.6 | 2.9 | 7.9 | 9.9 | 6.7 | 1.8 | 3.1 | 14.6 | 44.0 | |||||||||||||||||||||||||||||||||
Covered bonds | – | 1.0 | – | – | 1.0 | 1.8 | 1.0 | 1.0 | 2.4 | 1.3 | 8.5 | |||||||||||||||||||||||||||||||||
Asset backed securities | – | – | 0.6 | 0.2 | 0.8 | 1.7 | 1.0 | – | 0.1 | 1.8 | 5.4 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | 2.3 | 0.1 | 0.8 | – | 3.2 | 0.1 | 0.8 | 5.2 | 3.5 | 4.5 | 17.3 | |||||||||||||||||||||||||||||||||
Otherd | 0.5 | – | 0.1 | 0.4 | 1.0 | 0.2 | 0.2 | 0.3 | – | 1.3 | 3.0 | |||||||||||||||||||||||||||||||||
Total as at 31 December 2017 | 13.0 | 19.6 | 13.3 | 11.3 | 57.2 | 19.0 | 13.3 | 14.2 | 13.5 | 40.2 | 157.4 | |||||||||||||||||||||||||||||||||
Of which secured | 1.9 | 5.1 | 1.1 | 0.2 | 8.3 | 3.5 | 2.0 | 1.0 | 2.5 | 3.1 | 20.4 | |||||||||||||||||||||||||||||||||
Of which unsecured | 11.1 | 14.5 | 12.2 | 11.1 | 48.9 | 15.5 | 11.3 | 13.2 | 11.0 | 37.1 | 137.0 | |||||||||||||||||||||||||||||||||
Total as at 31 December 2016 | 16.6 | 17.3 | 16.4 | 20.0 | 70.3 | 14.3 | 14.4 | 8.6 | 14.1 | 36.1 | 157.8 | |||||||||||||||||||||||||||||||||
Of which secured | 3.7 | 5.6 | 3.4 | 2.3 | 15.0 | 1.8 | 3.2 | 0.4 | 1.0 | 4.4 | 25.8 | |||||||||||||||||||||||||||||||||
Of which unsecured | 12.9 | 11.7 | 13.0 | 17.7 | 55.3 | 12.5 | 11.2 | 8.2 | 13.1 | 31.7 | 132.0 |
Notes
a |
The composition of wholesale funds comprises the balance sheet reported deposits from banks, financial liabilities at fair value, debt securities in issue and subordinated liabilities, excluding cash collateral and settlement |
b | Term funding comprises public benchmark and privately placed senior unsecured notes, covered bonds, asset-backed securities (ABS) and subordinated debt where the |
c | Includes structured notes of |
d | Primarily comprised of fair value deposits |
Currency composition of wholesale debt
As at 31 December 2015,2017, the proportion of wholesale funding by major currencies was as follows:
Currency composition of wholesale funding | ||||||||||||||||||||||||||||||||
| USD % | | | EUR % | | | GBP % | | | Other % | | USD % | EUR % | GBP % | Other % | |||||||||||||||||
Deposits from banks | 25 | 51 | 19 | 5 | 48 | 21 | 27 | 4 | ||||||||||||||||||||||||
Certificates of deposits and commercial paper | 25 | 60 | 14 | 1 | 50 | 40 | 9 | 1 | ||||||||||||||||||||||||
Asset backed commercial paper | 92 | 8 | – | – | 85 | 10 | 5 | – | ||||||||||||||||||||||||
Senior unsecured (public benchmark) | 43 | 20 | 28 | 9 | 59 | 23 | 12 | 6 | ||||||||||||||||||||||||
Senior unsecured (privately placed) | 39 | 21 | 18 | 22 | ||||||||||||||||||||||||||||
Senior unsecured (Privately placed) | 46 | 28 | 10 | 16 | ||||||||||||||||||||||||||||
Covered bonds/ABS | 27 | 41 | 31 | 1 | 30 | 42 | 28 | – | ||||||||||||||||||||||||
Subordinated liabilities | 44 | 19 | 37 | – | 40 | 30 | 29 | 1 | ||||||||||||||||||||||||
Total as at 31 December 2015 | 38 | 31 | 23 | 8 | ||||||||||||||||||||||||||||
Total as at 31 December 2014 | 35 | 32 | 25 | 8 | ||||||||||||||||||||||||||||
Total as at 31 December 2017 | 50 | 28 | 10 | 12 | ||||||||||||||||||||||||||||
Total as at 31 December 2016 | 48 | 32 | 16 | 4 |
To manage cross-currency refinancing risk, the Group manages to foreign exchange cash flow limits, which limit risk at specific maturities. Across wholesale funding, the composition of wholesale funding is materially unchanged.
The Group issued £9bn (2014: £15bn) of term funding net of early redemptions during 2015. The Group has £14bn of term debt maturing in 2016 and £16bn maturing in 2017a.
The Group expects to continue issuing public wholesale debt in 2016, in order to maintain a stable and diverse funding base by type, currency and distribution channel.
Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations. Barclays funds a portion of trading portfolio assets and other securities via repurchase agreements and other similar borrowing, and pledges a portion of customer loans and advances as collateral in securitisations,securitisation, covered bond and other similar secured structures. Barclays monitors the mix of secured and unsecured funding sources within the Group’s funding plan and seeks to efficiently utilise available collateral to raise secured funding and meet other collateralised obligations.collateral requirements.
Encumbered assets have been defined consistently with the Group’s reporting requirements under Article 100 of the CRR. Securities and commodities assets are considered encumbered when they have been pledged or used to secure, collateralise or credit enhance a transaction which impacts their transferability and free use. This includes external repurchase or other similar agreements with market counterparts.
Excluding assets positioned at central banks, as at 31 December 2015, £157bn (2014: £176bn)2017, £193bn (2016: £168bn) of the Group’s assets were encumbered, primarily due to cash collateral posted, firm financing of trading portfolio assets and other securities and funding secured against loans and advances to customers.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 129 |
Risk review
Risk performance
Treasury and Capital risk – Liquidity
Assets may also be encumbered under secured funding arrangements with central banks, such as the Funding for Lending Scheme.banks. In advance of such encumbrance, assets are often positioned with central banks to facilitate efficient future draw down. £88bn (2014: £99bn)£70bn (2016: £63bn) ofon-balance sheet assets were positioned at the central banks, consisting of encumbered assets and collateralpre-positioned and available for use in secured financing transactions.
£212bn (2014: £270bn)342bn (2016: £277bn) of on and off-balanceoff balance sheet assets not positioned at the central bank were identified as readily available and available for use in secured financing transactions. Additionally, they include cash and securities held in the Group liquidity pool as well as unencumbered assets which provide a source of contingent liquidity. While these additional assets are not relied upon in the Group’s LRA, a portion of these assets may be monetised to generate liquidity through use as collateral for secured funding or through outright sale. Loans and advances to customers are only classified as readily available if they are already in a form, such that, they can be used to raise funding without further management actions. This includes excess collateral already in secured funding vehicles.
£208bn (2014: £208bn)198bn (2016: £231bn) of assets not positioned at the central bank were identified as available as collateral. These assets are not subject to any restrictions on their ability to secure funding, to be offered as collateral, or to be sold to reduce potential future funding requirements, but are not immediately available in the normal course of business in their current form. They primarily consist of loans and advances which would be suitable for use in secured funding structures but are conservatively classified as not readily available because they are not in transferable form.
Not available as collateral consistconsists of assets that cannot be pledged or used as security for funding due to restrictions that prevent their pledge or use as security for funding in the normal course of business.
Derivatives and reverse repo assets relate specifically to derivatives, reverse repurchase agreements and other similar secured lending. These are shown separately as theseon-balance sheet assets cannot be pledged. However, these assets can give rise to the receipt ofnon-cash assets which are held off-balanceoff balance sheet, and can be used to raise secured funding or meet additional funding requirements.
In addition, £265bn (2014: £313bn)£548bn (2016: £406bn) of the total £306bn (2014: £396bn)£608bn (2016: £466bn) securities accepted as collateral, and heldoff-balance sheet, wereon-pledged, the significant majority of which related to matched-book activity where reverse repurchase agreements are matched by repurchase agreements entered into to facilitate client activity. The remainder relates primarily to reverse repurchasesrepurchase agreements used to settle trading portfolio liabilities as well as collateral posted against derivativederivatives margin requirements.
Asset encumbrance | ||||||||||||||||||||||||||||||||||||||||||||||
Assets encumbered as a result of transactions with counterparties other than central banks | Other assets (comprising assets encumbered at the central bank and unencumbered assets) | |||||||||||||||||||||||||||||||||||||||||||||
Assets | Assets not positioned at the central bank | |||||||||||||||||||||||||||||||||||||||||||||
On-balance sheet As at 31 December 2017 | | Assets £bn | | | As a result of covered bonds £bn |
| | As a result of securitis- ations |
| | Other £bn | | | Total £bn | | | positioned at the central banks £bn | b
| | Readily available assets £bn | | | Available as collateral £bn | | | Not available | | | Derivatives and Reverse repos £bn |
| | Total £bn | | |||||||||||||
Cash and balances at central banks | 171.1 | – | – | – | – | – | 171.1 | – | – | – | 171.1 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets | 113.8 | – | – | 73.9 | 73.9 | – | 39.9 | – | – | – | 39.9 | |||||||||||||||||||||||||||||||||||
Financial assets at fair value | 116.3 | – | – | 4.8 | 4.8 | – | 1.5 | 10.0 | – | 100.0 | 111.5 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 237.7 | – | – | – | – | – | – | – | – | 237.7 | 237.7 | |||||||||||||||||||||||||||||||||||
Loans and advances – banksa | 11.1 | – | – | – | – | – | 3.2 | 7.0 | 0.9 | – | 11.1 | |||||||||||||||||||||||||||||||||||
Loans and advances – customersa | 312.9 | 11.2 | 18.4 | 13.0 | 42.6 | 70.0 | 20.9 | 179.4 | – | – | 270.3 | |||||||||||||||||||||||||||||||||||
Cash collateral | 58.6 | – | – | 56.4 | 56.4 | – | 2.2 | – | – | – | 2.2 | |||||||||||||||||||||||||||||||||||
Settlement balances | 18.6 | – | – | – | – | – | – | – | 18.6 | – | 18.6 | |||||||||||||||||||||||||||||||||||
Financial investments | 58.9 | – | – | 15.5 | 15.5 | – | 43.0 | 0.4 | – | – | 43.4 | |||||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 12.5 | – | – | – | – | – | – | – | – | 12.5 | 12.5 | |||||||||||||||||||||||||||||||||||
Non current assets held for sale | 1.2 | – | – | – | – | – | – | 1.2 | – | – | 1.2 | |||||||||||||||||||||||||||||||||||
Other financial assets | 20.5 | – | – | – | – | – | – | – | 20.5 | – | 20.5 | |||||||||||||||||||||||||||||||||||
Totalon-balance sheet | 1,133.2 | 11.2 | 18.4 | 163.6 | 193.2 | 70.0 | 281.8 | 198.0 | 40.0 | 350.2 | 940.0 |
Off-balance sheet | ||||||||||||||||||||
Collateral received £bn | Collateral received of which on- pledged £bn | Readily available assets £bn | Available as collateral £bn | Not available as collateral £bn | ||||||||||||||||
Fair value of securities accepted as collateral | 608.4 | 547.6 | 60.1 | – | 0.7 | |||||||||||||||
Total unencumbered collateral | – | – | 341.9 | 198.0 | 40.7 |
Notes
a Excluding cash collateral and settlement balances.
b Includes both encumbered and unencumbered assets. Assets within this category that have been encumbered are disclosed as assets pledged in Note
Risk review
Risk performance
Funding risk – liquidity
Asset encumbrancea |
| |||||||||||||||||||||||||||||||||||||||||||||
| Assets encumbered as a result of transactions with counterparties other than central banks | |
| Other assets (comprising assets encumbered at the central bank and unencumbered assets) |
| |||||||||||||||||||||||||||||||||||||||||
Assets | Assets not positioned at the central bank | |||||||||||||||||||||||||||||||||||||||||||||
On-balance sheet As at 31 December 2015 | | Assets £bn | |
| As a result of covered £bn |
|
| As a result of £bn |
| | Other £bn | |
| Total £bn |
| positioned at central banksc £bn |
| | Readily available assets £bn | |
| Available as collateral |
| | Not available as collateral £bn | |
| Derivatives and Reverse repos £bn |
| | Total £bn | | ||||||||||||||
Cash and balances at central banks | 47.9 | – | – | – | – | – | 47.9 | – | – | – | 47.9 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets | 74.8 | – | – | 49.1 | 49.1 | – | 25.7 | – | – | – | 25.7 | |||||||||||||||||||||||||||||||||||
Financial assets at fair value | 72.5 | – | – | 2.5 | 2.5 | – | 3.2 | 17.7 | 1.3 | 47.8 | 70.0 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 325.5 | – | – | – | – | – | – | – | – | 325.5 | 325.5 | |||||||||||||||||||||||||||||||||||
Loans and advances – banksb | 19.6 | – | – | – | – | – | 7.9 | 10.2 | 1.5 | – | 19.6 | |||||||||||||||||||||||||||||||||||
Loans and advances – customersb | 307.3 | 16.4 | 5.9 | 8.0 | 30.3 | 86.4 | 14.8 | 175.8 | – | – | 277.0 | |||||||||||||||||||||||||||||||||||
Cash collateral | 62.6 | – | – | 62.6 | 62.6 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
Settlement balances | 20.4 | – | – | – | – | – | – | – | 20.4 | – | 20.4 | |||||||||||||||||||||||||||||||||||
Available for sale financial investments | 87.0 | – | – | 12.2 | 12.2 | – | 72.2 | 1.0 | 1.6 | – | 74.8 | |||||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 28.2 | – | – | – | – | – | – | – | – | 28.2 | 28.2 | |||||||||||||||||||||||||||||||||||
Non-current assets held for sale | 7.3 | – | – | – | – | 1.9 | 1.2 | 3.2 | 1.0 | – | 7.3 | |||||||||||||||||||||||||||||||||||
Other financial assets | 19.9 | – | – | – | – | – | – | – | 19.9 | – | 19.9 | |||||||||||||||||||||||||||||||||||
Total on-balance sheet | 1,073.0 | 16.4 | 5.9 | 134.4 | 156.7 | 88.3 | 172.9 | 207.9 | 45.7 | 401.5 | 916.3 |
Off-balance sheet | ||||||||||||||||||||
| Collateral received £bn | | | Collateral received of which on- | | | Readily available assets £bn | | | Available as collateral £bn | | | Not available as collateral £bn | | ||||||
Fair value of securities accepted as collateral | 305.9 | 265.4 | 39.0 | – | 1.5 | |||||||||||||||
Total unencumbered collateral | – | – | 211.9 | 207.9 | 47.2 |
Notes
Asset encumbrancea |
| |||||||||||||||||||||||||||||||||||||||||||||
| Assets encumbered as a result of transactions with counterparties other than central banks |
|
| Other assets (comprising assets encumbered at the central bank and unencumbered assets) |
| |||||||||||||||||||||||||||||||||||||||||
Assets | Assets not positioned at the central bank | |||||||||||||||||||||||||||||||||||||||||||||
On-balance sheet As at 31 December 2014 |
| Assets £bn |
|
| As a result of covered bonds £bn |
|
| As a result of securitis- ations £bn |
|
| Other £bn |
|
| Total £bn |
| positioned at the central banksc £bn |
|
| Readily available assets £bn |
|
| Available as collateral £bn |
|
| Not available as collateral £bn |
|
| Derivatives and Reverse repos £bn |
|
| Total £bn |
| ||||||||||||||
Cash and balances at central banks | 37.8 | – | – | – | – | – | 37.8 | – | – | – | 37.8 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets | 111.9 | – | – | 50.7 | 50.7 | – | 61.2 | – | – | – | 61.2 | |||||||||||||||||||||||||||||||||||
Financial assets at fair value | 34.2 | – | – | 2.3 | 2.3 | – | 3.5 | 20.7 | 2.5 | 5.2 | 31.9 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 438.6 | – | – | – | – | – | – | – | – | 438.6 | 438.6 | |||||||||||||||||||||||||||||||||||
Loans and advances – banksb | 19.5 | – | – | – | – | – | 8.6 | 9.2 | 1.7 | – | 19.5 | |||||||||||||||||||||||||||||||||||
Loans and advances – customersb | 311.1 | 20.4 | 9.2 | 10.3 | 39.9 | 93.4 | 8.7 | 169.1 | – | – | 271.2 | |||||||||||||||||||||||||||||||||||
Cash collateral | 72.6 | – | – | 72.6 | 72.6 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
Settlement balances | 30.8 | – | – | – | – | – | – | – | 30.8 | – | 30.8 | |||||||||||||||||||||||||||||||||||
Available for sale financial investments | 82.0 | – | – | 9.3 | 9.3 | – | 70.0 | 0.5 | 2.2 | – | 72.7 | |||||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 131.7 | – | – | – | – | – | – | – | – | 131.7 | 131.7 | |||||||||||||||||||||||||||||||||||
Non-current assets held for sale | 15.6 | – | 1.5 | – | 1.5 | 5.1 | 0.2 | 8.3 | 0.5 | – | 14.1 | |||||||||||||||||||||||||||||||||||
Other financial assets | 18.8 | – | – | – | – | – | – | – | 18.8 | – | 18.8 | |||||||||||||||||||||||||||||||||||
Total on-balance sheet | 1,304.6 | 20.4 | 10.7 | 145.2 | 176.3 | 98.5 | 190.0 | 207.8 | 56.5 | 575.5 | 1,128.3 |
Off-balance sheet | ||||||||||||||||||||||
| Collateral received £bn |
|
| Collateral received of which on- pledged £bn |
|
| Readily available assets £bn |
|
| Available as collateral £bn |
|
| Not available as collateral £bn |
| ||||||||
Fair value of securities accepted as collateral | 395.7 | 313.0 | 79.9 | – | 2.8 | |||||||||||||||||
Total unencumbered collateral | 269.9 | 207.8 | 59.3 |
Asset encumbrance | ||||||||||||||||||||||||||||||||||||||||||||||
Assets encumbered as a result of transactions with counterparties other than central banks | Other assets (comprising assets encumbered at the central bank and unencumbered assets) | |||||||||||||||||||||||||||||||||||||||||||||
Assets | Assets not positioned at the central bank | |||||||||||||||||||||||||||||||||||||||||||||
On-balance sheet As at 31 December 2016 | | Assets £bn | | | As a result of covered bonds £bn |
| | As a result of securitis- ations £bn | | | Other £bn | | | Total £bn | | | positioned at the central banks £bn |
b
| | Readily available assets £bn | | | Available as collateral £bn |
| | Not Available as collateral £bn |
| | Derivatives and Reverse repos £bn |
| | Total £bn | | |||||||||||||
Cash and balances at central banks | 102.4 | – | – | – | – | – | 102.4 | – | – | – | 102.4 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets | 80.2 | – | – | 51.2 | 51.2 | – | 29.0 | – | – | – | 29.0 | |||||||||||||||||||||||||||||||||||
Financial assets at fair value | 78.6 | – | – | 3.2 | 3.2 | – | 1.5 | 10.7 | – | 63.2 | 75.4 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 346.6 | – | – | – | – | – | – | – | – | 346.6 | 346.6 | |||||||||||||||||||||||||||||||||||
Loans and advances – banksa | 20.2 | – | – | – | – | – | 10.1 | 9.0 | 1.1 | – | 20.2 | |||||||||||||||||||||||||||||||||||
Loans and advances – customersa | 325.7 | 16.5 | 6.2 | 8.0 | 30.7 | 63.0 | 23.8 | 208.2 | – | – | 295.0 | |||||||||||||||||||||||||||||||||||
Cash collateral | 68.8 | – | – | 68.8 | 68.8 | – | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
Settlement balances | 21.3 | – | – | – | – | – | – | – | 21.3 | – | 21.3 | |||||||||||||||||||||||||||||||||||
Financial investments | 63.3 | – | – | 13.6 | 13.6 | – | 49.3 | 0.4 | – | – | 49.7 | |||||||||||||||||||||||||||||||||||
Reverse repurchase agreements | 13.5 | – | – | – | – | – | – | – | – | 13.5 | 13.5 | |||||||||||||||||||||||||||||||||||
Non current assets held for sale | 6.4 | – | – | – | – | – | 1.2 | 3.1 | 2.1 | – | 6.4 | |||||||||||||||||||||||||||||||||||
Other financial assets | 21.0 | – | – | – | – | – | – | – | 21.0 | – | 21.0 | |||||||||||||||||||||||||||||||||||
Totalon-balance sheet | 1,148.0 | 16.5 | 6.2 | 144.8 | 167.5 | 63.0 | 217.3 | 231.4 | 45.5 | 423.3 | 980.5 |
Off-balance sheet | ||||||||||||||||||||
Collateral received £bn | Collateral received of which on- pledged £bn | Readily available assets £bn | Available as collateral £bn | Not available as collateral £bn | ||||||||||||||||
Fair value of securities accepted as collateral | 466.2 | 405.5 | 59.7 | – | 1.0 | |||||||||||||||
Total unencumbered collateral | – | – | 277.0 | 231.4 | 46.5 |
Notes
a |
Excluding cash collateral and settlement balances. |
Risk review
Risk performance
Funding risk – liquidityb Includes both encumbered and unencumbered assets. Assets within this category that have been encumbered are disclosed as assets pledged in Note 40 to the financial statements page
266.
Repurchase agreements and reverse repurchase agreements
Barclays enters into repurchase and other similar secured borrowing agreements to finance its trading portfolio assets. The majority of reverse repurchase agreements are matched by offsetting repurchase agreements entered into to facilitate client activity. The remainder are used to settle trading portfolio liabilities.
Due to the high quality of collateral provided against secured financing transactions, the liquidity risk associated with this activity is significantly lower than unsecured financing transactions. Nonetheless, Barclays manages to gross and net secured mismatch limits to limit refinancing risk under a severe stress scenario and a portion of the Group’s liquidity pool is held against stress outflows on these positions. The Group secured mismatch limits are calibrated based on market capacity, liquidity characteristics of the collateral and risk appetite of the Group.
The cash value of repurchase and reverse repurchase transactions will typically differ from the market value of the collateral against which these transactions are secured by an amount referred to as a haircut (or over-collateralisation)overcollateralisation). Typical haircut levels vary depending on the quality of the collateral that underlies these transactions. For transactions secured against extremely liquid fixed income collateral, lenders demand relatively small haircuts (typically ranging from0-2%). For transactions secured against less liquid collateral, haircuts vary by asset class (typically ranging from5-10% for corporate bonds and other less liquid collateral).
As at 31 December 2015,2017, the significant majority of repurchasesrepurchase activity related to matched-book activity. The Group may face refinancing risk on the net maturity mismatch for matched-book activity.
Net matched-book activitya,b | ||||||||||
Negative number represents net repurchase agreement (net liability) | | Less than one month £bn | | | One month to three months £bn | | Over three months £bn | |||
As at 31 December 2015 | ||||||||||
Extremely liquid fixed income | (12.9) | 7.3 | 5.6 | |||||||
Liquid fixed income | 0.3 | 0.6 | (0.9) | |||||||
Equities | 7.0 | (1.5) | (5.5) | |||||||
Less liquid fixed income | 1.6 | (0.4) | (1.2) | |||||||
Total | (4.0) | 6.0 | (2.0) | |||||||
As at 31 December 2014 | ||||||||||
Extremely liquid fixed income | (8.9) | 6.3 | 2.6 | |||||||
Liquid fixed income | (0.1) | 0.5 | (0.4) | |||||||
Equities | 8.9 | (3.0) | (5.9) | |||||||
Less liquid fixed income | 1.2 | 0.3 | (1.5) | |||||||
Total | 1.1 | 4.1 | (5.2) |
Net matched-book activitya,b,c | ||||||||||||
Negative number represents net repurchase agreement (net liability) | Less than one month £bn | One month to three months £bn | Over three months £bn | |||||||||
As at 31 December 2017 | ||||||||||||
Extremely liquid Fixed Incomed | (36.4 | ) | 18.1 | 16.1 | ||||||||
Liquid Fixed Income | (0.9 | ) | 1.5 | (1.4 | ) | |||||||
Equities | 9.7 | (5.6 | ) | (8.8 | ) | |||||||
Less liquid Fixed Income | 1.7 | (0.7 | ) | (2.2 | ) | |||||||
Total | (25.9 | ) | 13.3 | 3.7 | ||||||||
As at 31 December 2016 | ||||||||||||
Extremely liquid Fixed Income | (21.8 | ) | 11.6 | 10.7 | ||||||||
Liquid Fixed Income | (0.4 | ) | 0.8 | (0.7 | ) | |||||||
Equities | 6.1 | (0.5 | ) | (9.6 | ) | |||||||
Less liquid Fixed Income | 0.6 | (0.2 | ) | (1.3 | ) | |||||||
Total | (15.5 | ) | 11.7 | (0.9 | ) |
Notes
a Includes collateral swaps.
b Includes financing positions for prime brokerage clients which are reported as customer payables or receivables on balance sheet.
c Values are reported on a cash value basis.
d Extremely liquid fixed income is defined as very highly rated sovereigns and agencies, typically rated AA+ or better. It excludes liquid fixed income, equities and other less liquid collateral.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 131 |
Risk review
Risk performance
Treasury and Capital risk – Liquidity
The residual repurchase agreement activity is the firm-financing component and reflects the GroupBarclays funding of a portion of its trading portfolio assets. The primary risk related to firm-financing activity is the inability to roll-over transactions as they mature. However, 50% (2014: 54%) of firm-financing activity was secured against highly liquid assets.
Firm financing repurchase agreementsa,b |
| |||||||||||||
| Less than one month £bn | |
| One month to three months £bn |
|
| Over three months £bn |
| Total £bn | |||||
As at 31 December 2015 | ||||||||||||||
Extremely liquid fixed income | 28.8 | 8.3 | 0.3 | 37.4 | ||||||||||
Liquid fixed income | 2.0 | 0.6 | 1.1 | 3.7 | ||||||||||
Highly liquid | 10.9 | 6.3 | 10.2 | 27.4 | ||||||||||
Less liquid | 2.7 | 1.1 | 1.9 | 5.7 | ||||||||||
Total | 44.4 | 16.3 | 13.5 | 74.2 | ||||||||||
As at 31 December 2014 | ||||||||||||||
Extremely liquid fixed income | 33.4 | 4.1 | 2.2 | 39.7 | ||||||||||
Liquid fixed income | 3.6 | 0.3 | 0.6 | 4.5 | ||||||||||
Highly liquid | 13.1 | 5.0 | 4.1 | 22.2 | ||||||||||
Less liquid | 2.3 | 1.3 | 3.3 | 6.9 | ||||||||||
Total | 52.4 | 10.7 | 10.2 | 73.3 |
Firm financing repurchase agreementsa,b,c | ||||||||||||||||
Less than one month £bn | One month to three months £bn | Over three £bn | Total £bn | |||||||||||||
As at 31 December 2017 | ||||||||||||||||
Extremely liquid Fixed Incomed | 37.2 | 10.3 | 1.4 | 48.9 | ||||||||||||
Liquid Fixed Income | 4.1 | 1.5 | 2.5 | 8.1 | ||||||||||||
Highly liquid | 17.4 | 21.4 | 15.7 | 54.5 | ||||||||||||
Less liquid | 2.1 | 1.9 | 12.6 | 16.6 | ||||||||||||
Total | 60.8 | 35.1 | 32.2 | 128.1 | ||||||||||||
As at 31 December 2016 | ||||||||||||||||
Extremely liquid Fixed Income | 28.3 | 7.1 | 1.1 | 36.5 | ||||||||||||
Liquid Fixed Income | 2.8 | 0.8 | 1.2 | 4.8 | ||||||||||||
Highly liquid | 13.2 | 8.9 | 14.0 | 36.1 | ||||||||||||
Less liquid | 1.9 | 0.8 | 2.6 | 5.3 | ||||||||||||
Total | 46.2 | 17.6 | 18.9 | 82.7 |
Notes
a Includes collateral swaps. |
b Includes financing positions for prime brokerage clients which are reported as customer payables or receivables on balance sheet.
c Values are reported on a cash value basis.
d Extremely liquid fixed income is defined as very highly rated sovereigns and agencies, typically rated AA+ or better. It excludes liquid fixed income, equities and other less liquid collateral.
In addition to monitoring and managing key metrics related to the financial strength of the Group, Barclays also subscribe tosolicits independent credit rating agency reviews byratings from Standard & Poor’s Global (S&P), Moody’s, Fitch and Rating and Investment Information (R&I). These ratings assess the creditworthiness of the Group, its subsidiaries and branches and are based on reviews of a broad range of business and financial attributes including risk management processes and procedures, capital strength, earnings,profitability, funding, liquidity, accountingasset quality, strategy and governance.
Credit ratings | ||||||||||||||
As at 31 December | Standard & Poor’s | Moody’s | Fitch | |||||||||||
Barclays Bank PLC | ||||||||||||||
Long-term | A | A1 | A | |||||||||||
Short-term | A-1 | P-1 | F1 | |||||||||||
Outlook | Stable | Negative | Rating Watch Positive | |||||||||||
Barclays Bank UK PLC | ||||||||||||||
Long-term | A | (P) A1 | A+ (EXP) | |||||||||||
Short-term | (P)P-1 | F1 (EXP) | ||||||||||||
Outlook | Stable | Unassigned | Stable | |||||||||||
| ||||||||||||||
Barclays PLC | ||||||||||||||
Long-term | BBB | Baa2 | A | |||||||||||
Short-term | A-2 | P-3 | F1 | |||||||||||
Outlook | Stable | Negative | Stable |
Barclays’All credit rating agencies took rating actions this year to assign initial ratings carryto Barclays Bank UK PLC in anticipation of the establishment of this entity as the UK ring-fenced bank in April 2018. There were also rating actions on the existing entities of Barclays Bank PLC and Barclays PLC by some of the credit rating agencies as detailed below.
In September 2017, Fitch assigned an expected rating to Barclays Bank UK PLC of A+, reflecting a one notch uplift from the expected standalone rating of A. This is due to the sufficient amount of junior debt they expect to be outstanding in Barclays Bank UK PLC, referred to as qualifying junior debt (QJD). In the same rating action, Fitch revised the outlook of Barclays Bank PLC from stable to rating watch positive in anticipation of assigning QJD uplift of one notch during 2018.
In October 2017, S&P upgraded long and short-term ratings of Barclays Bank PLC by one notch toA/A-1 fromA-/A-2 as S&P finalised their view of the status of Barclays Bank PLC. They determined that Barclays Bank PLC would remain core to the Group revising their previous expectation of a highly strategic status.
Simultaneously, Barclays Bank PLC was assigned a preliminary rating of A with a stable outlook within anticipation that it too would be core to the Group. In November 2017, S&P Moody’s and Fitch. Fitch affirmedalso revised their view of UK economic risk for the ratings in December 2015 as part of its periodic review, noting the balance of Barclays’ stable PCB and strong Barclaycard businesses against the InvestmentUK banking sector, which led to outlooks for Barclays PLC, Barclays Bank PLC and Barclays Non-Core performance.UK PLC being revised from negative to stable.
CreditMoody’s assigned a provisional rating agencies took industry wide actionsto Barclays Bank UK PLC in 2015 driven by evolving resolution frameworks. This involved the reassessmentOctober 2017 of the likelihood of sovereign support resulting in downward pressure on senior credit ratings. They also updated their methodologies which provided some mitigation to reflect the subordination of junior debt available to absorb losses ahead of senior bank creditors.
As a consequence, S&P downgraded(P)A1. The negative outlooks for Barclays PLC the holding company, by two notches and Barclays Bank PLC have remained in place since the operating company, by one notchoutcome of the EU referendum in H115. Moody’s downgraded Barclays PLC by three notches while affirmingJune 2016. Since October 2017, the ratingimplementation of ring-fencing has been included in the rationale for the maintenance Barclays Bank PLC also in H115. There was no impact on Barclays’ stand-alone credit ratings with all credit rating agencies.PLC’s negative outlook.
During the year, Barclays also solicitedsolicits issuer ratings from R&I for which they assignedand the ratings ofA- for BarclaysB PLC and A for Barclays BankBB PLC were affirmed in July 2017 with stable outlooks.
Contractual credit rating downgrade exposure (cumulative cash flow) | ||||||||
Cumulative cash outflow | ||||||||
| One-notch downgrade £bn | | | Two-notch downgrade £bn | | |||
As at 31 December 2015 | ||||||||
Securitisation derivatives | 2 | 3 | ||||||
Contingent liabilities | 1 | 1 | ||||||
Derivatives margining | – | 1 | ||||||
Liquidity facilities | 1 | 1 | ||||||
Total contractual funding or margin requirements | 4 | 6 | ||||||
As at 31 December 2014 | ||||||||
Securitisation derivatives | 5 | 6 | ||||||
Contingent liabilities | 8 | 8 | ||||||
Derivatives margining | – | 1 | ||||||
Liquidity facilities | 1 | 2 | ||||||
Total contractual funding or margin requirements | 14 | 17 |
Note
Risk review
Risk performance
Funding risk – liquidity
LiquidityThe contractual collateral requirement followingone- andtwo-notch long-term and associated short-term downgrades across all credit rating agencies, would result in outflows of £4bn and £6bn respectively, and are fully reserved for in the liquidity pool. These numbers do not assume any management at BAGL Group (audited)
Liquidity risk is managed separately at BAGL Group dueor restructuring actions that could be taken to local currency,reduce posting requirements. These outflows do not include the potential liquidity impact from loss of unsecured funding, such as from money market funds, or loss of secured funding capacity. However, unsecured and regulatory requirements.
In addition tosecured funding stresses are included in the GroupLRA stress scenarios and a portion of the liquidity pool as at 31 December 2015, BAGL Groupis held £6bn (2014: £7bn) of liquidity pool assets against BAGL specific anticipated stressed outflows. The liquidity pool consists of notes and coins, central bank deposits, government bonds and Treasury bills.these risks.
The BAGL loan to deposit ratio as at 31 December 2015 was 102% (2014: 102%).
As at 31 December 2015, BAGL had £9bn (2014: £9bn) of wholesale funding outstanding, of which £5bn (2014: £5bn) matures in less than 12 months.
Additional information on liquidity management at BAGL can be found in the Barclays Africa Group Annual Report.
Contractual maturity of financial assets and liabilities (audited)
The table on the next pagebelow 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 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.
Contractual maturity of financial assets and liabilities (audited) | ||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2017 | On demand | Not more than three months £m | Over three than six | Over six than nine | Over nine months but not more than one year £m | Over one but not | Over two but not years £m | Over three years but not more than five years £m | Over five years but not more £m | Over ten years £m | Total £m | |||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | 170,236 | 846 | – | – | – | – | – | – | – | – | 171,082 | |||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 2,153 | – | – | – | – | – | – | – | – | – | 2,153 | |||||||||||||||||||||||||||||||||
Trading portfolio assets | 113,760 | – | – | – | – | – | – | – | – | – | 113,760 | |||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 14,800 | 77,288 | 8,828 | 4,570 | 1,252 | 2,095 | 160 | 196 | 557 | 6,535 | 116,281 | |||||||||||||||||||||||||||||||||
Derivative financial instruments | 237,504 | 41 | – | – | – | 71 | 22 | 15 | 1 | 15 | 237,669 | |||||||||||||||||||||||||||||||||
Financial investments | 30 | 2,378 | 2,717 | 97 | 504 | 5,675 | 3,928 | 16,162 | 17,059 | 10,366 | 58,916 | |||||||||||||||||||||||||||||||||
Loans and advances to banks | 3,439 | 30,227 | 1,256 | 77 | 125 | 247 | 93 | 11 | – | 188 | 35,663 | |||||||||||||||||||||||||||||||||
Loans and advances to customers | 12,022 | 70,816 | 8,511 | 5,519 | 7,622 | 35,969 | 26,151 | 39,435 | 48,382 | 111,125 | 365,552 | |||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 7,522 | 4,446 | 578 | – | – | – | – | – | – | – | 12,546 | |||||||||||||||||||||||||||||||||
Other financial assets | – | 759 | – | – | – | 110 | – | – | – | – | 869 | |||||||||||||||||||||||||||||||||
Total financial assets | 561,466 | 186,801 | 21,890 | 10,263 | 9,503 | 44,167 | 30,354 | 55,819 | 65,999 | 128,229 | 1,114,491 | |||||||||||||||||||||||||||||||||
Other assetsa | 18,757 | |||||||||||||||||||||||||||||||||||||||||||
Total assets | 1,133,248 | |||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks | 4,967 | 30,826 | 718 | 438 | 214 | 74 | 135 | 316 | 35 | – | 37,723 | |||||||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 446 | – | – | – | – | – | – | – | – | – | 446 | |||||||||||||||||||||||||||||||||
Customer accounts | 334,961 | 74,812 | 7,381 | 3,386 | 3,628 | 2,684 | 500 | 882 | 231 | 656 | 429,121 | |||||||||||||||||||||||||||||||||
Repurchase agreements and other similar secured borrowing | 3,550 | 17,841 | 4,516 | 2,136 | 1,396 | 310 | 93 | 10,006 | 490 | – | 40,338 | |||||||||||||||||||||||||||||||||
Trading portfolio liabilities | 37,351 | – | – | – | – | – | – | – | – | – | 37,351 | |||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 13,298 | 102,860 | 10,570 | 5,918 | 3,139 | 10,515 | 7,281 | 5,879 | 4,923 | 9,335 | 173,718 | |||||||||||||||||||||||||||||||||
Derivative financial instruments | 237,235 | 10 | 3 | – | – | 10 | 5 | 4 | 41 | 1,037 | 238,345 | |||||||||||||||||||||||||||||||||
Debt securities in issue | 907 | 17,120 | 8,395 | 5,107 | 1,562 | 8,136 | 3,883 | 12,819 | 10,983 | 4,402 | 73,314 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | – | 2,402 | 791 | 7 | 23 | 57 | 1,959 | 8,751 | 5,466 | 4,370 | 23,826 | |||||||||||||||||||||||||||||||||
Other financial liabilities | – | 3,793 | – | – | – | 781 | – | – | – | – | 4,574 | |||||||||||||||||||||||||||||||||
Total financial liabilities | 632,715 | 249,664 | 32,374 | 16,992 | 9,962 | 22,567 | 13,856 | 38,657 | 22,169 | 19,800 | 1,058,756 | |||||||||||||||||||||||||||||||||
Other liabilitiesa | 8,476 | |||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,067,232 | |||||||||||||||||||||||||||||||||||||||||||
Cumulative liquidity gap | (71,249 | ) | (134,112 | ) | (144,596 | ) | (151,325 | ) | (151,784 | ) | (130,184 | ) | (113,686 | ) | (96,524 | ) | (52,694 | ) | 55,735 | 66,016 |
Note
a As at 31 December 2017, other assets includes balances of £1,193m (2016: £71,454m) and other liabilities includes balances of £0m (2016: £65,292m) relating to amounts held for sale. Please refer to Note 43 for details.
Barclays PLC and Barclays Bank PLC |
Contractual maturity of financial assets and liabilities (including BAGL) (audited) | ||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2015 | | On demand £m | | | Not more than three months £m | | | Over three months but not more than six | | | Over six months but not more than nine months £m | | | Over nine months but not more than one year £m | | | Over one year but not | |
| Over two years but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten £m |
|
| Over ten years £m |
| Total £m | |||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | 49,580 | 131 | – | – | – | – | – | – | – | – | 49,711 | |||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 631 | 380 | – | – | – | – | – | – | – | – | 1,011 | |||||||||||||||||||||||||||||||||
Trading portfolio assets | 77,348 | – | – | – | – | – | – | – | – | – | 77,348 | |||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 5,692 | 46,941 | 1,722 | 1,372 | 583 | 1,021 | 587 | 424 | 867 | 16,172 | 75,381 | |||||||||||||||||||||||||||||||||
Derivative financial instruments | 326,772 | 28 | 3 | 1 | 53 | 328 | 61 | 257 | 147 | 59 | 327,709 | |||||||||||||||||||||||||||||||||
Loans and advances to banks | 5,354 | 31,539 | 1,954 | 366 | 468 | 588 | 991 | 43 | 12 | 34 | 41,349 | |||||||||||||||||||||||||||||||||
Loans and advances to customers | 29,117 | 76,337 | 13,935 | 7,084 | 12,332 | 27,616 | 27,318 | 48,707 | 50,737 | 106,034 | 399,217 | |||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 2 | 24,258 | 3,296 | 292 | 205 | 74 | 35 | 1 | 24 | – | 28,187 | |||||||||||||||||||||||||||||||||
Available for sale investments | 467 | 2,396 | 1,792 | 4,936 | 2,088 | 11,537 | 14,659 | 17,898 | 21,445 | 13,049 | 90,267 | |||||||||||||||||||||||||||||||||
Other financial assets | – | 1,304 | – | – | – | 100 | – | – | – | – | 1,404 | |||||||||||||||||||||||||||||||||
Total financial assets | 494,963 | 183,314 | 22,702 | 14,051 | 15,729 | 41,264 | 43,651 | 67,330 | 73,232 | 135,348 | 1,091,584 | |||||||||||||||||||||||||||||||||
Other assetsa | 28,428 | |||||||||||||||||||||||||||||||||||||||||||
Total assets | 1,120,012 | |||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks | 5,717 | 38,720 | 1,355 | 540 | 335 | 97 | 9 | 67 | 236 | 4 | 47,080 | |||||||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 1,013 | – | – | – | – | – | – | – | – | – | 1,013 | |||||||||||||||||||||||||||||||||
Customer accounts | 312,921 | 80,114 | 7,605 | 4,253 | 5,304 | 2,845 | 912 | 1,654 | 622 | 2,012 | 418,242 | |||||||||||||||||||||||||||||||||
Repurchase agreements and other similar secured borrowing | 66 | 17,346 | 3,479 | 1,975 | 876 | 843 | 52 | – | 398 | – | 25,035 | |||||||||||||||||||||||||||||||||
Trading portfolio liabilities | 33,967 | – | – | – | – | – | – | – | – | – | 33,967 | |||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 319 | 52,185 | 3,152 | 3,470 | 2,317 | 6,093 | 5,458 | 7,446 | 4,139 | 5,533 | 90,112 | |||||||||||||||||||||||||||||||||
Derivative financial instruments | 323,786 | 80 | 92 | 49 | 49 | 42 | 13 | 57 | 70 | 14 | 324,252 | |||||||||||||||||||||||||||||||||
Debt securities in issue | 50 | 14,270 | 5,615 | 4,322 | 4,469 | 10,164 | 4,797 | 13,037 | 10,028 | 2,398 | 69,150 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | 2 | – | – | 9 | 28 | 1,254 | 2,994 | 2,194 | 8,741 | 6,245 | 21,467 | |||||||||||||||||||||||||||||||||
Other financial liabilities | – | 2,685 | – | – | – | 1,075 | – | – | – | – | 3,760 | |||||||||||||||||||||||||||||||||
Total financial liabilities | 677,841 | 205,400 | 21,298 | 14,618 | 13,378 | 22,413 | 14,235 | 24,455 | 24,234 | 16,206 | 1,034,078 | |||||||||||||||||||||||||||||||||
Other liabilitiesa | 20,070 | |||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,054,148 | |||||||||||||||||||||||||||||||||||||||||||
Cumulative liquidity gap | (182,878 | ) | (204,964 | ) | (203,560 | ) | (204,127 | ) | (201,776 | ) | (182,925 | ) | (153,509 | ) | (110,634 | ) | (61,636 | ) | 57,506 | 65,864 |
Note
Risk review
Risk performance
FundingTreasury and Capital risk – liquidityLiquidity
Contractual maturity of financial assets and liabilities (including BAGL) (audited) | ||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2014 | | On demand £m | | | Not more than three months £m | | | Over three months but not more than six | |
| Over six months but not than nine months |
| | Over nine months but not more than one year £m | | | Over one year but not | |
| Over two years but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten years £m |
|
| Over ten years £m |
| Total £m | |||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | 39,466 | 229 | – | – | – | – | – | – | – | – | 39,695 | |||||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 828 | 382 | – | – | – | – | – | – | – | – | 1,210 | |||||||||||||||||||||||||||||||||||
Trading portfolio assets | 114,717 | – | – | – | – | – | – | – | – | – | 114,717 | |||||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 5,732 | 3,139 | 1,540 | 797 | 602 | 2,696 | 1,322 | 1,253 | 1,038 | 18,538 | 36,657 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 438,270 | 26 | 6 | 8 | 7 | 204 | 274 | 443 | 439 | 232 | 439,909 | |||||||||||||||||||||||||||||||||||
Loans and advances to banks | 5,875 | 31,138 | 3,236 | 225 | 944 | 404 | 233 | 20 | 36 | – | 42,111 | |||||||||||||||||||||||||||||||||||
Loans and advances to customers | 24,607 | 99,208 | 9,225 | 6,900 | 9,241 | 35,477 | 24,653 | 48,486 | 54,168 | 115,802 | 427,767 | |||||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 144 | 117,977 | 9,857 | 2,013 | 941 | 28 | 116 | 109 | 22 | 546 | 131,753 | |||||||||||||||||||||||||||||||||||
Available for sale investments | 513 | 1,324 | 2,045 | 3,576 | 844 | 10,804 | 16,705 | 10,107 | 23,683 | 16,465 | 86,066 | |||||||||||||||||||||||||||||||||||
Other financial assets | – | 1,469 | – | – | – | 176 | – | – | – | – | 1,645 | |||||||||||||||||||||||||||||||||||
Total financial assets | 630,152 | 254,892 | 25,909 | 13,519 | 12,579 | 49,789 | 43,303 | 60,418 | 79,386 | 151,583 | 1,321,530 | |||||||||||||||||||||||||||||||||||
Other assetsa | 36,376 | |||||||||||||||||||||||||||||||||||||||||||||
Total assets | 1,357,906 | |||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks | 7,978 | 48,155 | 1,041 | 504 | 298 | 187 | 95 | 69 | 57 | 6 | 58,390 | |||||||||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 1,177 | – | – | – | – | – | – | – | – | – | 1,177 | |||||||||||||||||||||||||||||||||||
Customer accounts | 317,449 | 86,626 | 7,284 | 5,442 | 3,245 | 4,208 | 494 | 1,219 | 713 | 1,024 | 427,704 | |||||||||||||||||||||||||||||||||||
Repurchase agreements and other similar secured borrowing | 40 | 111,766 | 7,175 | 2,847 | 1,989 | 119 | 116 | – | 427 | – | 124,479 | |||||||||||||||||||||||||||||||||||
Trading portfolio liabilities | 45,124 | – | – | – | – | – | – | – | – | – | 45,124 | |||||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 665 | 6,554 | 3,493 | 4,056 | 3,244 | 7,015 | 5,524 | 9,573 | 6,174 | 8,851 | 55,149 | |||||||||||||||||||||||||||||||||||
Derivative financial instruments | 438,623 | 29 | 7 | 12 | 5 | 62 | 69 | 78 | 268 | 167 | 439,320 | |||||||||||||||||||||||||||||||||||
Debt securities in issue | 10 | 19,075 | 11,146 | 9,712 | 4,791 | 7,568 | 10,560 | 10,350 | 11,376 | 1,511 | 86,099 | |||||||||||||||||||||||||||||||||||
Subordinated liabilities | – | 235 | 48 | 15 | – | 37 | 1,259 | 1,947 | 10,938 | 6,674 | 21,153 | |||||||||||||||||||||||||||||||||||
Other financial liabilities | – | 3,060 | – | – | – | 815 | – | – | – | – | 3,875 | |||||||||||||||||||||||||||||||||||
Total financial liabilities | 811,066 | 275,500 | 30,194 | 22,588 | 13,572 | 20,011 | 18,117 | 23,236 | 29,953 | 18,233 | 1,262,470 | |||||||||||||||||||||||||||||||||||
Other liabilitiesa | 29,478 | |||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,291,948 | |||||||||||||||||||||||||||||||||||||||||||||
Cumulative liquidity gap | (180,914 | ) | (201,522 | ) | (205,807 | ) | (214,876 | ) | (215,869 | ) | (186,091 | ) | (160,905 | ) | (123,723 | ) | (74,290 | ) | 59,060 | 65,958 |
Contractual maturity of financial assets and liabilities (audited) | ||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2016 | On demand £m | Not more than three months £m | Over three than six months | Over six but not than nine | Over nine months but not more than one year £m | Over one £m | Over two £m | Over three years but £m | Over five years but not more than ten years £m | Over ten £m | Total £m | |||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||
Cash and balances at central banks | 102,031 | 322 | – | – | – | – | – | – | – | – | 102,353 | |||||||||||||||||||||||||||||||||
Items in the course of collection from other banks | 1,467 | – | – | – | – | – | – | – | – | – | 1,467 | |||||||||||||||||||||||||||||||||
Trading portfolio assets | 80,240 | – | – | – | – | – | – | – | – | – | 80,240 | |||||||||||||||||||||||||||||||||
Financial assets designated at fair value | 15,558 | 43,270 | 5,518 | 2,376 | 2,081 | 686 | 90 | 129 | 771 | 8,129 | 78,608 | |||||||||||||||||||||||||||||||||
Derivative financial instruments | 345,625 | 5 | 400 | 5 | 2 | 14 | 168 | 175 | 123 | 109 | 346,626 | |||||||||||||||||||||||||||||||||
Financial investments | 40 | 1,015 | 3,064 | 741 | 2,666 | 10,127 | 9,031 | 15,148 | 12,768 | 8,717 | 63,317 | |||||||||||||||||||||||||||||||||
Loans and advances to banks | 4,858 | 34,346 | 2,753 | 480 | 133 | 412 | 236 | 20 | 13 | – | 43,251 | |||||||||||||||||||||||||||||||||
Loans and advances to customers | 26,929 | 85,993 | 7,522 | 6,310 | 8,245 | 29,326 | 25,602 | 44,776 | 48,233 | 109,848 | 392,784 | |||||||||||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 7,043 | 3,678 | 892 | 144 | 905 | 792 | – | – | – | – | 13,454 | |||||||||||||||||||||||||||||||||
Other financial assets | – | 1,128 | – | – | – | 77 | – | – | – | – | 1,205 | |||||||||||||||||||||||||||||||||
Total financial assets | 583,791 | 169,757 | 20,149 | 10,056 | 14,032 | 41,434 | 35,127 | 60,248 | 61,908 | 126,803 | 1,123,305 | |||||||||||||||||||||||||||||||||
Other assetsa | 89,821 | |||||||||||||||||||||||||||||||||||||||||||
Total assets | 1,213,126 | |||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||
Deposits from banks | 5,906 | 39,610 | 1,120 | 672 | 351 | 193 | 13 | 328 | 21 | – | 48,214 | |||||||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 636 | – | – | – | – | – | – | – | – | – | 636 | |||||||||||||||||||||||||||||||||
Customer accounts | 317,963 | 86,081 | 5,305 | 3,023 | 4,528 | 2,836 | 1,262 | 1,043 | 441 | 696 | 423,178 | |||||||||||||||||||||||||||||||||
Repurchase agreements and other similar secured borrowing | 5,480 | 9,235 | 1,934 | 917 | 1,326 | 311 | – | 83 | 474 | – | 19,760 | |||||||||||||||||||||||||||||||||
Trading portfolio liabilities | 34,687 | – | – | – | – | – | – | – | – | – | 34,687 | |||||||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 15,285 | 41,583 | 3,970 | 4,112 | 1,827 | 7,540 | 5,762 | 5,773 | 3,588 | 6,591 | 96,031 | |||||||||||||||||||||||||||||||||
Derivative financial instruments | 339,646 | 4 | – | – | 2 | 10 | 34 | 46 | 75 | 670 | 340,487 | |||||||||||||||||||||||||||||||||
Debt securities in issue | 27 | 16,731 | 11,713 | 5,902 | 6,867 | 3,166 | 8,069 | 9,186 | 10,152 | 4,119 | 75,932 | |||||||||||||||||||||||||||||||||
Subordinated liabilities | – | 8 | – | – | 1,317 | 3,230 | 56 | 7,487 | 6,575 | 4,710 | 23,383 | |||||||||||||||||||||||||||||||||
Other financial liabilities | – | 3,198 | – | – | – | 1,189 | – | – | – | – | 4,387 | |||||||||||||||||||||||||||||||||
Total financial liabilities | 719,630 | 196,450 | 24,042 | 14,626 | 16,218 | 18,475 | 15,196 | 23,946 | 21,326 | 16,786 | 1,066,695 | |||||||||||||||||||||||||||||||||
Other liabilitiesa | 75,066 | |||||||||||||||||||||||||||||||||||||||||||
Total liabilities | 1,141,761 | |||||||||||||||||||||||||||||||||||||||||||
Cumulative liquidity gap | (135,839 | ) | (162,532 | ) | (166,425 | ) | (170,995 | ) | (173,181 | ) | (150,222 | ) | (130,291 | ) | (93,989 | ) | (53,407 | ) | 56,610 | 71,365 |
Note
a As at 31 December 2017, other assets includes balances of £1,193m (2016: £71,454m) and other liabilities includes balances of £0m (2016: £65,292m) relating to amounts held for sale. Please refer to Note 43 for details.
Expected maturity dates do not differ significantly from the contract dates, except for:
trading portfolio assets and liabilities and derivative financial instruments, which may not be held to maturity as part of the Group’s trading strategies |
retail deposits, which are included within customer accounts, are repayable on demand or at short notice on a contractual basis. In practice, these instruments form a stable base for the Group’s operations and liquidity needs because of the broad base of customers – both numerically and by depositor type (see |
financial assets designated at fair value held in respect of linked liabilities, which are managed with the associated liabilities. |
Note
134 Barclays PLC and Barclays Bank PLC |
Contractual maturity of financial liabilities on an undiscounted basis (audited)
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).
The balances in the below table do not agree directly to the balances in the consolidated balance sheet as the table incorporates all cash flows, on an undiscounted basis, related to both principal as well as those associated with all future coupon payments.
Derivative financial instruments held for trading and trading portfolio liabilities are included in the on demand column at their fair value.
Financial liabilities designated at fair value in respect of linked liabilities under investment contracts have been excluded from this analysis as the Group is not exposed to liquidity risk arising from them.
Contractual maturity of financial liabilities – undiscounted (including BAGL Group) (audited) | ||||||||||||||||||||||||||||||||||||||
| On demand £m |
|
| Not more than three months £m |
|
| Over three months but not more than six months £m |
|
| Over six months but not more than one year £m |
|
| Over one year but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten years £m |
|
| Over ten years £m |
|
| Total £m |
| ||||||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||||||||
Deposits from banks | 5,717 | 38,721 | 1,357 | 877 | 108 | 70 | 239 | 10 | 47,099 | |||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 1,013 | – | – | – | – | – | – | – | 1,013 | |||||||||||||||||||||||||||||
Customer accounts | 312,921 | 80,142 | 7,640 | 9,655 | 3,858 | 1,854 | 744 | 3,087 | 419,901 | |||||||||||||||||||||||||||||
Repurchase agreements and other similar secured lending | 66 | 17,349 | 3,482 | 2,853 | 898 | – | 491 | – | 25,139 | |||||||||||||||||||||||||||||
Trading portfolio liabilities | 33,967 | – | – | – | – | – | – | – | 33,967 | |||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 319 | 52,202 | 3,165 | 5,830 | 11,851 | 7,840 | 4,690 | 8,694 | 94,591 | |||||||||||||||||||||||||||||
Derivative financial instruments | 323,786 | 81 | 94 | 102 | 57 | 59 | 80 | 16 | 324,275 | |||||||||||||||||||||||||||||
Debt securities in issue | 50 | 14,352 | 5,845 | 9,277 | 16,777 | 14,175 | 11,276 | 4,547 | 76,299 | |||||||||||||||||||||||||||||
Subordinated liabilities | 2 | 253 | 403 | 344 | 6,057 | 3,737 | 9,969 | 6,313 | 27,078 | |||||||||||||||||||||||||||||
Other financial liabilities | – | 2,685 | – | – | 1,075 | – | – | – | 3,760 | |||||||||||||||||||||||||||||
Total financial liabilities | 677,841 | 205,785 | 21,986 | 28,938 | 40,681 | 27,735 | 27,489 | 22,667 | 1,053,122 | |||||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||||
Deposits from banks | 7,978 | 48,155 | 1,042 | 804 | 287 | 75 | 62 | 29 | 58,432 | |||||||||||||||||||||||||||||
Items in the course of collection due to other banks | 1,177 | – | – | – | – | – | – | – | 1,177 | |||||||||||||||||||||||||||||
Customer accounts | 317,449 | 86,659 | 7,364 | 8,854 | 4,851 | 1,399 | 1,046 | 2,218 | 429,840 | |||||||||||||||||||||||||||||
Repurchase agreements and other similar secured lending | 40 | 111,769 | 7,178 | 4,837 | 236 | – | 428 | – | 124,488 | |||||||||||||||||||||||||||||
Trading portfolio liabilities | 45,124 | – | – | – | – | – | – | – | 45,124 | |||||||||||||||||||||||||||||
Financial liabilities designated at fair value | 665 | 6,561 | 3,508 | 7,378 | 12,854 | 10,285 | 7,170 | 14,273 | 62,694 | |||||||||||||||||||||||||||||
Derivative financial instruments | 438,623 | 30 | 7 | 17 | 137 | 85 | 314 | 341 | 439,554 | |||||||||||||||||||||||||||||
Debt securities in issue | 10 | 19,481 | 11,406 | 14,952 | 19,416 | 11,352 | 12,075 | 2,760 | 91,452 | |||||||||||||||||||||||||||||
Subordinated liabilities | – | 380 | 324 | 171 | 1,403 | 4,339 | 11,218 | 6,683 | 24,518 | |||||||||||||||||||||||||||||
Other financial liabilities | – | 3,060 | – | – | 815 | – | – | – | 3,875 | |||||||||||||||||||||||||||||
Total financial liabilities | 811,066 | 276,095 | 30,829 | 37,013 | 39,999 | 27,535 | 32,313 | 26,304 | 1,281,154 |
Contractual maturity of financial liabilities - undiscounted (audited) | ||||||||||||||||||||||||||||||||||||
Over three | ||||||||||||||||||||||||||||||||||||
months | Over six | Over one | Over three | Over five | ||||||||||||||||||||||||||||||||
but not | months | year | years but | years but | ||||||||||||||||||||||||||||||||
Not more | more | but not | but not | not more | not more | |||||||||||||||||||||||||||||||
On | than three | than six | more than | more than | than five | than ten | Over ten | |||||||||||||||||||||||||||||
demand | months | months | one year | three years | years | years | years | Total | ||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||||||||||||||
Deposits from banks | 4,967 | 30,831 | 720 | 654 | 213 | 316 | 36 | – | 37,737 | |||||||||||||||||||||||||||
Items in the course of collection due to other banks | 446 | – | – | – | – | – | – | – | 446 | |||||||||||||||||||||||||||
Customer accounts | 334,961 | 74,830 | 7,383 | 7,020 | 3,197 | 884 | 231 | 725 | 429,231 | |||||||||||||||||||||||||||
Repurchase agreements and other similar secured lending | 3,550 | 17,847 | 4,526 | 3,557 | 410 | 10,259 | 490 | – | 40,639 | |||||||||||||||||||||||||||
Trading portfolio liabilities | 37,351 | – | – | – | – | – | – | – | 37,351 | |||||||||||||||||||||||||||
Financial liabilities designated at fair value | 13,298 | 102,983 | 10,609 | 9,118 | 18,142 | 6,177 | 5,490 | 12,834 | 178,651 | |||||||||||||||||||||||||||
Derivative financial instruments | 237,235 | 9 | 3 | – | 15 | 5 | 48 | 1,755 | 239,070 | |||||||||||||||||||||||||||
Debt securities in issue | 907 | 17,614 | 8,565 | 7,025 | 13,786 | 13,928 | 12,687 | 6,734 | 81,246 | |||||||||||||||||||||||||||
Subordinated liabilities | – | 2,822 | 1,816 | 685 | 5,501 | 10,232 | 6,243 | 6,231 | 33,530 | |||||||||||||||||||||||||||
Other financial liabilities | – | 3,793 | – | – | 781 | – | – | – | 4,574 | |||||||||||||||||||||||||||
Total financial liabilities | 632,715 | 250,729 | 33,622 | 28,059 | 42,045 | 41,801 | 25,225 | 28,279 | 1,082,475 | |||||||||||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||||||||||||||
Deposits from banks | 5,906 | 39,617 | 1,122 | 1,025 | 207 | 328 | 21 | – | 48,226 | |||||||||||||||||||||||||||
Items in the course of collection due to other banks | 636 | – | – | – | – | – | – | – | 636 | |||||||||||||||||||||||||||
Customer accounts | 317,963 | 86,101 | 5,325 | 7,565 | 4,266 | 1,120 | 1,403 | 1,013 | 424,756 | |||||||||||||||||||||||||||
Repurchase agreements and other similar secured lending | 5,480 | 9,249 | 1,939 | 2,253 | 312 | 83 | 474 | – | 19,790 | |||||||||||||||||||||||||||
Trading portfolio liabilities | 34,687 | – | – | – | – | – | – | – | 34,687 | |||||||||||||||||||||||||||
Financial liabilities designated at fair value | 15,285 | 41,599 | 3,986 | 5,979 | 13,445 | 5,899 | 3,900 | 8,443 | 98,536 | |||||||||||||||||||||||||||
Derivative financial instruments | 339,646 | 4 | – | 2 | 44 | 48 | 84 | 1,086 | 340,914 | |||||||||||||||||||||||||||
Debt securities in issue | 27 | 17,126 | 11,894 | 13,285 | 12,915 | 10,505 | 12,282 | 6,054 | 84,088 | |||||||||||||||||||||||||||
Subordinated liabilities | – | 398 | 680 | 3,117 | 7,089 | 9,324 | 7,842 | 4,866 | 33,316 | |||||||||||||||||||||||||||
Other financial liabilities | – | 3,198 | – | – | 1,189 | – | – | – | 4,387 | |||||||||||||||||||||||||||
Total financial liabilities | 719,630 | 197,292 | 24,946 | 33,226 | 39,467 | 27,307 | 26,006 | 21,462 | 1,089,336 |
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
FundingTreasury and Capital risk – liquidityLiquidity
Maturity of off-balanceoff balance sheet commitments received and given (audited)
The table below presents the maturity split of the Group’s off-balanceoff balance sheet commitments received and given at the balance sheet date. The amounts disclosed in the table are the undiscounted cash flows (i.e. nominal values) on the basis of earliest opportunity at which they are available.
Maturity analysis of off-balance sheet commitments received (including BAGL) | ||||||||||||||||||||||||||||||||||||||||||||||
| On demand £m | | | Not more than three months £m | | | Over three months but not more than six months £m | | | Over six months but not more than nine months £m | |
| Over nine months but not more than one year £m |
|
| Over one year but not more than two years £m |
|
| Over two years but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten years £m |
| | Over ten years £m | |
| Total £m |
| ||||||||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
Guarantees, letters of credit and credit insurance | 6,329 | 138 | 4 | 5 | 32 | 84 | 12 | 97 | 4 | 17 | 6,722 | |||||||||||||||||||||||||||||||||||
Forward starting repurchase agreementsa | – | 392 | – | 73 | – | – | – | – | – | – | 465 | |||||||||||||||||||||||||||||||||||
Total off-balance sheet commitments received | 6,329 | 530 | 4 | 78 | 32 | 84 | 12 | 97 | 4 | 17 | 7,187 | |||||||||||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||||||||||||
Guarantees, letters of credit and credit insurance | 6,571 | 60 | 37 | 38 | 39 | 152 | 138 | 203 | 65 | – | 7,303 | |||||||||||||||||||||||||||||||||||
Forward starting repurchase agreementsa | – | 10,778 | – | – | – | – | – | – | – | – | 10,778 | |||||||||||||||||||||||||||||||||||
Total off-balance sheet commitments received | 6,571 | 10,838 | 37 | 38 | 39 | 152 | 138 | 203 | 65 | – | 18,081 | |||||||||||||||||||||||||||||||||||
Maturity analysis of off-balance sheet commitments given (including BAGL) (audited) | ||||||||||||||||||||||||||||||||||||||||||||||
| On demand £m | | | Not more than three months £m | | | Over three months but not more than six months £m | | | Over six months but not more than nine months £m | |
| Over nine months but not more than one year £m |
|
| Over one year but not more than two years £m |
|
| Over two years but not more than three years £m |
|
| Over three years but not more than five years £m |
|
| Over five years but not more than ten years £m |
| | Over ten years £m | |
| Total £m |
| ||||||||||||||
As at 31 December 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 17,421 | 933 | 493 | 140 | 590 | 423 | 158 | 161 | 164 | 138 | 20,621 | |||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 617 | 30 | 10 | – | 61 | 119 | – | 8 | – | – | 845 | |||||||||||||||||||||||||||||||||||
Forward starting reverse repurchase agreementsa | – | 93 | – | – | – | – | – | – | – | – | 93 | |||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 274,020 | 1,152 | 1,564 | 1,116 | 1,071 | 873 | 554 | 906 | 78 | 35 | 281,369 | |||||||||||||||||||||||||||||||||||
Total off-balance sheet commitments given | 292,058 | 2,208 | 2,067 | 1,256 | 1,722 | 1,415 | 712 | 1,075 | 242 | 173 | 302,928 | |||||||||||||||||||||||||||||||||||
As at 31 December 2014 | ||||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 17,304 | 1,770 | 352 | 162 | 102 | 410 | 55 | 83 | 1,037 | 49 | 21,324 | |||||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade-related transactions | 869 | 75 | 13 | – | 19 | 115 | – | – | – | – | 1,091 | |||||||||||||||||||||||||||||||||||
Forward starting reverse repurchase agreementsa | – | 13,735 | – | 121 | – | – | – | – | – | – | 13,856 | |||||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 262,540 | 4,045 | 1,722 | 844 | 646 | 3,638 | 877 | 1,846 | 137 | 20 | 276,315 | |||||||||||||||||||||||||||||||||||
Total off-balance sheet commitments given | 280,713 | 19,625 | 2,087 | 1,127 | 767 | 4,163 | 932 | 1,929 | 1,174 | 69 | 312,586 |
Maturity analysis ofoff-balance sheet commitments received (audited) | ||||||||||||||||||||||||||||||||||||||||||||
On demand £m | Not more than three months | Over three than six | Over six months but not more than nine months £m | Over nine months but not more than one year £m | Over one year but not more than two years £m | Over two £m | Over three £m | Over five £m | Over ten years £m | Total £m | ||||||||||||||||||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||||||||||||||||||||||
Guarantees, letters of credit and credit insurance | 6,373 | 5 | 2 | 3 | 1 | 8 | 7 | 5 | 3 | 4 | 6,411 | |||||||||||||||||||||||||||||||||
Forward starting repurchase agreements | – | 29 | – | – | – | – | – | – | – | – | 29 | |||||||||||||||||||||||||||||||||
Total off balance sheet commitments received | 6,373 | 34 | 2 | 3 | 1 | 8 | 7 | 5 | 3 | 4 | 6,440 | |||||||||||||||||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||||||||||||||||||||||
Guarantees, letters of credit and credit insurance | 6,044 | 18 | 1 | 410 | 2 | 23 | 1 | 3 | – | – | 6,502 | |||||||||||||||||||||||||||||||||
Forward starting repurchase agreements | 102 | 246 | – | 1 | – | – | 18 | – | – | – | 367 | |||||||||||||||||||||||||||||||||
Total off balance sheet commitments received | 6,146 | 264 | 1 | 411 | 2 | 23 | 19 | 3 | – | – | 6,869 | |||||||||||||||||||||||||||||||||
Maturity analysis ofoff-balance sheet commitments given (audited) | ||||||||||||||||||||||||||||||||||||||||||||
Over three | Over six | |||||||||||||||||||||||||||||||||||||||||||
months | months | Over nine | Over one | Over two | Over three | Over five | ||||||||||||||||||||||||||||||||||||||
but not | but not | months | year but | years but | years but | years but | ||||||||||||||||||||||||||||||||||||||
Not more | more | more | but not | not more | not more | not more | not more | |||||||||||||||||||||||||||||||||||||
On | than three | than six | than nine | more than | than two | than three | than five | than ten | Over ten | |||||||||||||||||||||||||||||||||||
demand | months | months | months | one year | years | years | years | years | years | Total | ||||||||||||||||||||||||||||||||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 16,047 | 1,085 | 560 | 92 | 242 | 346 | 80 | 59 | 245 | 256 | 19,012 | |||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade related transactions | 34 | 593 | 147 | 26 | 6 | 5 | 1 | – | – | – | 812 | |||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 311,481 | 1,144 | 883 | 77 | 778 | 44 | 47 | 259 | 2 | 46 | 314,761 | |||||||||||||||||||||||||||||||||
Totaloff-balance sheet commitments given | 327,562 | 2,822 | 1,590 | 195 | 1,026 | 395 | 128 | 318 | 247 | 302 | 334,585 | |||||||||||||||||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||||||||||||||||||||||
Contingent liabilities | 17,111 | 425 | 845 | 233 | 285 | 355 | 187 | 88 | 259 | 151 | 19,939 | |||||||||||||||||||||||||||||||||
Documentary credits and other short-term trade related transactions | 987 | 10 | 8 | – | – | – | – | – | – | – | 1,005 | |||||||||||||||||||||||||||||||||
Standby facilities, credit lines and other commitments | 300,043 | 479 | 415 | 604 | 818 | 55 | 47 | 150 | – | 70 | 302,681 | |||||||||||||||||||||||||||||||||
Totaloff-balance sheet commitments given | 318,141 | 914 | 1,268 | 837 | 1,103 | 410 | 234 | 238 | 259 | 221 | 323,625 |
136 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Risk review
Risk performance
Treasury and capital risk – Capital
Capital risk The risk that the firm has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This includes the risk from the firm’s pension plans. All disclosures in this section pages 137 to 145 are unaudited unless otherwise stated. Key metrics | ||||
Fully loaded Common Equity Tier 1 ratio | 13.3% | |||
Average UK leverage ratio | 4.9% | |||
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, and to cover the Group’s current and forecast business needs, and associated risks in order to provide a viable and sustainable business offering.
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 ratios and exposures.
More details on monitoring and managing capital risk may be found in the Risk Management sections on pages 346 and 347.
Summary of performance in the period
Barclays continues to be in excess of minimum transitional and end point capital requirements, and regulatory minimum leverage requirements.
The fully loaded CET1 ratio increased to 13.3% (December 2016: 12.4%) principally due to a reduction in risk weighted assets (RWAs) of £52.6bn to £313.0bn. CET1 capital decreased £3.6bn to £41.6bn.
The sell down of Barclays’ holding in BAGL to 14.9%, resulting in regulatory proportional consolidation, increased the CET1 ratio by c.60bps with a £31.1bn reduction in RWAs offset by £1.8bn reduction due to BAGL minority interests no longer being included in CET1 capital.
Losses in respect of the discontinued operation due to the impairment of Barclays’ holding in BAGL allocated to goodwill, and the recycling of the BAGL currency translation reserve losses to the income statement, had no impact on CET1.
The CET1 ratio increased by a further c.50bps as a result of their RWA reductions, excluding the impact of foreign currency movements, including reductions on Non-Core.
Excluding the impacts of BAGL and foreign currency movements, CET1 capital decreased further as profits relating to continuing operations, after absorbing the impact of the US DTAre-measurement, were more than offset by the redemption of USD preference shares and the payment of pension deficit reduction contributions in the year.
The average UK leverage ratio increased to 4.9% (December 2016: 4.5%) primarily driven by the issuance of additional tier 1 capital (AT1) securities, the reduction in Non-Core related exposures and due to BAGL’s regulatory proportional consolidation.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 137 |
Risk review
Risk performance
Treasury and Capital risk – Capital
Regulatory minimum capital and leverage requirements
Capital
Barclays’ end point CET1 regulatory requirement is expected to be 11.4% comprising of a 4.5% Pillar 1 minimum, a 2.5% Capital Conservation Buffer (CCB), a 1.5% Global Systemically Important Institution(G-SII) buffer, a 2.4% Pillar 2A requirement, and an expected 0.5% Countercyclical Capital Buffer (CCyB).
The CCB and theG-SII buffer, determined by the PRA in line with guidance from the Financial Stability Board (FSB), are subject to phased implementation at 25% per annum from 2016 with full effect from 2019. The CCB has been set at 2.5% with 1.25% applicable for 2017. TheG-SII buffer for 2017 was set at 2% with 1% applicable for 2017. On 21 November 2016, the FSB confirmed that theG-SII buffer for 2018 has been set at 1.5% with 1.1% applicable for 2018. On 21 November 2017, the FSB confirmed that theG-SII buffer will remain at 1.5% applicable for 2019.
On 25 September 2017, the Financial Policy Committee (FPC) reaffirmed that it expects to increase the UK CCyB rate from 0% to 0.5% applicable from 27 June 2018 and to 1% applicable from 28 November 2018. Based on current UK exposures, Barclays’ CCyB is expected to be approximately 0.5% from November 2018. Other national authorities also determine the appropriate CCyBs that should be applied to exposures in their jurisdiction however based on current exposures these are not material.
Barclays’ Pillar 2A requirement as per the PRA’s Individual Capital Guidance (ICG) for Q417 and 2018 is 4.3% of which at least 56.25% needs to be met in CET1 form, equating to approximately 2.4% of RWAs. Certain elements of the Pillar 2A requirement are a fixed quantum while others are a proportion of RWAs and are based on a point in time assessment. The Pillar 2A requirement is subject to at least annual review.
For regulatory reporting purposes, BAGL is treated on a proportional consolidation basis based on Barclays’ holding in BAGL of 14.9%. The CRD IV CET1 transitional minimum capital requirement for 2017 is 9.2% which comprised of a 4.5% Pillar 1 minimum, a 2.4% Pillar 2A requirement, a 1.25% CCB, a 1%G-SII buffer and a 0% CCyB.
Leverage
In October 2017, following the FPC recommendation, the PRA increased the minimum requirement for the UK leverage ratio from 3% to 3.25%.
Barclays is subject to a leverage ratio requirement that is implemented on a phased basis, with a transitional requirement of 3.6% as at 31 December 2017; this comprises the 3.25% minimum requirement, a transitionalG-SII additional leverage ratio buffer(G-SII ALRB) of 0.35% and a countercyclical leverage ratio buffer (CCLB) which is currently nil. Although the leverage ratio is expressed in terms of tier 1 capital, 75% of the minimum requirement, equating to 2.4375%, needs to be met with CET1 capital. In addition, theG-SII ALRB and CCLB must be covered solely with CET1 capital. The CET1 capital held against the 0.35% transitionalG-SII ALRB was £3.4bn. The fully loaded expected end point UK leverage requirement is 4.0%.
138 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Capital Resources
The CRR and Capital Requirements Directive (CRD) implemented Basel III within the EU (collectively known as CRD IV) on 1 January 2014. The rules are supplemented by Regulatory Technical Standards and the PRA’s rulebook, including the implementation of transitional rules. However, rules and guidance are still subject to change as certain aspects of CRD IV are dependent on final technical standards and clarifications to be issued by the EBA and adopted by the European Commission and the PRA.
Capital ratios | ||||||||
As at 31 December | 2017 | 2016 | ||||||
Fully loaded CET1a,b | 13.3% | 12.4% | ||||||
PRA transitional tier 1c,d | 17.2% | 15.6% | ||||||
PRA transitional total capitalc,d | 21.5% | 19.6% | ||||||
Capital resources (audited) | ||||||||
As at 31 December | 2017 £m | 2016 £m | ||||||
Total equity (excludingnon-controlling interests) per the balance sheet | 63,905 | 64,873 | ||||||
Less: other equity instruments (recognised as AT1 capital) | (8,941 | ) | (6,449 | ) | ||||
Adjustment to retained earnings for foreseeable dividends | (392 | ) | (388 | ) | ||||
Minority interests (amount allowed in consolidated CET1) | – | 1,825 | ||||||
Other regulatory adjustments and deductions | ||||||||
Additional value adjustments (PVA) | (1,385 | ) | (1,571 | ) | ||||
Goodwill and intangible assets | (7,908 | ) | (9,054 | ) | ||||
Deferred tax assets that rely on future profitability excluding temporary differences | (593 | ) | (494 | ) | ||||
Fair value reserves related to gains or losses on cash flow hedges | (1,161 | ) | (2,104 | ) | ||||
Excess of expected losses over impairment | (1,239 | ) | (1,294 | ) | ||||
Gains or losses on liabilities at fair value resulting from own credit | 83 | 86 | ||||||
Defined-benefit pension fund assets | (732 | ) | (38 | ) | ||||
Direct and indirect holdings by an institution of own CET1 instruments | (50 | ) | (50 | ) | ||||
Deferred tax assets arising from temporary differences (amount above 10% threshold) | – | (183 | ) | |||||
Other regulatory adjustments | (22 | ) | 45 | |||||
Fully loaded CET1 capital | 41,565 | 45,204 | ||||||
Additional tier 1 (AT1) capital | ||||||||
Capital instruments and the related share premium accounts | 8,941 | 6,449 | ||||||
Qualifying AT1 capital (including minority interests) issued by subsidiaries | 3,538 | 5,445 | ||||||
Other regulatory adjustments and deductions | (130 | ) | (130 | ) | ||||
Transitional AT1 capitale | 12,349 | 11,764 | ||||||
PRA transitional tier 1 capital | 53,914 | 56,968 | ||||||
Tier 2 (T2) capital | ||||||||
Capital instruments and the related share premium accounts | 6,472 | 3,769 | ||||||
Qualifying T2 capital (including minority interests) issued by subsidiaries | 7,040 | 11,366 | ||||||
Other regulatory adjustments and deductions | (251 | ) | (257 | ) | ||||
PRA transitional total regulatory capital | 67,175 | 71,846 |
Notes
a | The transitional regulatory adjustments to CET1 capital are no longer applicable resulting in CET1 capital on a fully loaded basis being equal to that on a transitional basis. |
b | The CRD IV CET1 ratio (FSA October 2012 transitional statement) as applicable to Barclays’ tier 2 Contingent Capital Notes was 13.9% based on £43.5bn of transitional CRD IV CET1 capital and £313bn RWAs. The transitional CET1 ratio according to the FSA October 2012 transitional statement would be 13.9%. This is calculated as CET1 capital as adjusted for the transitional relief (£43.5bn), divided by CRD IV RWAs. The following transitional relief items are added back to CET1 capital: Goodwill and Intangibles (£1.6bn), Deferred tax asset (£0.1bn) and Expected losses over impairment (£0.2bn). |
c | The PRA transitional capital is based on the PRA Rulebook and accompanying supervisory statements. |
d | As at 31 December 2017, Barclays’ fully loaded tier 1 capital was £50,376m, and the fully loaded tier 1 ratio was 16.1%. Fully loaded total regulatory capital was £64,646m and the fully loaded total capital ratio was 20.7%. The fully loaded tier 1 capital and total capital measures are calculated without applying the transitional provisions set out in CRD IV and assessing compliance of AT1 and T2 instruments against the relevant criteria in CRD IV. |
e | Of the £12.3bn transitional AT1 capital, fully loaded AT1 capital comprises the £8.9bn of contingent convertible instruments issued by Barclays PLC (the holding company) and related share premium accounts, and £0.1bn capital deductions. It excludes £3.5bn legacy tier 1 capital instruments issued by subsidiaries that are subject to grandfathering. For the leverage ratio, only the AT1 capital on a fully loaded basis is applicable. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 139 |
Risk review
Risk performance
Treasury and Capital risk – Capital
Movement in CET1 capital | ||||
2017 £m | ||||
Opening balance as at 1 January | 45,204 | |||
Loss for the period attributable to equity holders | (1,283 | ) | ||
Own credit relating to derivative liabilities | 78 | |||
Dividends paid and foreseen | (978 | ) | ||
Decrease in retained regulatory capital generated from earnings | (2,183 | ) | ||
Net impact of share schemes | 86 | |||
Available for sale reserve | 438 | |||
Currency translation reserve | 3 | |||
Other reserves | (920 | ) | ||
Decrease in other qualifying reserves | (393 | ) | ||
Pensionsre-measurements within reserves | 53 | |||
Defined-benefit pension fund asset deduction | (694 | ) | ||
Net impact of pensions | (641 | ) | ||
Minority interests | (1,825 | ) | ||
Additional value adjustments (PVA) | 186 | |||
Goodwill and intangible assets | 1,146 | |||
Deferred tax assets that rely on future profitability excluding those arising from temporary differences | (99 | ) | ||
Excess of expected loss over impairment | 55 | |||
Deferred tax assets arising from temporary differences (amount above 10% threshold) | 183 | |||
Other regulatory adjustments | (68 | ) | ||
Decrease in regulatory capital due to adjustments and deductions | (422 | ) | ||
Closing balance as at 31 December | 41,565 |
CET1 capital decreased to £41.6bn (December 2016: £45.2bn) due to the following:
◾ | a £1.3bn loss for the period attributable to equity holders reflecting profit after tax of £1.1bn, including the net tax charge of £0.9bn due to there-measurement of US DTAs in Q417 offset by £2.3bn of losses in respect of the discontinued operation. The discontinued operation losses, resulting from the impairment of Barclays’ holding in BAGL allocated to goodwill and the recycling of BAGL currency translation reserve losses to the income statement, had no impact on CET1 capital with offsetting movements in the goodwill and intangible assets deduction and other qualifying reserves |
◾ | a £1.0bn decrease for dividends paid and foreseen |
◾ | a £0.4bn increase in the available for sale reserve primarily due to gains from changes in fair value on BAGL’s remaining shares held as available for sale |
◾ | The currency translation reserve remained flat in the year largely due to the £1.4bn recycling of BAGL losses to the income statement which were offset by a £1.3bn decrease driven by the depreciation of period end USD against GBP |
◾ | a £0.9bn decrease in other reserves which included a £0.5bn decrease as a result of USD preference share redemptions and £0.4bn of separation payments in relation to the sale of Barclays’ holding in BAGL |
◾ | a £0.6bn decrease net of tax as a result of movements relating to pensions. The pension asset capital deduction increase relates to the UK Retirement Fund, which is the Group’s main pension scheme, moving from a small deficit in December 2016 to a £1.0bn surplus largely due to payment deficit contributions |
◾ | a £1.8bn decrease due to BAGL minority interests which are no longer eligible as a result of proportional consolidation of BAGL |
◾ | a £1.1bn increase due to a reduced goodwill and intangible assets deduction largely as a result of the impairment of Barclays’ holding in BAGL allocated to goodwill. |
140 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Risk weighted assets
Risk weighted assets (RWAs) by risk type and business | ||||||||||||||||||||||||||||||||||||||||
Credit risk | Counterparty credit riska | Market risk | Operational risk | Total RWAs | ||||||||||||||||||||||||||||||||||||
As at 31 December 2017 | Std £m | IRB £m | Std £m | IRB £m | Settlement £m | CVA £m | Std £m | IMA £m | £m | £m | ||||||||||||||||||||||||||||||
Barclays UK | 3,811 | 54,955 | – | – | – | – | – | – | 12,167 | 70,933 | ||||||||||||||||||||||||||||||
Barclays International | 49,058 | 69,520 | 17,000 | 17,243 | 101 | 2,776 | 13,313 | 13,547 | 27,708 | 210,266 | ||||||||||||||||||||||||||||||
Head Officeb | 2,907 | 9,766 | 65 | 633 | – | 225 | 88 | 1,365 | 16,785 | 31,834 | ||||||||||||||||||||||||||||||
Barclays Group | 55,776 | 134,241 | 17,065 | 17,876 | 101 | 3,001 | 13,401 | 14,912 | 56,660 | 313,033 | ||||||||||||||||||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||||||||||||||||||
Barclays UK | 5,592 | 49,591 | 47 | – | – | – | – | – | 12,293 | 67,523 | ||||||||||||||||||||||||||||||
Barclays International | 53,201 | 82,327 | 13,515 | 13,706 | 30 | 3,581 | 9,343 | 9,460 | 27,538 | 212,701 | ||||||||||||||||||||||||||||||
Head Officeb | 9,048 | 27,122 | 77 | 1,157 | – | 927 | 482 | 2,323 | 12,156 | 53,292 | ||||||||||||||||||||||||||||||
BarclaysNon-Core | 4,714 | 9,945 | 1,043 | 6,081 | 37 | 2,235 | 477 | 2,928 | 4,673 | 32,133 | ||||||||||||||||||||||||||||||
Barclays Group | 72,555 | 168,985 | 14,682 | 20,944 | 67 | 6,743 | 10,302 | 14,711 | 56,660 | 365,649 | ||||||||||||||||||||||||||||||
Movement analysis of risk weighted assets | ||||||||||||||||||||||||||||||||||||||||
Risk weighted assets | Credit risk £bn | Counterparty credit riska £bn | Market risk £bn | Operational risk £bn | Total RWAs £bn | |||||||||||||||||||||||||||||||||||
As at 31 December 2016 | 241.5 | 42.4 | 25.0 | 56.7 | 365.6 | |||||||||||||||||||||||||||||||||||
Book size | (11.0 | ) | (1.2 | ) | 5.4 | – | (6.8 | ) | ||||||||||||||||||||||||||||||||
Acquisitions and disposals | (31.7 | ) | (1.5 | ) | (1.6 | ) | – | (34.8 | ) | |||||||||||||||||||||||||||||||
Book quality | (3.5 | ) | 0.5 | 0.1 | – | (2.9 | ) | |||||||||||||||||||||||||||||||||
Model updates | (1.4 | ) | – | – | – | (1.4 | ) | |||||||||||||||||||||||||||||||||
Methodology and policy | 0.6 | (2.2 | ) | (0.6 | ) | – | (2.2 | ) | ||||||||||||||||||||||||||||||||
Foreign exchange movementc | (4.5 | ) | – | – | – | (4.5 | ) | |||||||||||||||||||||||||||||||||
As at 31 December 2017 | 190.0 | 38.0 | 28.3 | 56.7 | 313.0 |
Notes
a | RWAs in relation to default fund contributions are included in counterparty credit risk. |
b | Includes Africa Banking RWAs. |
c | Foreign exchange movement does not include FX for modelled counterparty risk or modelled market risk. |
RWAs decreased £52.6bn to £313.0bn:
◾ | book size decreased RWAs by £6.8bn primarily due to portfolio rundowns related to BarclaysNon-Core, there-measurement of US DTAs as a result of the US Tax Cuts and Jobs Act and securitisation transactions, partially offset by increased trading activity in investment bank businesses |
◾ | acquisitions and disposals decreased RWAs £34.8bn primarily as a result of the proportional consolidation of BAGL |
◾ | book quality decreased RWAs £2.9bn primarily due to changes in risk profile in CIB |
◾ | model updates decreased RWAs £1.4bn primarily due to model changes in Africa Banking prior to the sell down of Barclays holding in BAGL |
◾ | methodology and policy decreased RWAs £2.2bn primarily due to a revised calculation basis for modelled derivative exposures |
◾ | foreign exchange movements decreased RWAs £4.5bn primarily due to the depreciation of period end USD against GBP. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 141 |
Risk review
Risk performance
Treasury and Capital risk – Capital
Leverage ratios and exposures
Barclays is required to disclose an average UK leverage ratio which is based on capital and exposure measures on the last day of each month in the quarter; as well as a UK leverage ratio which is based on the last day of the quarter. Both approaches exclude qualifying claims on central banks from the leverage exposures. Barclays is also required to disclose a Capital Requirements Regulation (CRR) leverage ratio, which is based on the end point CRR definition of tier 1 capital and the CRR definition of leverage exposure.
Leverage exposure | ||||||||
Leverage ratios | As at 31.12.17 £bn | As at 31.12.16 £bn | ||||||
Average UK leverage exposure | 1,045 | 1,137 | ||||||
Average fully loaded tier 1 capital | 51.2 | 51.6 | ||||||
Average UK leverage ratio | 4.9% | 4.5% | ||||||
UK leverage ratio | 5.1% | 5.0% | ||||||
CRR leverage ratio | 4.5% | 4.6% | ||||||
UK leverage exposure | ||||||||
Accounting assets | ||||||||
Derivative financial instruments | 238 | 347 | ||||||
Cash collateral | 53 | 67 | ||||||
Reverse repurchase agreements and other similar secured lending | 12 | 13 | ||||||
Financial assets designated at fair valuea | 116 | 79 | ||||||
Loans and advances and other assets | 714 | 707 | ||||||
Total IFRS assets | 1,133 | 1,213 | ||||||
Regulatory consolidation adjustments | 8 | (6 | ) | |||||
Derivatives adjustments | ||||||||
Derivatives netting | (217 | ) | (313 | ) | ||||
Adjustments to cash collateral | (42 | ) | (50 | ) | ||||
Net written credit protection | 14 | 12 | ||||||
Potential Future Exposure (PFE) on derivatives | 120 | 136 | ||||||
Total derivatives adjustments | (125 | ) | (215 | ) | ||||
Securities financing transactions (SFTs) adjustments | 19 | 29 | ||||||
Regulatory deductions and other adjustments | (13 | ) | (15 | ) | ||||
Weightedoff-balance sheet commitments | 103 | 119 | ||||||
CRR leverage exposure | 1,125 | 1,125 | ||||||
Qualifying central bank claims | (140 | ) | (75 | ) | ||||
UK leverage exposure | 985 | 1,050 | ||||||
Fully loaded CET1 capital | 41.6 | 45.2 | ||||||
Fully loaded AT1 capital | 8.8 | 6.8 | ||||||
Fully loaded tier 1 capital | 50.4 | 52.0 |
Note
a |
The average UK leverage ratio increased to 4.9% (December 2016: 4.5%) primarily driven by the issuance of AT1 securities, the reduction in Non-Core related exposures and due to BAGL’s regulatory proportional deconsolidation.
The CRR leverage ratio decreased to 4.5% (December 2016: 4.6%). The difference between the average UK leverage ratio and the CRR leverage ratio movement is primarily driven by an increase in cash at central banks, which are excluded from the UK leverage ratio calculation. Additionally, the year end fully loaded tier 1 capital is lower than the average due to the re-measurement of US DTAs as a result of the US Tax Cuts and Jobs Act in December;
◾ | loans and advances and other assets increased by £7bn to £714bn. This was primarily due to a £69bn increase in cash and balances at central banks largely driven by an increase in the cash contribution to the Group liquidity pool mainly exempt under UK leverage rules and a £70bn decrease in assets held for sale driven by the sell down of Barclays’ holding in BAGL. |
◾ | reverse repurchase agreements |
◾ | net derivative leverage exposures decreased £33bn to £166bn due to a reduction in interest rate and foreign exchange derivatives, the |
◾ | regulatory consolidation adjustments increased £14bn to £8bn primarily due to the proportional consolidation of BAGL following the sell down of Barclays’ holding |
◾ | weighted off balance sheet commitments decreased £16bn to £103bn primarily due to the proportional consolidation of BAGL following the sell down of Barclays’ holding. |
142 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Additional Barclays regulatory disclosures are prepared in accordance with the EBA Guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013 (see Barclays PLC Pillar 3 Report 2017) and will be disclosed on 22 February 2018, available at home.barclays/results.
Foreign exchange risk (audited)
The Group is exposed to two sources of foreign exchange risk.
a) Transactional foreign currency exposure
Transactional foreign currency exposures represent exposure on banking assets and liabilities, denominated in currencies other than the functional currency of the transacting entity.
The Group’s risk management policies prohibit the holding of significant open positions in foreign currencies outside the trading portfolio managed by Barclays International which is monitored through VaR.
Banking book transactional foreign exchange risk outside of Barclays International is monitored on a daily basis by the market risk function and minimised by the businesses.
b) Translational foreign exchange exposure
The Group’s investments in overseas subsidiaries and branches create capital resources denominated in foreign currencies, principally USD and EUR. Changes in the GBP value of the net investments due to foreign currency movements are captured in the currency translation reserve, resulting in a movement in CET1 capital.
The Group’s strategy is to minimise the volatility of the capital ratios caused by foreign exchange movements, by matching the CET1 capital movements to the revaluation of the Group’s foreign currency RWA exposures.
Functional currency of operations
Functional currency of operations (audited) | ||||||||||||||||||||||||
Foreign currency net investments £m | Borrowings which hedge | Derivatives which hedge | Structural currency exposures pre- economic hedges £m | Economic hedges £m | Remaining structural currency exposures £m | |||||||||||||||||||
As at 31 December 2017 | ||||||||||||||||||||||||
USD | 27,848 | (12,404 | ) | (540 | ) | 14,904 | (6,153 | ) | 8,751 | |||||||||||||||
EUR | 2,489 | (3 | ) | – | 2,486 | (2,127 | ) | 359 | ||||||||||||||||
ZAR | 8 | – | – | 8 | – | 8 | ||||||||||||||||||
JPY | 467 | (152 | ) | (301 | ) | 14 | – | 14 | ||||||||||||||||
Other | 2,475 | – | (1,299 | ) | 1,176 | – | 1,176 | |||||||||||||||||
Total | 33,287 | (12,559 | ) | (2,140 | ) | 18,588 | (8,280 | ) | 10,308 | |||||||||||||||
As at 31 December 2016 | ||||||||||||||||||||||||
USD | 29,460 | (12,769 | ) | – | 16,691 | (7,898 | ) | 8,793 | ||||||||||||||||
EUR | 2,121 | (363 | ) | – | 1,758 | (2,053 | ) | (295 | ) | |||||||||||||||
ZAR | 3,679 | – | (2,571 | ) | 1,108 | – | 1,108 | |||||||||||||||||
JPY | 438 | (209 | ) | (224 | ) | 5 | – | 5 | ||||||||||||||||
Other | 2,793 | – | (1,318 | ) | 1,475 | – | 1,475 | |||||||||||||||||
Total | 38,491 | (13,341 | ) | (4,113 | ) | 21,037 | (9,951 | ) | 11,086 |
The economic hedges primarily represent the USD and EUR preference shares and Additional Tier 1 (AT1) instruments that are held as equity. These are accounted for at historic cost under IFRS and do not qualify as hedges for accounting purposes.
During 2017, total structural currency exposure net of hedging instruments decreased by £0.8bn to £10.3bn (2016: £11.1bn). Foreign currency net investments decreased by £5.2bn to £33.3bn (2016: £38.5bn) driven predominantly by the decrease in ZAR investments following the partial disposal of the Group’s investment in BAGL and accounting deconsolidation of the remaining holding. The hedges associated with these investments decreased by £2.8bn to £14.7bn (2016: £17.5bn).
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 143 |
Risk review
Risk performance
Treasury and Capital risk – Capital
Pension risk review
The UK Retirement Fund (UKRF) represents approximately 96% (2016: 96%) of the Group’s total retirement benefit obligations globally. As such this risk review section focuses exclusively on the UKRF. The UKRF is closed to new entrants and there is no new final salary benefit being accrued. Existing active members accrue a combination of a cash balance benefit and a defined contribution element. Pension risk arises as the market value of the pension fund assets may decline, investment returns may reduce or the estimated value of the pension liabilities may increase.
See page 347 for more information on how pension risk is managed.
Assets
The Trustee Board of the UKRF defines its overall long-term investment strategy with investments across a broad range of asset classes. This results in an appropriate mix of return seeking assets as well as liability matching assets to better match future pension obligations. The main market risks within the asset portfolio are against interest rates and equities. The split of scheme assets is shown within Note 35. The fair value of the UKRF assets was £30.1bn as at 31 December 2017 (2016: £31.8bn).
Liabilities
The UKRF retirement benefit obligations are a series of future cash flows with relatively long duration. On an IAS 19 basis these cash flows are sensitive to changes in the expected long-term price inflation rate (RPI) and the discount rate (AA corporate bond yield curve):
◾ | An increase in long-term expected inflation corresponds to an increase in liabilities |
◾ | A decrease in the discount rate corresponds to an increase in liabilities. |
Pension risk is generated through the Group’s defined benefit schemes and this risk is set to reduce over time as the main defined benefit scheme is closed to new entrants. The chart below outlines the shape of the UKRF’s liability cash flow profile as at 31 December 2017 that takes account of the future inflation indexing of payments to beneficiaries. The majority of the cash flows (approximately 88%) fall between 0 and 40 years, peaking between 11 and 20 years and reducing thereafter. The shape may vary depending on changes to inflation and longevity expectations and any members who elect to transfer out. Transfers out will bring forward the liability cash flows.
For more detail on the UKRF’s financial and demographic assumptions see Note 35 to the financial statements.
Proportion of liability cash flows | IAS19 Pension Position in 2017 | |||
The graph above shows the UKRF’s net IAS 19 pension position for eachquarter-end for the past two years. The volatility shown by the fluctuation in the net IAS 19 pension position is reflective of the movements observed in the market.
In Q2 2016 the UKRF IAS 19 position deteriorated as the AA discount rate moved lower, driven by both a decrease in long-dated government bond yields as well as a tightening in credit spreads.
During H2 2016 this trend continued driven by the outcome of the EU Referendum in June as well as the Bank of England’s announcement on quantitative easing in August. These events drove significant market moves adversely affecting the UKRF AA discount rate. For example the market index IBOXX £-Corp AA yield was 53bps lower between June and September.
Gilt yields reverted higher in the months following September 2016 which was also reflected in a higher AA discount rate. As a result the net IAS 19 position ended 2016 close to zero.
During 2017 the net improvement in the IAS 19 position was largely driven by bank contributions. Changes to market levels, in particular equity prices and interest rates, largely offset each other over the year.
Please see Note 35 for the sensitivity of the UKRF to changes in key assumptions.
144 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Risk measurement
In line with Barclays’ risk management framework the assets and liabilities of the UKRF are modelled within a VaR framework to show the volatility of the pension positions on a total portfolio level. This enables the risks, diversification and liability matching characteristics of the UKRF obligations and investments to be adequately captured. VaR is measured and monitored on a monthly basis. Risks are reviewed and reported regularly at forums including the Board Risk Committee, the Group Risk Committee, the Pensions Management Group and the Pension Executive Board. The VaR model takes into account the valuation of the liabilities based on an IAS 19 basis (see Note 35). The Trustee receives quarterly VaR measures on a funding basis.
The pension liability is also sensitive to post-retirement mortality assumptions which are reviewed regularly. See Note 35 for more details.
In addition the impact of pension risk to the Group is taken into account as part of the stress testing process. Stress testing is performed internally on at least an annual basis. The UKRF exposure is also included as part of regulatory stress tests.
Barclays defined benefit pension schemes affects capital in two ways:
◾ | An IAS |
◾ | In the Group’s statutory balance sheet an IAS 19 surplus or deficit is partially offset by a deferred tax liability or asset respectively. These may or may not be recognised for calculating CET1 capital depending on the overall deferred tax position of the Group at the particular time. |
Pension risk is taken into account in the Pillar 2A capital assessment undertaken by the PRA at least annually. The Pillar 2A requirement forms part of the Group’s overall regulatory minimum requirement for CET1 capital, Tier 1 capital and total capital. More detail on minimum regulatory requirements can be found in the capital risk management section on page 346.
Minimum requirement for own funds and eligible liabilities (MREL)
Under the Bank of England’s statement of policy on MREL, the BoE will set MREL for UK globally systemically important banks(G-SIBs) as necessary to implement the total loss-absorbing capacity (TLAC) standard and institution or group-specific MREL requirements will depend on the preferred resolution strategy for that institution or group.
The MREL requirements will be phased in from 1 January 2019 and will be fully implemented by 1 January 2022, at which timeG-SIBs with resolution entities incorporated in the UK, including Barclays, will be required to meet an MREL equivalent to the higher of (i) two times the sum of its Pillar 1 and Pillar 2A requirements or (ii) the higher of two times its leverage ratio or 6.75% of leverage exposures. However, the PRA will review the MREL calibration by the end of 2020, including assessing the proposal for Pillar 2A recapitalisation which may drive a different 1 January 2022 MREL requirement than currently proposed. In addition, it is proposed that CET1 capital cannot be counted towards both MREL and the combined buffer requirement (CBR), meaning that the CBR will effectively be applied above both the Pillar 1 and Pillar 2A requirements relating to own funds and MREL.
Barclays’ indicative MREL requirement is currently expected to be 29.1% of RWAs from 1 January 2022 consisting of the following components:
◾ | Loss absorption and recapitalisation amounts consisting of 8% Pillar 1 and 4.3% Pillar 2A buffers respectively |
◾ | Regulatory buffers including a 1.5%G-SII buffer, 2.5% Capital Conservation Buffer and 0.5% from the planned introduction of a 1% Countercyclical Capital Buffer for the UKa |
MREL position and ratios | ||||||||
MREL ratios | 2017 | 2016 | ||||||
Fully loaded CET1 capital | 13.3% | 12.4% | ||||||
Additional tier 1 (AT1) capital instruments and related share premium accounts | 2.9% | 1.8% | ||||||
Tier 2 (T2) capital instruments and related share premium accounts | 2.1% | 1.0% | ||||||
Term senior unsecured funding | 6.8% | 4.6% | ||||||
Total Barclays PLC (the Parent company) MREL ratio | 25.0% | 19.8% | ||||||
Qualifying AT1 capital (including minority interests) issued by subsidiariesb | 1.1% | 1.5% | ||||||
Qualifying T2 capital (including minority interests) issued by subsidiariesb | 2.2% | 3.0% | ||||||
Total MREL ratio on a transitional basis, including eligible Barclays Bank PLC instruments | 28.2% | 24.2% | ||||||
MREL position | £m | £m | ||||||
Fully loaded CET1 capital | 41,565 | 45,204 | ||||||
AT1 capital instruments and related share premium accounts | 8,941 | 6,449 | ||||||
T2 capital instruments and related share premium accounts | 6,472 | 3,769 | ||||||
Term senior unsecured funding | 21,166 | 16,785 | ||||||
Total Barclays PLC (the Parent company) MREL position | 78,144 | 72,207 | ||||||
Qualifying AT1 capital (including minority interests) issued by subsidiariesb | 3,408 | 5,315 | ||||||
Qualifying T2 capital (including minority interests) issued by subsidiariesb | 6,789 | 11,109 | ||||||
Total MREL position on a transitional basis, including eligible Barclays Bank PLC instruments | 88,341 | 88,631 | ||||||
Total RWAs | 313,033 | 365,649 |
Notes
a | 2022 requirements subject to Bank of England review by the end of 2020. |
b | Includes other AT1 capital regulatory adjustments and deductions of £130m (December 2016: £130m) and other T2 capital regulatory adjustments and deductions of £251m (December 2016: £257m). |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 145 |
Risk review
Risk performance
Treasury and Capital risk – Interest rate risk
Interest rate risk in the banking book
The risk that the firm is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its(non-traded) assets and liabilities.
All disclosures in this section (pages 146 to 148) are unaudited and exclude BAGL unless otherwise stated.
Key metrics
AEaR | +£76m | |
across the Group from a positive 100bps shock in interest rates. The Group maintains access to stable and diverse sources of funding across customer deposits and wholesale debt. |
Overview
Thenon-traded market risk framework covers exposures in the banking book, mostly relating to accrual accounted and Available for Sale instruments. The potential volatility of net interest income is measured by an Annual Earnings at Risk (AEaR) metric which is monitored regularly and reported to Senior Management and the BRC as part of the limit monitoring framework.
For further detail on interest rate risk in the banking book governance and framework see pages 347 to 348.
Summary of performance in the period
Annual Earnings at Risk (AEaR), is a key measure of interest rate risk in the banking book (IRRBB). The additional sensitivity measure of a positive 100bps shock was added for 2017, driven by the rise in GBP base rate in November 2017.
146 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Interest rate risk in the banking book
Net interest income sensitivity
The table below shows a sensitivity analysis onpre-tax net interest income fornon-trading financial assets and financial liabilities, including the effect of any hedging. The sensitivity has been measured using the Annual Earnings at Risk (AEaR) methodology as described on page 347. Note that this metric assumes an instantaneous parallel change to interest rate forward curves. The model floors shocked market rates at zero; changes in Net Interest Income (NII) sensitivity are only observed where forward rates are greater than zero. The main model assumptions are: (i) one year time horizon; (ii) balance sheet is held constant; (iii) balances are adjusted for assumed behavioural profiles (e.g. considers that customers may remortgage before the contractual maturity); and (iv) behavioural assumptions are kept unchanged in all rate scenarios.
Net interest income sensitivity (AEaR) by business unita,b,c | ||||||||||||||||
Barclays UK £m | Barclays International | Barclays Non-Core £m | Total £m | |||||||||||||
As at 31 December 2017 | ||||||||||||||||
+100bps | 45 | 31 | – | 76 | ||||||||||||
+25bps | 11 | 9 | – | 20 | ||||||||||||
-25bps | (61 | ) | (22 | ) | – | (83 | ) | |||||||||
As at 31 December 2016 | ||||||||||||||||
+100bps | 19 | 46 | 6 | 71 | ||||||||||||
+25bps | 5 | 16 | 1 | 22 | ||||||||||||
-25bps | (130 | ) | (90 | ) | – | (220 | ) |
Notes
a | Excludes investment banking business. |
b | Excludes Treasury operations, which are driven by the firm’s investments in the liquidity pool, which are risk managed using value-based risk measures described on pages 342 to 344. Treasury’s NII (AEaR) sensitivity to a +25/-25bps move is £13m / £(2)m respectively. |
c | Expected fixed rate mortgage pipeline completions in Barclays UK assumed to be consistent with level and timing of pipeline hedging. |
NII asymmetry arises due to the current low level of interest rates. Modelled NII sensitivity to a -25bp shock to rates has however reduced year on year as a result of the change in UK base rate increasing from 0.25% to 0.5% in November 2017.
Both Barclays UK and Barclays International exposures to falling rates have reduced as a result of the higher base rate environment and the movement of customer savings rates away from the implicit customer savings market 0% floor.
Net interest income sensitivity (AEaR) by currencya | ||||||||||||||||
2017 | 2016 | |||||||||||||||
As at 31 December 2017 | +25 basis points £m | -25 basis points £m | +25 basis points £m | -25 basis points £m | ||||||||||||
GBP | 12 | (76 | ) | 9 | (215 | ) | ||||||||||
USD | 1 | (1 | ) | 3 | (5 | ) | ||||||||||
EUR | 4 | (1 | ) | 7 | 1 | |||||||||||
Other currencies | 3 | (5 | ) | 3 | (1 | ) | ||||||||||
Total | 20 | (83 | ) | 22 | (220 | ) | ||||||||||
As percentage of net interest income | 0.20% | (0.84% | ) | 0.21% | (2.09% | ) |
Note
a | Barclays UK and Barclays International sensitivity (excluding Investment Banking business and Treasury). |
Economic Capital by business unit
Barclays measures somenon-traded market risks using an economic capital (EC) methodology. EC is predominantly calculated using a VaR model using a 99% confidence interval aligning to other regulatory submissions. For more information on definitions of prepayment, recruitment and residual risk, and on how EC is used to manage IRRBB risk, see the treasury and capital risk management section on pages 347 to 348.
Economic Capital by business unit | ||||||||||||
Barclays UK £m | Barclays Internationala £m | Total £m | ||||||||||
As at 31 December 2017 | ||||||||||||
Prepayment risk | 20 | 13 | 33 | |||||||||
Recruitment risk | 64 | 1 | 65 | |||||||||
Residual risk | 3 | 3 | 6 | |||||||||
Total | 87 | 17 | 104 | |||||||||
As at 31 December 2016 | ||||||||||||
Prepayment risk | 27 | 8 | 35 | |||||||||
Recruitment risk | 18 | 2 | 20 | |||||||||
Residual risk | 1 | 35 | 36 | |||||||||
Total | 46 | 45 | 91 |
Note
a | Only retail exposures within Barclays International are captured in the measure. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 147 |
Risk review
Risk performance
Treasury and Capital risk – Interest rate risk
Recruitment risk in Barclays UK has increased by £46m due to higher volumes of pipeline hedging, as a result of increased customer appetite for fixed rate mortgages.
Analysis of equity sensitivity
Equity sensitivity table measures the overall impact of a +/- 25bps movement in interest rates on retained earnings, available for sale and cash flow hedge reserves. This data is captured using DV01 metric which is an indicator of the shift in value for a 1 basis point in the yield curve.
Analysis of equity sensitivity | ||||||||||||||||
2017 | 2016 | |||||||||||||||
As at 31 December | +25 basis points £m | -25 basis points £m | +25 basis points £m | -25 basis points £m | ||||||||||||
Net interest income | 20 | (83 | ) | 22 | (220 | ) | ||||||||||
Taxation effects on the above | (6 | ) | 25 | (7 | ) | 66 | ||||||||||
Effect on profit for the year | 14 | (58 | ) | 15 | (154 | ) | ||||||||||
As percentage of net profit after tax | (1.57% | ) | 6.52% | 0.54% | (5.45% | ) | ||||||||||
Effect on profit for the year (per above) | 14 | (58 | ) | 15 | (154 | ) | ||||||||||
Available for sale reserve | (164 | ) | 219 | (154 | ) | 114 | ||||||||||
Cash flow hedge reserve | (616 | ) | 598 | (732 | ) | 692 | ||||||||||
Taxation effects on the above | 195 | (204 | ) | 222 | (202 | ) | ||||||||||
Effect on equity | (571 | ) | 555 | (649 | ) | 450 | ||||||||||
As percentage of equity | (0.87% | ) | 0.84% | (0.91% | ) | 0.63% |
As indicated in relation to the net interest income sensitivity table on page 147, the impact of a 25bps movement in rates is largely driven by Barclays UK.
The year on year movement in cash flow hedge reserve sensitivities was driven by structural changes in business activities and related hedging. Movements in the available for sale reserve would impact CRD IV fully loaded CET1 capital, however the movement in the cash flow hedge reserve would not impact CET1 capital.
Volatility of the Available for Sale portfolio in the liquidity pool
Changes in value of Available for Sale exposures flow directly through capital via the Available for Sale reserve. The volatility of the value of the Available for Sale investments in the Liquidity pool is captured and managed through a value measure rather than an earning measure, i.e. theNon-Traded Market Risk VaR.
Although the underlying methodology to calculate thenon-traded VaR is identical to the one used in Traded Management VaR, the two measures are not directly comparable. TheNon-Traded VaR represents the volatility to capital driven by the Available for Sale exposures. These exposures are in the banking book and do not meet the criteria for trading book treatment.
Non-traded Value at Risk (£m)
Analysis of volatility of the available for sale portfolio in the liquidity pool | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
For the year ended 31 December | Average £m | High £m | Low £m | Average £m | High £m | Low £m | ||||||||||||||||||
Non-Traded Market Value at Risk (daily, 95%) | 36 | 50 | 27 | 40 | 46 | 32 |
Non-traded VaR shown was mainly driven by volatility of interest rates in developed markets. The increases in late Spring and early Autumn were driven primarily by additional outright interest rate risk exposure taken in the liquidity pool at those times.
148 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Risk review
Risk performance
Operational risk
Operational risk
The risk of loss to the firm from inadequate or failed processes or systems, human factors or due to external events (for example, fraud) where the root cause is not due to credit or market risks
All disclosures in this section are unaudited unless otherwise stated.
Key metrics
87% |
of the Group’s net reportable operational risk events had a loss value of £50k or less |
75% |
of events by number are due to external frand |
Overview
Operational risks are inherent in the Group’s business activities and it is not always cost effective or possible to attempt to eliminate all operational risks. The Operational Risk Management Framework is therefore focused on identifying operational risks and confirming that they are assessed and managed within the Group’s approved risk appetite. More material losses are less frequent and the Group seeks to reduce the likelihood and impact of these in accordance with its risk appetite.
The Operational Principal Risk comprises the following risks: data management and information, financial reporting, fraud, payments process, people, premises and security, supplier, tax, technology and transaction operations.
For definitions of these risks see pages 90 to 91. In order to provide complete coverage of the potential adverse impacts on the Group arising from operational risk, the operational risk taxonomy extends beyond the operational risks listed above to cover areas included within conduct, legal and model risks.
This section provides an analysis of the Group’s operational risk profile, including events above the Bank’s reportable threshold, which have had a financial impact in 2017.
For information on conduct risk events please see page 152. |
Summary of performance in the period
During 2017, total operational risk losses increased to £309m (2016: £209m) while the number of recorded events for 2017 decreased to 2,949 from 3,414 events recorded during the prior year. The loss for the year was primarily driven by events falling within the execution, delivery and process management and external fraud categories, with a limited number of high impact events.
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
Analysis of operational risk
Operational risk is the risk of direct or indirect impacts resulting from human factors, inadequate or failed internal processes and systems or external events.
This section provides an analysis of the Group’s operational risk profile, including events which have had a significant impact in 2015.
A small reduction in the number of recorded incidents occurring during the period
83%
of the Group’s net reportable operational risk events had a loss value of £50,000 or less
67%
of events are due to external fraud
Risk review
Risk performance
Operational risk
Operational risk is defined as any instance where there is a potential or actual impact to the Group resulting from inadequate or failed internal processes, people, systems, or from an external event. The impacts to the Group can be financial, including losses or an unexpected financial gain, as well as non-financial such as customer detriment, reputational or regulatory consequences.
All disclosures in this section (page 173) are unaudited.
Operational risks are inherent in all the Group’s business activities and are typical of any large enterprise. It is not cost effective to attempt to eliminate all operational risks and in any event it would not be possible to do so. Small losses from operational risks are expected to occur and are accepted as part of the normal course of business. More material losses are less frequent and the Group seeks to reduce the likelihood of these in accordance with its risk appetite.
The Operational Principal Risk comprises the following Key Risks: External suppliers, Financial crime, Financial reporting, Fraud, Information, Legal, Payments process, People, Premises and security, Taxation, Technology (including cyber security) and Transaction operations. For definitions of these key risks see page 106. In order to ensure complete coverage of the potential adverse impacts on the Group arising from Operational risk, the Operational risk taxonomy extends beyond the Operational key risks listed above to cover areas included within Conduct risk.
This section provides an analysis of the Group’s operational risk profile, including events, those which are above the Bank’s reportable threshold, which have had a financial impact in 2015.
For more information on Conduct risk events please see page 175.
Summary of performance in the period
During 2015, total operational risk lossesa increased to £241.3m (2014: £143.9m) with a 3% reduction in number of recorded events as compared to last year driven by a limited number of events in execution, delivery and process management category.
Losses were mainly due to execution, delivery and process management impacts, external fraud and business disruption and system failures.
Within operational risk, a high proportion of risk events have a low associated financial cost andwhile a very small proportion of operational risk events will have a material impact on the financial results of the Group. In 2015, 82.6% (2014: 78.0%)2017, 87% of the Group’s net reportable operational risk events by volume had a value of less than £50,000 or less and(2016: 86%), although this type of event accounted for 11.1% (2014: 30.5%only 16% (2016: 22%) of the Group’s total net loss impact.operational risk losses.
The analysis below presents the Group’s operational risk events by Basel event category:
Execution, |
External |
◾ | Business Disruption impacts increased to £24m, accounting for 8% of total operational risk losses in 2017, mainly driven by a few events with significant impacts. Overall the volume of events in this category remained low and decreased from 2016. |
The Group’s operational risk profile is informed bybottom-up risk assessments undertaken by each business unit andtop-down qualitative review from the GovernanceOperational Risk and Control CommitteesManagement for each of the key risks.risk type. External fraudFraud and technologyTechnology are highlighted as key operational risk exposures. DevelopmentsThe operational risk profile is also informed by a number of risk themes: execution, resilience, cyber and data. These represent threats to the Group but have scope which extends across multiple risk types, and therefore require a risk management approach which is integrated within relevant risk and control frameworks.
Investment continues to be made in new and enhanced fraud prevention systems and transaction profiling tools underway to combat the increasing externallevel of fraud frequency especially inattempts being made and to minimise any disruption to genuine transactions. Fraud remains an industry wide threat and the credit cards, digital banking, unauthorised trading and social engineering.
Cyber security riskGroup continues to be an area of attention givenwork closely with external partners on various prevention initiatives. Technology, resilience and cyber security risks evolve rapidly so the increasing sophistication and scope of potential cyber-attack. Risks to technology and Cyber security change rapidly and require Group maintains
continued focus and investment.investment in the control environment to manage these risks, and actively partners with peers and relevant organisations to understand and disrupt threats originating outside the Group.
For further information see Risk management section pages 106 to 107.
For further information, see operational risk management section (pages 90 to 91). |
Operational risk events by risk category
% of total risk events by count
Operational risk events by risk category
% of total risk events by value
Note
a |
150 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Risk review
Risk performance
Model risk
Model risk | ||
The risk of the potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports. All disclosures in this section are unaudited unless otherwise stated. | ||
Overview
Model risk is a focal area of management and the Board. It is an important component of regulators’ assessment of Barclays’ risk management capabilities. Models are used to support a broad range of business and risk management activities, including informing business decisions and strategies, measuring and limiting risks, valuing exposures, conducting stress testing, assessing capital adequacy, supporting new business acceptance and risk/reward evaluation, managing client assets, or meeting reporting requirements.
Summary of performance in the period
The Principal Risk framework for model risk was established in 2016. In 2017, the framework was enhanced and embedded further in the organisation by:
◾ | Strengthening of the Group-wide Model Risk Management (MRM) framework, policy and associated standards, validation templates and procedures. |
◾ | Enhancement of Board oversight of model risk, through the establishment of a model risk tolerance framework and periodic updates to the Board on the progress of the MRM implementation. |
◾ | Improved collection and attestation of the Group’s global inventory of models. |
◾ | Reporting metrics on policy adherence and breaches. |
◾ | Enhancement of model development and model identification processes, with the areas of model ownership throughout the firm establishing their own model control functions. |
In addition to the governance outlined above, which details how new models are validated and existing models are internally controlled and assessed, models have been classified based on their materiality (the level of reliance placed on the model output for decision making or reporting), and their complexity. A strengthened programme of review and validation for such material models commenced during 2017. In 2018, model risk governance will be broadened beyond the quantitative models of the firm to include “non-modelled methods” covering certain material decision making and capital planning functions of the firm, such as the primary stress testing programmes and impairment estimations.
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
Analysis of conduct risk
Conduct risk is the risk that detriment is caused to our customers, clients, counterparties or Barclays because of inappropriate judgement in the execution of our business activities.
This section details Barclays’ conduct risk profile and provides information on key 2015 risk events and risk mitigation actions Barclays has taken.
Conduct risk
5.4/10 on the conduct
Reputation Balanced
Scorecard Measure
Driven by improvements in the following components:
Conduct risk | ||
The risk of detriment to customers, clients, market integrity, competition or Barclays All disclosures in this section are unaudited unless otherwise stated. | ||
Risk reviewOverview
Risk performance
Conduct risk
Conduct risk is the risk that detriment is causedBarclays strives to ourcreate and maintain mutually beneficial long-term relationships with its customers clients, counterparties or Barclays because of inappropriate judgement in the execution of our business activities.
All disclosures in this section (pages 175 to 176) are unaudited unless otherwise stated
Doing the right thing in the right wayand clients. This means taking personal accountability for understanding their needs and providing suitablethem with products and services that meet those needs appropriately and help them manage their financial affairs.
As a transatlantic consumer, corporate and investment bank, Barclays also plays a critical role in promoting fair, open and transparent markets, as well as fostering shared growth for customersall. This means abiding by standards that in many cases are higher than those set by the laws and clients is central to Barclays’ strategy. Barclays is committed to Group-wide changes to business practices, governance and mindset and behaviours soregulations that good customer outcomes and protecting market integrity are integralapply to the way Barclays operates. Improving our reputation in the market will demonstrate to customers that in Barclays they have a partner they can trust.Group.
The FCA expects Barclays Board and Senior Management, supported by a governance structure and suitable management information to: have oversight of and mitigate conduct risks; consistently promote appropriate conduct outcomes; and drive the embedding of a conduct focused culture.
A key driver in delivering effective structural reform is balancing regulatory requirements and ensuring good outcomes for customers. The structural reform programme expects conduct risks to be managed through existing committees with escalation to the Structural Reform Programme Implementation Steering Committee as appropriate.
Furthermore, Barclays is working to implement new regulatory requirements related to Individual Accountability which apply to all UK banks and certain investment firms. The three new interlinking elements under the new rules on Strengthening Personal Accountability are: Senior Managers Regime, Certification Regime and a new set of Conduct Rules. These represent some of the most important regulatory changes in banking to date. At Barclays, we welcome these changes, and recognise the importance of how strengthening personal accountability will enhance the way we work, and will provide us with a framework to demonstrate our integrity and professionalism.
Reputation risk is designated as a key risk by Barclays. It is defined as the risk of damage to the Group’s brand arising from any association, action or inaction which is perceived by stakeholders to be inappropriate or unethical. While reputation risk can arise anywhere in the business, it isIn 2017, aligned with the Conduct Principalrevised Enterprise Risk due toManagement Framework (ERMF), the significant correlation between them as issues relatingoversight of financial crime was transferred to conduct have material reputation impact.risk from operational risk.
The Reputation Key Risk Framework governs how Barclays’ businesses and functions implement effective risk management in this area, including identification, evaluation, prioritisation, mitigation, escalation and reporting of current and emerging reputation risks. Forward looking reputation risk horizon scanning is undertaken centrally and validated via ongoing stakeholder dialogue with a variety of relevant opinion formers. This provides an informed and broad view of the external reputation environment and identifies issues and themes likely to impact the reputation of Barclays and the finance sector.
Summary of performance in the period
Throughout 2014Barclays is committed to continuing to drive the Conduct Risk Programme designed relevant governance, reporting, training, and definitionright culture throughout all levels of roles and responsibilities, and from January 2015the organisation. Barclays will continue to enhance effective management of conduct risk and appropriately consider the relevant tools, governance and management was fully integrated within the businesses.
Following stakeholder feedback additional improvements have been made to enhanceinformation in decision making processes. Focus on management of conduct risk managementis ongoing and the Group Dashboards are a key component of this.
The Group continues to review the role and impact of conduct issues in 2015. The main aimsthe remuneration process at both the individual and business level.
Businesses have been to:continued to assess the potential customer, client and market impacts of strategic change and structural reform. As part of the 2017 Medium-Term Planning Process, material conduct risks associated with strategic and financial plans were assessed.
Throughout 2015,2017, conduct risks were raised by businesses for consideration by the RepCo.Board Reputation Committee (RepCo). RepCo has reviewed the risks raised and whether the managementmanagement’s proposed actions proposed were appropriate to ensure conductmitigate the risks were managed effectively.
Below are general themes of conduct risk RepCo received regular updates with regards to key risks and control discussed by Senior Management at the RepCo in 2015.
Such conduct related themes also carry material reputation risk implications. Another area of reputation risk that continues to intensify relates to public,structural reform and regulatory and political concerns around the integration of climate change issues and impacts into finance sector operations and strategy.
Barclays participates in a number of industry groups looking at these issues and is assessing the implications for our global business.
Increasing the awareness of all staff of the importance of good customer outcomes and protecting market integrity has been a priority in 2015. Over 97% of Barclays staff have successfully completed training in this area.
The Group continued to incur significant costs in relation to litigation and conduct matters, please refer to Note 29 Legal, competition and regulatory matters and Note 27 Provisions for further detail. Litigation and conduct chargesCosts include customer redress and remediation, as well as expenses including damages, fines remediation of affected customers or clients, other penalties or settlements incurred in connection with legal, competition and regulatory matters.
settlements. Resolution of these matters remains a necessary and important part of delivering the Group’s strategy but there are early signs that we are driving better outcomesand an ongoing commitment to improve oversight of culture and conduct.
The Board and Senior Management received Group Dashboards setting out key indicators in relation to conduct, culture, citizenship and complaints. These continue to be evolved and enhanced to allow effective oversight and decision making. Barclays has operated at the overall set tolerance for customers from a more thoughtful consideration of our customers’ needs.
As a result of increased awareness and early consideration of conduct risk inthroughout 2017. The tolerance is assessed by the business a numberthrough Key Indicators which are aggregated and provide an overall rating which is reported to the RepCo as part of actions have been takenthe Conduct Dashboard.
Barclays remained focused on the continuous improvements being made to improve customer outcomes including:manage risk effectively, with an emphasis on enhancing governance and management information to help identify risks at earlier stages.
Risk review
Risk performance
Reputation risk
The Board commissioned a review of Barclays’ business practices in July 2012, led by Sir Anthony Salz. The report contained 34 recommendations that can be categorised broadly under Regulatory, Culture, Board Governance, People Pay and Management Oversight and Risk Management. Please refer to previous annual updates for further detail of past actions taken. All actions to implement the recommendations have been completed and independently validated. The Group continues to monitor the actions to ensure that they become fully embedded throughout the organisation.
To aid monitoring of progress in the management of conduct, a ‘Conduct Reputation’ measure is included within Barclays’ Balanced Scorecard. The conduct measure is developed through a conduct and reputation survey, undertaken by YouGov, across a range of respondents including business and political stakeholders, the media, NGOs, charities and other opinion formers across key geographies (the UK, Europe, Africa, the US and Asia).
In 2015 Barclays made progress on its Conduct measure recording a score of 5.4 (2014: 5.3). ‘Operates openly and transparently’, ‘Has high quality products and services’ and ‘Delivers value for money for customers and clients’ have all improved according to audience perception. Performance on two components, ‘Treats staff well at all levels of the business’ and ‘it can be trusted’ have declined slightly. In terms of target we are below where we would like to be for 2015, although overall progress on the measure is in line with our expectations and puts our 2018 target within reach.
Reputation risk | ||
The risk that an action, transaction, investment or event will reduce trust in the firm’s integrity and competence by clients, counterparties, investors, regulators, employees or the public. All disclosures in this section are unaudited unless otherwise stated. | ||
Overview
Reputation risk wasre-designated as a Principal Risk under Barclays’ Enterprise Risk Management Framework with effect from
January 2017.
Reputation risk may arise from any business decision or activity. It may also arise as a result of issues and incidents relevant to other Principal Risks, in particular othernon-financial risks e.g. conduct or operational risk. Reputation risks and issues are identified via regular information gathering from within the business and from external stakeholders.
Some risks and issues are specific to Barclays, whilst others are also relevant to the banking sector more generally.
Barclays has set tolerances for reputation risk, which take into account the risks arising from specific events or decisions and longer term strategic themes. The primary responsibility for managing reputation risk lies with each business and function, where there are processes in place to identify, assess and manage reputation risks and issues.
There are circumstances, however, where it is necessary to escalate to Group level the evaluation of the reputation risk associated with particular decisions beyond an individual, business or function. The GRC is the most senior executive body responsible for reviewing and monitoring the effectiveness of Barclays’ management of reputation risk.
Summary of performance in the period
Barclays is committed to identifying reputation risks and issues as early as possible and managing them appropriately. Throughout 2017, reputation risks and issues were overseen by the Board Reputation Committee (RepCo), which reviews the processes and policies by which Barclays identifies and manages reputation risk.
RepCo reviewed risks raised by the businesses and considered whether management’s proposed actions, for example attaching conditions to proposed client transactions or increased engagement with impacted stakeholders, were appropriate to mitigate the risks effectively. RepCo also received regular updates with regard to key reputation risks and issues, including: legacy conduct issues; Barclays’ association with sensitive sectors; cyber and data security; fraud and scams that could impact Barclays customers and the resilience of key Barclays systems and processes.
In 2017, the central reputation management team received 581 referrals from across the businesses (625 referrals in 2016) for consideration. These referrals covered a variety of sectors including, but not limited to, defence, fossil fuels and mining.
As part of Barclays 2017 Medium Term Planning process, material reputation risks associated with strategic and financial plans were also assessed.
The effectiveness of the supporting governance arrangements and management information, including the impact of other Principal Risks on Barclays’ reputation, were reviewed by the Board and senior management during 2017. Following this, RepCo requested certain refinements to reputation risk reporting and processes, which are in progress.
Barclays PLC and Barclays Bank PLC |
Risk review
Risk performance
Legal risk
Legal risk | ||
The risk of loss or imposition of penalties, damages or fines from the failure of the firm to meet its legal obligations including regulatory or contractual requirements. All disclosures in this section are unaudited unless otherwise stated. | ||
Overview
The Group conducts diverse activities in a highly regulated global market and therefore is exposed to the risk of loss or imposition of penalties, damages, fines, sanctions and other legal outcomes relating to a failure to meet its legal obligations in the conduct of its business. Legal risk encompasses the failure of the Group to appropriately escalate or manage contractual arrangements, litigation, intellectual property, competition/anti-trust issues, use of law firms and its contact with regulators. The multitude of laws and regulations pertaining to the Group’s activities across the globe are by nature dynamic resulting in a level of legal risk that cannot be avoided. A Legal Risk Management Framework (LRMF) prescribes the requirements for identification, escalation, measurement and management of legal risk to support effective risk management across the Group.
Summary of performance in the period
In 2017, Barclays remained focused on continuous improvements to manage legal risk effectively, with an emphasis on enhancing governance to help identify risks at earlier stages and escalate as appropriate.
This is supported by the LRMF which includes legal risk tolerances, key indicators and governance. The LRMF is supported by legal risk policies and associated standards covering six areas of identified legal risk and mandatory minimum control requirements. For further information, see legal risk management on page 95. Legal risk policies and tolerances were reviewed and enhanced during 2017 to reflect the LRMF.
Business and functions have progressed implementing the requirements outlined in the LRMF within their areas, including strengthening evaluation and monitoring of their legal risk profile. Mandatory training in relation to legal risk was rolled out across the Group in Q4 2017.
The Legal Function organisation and coverage model aligns expertise to businesses, functions, products, activities and geographic locations. It continues to provide legal support, oversight and challenge across the organisation, including advising on appropriate identification, management and escalation of legal risk and potential legal outcomes aligned to other Principal Risks. A legal risk oversight committee, as part of the Legal Executive Committee, meets on a quarterly basis to oversee, challenge and monitor legal risk across the Group.
Overall, in 2017 significant progress has been made to implement legal risk as a new Principal Risk across the Group. As the LRMF matures, Barclays will continue to strengthen and embed consistent Group-wide processes to support management and monitoring of legal risk as well as drive continued education to support proactive identification and escalation of legal risk issues.
154 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Risk review
Supervision and regulation
The Group’s operations, including its overseas offices,branches, subsidiaries and associates, are subject to a significant bodylarge number of rules and regulations that are a condition for authorisationauthorisations to conduct banking and financial services business.business in each of the jurisdictions in which the Group operates. These apply to business operations, affectimpact financial returns and include reservecapital, leverage and liquidity requirements, authorisation, registration and reporting requirements, and prudential andrestrictions on certain activities, conduct of business regulations.regulations and many others. These requirements are set in legislation and by the relevant central banks and regulatory authorities that authorise, regulate and supervise the Group in the jurisdictions in which it operates. TheOften, the requirements may reflect global standards developed by among others,international bodies such as the G20, the Basel Committee on Banking Supervision (BCBS), the International Organisation of Securities Commissions (lOSCO) and the International OrganizationFinancial Stability Board (FSB). Various bodies, such as central banks and self-regulatory organisations, also create voluntary Codes of Securities Commissions. TheyConduct which affect the way the Group does business.
Regulatory developments impact the Group globally. We focus particularly on EU, UK and US regulation due to the location of Barclays’ principal areas of business. Regulations elsewhere may also reflect requirements imposed directlyhave a significant impact on Barclays due to the location of its branches, subsidiaries and, in some cases, clients. For more information on the risks related to supervision and regulation of the Group, including regulatory change, please see the Risk Factor entitled ‘Regulatory Change agenda and impact on Business Model’ on page 80.
Supervision in the EU
Financial regulation in the UK is to a significant degree shaped and influenced by or derived from, EU legislation. This provides the structure of the European Single Market, an important feature of which is the framework for the regulation of authorised firms in the EU. This framework is designed to enable a credit institution or investment firm authorised in one EU member state to conduct banking or investment business in another member state through the establishment of branches or by the provision of services on a cross-border basis without the need for local authorisation. Barclays’ operations in Europe are authorised and regulated by a combination of both home and host regulators. The impact of the UK’s departure from the EU in this respect and, more broadly, its impact on the UK domestic regulatory framework, is yet to be determined.
In the UK, the BoEBank of England (BoE) has responsibility for monitoring the UK financial system as a whole.whole, including by way of conducting annual stress tests on UK banks. Theday-to-day regulation and supervision of the Group is divided between the PRA – which is established as partPrudential Regulation Authority (PRA) (a division of the Bank of England –BoE) and the Financial Conduct Authority (FCA).
In addition, the Financial Policy Committee (FPC) of the BoE has significant influence on the prudential requirements that may be imposed on the banking system through its powers of direction and recommendation. The FPC has direction powers over leverage ratios and sectoral capital requirements, which it sets in relation to exposures to specific sectors judged to pose a risk to the financial system as a whole and which apply to all UK banks and building societies generally, rather than to the Group specifically. The government has also made the FPC responsible for the Basel III countercyclical capital buffer, introduced in the EU under the CRD and CRR (collectively known as CRD IV).
The Financial Services and Markets Act 2000 (as amended)(FSMA) remains the principal statute under which financial institutions are regulated in the UK. Barclays Bank PLC is authorised under FSMA to carry on a range of regulated activities within the UK. It is alsoand Barclays Bank UK PLC are authorised and subject to solo and consolidated prudential supervision by the PRA and subject to conduct regulation and supervision by the FCA. Barclays is also subject to prudential supervision by the PRA on a Group consolidated basis. Barclays Bank UK PLC’s authorisation is subject to restrictions on activities expected to be lifted prior to April 2018. Barclays Services Limited is an appointed representative of Barclays Bank PLC and Clydesdale Financial Services Limited (the principals). This status enables Barclays Services Limited to undertake activities which would otherwise require authorisation, with the principals assuming regulatory responsibility for the conduct of Barclays Services Limited as their appointed representative. Barclays Bank PLC’s German, French and Italian branches are also subject to direct supervision by the European Central Bank (ECB). Barclays Bank Ireland PLC, which is licensed as a credit institution by the Central Bank of Ireland, has submitted an application for an extension of its current licence to support the Group’s ability to provide services to EU clients after Brexit.
In its role as supervisor, the PRA seeks to maintain the safety and soundness of financial institutions with the aim of strengthening, but not guaranteeing, the protection of customers and the financial system. The PRA’s continuing supervision of financial institutions is conducted through a variety of regulatory tools, including the collection of information by way of prudential returns, reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, risk management, conduct and culture and strategy.
The regulation and supervision of market conduct matters is the responsibility of the FCA. FCAThe FCA’s regulation of the UK firms in the Group is carried out through a combination of continuous assessment;assessment, regular thematic work and project work based on the FCA’s sector assessments, which analyse the different areas of the market and the risks that may lie ahead; and responding to crystallised risks, seeking to ensure remediation as appropriate.
Global regulatory developments
Regulatory change continues to affect all large financial institutions; globally notably through the G20, Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS), regionally through the EU and nationally, especially in the UK and US. Further changes to prudential requirements and further refinements to the definitions of capital and liquid assets may affect the Group’s planned activities and could increase costs and contribute to adverse impacts on the Group’s earnings. Similarly, increased requirements in relation to capital markets activities and to market conduct requirements may affect the Group’s planned activities and could increase costs and thereby contribute to adverse impacts on the Group’s earnings.
The programme of reform of the global regulatory framework previously agreed by G20 Heads of Government in April 2009 has continued to be taken forward throughout 2015 and into 2016.
ahead.
The FSB has been designated by the G20 as the body responsible for co-ordinating the delivery of the global reform programme in relation to the financial services industry. It has focused particularly on the risks posed by systemically important financial institutions. In 2011, G20 Heads of Government adopted FSB proposals to reform the regulation of Global Systematically Important Financial Institutions (G-SIFIs), including Global Systematically Important Banks (G-SIBs). A key element of this programme is that G-SIFIs should be capable of being resolved without recourse to taxpayer support. Barclays has been designated a G-SIB by the FSB. G-SIBs are subject to a number of requirements, including additional loss absorption capacity above that required by Basel III standards (see below). The surcharges rise in increments from 1% to 2.5% of risk weighted assets (with an empty category of 3.5% for institutions that increase the extent of the systemic risk they pose which is intended to discourage institutions from developing their business in a way that heightens their systemic nature). This additional buffer must be met with common equity.
In its November 2015 list of G-SIBs, the FSB confirmed Barclays position in a category that requires it to meet a 2% surcharge. The additional loss absorbency requirements apply to those financial institutions identified in November 2014 as G-SIBs and will be phased in starting from January 2016, with full implementation due to have taken place by January 2019. G-SIBs have also been required to meet higher supervisory expectations for data aggregation capabilities since 1 January 2016. In the EU the requirements for a systemic risk buffer have been implemented through mechanisms under CRD IV.
The BCBS issued the final guidelines on Basel III capital and liquidity standards in June 2011, with revisions to counterparty credit risk in July and November 2011. Regulatory liquidity revisions were agreed in January 2013 to the definitions of high quality liquid assets and net cash outflows for the purpose of calculating the Liquidity Coverage Ratio, as well as establishing a timetable for phasing in the standard from January 2016. The requirements of Basel III as a whole are subject to a number of transitional provisions that run to the end of 2018. The Group is, however, primarily subject to the EU’s implementation of the Basel III standard through CRD IV (see below).
The BCBS also maintains a number of active workstreams that will affect the Group. In January 2016, the BCBS endorsed a new market risk framework, including rules made as a result of its fundamental review of the trading book, which will take effect in 2019. The Committee also continues to focus on the consistency of risk weighting of assets and explaining the variations between banks. This includes revisions to the standardised rules for credit risk, counterparty credit risk, CVA volatility risk and operational risk. The Committee is also considering whether to limit the use of internal models in certain areas (for example, removing the Advanced Measurement Approach for operational risk) and applying RWA floors based on the standardised approaches. The final standards for measuring and controlling large exposures were published by the Basel Committee in April 2014 to take effect in 2019. Also in April 2014, the Basel Committee published the final standard for calculating regulatory capital for banks’ exposure to Central Counterparties (CCPs). In conjunction with the International Organization of Securities Commissions, the BCBS published a revised version of the framework for margin requirements for non-centrally cleared derivatives in March 2015, which recommends the phasing in of requirements for initial and variation margin from 1 September 2016.
In November 2015 the FSB finalised its proposals to enhance the loss absorbing capacity of G-SIBs to ensure that there is sufficient loss absorbing and recapitalisation capacity available in resolution to implement an orderly resolution which minimises the impact on financial stability, ensures the continuity of critical functions and avoids exposing taxpayers to losses. To this end, the FSB has set a new minimum requirement for ‘Total Loss Absorbing Capacity’ (TLAC). From 1 January 2019, the FSB will expect Barclays and other G-SIBs to meet a minimum TLAC requirement of 16% of the risk weighted assets of their respective resolution groups, rising to 18% from 1 January 2022. From that time, G-SIBs will also be expected to hold TLAC equivalent to at least 6% of the Basel III leverage ratio denominator, rising to 6.75% from 1 January 2022. The BCBS is also consulting on the capital treatment of banks’ TLAC holdings from other issuers.
Also in November 2015, Barclays re-adhered to a protocol which was developed by the International Swaps and Derivatives Association (ISDA) in coordination with the FSB to support cross-border resolution and reduce systemic risk. By re-adhering to this protocol Barclays is able, in ISDA Master Agreements and related credit support agreements, as well as certain repo and stock lending agreements, entered into with other adherents, to opt in to different resolution regimes such that cross-default and direct default rights that would otherwise arise under the terms of such agreements would be stayed temporarily (and in some circumstances overridden) on the resolution of one of the parties.
Influence of European legislation
Financial regulation in the UK is to a significant degree shaped and influenced by EU legislation. This provides the structure of the European Single Market, an important feature of which is the framework for the regulation of authorised firms. This framework is designed to enable a credit institution or investment firm authorised in one EU member state to conduct banking or investment business through the establishment of branches or by the provision of services on a cross-border basis in other member states without the need for local authorisation. Barclays’ operations in Europe are authorised and regulated by a combination of both home and host regulators.
The EU continues to develop its regulatory structure in response to the financial and Eurozone crises. At the December 2012 meeting of EU Finance Ministers it was agreed to establish a single supervisory mechanism within the Eurozone. The European Central Bank (ECB) has had responsibility for the supervision of the most significant credit institutions, financial holding companies or mixed financial holding companies within the Eurozone since November 2014. The ECB can also extend its supervision to institutions of significant relevance that have established subsidiaries in more than one participating member state and with significant cross-border assets or liabilities.
Notwithstanding the new responsibilities of the ECB, the European Banking Authority (EBA), along with the other European Supervisory Authorities, remains charged with the development of a single rulebook for the EU as a whole and with enhancing co-operation between national supervisory authorities. The European Securities Markets Authority (ESMA) has a similar role in relation to the capital markets and to banks and other firms doing investment and capital markets business. The progressive reduction of national discretion on the part of national regulatory authorities within the EU may lead to the elimination of prudential arrangements that have been agreed with those authorities. This may serve to increase or decrease the amount of capital and other resources that the Group is required to hold. The overall effect is not clear and may only become evident over a number of years. The EBA and ESMA each have the power to mediate between and override national authorities under certain circumstances.
Responsibility for day-to-day supervision remains with national authorities and for banks, like Barclays Bank PLC, that are incorporated in countries that will not participate in the single supervisory mechanism, is expected to remain so. Barclays Bank PLC Italian and French branches are, however, also subject to direct supervision by the ECB.
Basel III and the capital surcharge for G-SIBs have been, or will be, implemented in the EU by CRD IV. The provisions of CRD IV either entered into force automatically on, or had to be implemented in member states by, 1 January 2014. Much of the ongoing and outstanding implementation is expected to be done through binding technical standards being developed by the EBA, that are intended to ensure a harmonised application of rules through the EU, some of which are still in the process of being developed and adopted.
A significant addition to the EU legislative framework for financial institutions has been the Bank Recovery and Resolution Directive (BRRD) which establishes a framework for the recovery and resolution of EU credit institutions and investment firms. The BRRD is intended to implement many of the requirements of the FSB’s ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’. The BRRD entered into force in July 2014. All of the provisions of the BRRD had to be implemented in the law of EU Member States by 1 January 2015 except for those relating to bail-in which had to be implemented in Member States by 1 January 2016.
As implemented, the BRRD gives resolution authorities powers to intervene in and resolve a financial institution that is no longer viable, including through the transfers of business and, when implemented in relevant member states, creditor financed recapitalisation (bail-in within resolution) that allocates losses to shareholders and unsecured and uninsured creditors in their order of seniority, at a regulator determined point of non-viability that may precede insolvency. The concept of bail-in will affect the rights of unsecured creditors subject to any bail-in in the event of a resolution of a failing bank.
The BRRD also requires competent authorities to impose a ‘Minimum Requirement for own funds and Eligible Liabilities’ (‘MREL’) on financial institutions to facilitate the effective exercise of the bail-in tool referred to above. This will have to be co-ordinated with the FSB’s TLAC standards mentioned above and, as set out in more detail below, the BoE has stated that MREL for UK G-SIBs will be set consistently with those standards. The BRRD also requires the development of recovery and resolution plans at group and firm level. The BRRD sets out a harmonised set of resolution tools across the EU, including the power to impose a temporary stay on the rights of creditors to terminate, accelerate or close out contracts. There are also significant funding implications for financial institutions, which include the establishment of pre-funded resolution funds of 1% of covered deposits to be built up over 10 years, although the proposal envisages that national deposit guarantee schemes may be able to fulfil this function (see directly below). The UK Government uses the bank levy to meet the ex ante funding requirements set out in the BRRD.
The Directive on Deposit Guarantee Schemes provides that national deposit guarantee schemes should be pre-funded, with the funds to be raised over a number of years. The funds of national deposit guarantee scheme are to total 0.8% of the covered deposits of its members by the date 10 years after the entry into force of the recast directive. In the UK, the pre-funding requirements of the UK Financial Services Compensation Scheme are met through the bank levy.
In October 2012, a group of experts set up by the European Commission to consider possible reform of the structure of the EU banking sector presented its report. Among other things, the Group recommended the mandatory separation of proprietary trading and other high risk trading activities from other banking activities. The European Commission issued proposals to implement these recommendations in January 2014. These proposals would apply to institutions that have been identified as G-SIBs under CRD IV and envisage, among other things: (i) a ban on proprietary trading in financial instruments and commodities; and (ii) rules on the economic, legal, governance, and operational links between the separated trading entity and the rest of the banking group.
Contemporaneously, the European Commission also adopted proposals to enhance the transparency of shadow banking, especially in relation to securities financing transactions. These proposals have still yet to be considered formally by the European Parliament and by the Council.
Risk review
Supervision and regulation
The European Market Infrastructure Regulation (EMIR) has introduced requirements designed to improve transparency and reduce the risks associated with the derivatives market, some of which are still to be brought in. When it is fully in force, EMIR will require entities that enter into any form of derivative contract, including interest rate, foreign exchange, equity, credit and commodity derivatives: to report specified details of every derivative contract that they enter to a trade repository (this requirement is already in force); implement risk management standards for all bilateral over-the-counter derivatives trades that are not cleared by a central counterparty (this requirement is also partly in force, but requirements relating to the mandatory provision of margin are to be phased in from 2016); and clear, through a central counterparty, over-the-counter derivatives, but only where those derivatives are subject to a mandatory clearing obligation. The obligation to clear derivatives will only apply to certain counterparties and specified types of derivative. EMIR has potential operational and financial impacts on the Group, including by imposing collateral requirements.
CRD IV aims to complement EMIR by applying higher capital requirements for bilateral, uncleared over-the-counter derivative trades. Lower capital requirements for cleared derivatives trades are only available if the central counterparty through which the trade is cleared is recognised as a ‘qualifying central counterparty’ which has been authorised or recognised under EMIR (in accordance with binding technical standards).
Amendments to the Markets in Financial Instruments Directive (known as MiFID II) came into force in July 2014. These amendments take the form of a directive and a regulation, and will affect many of the investment markets in which the Group operates and the instruments in which it trades, and how it transacts with market counterparties and other customers. Changes to the MiFID regime include the introduction of a new type of trading venue (the organised trading facility), to capture non-equity trading that falls outside the current regime.
Investor protections have been strengthened, and new curbs imposed on high frequency and commodity trading. Pre- and post-trade transparency has been increased, and a new regime for third country firms introduced. The changes also include new requirements for non-discriminatory access to trading venues, central counterparties, and benchmarks, and harmonised supervisory powers and sanctions across the EU. While the final implementation date of MiFID II remains subject to discussions between various European bodies, member states will not have to apply the provisions of MiFID II until 3 January 2017 at the earliest, although recent communications by several European bodies has suggested that this date might be delayed by 12 months. Many of the provisions of MiFID II and its accompanying regulation will be implemented by means of technical standards to be drafted by ESMA. While ESMA has published its final report in respect of some of these technical standards, the impacts on the Group will not be clear until all of the relevant technical standards have been finalised and adopted.
Recent developments in banking law and regulation in the UK have been dominated by legislation designed to ring-fence the retail and SME deposit-taking business of large banks. The content and the impact of this legislation are outlined above. The Banking Reform Act put in place a framework for this ring-fencing and secondary legislation passed in 2014 elaborated on the operation and application of the ring-fence. Ring-fencing rules have been consulted on by the PRA and the FCA and it is expected that final rules will be published during the first half of 2016 which will further determine how ring-fenced banks will be permitted to operate.
In addition to, and complementing a EU-wide stress testing exercise conducted on a sample of EU banks by the EBA, and in response to recommendations from the FPC, the BoE conducted a variant of the EU-wide stress test in 2014. The ‘UK variant’ test explored particular UK macroeconomic vulnerabilities facing the UK banking system. Key parameters of the test – including the design of the UK elements of the stress scenario – were designed by the BoE and approved by the FPC and the PRA. The BoE published key elements of its 2014 stress test in March 2015 and the results of its 2015 stress test on 1 December 2015. The FPC determined that no macroprudential actions on bank capital were required in response to the results of either test.
Both the PRA and the FCA have continued to develop and apply a more assertive approach to supervision and the application of existing standards. This may include application of standards that either anticipate or go beyond requirements established by global or EU standards, whether in relation to capital, leverage and liquidity, resolvability and resolution or matters of conduct. The PRA has implemented the European capital regime under CRD IV in the UK and has required banks to meet a 4.5% Pillar 1 CET1 requirement since 1 January 2015, which is up from 4% in 2014. The PRA has expected Barclays, in common with six other major UK banks and building societies, to meet a 7% CET1 ratio at the level of the consolidated Group since 1 January 2016.
The FCA has retained an approach to enforcement based on credible deterrence that has continued to seeseen significant growth in the size of regulatory fines. The approach appears to be trending towards a more US model of enforcement including vigorous enforcement of criminal and regulatory breaches, heightened fines and proposed measures related to increased corporate criminal liability.
The FCA has focused strongly on conduct risk and on customer outcomes and will continue to do so. This has included a focus on the design and operation of products, the behaviour of customers and the operation of markets. This may impactaffect both the incidence of conduct costs and increase the cost of remediation.
On 1 AprilThe FCA and the PRA have also increasingly focused on individual accountability within firms. This focus is reflected in the Senior Managers and Certification Regime (the SMCR) which came into force in 2016. The SMCR, which implements the recommendations in the final report of the Parliamentary Commission on Banking Standards relating to individual accountability in banks, imposes a regulatory approval, accountability and fitness and propriety framework in respect of senior or key individuals within relevant firms.
The UK Serious Fraud Office (SFO) has played an active role in recent years in investigating and prosecuting complex fraud, bribery and corruption. If, as a result of an investigation, the SFO determines that it has sufficient evidence to support a realistic prospect of conviction, and to prosecute would be in the public interest, the SFO may bring forward a prosecution. Alternatively, the SFO may consider using a Deferred Prosecution Agreement (DPA). DPAs, which were introduced in February 2014, are judicially supervised agreements between the FCA took overSFO and organisations that could be prosecuted whereby the SFO suspends prosecution while the organisation in question complies with conditions imposed on it by the DPA, such as the payment of fines.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 155 |
Risk review
Supervision and regulation
Supervision in the US
Barclays’ US activities and operations are subject to umbrella supervision by the Board of Governors of the Federal Reserve System (FRB), as well as additional supervision, requirements and restrictions imposed by other federal and state regulators. Barclays PLC, Barclays Bank PLC and their US branches and subsidiaries are subject to a comprehensive regulatory framework involving numerous statutes, rules and regulations, including the International Banking Act of 1978, the Bank Holding Company Act of 1956 (BHC Act), the USA PATRIOT Act of 2001, the Commodity Exchange Act, the federal securities laws, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA), which comprehensively amended the regulation of consumer creditfinancial institutions in the UK.US in response to the financial crisis, including by amending the other aforementioned statutes. ln some cases, US requirements may impose restrictions on Barclays’ global activities in addition to its activities in the US.
Barclays PLC and Barclays Bank PLC, along with Barclays US LLC (BUSL), Barclays’top-tier US holding company that holds substantially all of Barclays’ US subsidiaries and assets (including Barclays Capital Inc. and Barclays Bank Delaware) are regulated as bank holding companies (BHCs) by the FRB. BUSL is subject to requirements that are similar to those applicable to large US domestic bank holding companies, including in respect of capital adequacy, capital planning and stress testing (including FRBnon-objection to proposed capital distributions), risk management and governance, liquidity, leverage limits and financial regulatory reporting. Barclays Bank PLC’s US branches are also subject to enhanced prudential supervision requirements relating to, among others, liquidity and risk management.
Because the BHC Act generally restricts the activities of BHCs to banking and activities closely related to banking, Barclays PLC, Barclays Bank PLC and BUSL have elected to be treated as financial holding companies under the BHC Act. Financial holding company status allows these entities to engage in a variety of financial and related activities, directly or through subsidiaries, including underwriting, dealing and making markets in securities. Failure to maintain financial holding company status could result in increasingly stringent penalties and ultimately, in the closure or cessation of certain operations in the US. To qualify as a financial holding company, Barclays PLC and Barclays Bank PLC, as foreign banking organisations and BHCs, and BUSL, as a BHC, must maintain certain regulatory capital ratios above minimum requirements and must be deemed to be “well managed” for U.S. bank regulatory purposes. In addition, any US depository institution subsidiaries of the foreign banking organisation or BHC must also maintain certain regulatory capital ratios above minimum requirements and be deemed to be “well managed” and must have at least a “satisfactory” rating under the Community Reinvestment Act of 1977.
In addition to umbrella oversight by the FRB (and applicable Federal Reserve Banks), certain of Barclays’ branches and subsidiaries are regulated by additional authorities based on the location or activities of those entities. The New York and Florida branches of Barclays Bank PLC are subject to extensive supervision and regulation by, as applicable, the New York State Department of Financial Services (NYSDFS) and the Florida Office of Financial Regulation. Barclays Bank Delaware, a Delaware chartered commercial bank, is subject to supervision and regulation by the Delaware Office of the State Bank Commissioner. The deposits of Barclays Bank Delaware are insured by the Federal Deposit Insurance Corporation (FDIC) pursuant to the Federal Deposit Insurance Act, which also provides for FDIC supervisory authority over Barclays Bank Delaware and requires that Barclays PLC, Barclays Bank PLC and BUSL act as a source of strength for the insured bank. This could, among other things, require these entities to inject capital into Barclays Bank Delaware if it fails to meet applicable regulatory capital requirements.
Barclays’ US securities broker/dealer and investment banking operations, primarily conducted through Barclays Capital Inc., are also subject to ongoing supervision and regulation by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and other government agencies and self-regulatory organisations (SROs) as part of a comprehensive scheme of regulation of all aspects of the securities and commodities business under US federal and state securities laws.
Similarly, Barclays’ US commodity futures, commodity options and swaps-related and client clearing operations are subject to ongoing supervision and regulation by the Commodity Futures Trading Commission (CFTC), the National Futures Association and other SROs. Barclays Bank PLC is also prudentially regulated as a swaps dealer so is subject to the FRB swaps rules with respect to margin and capital requirements.
Barclays’ US retail and consumer activities, including the US credit card operations of Barclays Bank Delaware, are subject to direct supervision and regulation by the Consumer Financial Protection Bureau (CFPB). The CFPB has ledthe authority to examine and take enforcement action related to compliance with federal laws and regulations regarding the provision of consumer financial services and the prohibition of ‘unfair, deceptive or abusive acts and practices’.
Supervision in Asia Pacific
Barclays’ operations in Asia Pacific are supervised and regulated by a broad range of national regulators including: the Japan Financial Services Agency, the Bank of Japan, the Hong Kong Monetary Authority, the Hong Kong Securities and Futures Commission, the Monetary Authority of Singapore, the Reserve Bank of India, the Securities and Exchange Board of India and the People’s Bank of China, China’s State Administration of Foreign Exchange and the China Banking Regulatory Commission. Such supervision and regulation extends to activities conducted through branches of Barclays Bank PLC in the Asia Pacific region as well as subsidiaries of the Group.
Global regulatory developments
Regulatory change continues to affect all large financial institutions. Such change emanates from global institutions such as the G20, FSB, IOSCO and BCBS, the EU regionally, and national regulators, especially in the UK and US. The level of regulatory and supervisory uncertainty faced by the Group and the financial markets more broadly continues to remain elevated in our primary markets. In the EU, the legislative and regulatory bodies have been implementing, and continue to propose, multiple financial regulatory reforms, and the conditions of the UK’s eventual exit from the EU remain unclear, so the extent to which the UK will continue to follow EU legislation after Brexit remains unclear. In the US, the financial regulatory environment continues to evolve due to political developments and the ongoing implementation of regulations arising from the DFA. Furthermore, the application of various regional rules on a cross-border basis increases regulatory complexity for global financial institutions. For more information, please see the Risk Factor entitled ‘Regulatory Change agenda and impact on Business Model’ on page 80.
The programme of reform of the global regulatory framework previously agreed by G20 Heads of Government in April 2009 has continued to be taken forward throughout 2017. The G20 continues to monitor emerging risks and vulnerabilities in the financial system and has stated that it will take action to address them if necessary.
The FSB has been designated by the G20 as the body responsible forco-ordinating the delivery of the global reform programme in relation to the financial services industry. It has focused particularly on the risks posed by systemically important financial institutions. In 2011, G20 Heads of Government adopted FSB proposals to reform the regulation of global systemically important financial institutions (G-SIFls), including global systemically important banks(G-SIBs), such as Barclays. In December 2017, the BCBS finalised ‘Basel III’ (the BCBS international regulatory framework for banks), with the majority of the December 2017 changes expected to be implemented by 1 January 2022, including by regulators in many jurisdictions where Barclays operates.
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Financial regulatory framework
Financial services regulation can broadly be categorised as follows: (a) prudential regulation, which aims to promote safety and soundness of financial institutions and reduce risk in the financial system; (b) recovery and resolution, a key aspect of which is to ensure that G-SIFls are capable of being resolved without recourse to taxpayer support and minimising market disruption; (c) structural reform and the Volcker rule; (d) market infrastructure regulation, aimed at enhancing client protection, financial stability and market integrity; and (e) conduct, culture and other regulation.
(a) Prudential regulation
Certain Basel III standards were implemented in EU law through the Capital Requirements Directive IV (CRD IV), which came into effect in 2014 and included new or enhanced requirements for the quality and quantity of capital, liquidity and leverage. Beyond the minimum standards required by CRD IV, the PRA has expected Barclays, in common with other major UK banks and building societies, to meet a 7% Common Equity Tier 1 (CET1) ratio at the level of the consolidated group since 1 January 2016.
G-SIBs are subject to a regulatory regime for consumer credit whichnumber of additional prudential requirements, including the requirement to hold additional loss absorbing capacity and additional capital buffers above the level required by Basel III standards. The level ofG-SIB buffer is considerably more intensive and intrusive than was the case when consumer credit was regulatedset by the OfficeFSB according to a bank’s systemic importance and can range from 1% to 3.5% of Fair Trading.risk weighted assets. TheG-SIB buffer must be met with common equity.
In 2014November 2017, the FSB published an update to its list ofG-SIBs, maintaining the 1.5%G-SIB buffer that applies to Barclays. The additionalG-SIB buffer has been phased in from January 2016, from whenG-SIBs were required to meet 25% of their designated buffer. This increased to 50% in 2017, 75% in 2018 and will increase to 100% in January 2019. Barclays is also subject to, among other buffers, a countercyclical capital buffer (CCyB) based on rates determined by the regulatory authorities in each jurisdiction in which Barclays maintains exposures. These rates may vary in either direction. On 27 June 2017, the FPC raised the UK CCyB rate from 0% to 0.5% with binding effect from 27 June 2018. In November 2017, the FPC raised the UK CCyB rate from 0.5% to 1% with binding effect from 28 November 2018. In May 2016, the FPC set out a framework for determining a systemic risk buffer (SRB) for ring-fenced bodies and large building societies (SRB Firms). The SRB is a firm-specific buffer, that is designed to increase the capacity of SRB Firms to absorb stress, and which must be met solely with CET1. The framework set out by the PRA, which sets SRB at rates between 0% and 3% of risk weighted assets, will apply from 1 January 2019.
In January 2016, the BCBS endorsed a new market risk framework, including rules made as a result of its “fundamental review of the trading book” (FRTB). The implementation of this framework has now been delayed, with the BCBS setting an expected implementation date of 1 January 2022 to allow for a review of the calibration of the framework.
The BCBS’s finalisation of Basel III, noted above, among other things, eliminated model-based approaches for certain categories of risk weighted assets (RWAs) (for example, operational risk RWAs, CVA volatility and credit risk RWAs for equity exposures), revised the standardised approach’s risk weights for a variety of exposure categories, replaced the four current approaches for operational risk (including the advanced measurement approach) with a single standardised measurement approach, established 72.5% of standardised approach RWAs for exposure categories as a floor for RWAs calculated under advanced approaches (referred to as the “output floor”), and forG-SIBs introduced a leverage ratio buffer in an amount equal to 50% of the applicableG-SIB buffer used for RWA purposes (meaning, for Barclays, a leverage ratio buffer of 0.75%). The majority of the final Basel III changes are expected to be implemented commencing 1 January 2022, with a five-yearphase-in period for the output floor.
The BCBS has also published final standards on the securitisation framework and interest rate risk in the banking book and guidelines onstep-in risk. The final standards for measuring and controlling large exposures were published by the BCBS in April 2014 to take effect in 2019. In November 2016, the European Commission adopted a proposal (commonly referred to as CRD V) to begin the legislative process for introducing these standards within the EU. These proposals, if implemented in their current form, would, among other things, implement FRTB by overhauling existing rules relating to standardised and advanced market risk and the FCA consultedrules governing the inclusion of positions in the regulatory trading book. The proposals would also enhance rules for counterparty credit risk, in line with BCBS proposals finalised in 2014, strengthen requirements relating to leverage and large exposures and introduce a net stable funding ratio (NSFR), requiring banks to fund their assets with stable sources of funds. CRD V also proposes to require that where (i) two or more credit institutions or investment firms established in the EU have a common parent undertaking established outside the EU and (ii) the group has been identified as aG-SIB or has entities in the EU (whether subsidiaries or branches) with total assets of at least€30 billion, the group must establish an intermediate parent undertaking, authorised and established in, and subject to the supervision of, an EU member state.
IFRS 9 (an accounting standard that covers accounting for financial instruments), which was adopted into EU law by the European Commission in November 2016, came into force on 1 January 2018. In October 2016, the BCBS issued two documents on the treatment of accounting provisions in the regulatory framework, to take account of the future move to expected credit loss provisioning under IFRS and Financial Accounting Standards Board (FASB) standards. One paper considered transitional arrangements to phase in the immediate capital impact of the new accountability mechanismsprovisioning standards, while the other discussed more fundamental changes to the recognition of provisions in regulatory capital and changes to the risk weighting framework. The BCBS then published an interim approach (including transitional arrangements) on 29 March 2017, retaining the current regulatory treatment of provisions under the Basel framework for individuals working in banks, includingan interim period and proposing to consider more thoroughly the longer term regulatory treatment of provisions. On 28 December 2017, an EU Regulation came into force to provide transitional arrangements for mitigating the impact of the introduction of IFRS 9, in large part, on CET1 capital arising from the expected credit loss accounting measures set out in IFRS 9. The Regulation has applied since 1 January 2018.
In the US, BUSL and Barclays Bank PLC’s US branches are subject to enhanced prudential supervision requirements as required by the DFA and described above in “Supervision in the US”.
In addition to prudential regulations already promulgated under the DFA, the FRB has issued proposed regulations for NSFR implementation. The NSFR, as proposed by the FRB, would apply to US bank holding companies with more than $250bn in total assets or $10bn or more inon-balance sheet foreign exposures, including BUSL, and consolidated depositary institution subsidiaries of such banking organisations with more than $10bn in assets, including Barclays Bank Delaware. Under the proposed rule, such entities would be required to maintain a new ‘Senior Managers Regime’ (aimed atminimum level of available stable funding that equals or exceeds the amount of required stable funding over a limitedone-year period. Although the proposal provides for an effective date of 1 January 2018, the FRB has not finalised its NSFR proposal and the schedule for finalisation is uncertain.
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Risk review
Supervision and regulation
Stress testing
The Group and certain of its members are subject to supervisory stress testing exercises in a number of individualsjurisdictions. These exercises currently include the annual stress testing programmes of the BoE, the FDIC and the FRB and the biannual stress testing programme of the EBA. These exercises are designed to assess the resilience of banks to adverse economic or financial developments and ensure that they have robust, forward-looking capital planning processes that account for the risks associated with seniortheir business profile. Assessment by regulators is on both a quantitative and qualitative basis, the latter focusing on the Group’s data provision, stress testing capability and internal management responsibilitiesprocesses and controls. Failure to meet requirements of regulatory stress tests, or the failure by regulators to approve the stress test results and capital plans of the Group or its members subject to these exercises, could result in the Group or certain of its members being required to enhance its capital position or limit capital distributions, to any external holders of its equity or capital or within the Group.
In the US, certain financial institution intermediate holding companies formed in 2016, including BUSL, were not required to participate in the FRB’s Comprehensive Capital Analysis and Review (CCAR) process in 2017. These firms, however, were required under the FRB’s capital plan rule to submit a firm) and a ‘Certification Regime’ (aimed at assessing and monitoring the fitness and propriety of a wider range of employees who could pose a risk of significant harmcapital plan to the firmFRB that was subject to a confidential review process based on the assessment criteria in the capital plan rule. These capital plans were not subject to the FRB’s quantitative assessment - which evaluates a firm’s ability to meet its capital requirements under stress - under CCAR or any of its customers). This represents the implementation of recommendations made by the Parliamentary Committee on Banking Standardssupervisory stress testing in this area. The FCA2017.
(b) Recovery and PRA have published final rules on most aspectsResolution
Stabilisation and resolution framework
An important component of the Senior Managers RegimeEU legislative framework is the 2014 Bank Recovery and Resolution Directive (BRRD) which establishes a framework for the regime will enter into force on 7 March 2016.
recovery and resolution of EU credit institutions and investment firms. The UK implemented the BRRD through the Bank Recovery and Resolution of UK banking groups
TheOrder 2014, which amended the Banking Act 2009 (the Banking Act) providesand the Financial Services and Markets Act 2000 (FSMA), and the Banks and Building Societies (Depositor Preference and Priorities) Order 2014, which amended the Insolvency Act 1986 (among other insolvency legislation).
Under the Banking Act, UK resolution authorities are empowered to intervene in and resolve a regimeUK financial institution that is no longer viable. Pursuant to allowthese laws, the BoE (or, in certain circumstances, HM Treasury) to resolve failing banks in the UK, in(in consultation with the PRA and HM Treasury as appropriate. Under the Banking Act the BoEappropriate) has several stabilisation options where a banking institution is given powers to:failing or likely to fail: (i) make share transfer instruments pursuant to whichsome or all or some of the securities issued by a UKor business of the bank may be transferred to a commercial purchaser; (ii) the power to transfer allsome or someall of the property, rights and liabilities of a UKthe bank to a commercial purchaser or a ‘bridge bank’, which is a company wholly owned by the BoE; andBoE or to a commercial purchaser; (iii) transfer the impaired or problem assets of the relevant financial institution to an asset management vehicle to allow them to be managed over time. In addition, undertime; (iv) cancel or reduce certain liabilities of the Banking Act, HM Treasury is giveninstitution or convert liabilities to equity to absorb losses and recapitalise the power to take a bankinstitution and (v) transfer the banking institution into temporary public ownershipownership. In addition, the BoE may apply for a court insolvency order in order to wind up or liquidate the institution or to put the institution into special administration. When exercising any of its stabilisation powers, the BoE must generally provide that shareholders bear first losses, followed by making onecreditors in accordance with the priority of their claims under normal insolvency proceedings.
In order to enable the exercise of its stabilisation powers, the BoE may impose a temporary stay on the rights of creditors to terminate, accelerate or more share transfer ordersclose out contracts, and in which the transferee is a nominee of HM Treasury or a company wholly owned by HM Treasury. A share transfer instrument or share transfer order can extend to a wide range of securities including shares and bonds issued by a UK bank (including Barclays Bank PLC) or its holding company (Barclays PLC) and warrants for such shares and bonds. Certain of these powers also extend to companies within the same group as a UK bank.
The Banking Act also gives the authorities powerssome cases to override events of default or termination rights that might otherwise be invoked as a result of the exercise of thea resolution powers. The Banking Act powers apply regardless of any contractual restrictions and compensation that may be payable in the context of both share transfer orders and property appropriation.
The resolution powers described above were supplemented with effect from 31 December 2014 by a ‘bail-in’ power introduced under the Banking Reform Act. This power allows for the cancellation or modification of one or more liabilities (with the exception of ‘excluded liabilities’).
Excluded liabilities include (among other things): deposits protected under a deposit insurance scheme, secured liabilities (to the extent that they are secured), client assets and assets with an original maturity of less than seven days which are owed to a credit institution or investment firm. The BoE’s new bail-in powers were brought into force with effect from 1 January 2015.
action. In a consultation paper published in 2015, the BoE indicated that during 2016 it would notify banks of the final MREL requirements which would apply to them from 1 January 2020, when the regime will become fully effective. The Bank intends to apply MREL standards on a transitional basis from 2016 until that time. As noted above, during the consultation process, the BoE announced that it intends to set MREL for UK G-SIBs consistently with the FSB’s TLAC standards, and will not set any TLAC requirement for a UK G-SIB which is separate from or different to its MREL.
Since 20 February 2015, UK banks and their parents have also been required to include in debt instruments, issued by them under the law of a non-EEA country, terms under which the relevant creditor recognises that the liability is subject to the exercise of bail-in powers by the BoE. Similar terms will be required in contracts governing other liabilities of UK banks and their parents if those liabilities are governed by the law of a non-EEA country, are not excluded liabilities underaddition, the Banking Act 2009 and are issued, entered into or arise after 31 December 2015. The PRA has made rules and will be consulting further in relation to contractual recognition of bail-in of liabilities governed by third country laws.
The Banking Act also gives the BoE the power to override, vary, or impose conditions or contractual obligations between a UK bank, its holding company and its group undertakings, in order to enable any transferee or successor bank to operate effectively after any of the resolution tools have been applied. There is also power for HM Treasury to amend the law (excluding provisions made by or under the Banking Act) for the purpose of enabling it to use theits powers under this regime powers effectively, potentially with retrospective effect.
The Financial Services Act 2010, among other things, requires the UK regulators to make rules about remuneration and to require regulated firms to have a remuneration policy that is consistent with effective risk management. The Banking Act also amended FSMApowers apply regardless of any contractual restrictions and compensation that may be payable.
In July 2016, the PRA issued final rules on ensuring operational continuity in resolution. The rules will apply from 1 January 2019 and will require banks to ensure that their operational structures facilitate effective recovery and resolution planning and the continued provision of functions critical to the economy in a resolution scenario.
In November 2016, the European Commission proposed a package of amendments to the BRRD, including the introduction of two new moratorium tools. On 28 December 2017, an EU directive came into force harmonising the priority ranking of unsecured debt instruments under national insolvency laws. EU member states are required to transpose the directive into national law by 29 December 2018.
The BoE’s preferred approach for the resolution of the Group is abail-in strategy with a single point of entry at Barclays PLC. Under such a strategy, Barclays PLC’s subsidiaries would remain operational while Barclays PLC’s eligible liabilities would be written down or converted to equity in order to recapitalise the Group and allow for the FCAcontinued provision of services and operations throughout the resolution.
While regulators in many jurisdictions have indicated a preference for single point of entry resolution, additional resolution or bankruptcy provisions may apply to make rules requiring firmscertain of Barclays Bank PLC’s subsidiaries or branches. In the US, Title II of the DFA established the Orderly Liquidation Authority, a regime for orderly liquidation of systemically important financial institutions, which could apply to operateBUSL. Specifically, when a collective consumer redress schemesystemically important financial institution is in default or danger of default, the FDIC may be appointed receiver under the Orderly Liquidation Authority instead of the institution being resolved through a voluntary or involuntary proceeding under the US Bankruptcy Code. In certain circumstances, including insolvency, violations of law and unsafe business practices, the licensing authorities of each US branch of Barclays Bank PLC and of Barclays Bank Delaware have the authority to dealtake possession of the business and property of the applicable Barclays entity they license or to revoke or suspend such licence. Specific resolution regimes may apply to certain Barclays entities or branches in other jurisdictions in which Barclays does business.
TLAC and MREL
The BRRD requires competent authorities to impose a ‘Minimum Requirement for own funds and Eligible Liabilities’ (‘MREL’) on financial institutions to facilitate their orderly resolution without broader financial disruption or recourse to public funds. Following the finalisation of the BRRD, in November 2015, the FSB finalised its proposals to enhance the loss absorbing capacity ofG-SIBs to ensure that there is sufficient loss absorbing and recapitalisation capacity available in resolution to implement an orderly resolution which minimises the impact on financial stability, ensures the continuity of critical functions and avoids exposing taxpayers to losses. To this end, the FSB has set a new minimum requirement for ‘total loss absorbing capacity’ (TLAC). As the TLAC standard requires a certain amount of those loss absorbing resources to be committed to subsidiaries orsub-groups that are located in host jurisdictions and deemed material for the resolution of theG-SIB as a whole, the FSB published guiding principles on internal TLAC on 6 July 2017. These provide guidance on the size and composition of the internal TLAC requirement, cooperation and co-ordination between home and host authorities and the trigger mechanism for internal TLAC.
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The EU has proposed to implement the TLAC standard (including internal TLAC) via the MREL requirement and the European Commission has proposed amendments in its CRD V proposal to achieve this. As the proposals remain in draft, it is uncertain what the final requirements and timing will be. Under the BoE’s statement of policy on MREL, the BoE will set MREL for UKG-SIBs as necessary to implement the TLAC standard and institution or group-specific MREL requirements will depend on the preferred resolution strategy for that institution or group. The MREL requirements will be phased in from 1 January 2019 and will be fully implemented by 1 January 2022, at which timeG-SIBs with cases of widespread failure by regulated firmsresolution entities incorporated in the UK, including Barclays, will be required to meet an MREL equivalent to the higher of (i) two times the sum of its Pillar 1 and Pillar 2A requirements or (ii) the higher of two times its leverage ratio or 6.75% of leverage exposures. However, the PRA will review the MREL calibration by the end of 2020, including assessing the proposal for Pillar 2A recapitalisation which may drive a different 1 January 2022 MREL requirement than currently proposed. In addition, it is proposed that CET1 capital cannot be counted towards both MREL and the combined buffer requirement (CBR), meaning that the CBR will effectively be applied above both the Pillar 1 and Pillar 2A requirements relating to own funds and MREL.
In October 2016, the BCBS published its final standard on the prudential treatment of banks’ investments in TLAC instruments issued by other institutions, confirming that internationally active banks (bothG-SIBs andnon-G-SIBs) must deduct their holdings of TLAC instruments that do not otherwise qualify as regulatory requirements,capital from their own Tier 2 capital. Where the investing bank owns less than 10% of the issuing bank’s common shares, TLAC holdings are to be deducted from Tier 2 capital only to the extent that they exceed 10% of the investing bank’s common equity (or 5% fornon-regulatory capital TLAC holdings); below this threshold, holdings would instead be subjected to risk-weighting.G-SIBsmay only apply risk-weighting tonon-regulatory capital TLAC holdings by the 5% threshold where those holdings are in the trading book and are sold within 30 business days.
In December 2016, the FRB issued final regulations for TLAC, which apply to BUSL. The FRB’s final TLAC rule, while generally following the FSB term sheet, contains a number of provisions that are more restrictive. For example, the FRB’s TLAC rule includes provisions that require BUSL (the Barclays IHC) to have created consumer detriment.(i) a specified outstanding amount of eligible long-term debt, (ii) a specified outstanding amount of TLAC (consisting of common and preferred equity regulatory capital plus eligible long-term debt), and (iii) a specified common equity buffer. In addition, the FRB’s TLAC rule would prohibit BUSL, for so long as the Group’s overall resolution plan treats BUSL as anon-resolution entity, from issuing TLAC to entities other than the Group and itsnon-US subsidiaries.
Bank Levy
The BRRD requires EU member states to establish apre-funded resolution financing arrangement with funding equal to 1% of covered deposits by 31 December 2024 to cover the costs of bank resolutions. Where the amount of suchpre-funding is insufficient, the BRRD requires that EU member states raise subsequent contributions. The UK government raises bothpre-funded and subsequent contributions that would be required were thepre-funded contributions not to cover costs or other expenses incurred by use of the resolution funds by way of a tax on the balance sheets of banks known as the “Bank Levy”.
Recovery and Resolution Planning
The PRA has made rules that require authorised firms to draw up recovery plans and resolution packs.packs, as required by the BRRD. Recovery plans are designed to outline credible recovery actions that authorised firms could implement in the event of severe stress in order to restore their business to a stable and sustainable condition. The resolution pack contains detailed information on the authorised firm in question which will be used to develop resolution strategies for that firm, assess its current level of resolvability against the strategy, and to inform work on identifying barriers to the implementation of operational resolution plans. In the UK, recovery and resolution planning (RRP) work is considered part of continuing supervision. Removal of potential impediments to an orderly resolution of the Group or one or more of its subsidiaries is considered as part of the BoE’s and PRA’s supervisory strategy for each firm, and the PRA can require firms to make significant changes in order to enhance resolvability. Barclays currently provides the PRA with a recovery plan annually and with a resolution pack every other year.
In addition to establishing the FPC, PRA and FCA,US, Title I of the Financial Services Act 2012 among other things clarifies responsibilities between HM TreasuryDFA and the BoEimplementing regulations issued by the FRB and the FDIC require each bank holding company with assets of US $50 billion or more, including Barclays, to prepare and submit annually a plan for the orderly resolution of subsidiaries and operations in the event of future material financial distress or failure. Barclays’ next submission will be due on 1 July 2018.
Similar requirements (which include powers for competent authorities to adopt resolution measures) are in force or expected to come into force imminently in various other jurisdictions, which will affect the Group to the extent it has operations in a financial crisis by givingrelevant jurisdiction.
(c) Structural reform and the ChancellorVolcker rule
Recent developments in banking law and regulation in the UK have included legislation designed to ring-fence the retail and smaller business deposit-taking businesses of the Exchequer powers to direct the BoE where public funds are at risk and there is a serious threat to financial stability.large banks. The Financial Services (Banking Reform) Act 2012 also establishes2013 put in place a framework for this ring-fencing and secondary legislation passed in 2014 elaborated on the objectivesoperation and accountabilitiesapplication of the FPC, PRA and FCA; amends the conditions which need to be met by a firm before it can be authorised; gives the FPC, PRA and FCA additional powers, including powers of direction over unregulated parent undertakings (such as Barclays PLC) where this is necessary to ensure effective consolidated supervision of the Group; and gives the FCA a power to make temporary product intervention rules for a maximum period of six months, if necessary without consultation. The Financial Services Act 2013 also created a new criminal offence relating to the making of a false or misleading statement, or the creation of a false or misleading impression, in connection with the setting of a benchmark.
Structural reform of banking groups
In addition to providing for the bail-in stabilisation power referred to above, the Banking Reform Act requires,ring-fence. Ring-fencing will require, among other things: (i)things, the separation of the retail and SMEsmaller business deposit-taking activities of UK banks in the UK and branches of UK banks in the European Economic Area (EEA) into a legally distinct, operationally separate and economically independent entity, which will not be permitted to undertake a range of activities (so called ring-fencing); (ii) the increase of the loss absorbing capacity of ring-fenced banks and UK headquartered global systemically important banks to levels higher than required under CRD IV and (iii) preference to deposits protected under the Financial Services Compensation Scheme if a bank enters insolvency.
The Banking Reform Act also implements key recommendations of the Parliamentary Commission on Banking Standards. Recommendations thatfrom 1 January 2019. Ring-fencing rules have been implemented include: (i) the establishment of a reserve power forpublished by the PRA, to enforce full separation of UK banks under certain circumstances; (ii) the creation of a ‘senior manager’s’ regime for senior individuals in the banking and investment banking sectors to ensure better accountability for decisions made; (iii) the establishment of a criminal offence of causing a financial institution to fail; and (iv) the establishment of a regulator for payment systems.
The Banking Reform Act is primarily an enabling statute which provides HM Treasury with the requisite powers to implement the policy underlying the legislation through secondary legislation. Secondary legislation relating to the ring-fencing of banks has now been passed. Parts of the secondary legislation became effective on 1 January 2015 and the rest will come into effect on 1 January 2019 by which date UKfurther determining how ring-fenced banks will be permitted to operate. Further rules published by the FCA set out the disclosures thatnon-ring-fenced banks are required to be compliantmake to prospective account holders ofnon-ring-fenced banks who are individuals. Barclays’ approach to compliance with the structural reform requirements. The PRA published ‘near final’ rulesterms of the UK ring-fencing regime is described in the section entitled ‘Structural Reform’ on page 162.
US regulation places further substantive limits on the legal structureactivities that may be conducted by banks and governanceholding companies, including foreign banking organisations such as Barclays. The “Volcker Rule”, which was part of ring-fenced banks in May 2015the DFA and a consultation paper on post-ring-fencing prudential requirements and intra-group arrangements (among other things) in October 2015. PRA final rules are expected in 2016.
Banks, insurance companies and other financial institutionswhich came into effect in the UK are subjectUS in 2015, prohibits banking entities from undertaking certain proprietary trading activities and limits such entities’ ability to a single compensation scheme (the Financial Services Compensation Scheme – FSCS) which operates when an authorised firm is unablesponsor or is likely to be unable to meet claims made against it by its customers because of its financial circumstances. Most deposits made with branches of Barclays Bank PLC within the EEA are coveredinvest in certain private equity funds and hedge funds (in each case broadly defined). As required by the FSCS. Most claims made in respect of investment business will also be protected claims if the business was carried on from the UK or from a branchrule, Barclays has developed and implemented an extensive compliance and monitoring programme addressing proprietary trading and covered fund activities (both inside and outside of the bank or investment firm in question in another EEA member state. The FSCS is funded by levies on authorised UK firms such as Barclays Bank PLC. In the event that the FSCS raises those funds more frequently or significantly increases the levies to be paid by firms, the associated costs to the Group may have a material impact on the Group’s results.US).
Barclays PLC and Barclays Bank PLC |
Risk review
Supervision and regulation
(d) Market infrastructure regulation
In recent years, regulators have focused on improving transparency and reducing risk in markets, particularly risks related toover-the-counter (OTC) transactions. This focus has resulted in a variety of new regulations across the G20 countries and beyond that require or encourageon-venue trading, clearing, posting of margin and disclosure of information related to many derivatives transactions. Some of the most significant developments are described below.
The European Market Infrastructure Regulation (EMIR) has introduced requirements designed to improve transparency and reduce the risks associated with the derivatives market, some of which are still to be fully implemented. EMIR requires that certain entities that enter into derivative contracts: report such transactions; clear certain over the counter (OTC) transactions where mandated to do so; and implement risk mitigation standards in respect of uncleared OTC trades. The obligation to clear derivatives only applies to certain counterparties and specified types of derivatives. In October 2016, the European Commission adopted a delegated regulation relating to the exchange of collateral, one of the risk mitigation techniques under EMIR. Provisions relating to initial margin have entered into force, subject to aphase-in until 1 September 2020. Provisions relating to variation margin have already entered into force. EMIR has potential operational and financial impacts on the Group, including by imposing collateral requirements.
The European Commission has recently proposed various technical changes to EMIR, some of which could result in certain central counterparties (CCPs) used by the Group being forced to relocate to a Eurozone jurisdiction. The changes proposed may have additional operational and financial impacts on the Group’s derivatives business.
CRD IV aims to complement EMIR by applying higher capital requirements for bilateral, uncleared OTC derivative trades. Lower capital requirements for cleared derivative trades are only available if the CCP through which the trade is cleared is recognised as a ‘qualifying central counterparty’ (QCCP) which has been authorised or recognised under EMIR. Higher capital requirements may apply to the Group following the UK’s departure from the EU if UK CCPs are then no longer regarded as QCCPs and vice versa.
The new Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation (collectively referred to as MiFID II) have applied in large part since 3 January 2018. MiFID II affects many of the investment markets in which the Group operates, the instruments in which it trades and the way it transacts with market counterparties and other customers. Changes introduced by MiFID II include, among others: the introduction of a new type of trading venue (the organised trading facility), capturingnon-equity trading that fell outside the MiFID I regime; the strengthening of conduct of business requirements, including in relation to conflicts of interest; the expansion of the concept of, and requirements applicable to, firms which systematically trade against proprietary capital (systematic internalisers); and increased obligations on firms to secure best execution for their client. In addition, MiFID II mandates a trading obligation for certain types of cleared derivatives.
MiFID II strengthens investor protections, imposes new curbs on high frequency and commodity trading, increasespre-and post-trade transparency and introduces a new regime for third country(non-EU) firms. MiFID II also includes new requirements relating tonon-discriminatory access to trading venues, central counterparties and benchmarks, research unbundling and harmonised supervisory powers and sanctions across the EU.
Some final rules and guidance on the application of MiFID II are yet to be published, and so we anticipate continuing development of application of the rules within the market into 2018.
US regulators have imposed similar rules as the EU with respect to the mandatoryon-venue trading and clearing of certain derivatives, and post-trade transparency, as well as in relation to the margining of OTC derivatives. US regulators have addressed the applicability of certain of their regulations to cross-border transactions, and are continuing to review and consider their rules with respect to their application on a cross-border basis, including with respect to their registration requirements in relation tonon-US swap dealers and security-based swap dealers. The regulators may adopt further rules, or provide further guidance, regarding the cross-border applicability of such rules. In December 2017, the CFTC and the European Commission recognised the trading venues of each other’s jurisdiction to allow market participants to comply with mandatoryon-venue trading requirements while trading on certain venues recognised by the other jurisdiction.
The EU Benchmarks Regulation came into force in June 2016. Although some provisions have applied since 2016, the majority of provisions have applied since 3 January 2018 (subject to transitional provisions). This Regulation applies to the administration, contribution of data to and use of benchmarks within the EU. Financial institutions within the EU will be prohibited from using benchmarks unless their administrators are authorised, registered or otherwise recognised in the EU. This may impact the ability of Barclays to use certain benchmarks in the future.
In 2015, the European Commission launched work on establishing a Capital Markets Union (CMU) within the EU. The CMU aims to increase the availability ofnon-bank financing in the EU, deepen the EU single market for financial services and promote growth and financial stability. The CMU work programme is now being considered in light of Brexit. Recent proposals have therefore included considerably broadened central supervisory powers for the European Supervisory Authorities (ESAs) (including in relation to outsourcing, and delegation and risk transfer by entities authorised in the EU to entities or branches in third countries) and an increased focus by the ESAs on ongoing equivalence assessments in the context of third country regimes in various EU regulations and directives.
Certain participants in US swap markets are required to register with the CFTC as ‘swap dealers’ or ‘major swap participants’ and/or, following the compliance date for relevant SEC rules, with the SEC as ‘security-based swap dealers’ or ‘major security-based swap participants’. Such registrants are subject to CFTC, and would be subject to SEC regulation and oversight. The SEC finalised the rules governing security based swap dealer registration in 2015 but clarified that registration timing is contingent upon the finalisation of certain additional rules under Title VII of DFA, several of which are still pending. Additional SEC rules governing security-based swap transactions, including security-based swap reporting, will become effective after the security-based swap dealer registration date. Entities required to register are subject to business conduct, record-keeping and reporting requirements and will be subject to capital and margin requirements in connection with transactions with certain US andnon-US counterparties. Barclays Bank PLC has provisionally registered with the CFTC as a swap dealer and is subject to CFTC rules on business conduct, record-keeping and reporting. With respect to margin and capital, Barclays is subject to the rules of the FRB in connection with its swap dealer business.
160 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
The CFTC has approved certain comparability determinations that permit substituted compliance withnon-US regulatory regimes for certain swap regulations related to business conduct and other requirements, while other determinations remain pending. Most recently, in October 2017, the CFTC issued an order permitting substituted compliance with EU margin rules for certain uncleared derivatives. However, as Barclays is subject to the margin rules of the FRB, it will not benefit from the CFTC’s action unless the FRB takes a similar approach. The CFTC has stated that its transaction-level rules (such as margin and documentation requirements) would apply to certain transactions entered into between anon-US swap dealer and anon-US counterparty, if the transactions are arranged, negotiated or executed by personnel in the US, but has delayed the compliance date for this requirement until the effective date of future CFTC action addressing the way in which each transaction-level requirement must be applied.
It is unclear whether further changes will be made to the CFTC’s proposed rules or when they will become effective. In addition, it is uncertain whether and to what degree other US regulators, such as the FRB, will take an approach similar to the CFTC’s regarding substituted compliance.
(e) Conduct, culture and other regulation
Conduct and culture
On 7 March 2016, the PRA and FCA introduced measures to increase the individual accountability of senior managers and other covered individuals in the banking sector. The new regime comprises the ‘Senior Managers Regime’, which applies to a limited number of individuals with senior management responsibilities within a firm, the ‘Certification Regime’, which is intended to assess and monitor the fitness and propriety of a wider range of employees who could pose a risk of significant harm to the firm or its customers, and conduct rules that individuals subject to either regime must comply with. From March 2017, the conduct rules have applied more widely to other staff of firms within the scope of the regime. The Financial Services Act 2010, among other things, requires the UK regulators to make rules about remuneration and to require regulated firms to have a remuneration policy that is consistent with effective risk management.
The Banking Act also amended FSMA to allow the FCA to make rules requiring firms to operate a collective consumer redress scheme to deal with cases of widespread failure by regulated firms to meet regulatory requirements that may have created consumer detriment.
Our regulators have also enhanced their focus on the promotion of cultural values as a key area for banks, although they generally view the responsibility for reforming culture as primarily sitting with the industry.
Data protection and PSD2
Barclays has to comply with national data protection laws, governing the collection, use and disclosure of personal data, in a majority of the countries in which it operates. From 25 May 2018, data protection laws throughout the EU will be replaced by a single General Data Protection Regulation (GDPR) which enhances the rights and protections available to data subjects. The UK government has confirmed the UK will adopt and apply the GDPR from May 2018 and a bill has been published to implement GDPR. The impact across Barclays will be significant, affecting not only Group entities operating and processing personal data within the EU but also those outside the EU offering goods or services to, or monitoring, individuals within the EU. The GDPR contains significant financial penalties for data protection breaches andnon-compliance, of up to 4% of Group global turnover.
A number of recent developments have indicated a clear political and regulatory desire to make customer transactional account information more easily accessible to customers and parties providing services to them, such as the revised Payment Services Directive (PSD2) (which, in accordance with the requirements under that Directive, must have been implemented by 13 January 2018). In addition to attempting to harmonise conduct rules for all providers of electronic payment services in the EU, PSD2 also creates a new prudential authorisation regime fornon-bank payment services providers. PSD2 replaces the previous Payment Services Directive, and has a wider scope, applying transparency and information requirements to payment transactions in all currencies where the provider of at least one leg of the payment service is located in the EU.
Cyber security
Regulators in the EU and US have been increasingly focused on cyber security risk management for banking organisations and have proposed laws and regulations and other requirements that necessitate implementation of a variety of increased controls for regulated Barclays entities. These include, among others, the adoption of cyber security policies and procedures meeting specified criteria, minimum required security measures, enhanced reporting, compliance certification requirements and other cyber and information risk governance measures. When implemented, the proposals may increase technology and compliance costs for Barclays.
Sanctions and financial crime
The UK Bribery Act 2010 introduced a new form of corporate criminal liability focused broadly on a company’s failure to prevent bribery on its behalf. The legislation has broad application and in certain circumstances may have extraterritorial impact as to entities, persons or activities located outside the UK, including Barclays PLC and its subsidiaries. In practice, the legislation requires Barclays to have adequate procedures to prevent bribery which, due to the extraterritorial nature of the status, makes this both complex and costly.
On 30 September 2017, the Criminal Finances Act 2017 introduced new corporate criminal offences of failing to prevent the facilitation of UK and overseas tax evasion. The legislation has very broad extra-territorial application and may impact entities, persons or activities located outside the UK, including Barclays PLC and its subsidiaries. It also requires Barclays to have reasonable prevention procedures in place to prevent the criminal facilitation of tax evasion by persons acting for, or on behalf of, Barclays.
In the US, Barclays PLC, Barclays Bank PLC and their US subsidiaries are subject to a comprehensive regulatory framework involving numerous statutes, rules and regulations, including the International Banking Act of 1978, the Bank Holding CompanySecrecy Act, of 1956 (BHC Act), the USA PATRIOT Act of 2001 and the DFA. This legislation regulates the activities ofregulations thereunder contain numerous anti-money laundering and anti-terrorist financing requirements for financial institutions. In addition, Barclays including its US banking subsidiaries andis subject to the US branches of Barclays Bank PLC,Foreign Corrupt Practices Act, which prohibits certain payments to foreign officials, as well as imposing prudential restrictions, such as limits on extensions of creditrules and regulations relating to economic sanctions and embargo programs administered by Barclays Bank PLC’s US branches and the US banking subsidiaries to a single borrowerOffice of Foreign Assets Control which restrict certain business activities with certain individuals, entities, groups, countries and to affiliates. The New York and Florida branches of Barclays Bank PLC are subject to extensive federal and state supervision and regulation byterritories.
Two significant new regulatory rules will be coming into force in the Board of Governors of the Federal Reserve System (FRB) and, as applicable,US in 2018: the New York State Department of Financial Services (DFS) Rule 504 and the Florida OfficeUS Department of Treasury’s Financial Regulation. BarclaysCrime Enforcement Network (FinCEN) Customer Due Diligence (CDD) Rule. Rule 504 enumerates detailed transaction filtering and screening requirements for potential Bank Delaware, a Delaware chartered commercial bank, is subjectSecrecy Act and anti-money laundering violations and transactions with sanctioned entities, applicable to supervision and regulationinstitutions regulated by the Federal Deposit Insurance Corporation (FDIC), the Delaware Office of the State Bank Commissioner and the Consumer Financial Protection Bureau (CFPB). The deposits of Barclays Bank Delaware are insured by the FDIC. The licensing authority of each US branch ofDFS (including Barclays Bank PLC, hasNew York branch) and requires a senior bank official to certify compliance. The CDD Rule requires Barclays to identify natural beneficial owners above a certain threshold of clients that are legal entities within the authority, in certain circumstances, to take possession ofUS market.
In some cases, US state and federal regulations addressing sanctions, money laundering and other financial crimes may impact entities, persons or activities located outside the business and property of Barclays Bank PLC located in the state of the office it licenses or to revoke or suspend such licence. Such circumstances generally include violations of law, unsafe business practices and insolvency.
US, including Barclays PLC and Barclays Bank PLC are bank holding companies registered with the FRB, which exercises umbrella supervisory authority over Barclays’ US operations. Barclays is required to implement by July 2016 a US intermediate holding company (IHC) which will hold substantially all of Barclays’ US subsidiaries and assets (including Barclays Capital Inc. and Barclays Bank Delaware, other than Barclays’ US branches and certain other assets and subsidiaries). This IHC will also be a US bank holding company and generally regulated as such under the BHC Act. As part of this supervision, the IHC will also generally be subject to substantially similar enhanced prudential supervision requirements as US bank holding companies of similar size, including: (i) regulatory capital requirements and leverage limits; (ii) mandatory stress testing of capital levels , and submission of a capital plan; (iii) supervisory approval of capital distributions by the IHC to Barclays Bank PLC; (iv) additional substantive liquidity requirements, including requirements to conduct monthly internal liquidity stress tests for the IHC (and also, separately, for Barclays Bank PLC’s US branch network), and to maintain a 30-day buffer of highly liquid assets; (v) other liquidity risk management requirements, including compliance with liquidity risk management standards established by the FRB, and maintenance of an independent function to review and evaluate regularly the adequacy and effectiveness of the liquidity risk management practices of Barclays’ combined US operations; and (vi) overall risk management requirements, including a US risk committee and a US chief risk officer. The IHC will also be subject to TLAC requirements pursuant to proposed regulations issued by the Federal Reserve in the fall of 2015. Barclays is well advanced in its plans to transfer the relevant US subsidiaries and assets into a newly incorporated IHC, and to implement the related DFA and other requirements, to meet the prescribed deadlines.
Barclays PLC and Barclays Bank PLC have each elected to be treated as a financial holding company under the BHC Act. Financial holding companies may generally engage in a broader range of financial and related activities, including underwriting and dealing in all types of securities, than are permitted to registered bank holding companies that do not maintain financial holding company status. Financial holding companies such as Barclays PLC and Barclays Bank PLC are required to meet or exceed certain regulatory capital ratios and other requirements to be considered ‘well capitalised’ and be deemed to be ‘well managed’ in order to maintain their status as such. Once established, Barclays’ IHC would also need to meet similar requirements for FHC purposes. Barclays Bank Delaware is also required to meet certain capital ratio requirements and be deemed to be ‘well managed’. In addition, Barclays Bank Delaware must have at least a ‘satisfactory’ rating under the Community Reinvestment Act of 1977 (CRA). Entities ceasing to meet any of these requirements are allotted a period of time in which to restore capital levels or the management or CRA rating. Should the relevant Barclays entities fail to meet the above requirements, during the allotted period of time they could be prohibited from engaging in new types of financial activities or making certain types of acquisitions in the US. If the capital level or rating is not restored, the Group may ultimately be required by the FRB to cease certain activities in the US. More generally, Barclays’ US activities and operations may be subject to other requirements and restrictions by the FRB under its supervisory authority, including with respect to safety and soundness.
Under the Federal Deposit Insurance Act, as amended by the DFA, Barclays and the IHC (once established) are required to act as a source of financial strength for Barclays Bank Delaware. This could, among other things, require Barclays and/or the IHC to inject capital into Barclays Bank Delaware if it fails to meet applicable regulatory capital requirements.
Regulations applicable to US operations of Barclays Bank PLC and its subsidiaries impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to ensure compliance with US economic sanctions against designated foreign countries, nationals and others.subsidiaries. The enforcement of these regulations has been a major focus of US state and federal government policy relating to financial institutions in recent years. Failureyears, and failure of a financial institution to maintain and implement adequate programmes to combat money laundering and terrorist financing or to ensure economic sanction compliance could have serious legal, financial and reputational consequences for the institution.
Barclays’ US securities broker/dealer, investment advisory and investment banking operations are also subject to ongoing supervision and regulation by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and other government agencies and self-regulatory organisations (SROs) as part of a comprehensive scheme of regulation of all aspects of the securities and commodities business under the US federal and state securities laws.
Similarly, Barclays US commodity futures and commodity options-related operations are subject to ongoing supervision and regulation by the Commodity Futures Trading Commission (CFTC), the National Futures Association and other SROs.
Barclays’ US credit card activities are subject to ongoing supervision and regulation by the CFPB, which was established by the DFA. The statute gave the CFPB the authority to examine and take enforcement action against any US financial institution with over $10bn in total assets, such as Barclays Bank Delaware, with respect to its compliance with federal laws and regulations regarding the provision of consumer financial services (including credit card and deposit services) and with respect to ‘unfair, deceptive or abusive acts and practices.’ One of the laws the CFPB enforces is the Credit Card Accountability, Responsibility and Disclosure Act of 2009 which prohibits certain pricing and marketing practices for consumer credit card accounts.
Barclays PLC and Barclays Bank PLC |
Risk review
Supervision and regulation
Note
a Illustration of Barclays business divisions in preparation for regulatory ring-fencing. Plans are subject to internal and regulatory approvals and may change.
Structural Reform
Overview
Barclays intends to achieve ring-fencing separation by transferring the Barclays UK division of Barclays Bank PLC to Barclays Bank UK PLC, the ring-fenced bank of the Group. Immediately following the transfer, Barclays Bank PLC’s shares in Barclays Bank UK PLC will be distributed to the Parent company, Barclays PLC, establishing Barclays Bank UK PLC as a direct subsidiary of Barclays PLC. Barclays Bank PLC will continue to house the Barclays International division. The two banking entities will operate alongside one another, together with Barclays Services Limited (ServCo), as subsidiaries of Barclays PLC within the Barclays Group.
In order to achieve this target-state structure, Barclays will need to undertake a number of legal transfers, including the transfer of customer andnon-customer assets, liabilities and contractual arrangements.
Barclays is using a court approved statutory ring-fencing transfer scheme (RFTS) process as set out in the Financial Services and Markets Act 2000 to conduct the majority of these transfers. In addition to the transfers conducted through the RFTS, certain items will be transferred via separate arrangements. Barclays is on track to be compliant with ring-fencing requirements well in advance of the 1 January 2019 statutory deadline.
Timeline
Barclays’ Structural Reform timeline, including progress to date and indicative future milestones is as follows:
◾ | 2015: |
– | Barclays Bank UK PLC, the legal entity which will become the ring-fenced bank, was incorporated. |
◾ | 2016: |
– | Barclays UK and Barclays International business divisions were established |
– | Barclays’ US intermediate holding company was established as an umbrella holding company for Barclays’ US subsidiaries, including Barclays Capital Inc. (US broker-dealer) that operates key investment banking businesses and Barclays Bank Delaware that operates Barclaycard US |
– | Barclays Bank UK PLC banking authorisation application was submitted to the regulators |
– | ServCo became a direct subsidiary of Barclays PLC. |
◾ | 2017: |
– | Banking licence (with restrictions) granted to Barclays Bank UK PLC in April 2017 |
– | The majority of assets, liabilities, and other items connected with service provision were transferred from Barclays Bank PLC to ServCo, resulting in the execution of the ServCo build being substantially complete |
– | Transfers of employees to the target structure employing entities took place in September 2017 under the Transfer of Undertakings (Protection of Employment) Regulations 2006 |
– | Sort codes have been split between Barclays Bank UK PLC and Barclays Bank PLC, with the last tranche completed in January 2018, so that each of the Group’s sort codes is aligned to a single bank |
– | RFTS court process has been initiated with the Directions Hearing held at the High Court of England and Wales on 10 November 2017, where the Barclays Group’s communications programme for notifying customers and other stakeholders of the RFTS was approved. |
◾ | 2018: |
– | Sanction Hearing will be held on 26 and 27 February 2018 at which the Court will be asked to sanction Barclays’ RFTS |
– | Subject to the Court sanctioning the RFTS, Barclays UK businesses and related items will be transferred to Barclays Bank UK PLC at the RFTS effective date, currently expected to be 1 April 2018 |
Immediately following the RFTS transfers, the shares in Barclays Bank UK PLC will be transferred from Barclays Bank PLC to Barclays PLC, establishing Barclays Bank UK PLC as a direct subsidiary of Barclays PLC.
Illustrative unauditedpro-forma financials for Barclays Bank UK PLC and Barclays Bank PLC are available at home.barclays/results.
162 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Financial review
The DFA’s ultimate impact on the Group continues to remain uncertain and some rules are not yet fully implemented. In addition, market practices and structures may change in response to the requirements of the DFA in ways that are difficult to predict but that could impact Barclays business. Nonetheless, certain provisions of the DFA are particularly likely to have a significant effect on the Group, including:
In this regard, US prudential regulators and the CFTC recently finalised and issued their respective rules imposing initial and variation margin requirements on transactions in uncleared swaps and security-based swaps. Such requirements will become effective over a period of time beginning in September, 2016. The margin requirements can be expected to increase the costs of over-the-counter derivative transactions and could adversely affect market liquidity.
These registration, execution, clearing, reporting and compliance requirements could adversely affect the business of Barclays Bank PLC and its affiliates, including by reducing market liquidity and increasing the difficulty and cost of hedging and trading activities.
Barclays’ operations in South Africa, including Barclays Africa Group Limited, are supervised and regulated mainly by the South African Reserve Bank (SARB), the Financial Services Board (SAFSB) as well as the Department of Trade and Industry (DTI). The SARB oversees the banking industry and follows a risk-based approach to supervision, while the SAFSB oversees financial services such as insurance and investment business and focuses on enhancing consumer protection and regulating market conduct. The DTI regulates consumer credit through the National Credit Regulator, established under the National Credit Act (NCA) 2005, as well as other aspects of consumer protection not regulated under the jurisdiction of the SAFSB through the Consumer Protection Act (CPA) 2008. It is intended that regulatory responsibilities in South Africa will in future be divided between the SARB which will be responsible for prudential regulation and the SAFSB will be responsible for matters of market conduct. The transition to ‘twin peaks’ regulation will commence in 2016. Barclays’ operations in other African countries are primarily supervised and regulated by the central banks in the jurisdictions where Barclays has a banking presence. In some African countries, the conduct of Barclays’ operations and the non-banking activities are also regulated by Financial Market Authorities.
A review of the performance of Barclays, performance indicators, and businesses to the overall performance of the Group. |
Financial review
Contents
A review of the performance of Barclays, including the key performance indicators, and our businesses’ contribution to the overall performance of the Group.
Financial review | Page | |||||||
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| 170 | |||||||
◾ Non-IFRS performance measures | 181 |
Barclays PLC and Barclays Bank PLC |
Financial review
In assessing the financial performance of the Group, management uses a range of Key Performance Indicators (KPIs) which focus on the Group’s financial strength, the delivery of sustainable returns and cost management.
In assessing the financial performance of the Group, management uses a range of KPIs which focus on the Group’s financial strength, the delivery of sustainable returns and cost management. Significant strategic progress was made in 2017 with the closure of Barclays Non-Core and sell down of our stake in Barclays Africa, marking the completion of our restructuring and enabling us to set new targets for Group returns and costs. TheNon-Core segment was closed on 1 July 2017 with RWAs of £23bn, below guidance of approximately £25bn as set out in the 2016 KPIs. With the closure ofNon-Core we no longer have a Core andNon-Core distinction within the Group and hence the previous target of Group RoTE to converge with Core RoTE has been updated. The Group is now targeting RoTE, excluding litigation and conduct, of greater than 9% in 2019 and greater than 10% in 2020, based on a Group CET1 ratio of c.13%. Guidance for Group operating expenses, excluding litigation and conduct, is£13.6-13.9bn in 2019 and to have a cost: income ratio of below 60%. |
Non-IFRS performance measures Barclays’ management believes that thenon-IFRS performance measures included in this document provide valuable information to the readers of the financial statements as they enable the reader to identify a more consistent basis for comparing the business’ performance between financial periods, and provide more detail concerning the elements | of performance which the managers of these businesses are most directly able to influence or are relevant for an assessment of the Group. They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by Barclays’ management. However, anynon-IFRS performance measures in this document are not a substitute for IFRS | measures and readers should consider the IFRS measures as well. Refer to pages 181 to 183 for further information and calculations ofnon-IFRS performance measures included throughout this section, and the most directly comparable IFRS measures. | ||||||
Definition | Why is it important and how the Group performed | |||||||
CRD IV fully loaded Capital requirements are part of the regulatory framework governing how banks and depository institutions are supervised. Capital ratios express a bank’s capital as a percentage of its
In the context of CRD IV, the fully loaded CET1 ratio is a measure of capital that is predominantly common equity as defined by the | The Group’s capital management objective is to maximise
The Group’s CRD IV fully loaded CET1 ratio increased to
Group target: CET1 ratio target of150-200bps above the expected end point regulatory minimum level, providing450-500bps buffer to the Bank of England stress test systemic reference point. | 13.3% CRD IV fully loaded CET1 ratio 2016: 12.4% 2015: 11.4% |
164 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
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Definition | Why is it important and how the Group performed | |||||||
The ratio is calculated as the average fully loaded | The leverage ratio isnon-risk based and is intended to act as a supplementary measure to the
The average UK leverage ratio increased to 4.9% (2016: 4.5%
Group target: maintaining the leverage ratio above the expected end point minimum requirement. |
2016: 4.5% 2015: n/a | ||||||
Return on RoE is calculated as profit
instruments. | This measure indicates the return generated by the management of the business based on shareholders’ equity. RoE for the Group decreased to (3.1%) (2016: 3.0%) reflecting an attributable loss of £1,922m (2016: profit of £1,623m). | (3.1%) Group RoE 2016: 3.0% 2015: (0.6%) | ||||||
Return on average tangible shareholders’ equity RoTE is calculated as profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit recorded in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excluding non- controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill. | This measure indicates the return generated by the management of the business based on shareholders’ tangible equity. Achieving a target
Group target: Group RoTE, excluding litigation and conduct, of greater than 9% in | (3.6%) Group
2015:
|
Note
5.6% Group RoTE excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and the re- measurement of US DTAs | ||||||||
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Operating expenses
| Barclays views
Operating expenses |
Group
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| £15.5bn
2015: £18.5bn
£14.2bn Operating expenses excluding litigation and conduct 2016: £15.0bn 2015: £14.1bn | |||||||
Cost: income ratio Operating expenses divided by total income. | This is a measure management uses to assess the productivity of the business operations. Restructuring the cost base is a key execution priority for management and includes a review of all categories of discretionary spending and an analysis of how we can run the business to ensure that costs increase at a slower rate than income. The Group cost: income ratio reduced to 73% (2016: 76%) driven by a 5% reduction in operating expenses, partially offset by a 2% reduction in total income. The reduction in operating expenses was primarily driven by lowerNon-Core related operating expenses. Group target: a cost: income ratio of below 60%. | 73%
2016: 76% 2015:
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Note
Barclays PLC and Barclays Bank PLC |
Financial review
Consolidated summary income statement
For the year ended 31 December |
| 2015 £m |
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| 2014 £m |
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| 2013a £m |
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| 2012 £m |
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| 2011 £m |
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Continuing operations | ||||||||||||||||||||
Net interest income | 12,558 | 12,080 | 11,600 | 11,654 | 12,201 | |||||||||||||||
Non-interest income net of claims and benefits on insurance contracts | 11,970 | 13,648 | 16,296 | 17,707 | 16,312 | |||||||||||||||
Adjusted total income net of insurance claims | 24,528 | 25,728 | 27,896 | 29,361 | 28,513 | |||||||||||||||
Gain on US Lehman acquisition assets | 496 | 461 | 259 | – | – | |||||||||||||||
Own credit gain/(charge) | 430 | 34 | (220) | (4,579) | 2,708 | |||||||||||||||
Revision of ESHLA valuation methodology | – | (935) | – | – | – | |||||||||||||||
Gain/(loss) on disposal of BlackRock, Inc. investment | – | – | – | 227 | (58) | |||||||||||||||
Gains on debt buy-backs | – | – | – | – | 1,130 | |||||||||||||||
Statutory total income net of insurance claims | 25,454 | 25,288 | 27,935 | 25,009 | 32,292 | |||||||||||||||
Adjusted credit impairment charges and other provisions | (2,114) | (2,168) | (3,071) | (3,340) | (3,802) | |||||||||||||||
Impairment of BlackRock, Inc. investment | – | – | – | – | (1,800) | |||||||||||||||
Statutory credit impairment charges and other provisions | (2,114) | (2,168) | (3,071) | (3,340) | (5,602) | |||||||||||||||
Adjusted operating expenses | (16,998) | (18,069) | (19,720) | (18,562) | (19,289) | |||||||||||||||
Provisions for UK customer redress | (2,772) | (1,110) | (2,000) | (2,450) | (1,000) | |||||||||||||||
Provisions for ongoing investigations and litigation including Foreign Exchange | (1,237) | (1,250) | (173) | – | – | |||||||||||||||
Gain on valuation of a component of the defined retirement benefit liability | 429 | – | – | – | – | |||||||||||||||
Impairment of goodwill and other assets relating to businesses being disposed | (96) | – | (79) | – | (597) | |||||||||||||||
Losses on sale relating to the Spanish, Portuguese and Italian businesses | (3) | – | – | – | – | |||||||||||||||
Statutory operating expenses | (20,677) | (20,429) | (21,972) | (21,012) | (20,886) | |||||||||||||||
Adjusted other net (expenses)/income | (13) | 11 | (24) | 140 | 60 | |||||||||||||||
Losses on sale relating to the Spanish, Portuguese and Italian businesses | (577) | (446) | – | – | – | |||||||||||||||
Losses on acquisitions and disposals | – | – | – | – | (94) | |||||||||||||||
Statutory other net (expenses)/income | (590) | (435) | (24) | 140 | (34) | |||||||||||||||
Statutory profit before tax | 2,073 | 2,256 | 2,868 | 797 | 5,770 | |||||||||||||||
Statutory taxation | (1,450) | (1,411) | (1,571) | (616) | (1,902) | |||||||||||||||
Statutory profit after tax | 623 | 845 | 1,297 | 181 | 3,868 | |||||||||||||||
Statutory (loss)/profit attributable to equity holders of the parent | (394) | (174) | 540 | (624) | 2,924 | |||||||||||||||
Statutory profit attributable to non-controlling interests | 672 | 769 | 757 | 805 | 944 | |||||||||||||||
Statutory profit attributable to other equity holdersb | 345 | 250 | – | – | – | |||||||||||||||
623 | 845 | 1,297 | 181 | 3,868 | ||||||||||||||||
Selected statutory financial statistics | ||||||||||||||||||||
Basic (loss)/earnings per share | (1.9p) | (0.7p) | 3.8p | (4.8p) | 22.9p | |||||||||||||||
Diluted (loss)/earnings per share | (1.9p) | (0.7p) | 3.7p | (4.8p) | 21.9p | |||||||||||||||
Dividends per ordinary share | 6.5p | 6.5p | 6.5p | 6.5p | 6.0p | |||||||||||||||
Return on average tangible shareholders’ equityb | (0.7%) | (0.3%) | 1.2% | (1.4%) | 7.1% | |||||||||||||||
Return on average shareholders’ equityb | (0.6%) | (0.2%) | 1.0% | (1.2%) | 5.9% | |||||||||||||||
Adjusted profit before tax | 5,403 | 5,502 | 5,081 | 7,599 | 5,482 | |||||||||||||||
Adjusted taxation | (1,690) | (1,704) | (2,029) | (2,159) | (1,299) | |||||||||||||||
Adjusted profit after tax | 3,713 | 3,798 | 3,052 | 5,440 | 4,183 | |||||||||||||||
Adjusted profit attributable to equity holders of the parent | 2,696 | 2,779 | 2,295 | 4,635 | 3,239 | |||||||||||||||
Adjusted profit attributable to non-controlling interests | 672 | 769 | 757 | 805 | 944 | |||||||||||||||
Adjusted profit attributable to other equity interestsb | 345 | 250 | – | – | – | |||||||||||||||
3,713 | 3,798 | 3,052 | 5,440 | 4,183 | ||||||||||||||||
Selected adjusted financial statistics | ||||||||||||||||||||
Basic earnings per share | 16.6p | 17.3p | 16.0p | 35.5p | 25.3p | |||||||||||||||
Dividend payout ratio | 39% | 38% | 41% | 18% | 24% | |||||||||||||||
Return on average tangible shareholders’ equityb | 5.8% | 5.9% | 5.1% | 10.6% | 8.1% | |||||||||||||||
Return on average shareholders’ equityb | 4.9% | 5.1% | 4.3% | 9.0% | 6.7% |
For the year ended 31 December | 2017 £m | 2016 £m | 2015 £m | 2014 £m | 2013 £m | |||||||||||||||
Continuing operations | ||||||||||||||||||||
Net interest income | 9,845 | 10,537 | 10,608 | 10,086 | 9,457 | |||||||||||||||
Net fee, commission and other income | 11,231 | 10,914 | 11,432 | 11,677 | 14,587 | |||||||||||||||
Total income | 21,076 | 21,451 | 22,040 | 21,763 | 24,044 | |||||||||||||||
Credit impairment charges and other provisions | (2,336 | ) | (2,373 | ) | (1,762 | ) | (1,821 | ) | (2,601 | ) | ||||||||||
Operating expenses excluding UK bank levy and litigation and conduct | (13,884 | ) | (14,565 | ) | (13,723 | ) | (14,959 | ) | (16,628 | ) | ||||||||||
UK bank levy | (365 | ) | (410 | ) | (426 | ) | (418 | ) | (462 | ) | ||||||||||
Litigation and conduct | (1,207 | ) | (1,363 | ) | (4,387 | ) | (2,807 | ) | (2,442 | ) | ||||||||||
Operating expenses | (15,456 | ) | (16,338 | ) | (18,536 | ) | (18,184 | ) | (19,532 | ) | ||||||||||
Other net income/(expenses) | 257 | 490 | (596 | ) | (445 | ) | (32 | ) | ||||||||||||
Profit before tax | 3,541 | 3,230 | 1,146 | 1,313 | 1,879 | |||||||||||||||
Tax charge | (2,240 | ) | (993 | ) | (1,149 | ) | (1,121 | ) | (1,251 | ) | ||||||||||
Profit/(loss) after tax in respect of continuing operations | 1,301 | 2,237 | (3 | ) | 192 | 628 | ||||||||||||||
(Loss)/profit after tax in respect of discontinued operation | (2,195 | ) | 591 | 626 | 653 | 669 | ||||||||||||||
Non-controlling interests in respect of continuing operations | (249 | ) | (346 | ) | (348 | ) | (449 | ) | (414 | ) | ||||||||||
Non-controlling interests in respect of discontinued operation | (140 | ) | (402 | ) | (324 | ) | (320 | ) | (343 | ) | ||||||||||
Other equity instrument holdersa | (639 | ) | (457 | ) | (345 | ) | (250 | ) | – | |||||||||||
Attributable (loss)/profit | (1,922 | ) | 1,623 | (394 | ) | (174 | ) | 540 | ||||||||||||
Selected financial statistics | ||||||||||||||||||||
Basic (loss)/earnings per sharea | (10.3p | ) | 10.4p | (1.9p | ) | (0.7p | ) | 3.8p | ||||||||||||
Diluted (loss)/earnings per sharea | (10.1p | ) | 10.3p | (1.9p | ) | (0.7p | ) | 3.7p | ||||||||||||
Dividends per ordinary share | 3.0p | 4.5p | 6.5p | 6.5p | 6.5p | |||||||||||||||
Return on equity | (3.1% | ) | 3.0% | (0.6% | ) | (0.2% | ) | 1.0% | ||||||||||||
Return on average tangible shareholders’ equitya | (3.6% | ) | 3.6% | (0.7% | ) | (0.3% | ) | 1.2% |
Note
a | The profit after tax attributable to other equity instrument holders of £639m (2016: £457m) is offset by a tax credit recorded in reserves of £174m (2016: £128m). The net amount of £465m (2016: £329m), along withnon-controlling interests is deducted from profit after tax in order to calculate earnings per share and return on average tangible shareholders’ equity. |
The financial information above is extracted from the published accounts. This information should be read together with the information included in the accompanying consolidated financial statements.
Notes
Financial review
20152017 compared to 20142016
Profit before tax increased 10% to £3,541m driven by a 5% reduction in operating expenses, partially offset by a 2% reduction in income and lower other net income. Results were impacted by the appreciation of average USD and EUR against GBP of 5% and 7% respectively, compared to 2016, which positively impacted income and adversely affected impairment and operating expenses.
Following the closure of BarclaysNon-Core on 1 July 2017, Group results for 2017 included a BarclaysNon-Core loss before tax for the six months ended 30 June 2017 of £647m, compared to a loss before tax of £2,786m for the full year in 2016. From 1 July 2017, residual BarclaysNon-Core assets and liabilities were reintegrated into, and associated financial performance subsequently reported in, Barclays UK, Barclays International and Head Office.
StatutoryTotal income decreased to £21,076m (2016: £21,451m) reflecting a £613m decrease in Barclays International and a £262m reduction in Head Office, partially offset by a reduction in losses related toNon-Core.
Credit impairment charges were broadly stable at £2,336m (2016: £2,373m) and reflected a charge of £168m in 2017 relating to deferred consideration from an asset sale in US Cards, and thenon-recurrence of a £320m charge in 2016 following the management review of the UK and US cards portfolio impairment modelling. Impairment increased in Barclays International driven by an increase in underlying delinquency trends and business growth in US Cards. The Group loan loss rate increased 4bps to 57bps.
Operating expenses reduced 5% to £15,456m driven primarily by lowerNon-Core related operating expenses. Excluding litigation and conduct charges, Group operating expenses were £14.2bn, in line with 2017 guidance.
Other net income of £257m (2016: £490m) primarily reflected a gain of £109m on the sale of Barclays’ share in VocaLink to MasterCard and a gain of £76m on the sale of a joint venture in Japan.
The effective tax rate on profit before tax decreasedincreased to £2,073m (2014: £2,256m), adjusted profit63.3% (2016: 30.7%) principally due to aone-off tax charge of £1,177m due to there-measurement of US DTAs as a result of the US Tax Cuts and Jobs Act, partially offset by an unrelated £276m increase in US DTAs due to are-measurement of Barclays Bank PLC’s US branch DTAs.
Loss after tax in respect of the Africa Banking discontinued operation of £2,195m included a £1,090m impairment of Barclays’ holding in BAGL and a £1,435m loss on the sale of 33.7% of BAGL’s issued share capital, primarily due to recycling of currency translation reserve losses to the income statement on accounting deconsolidation.
RoE was negative 3.1% (2016: positive 3.0%). RoTE was negative 3.6% (2016: positive 3.6%) and basic loss per share was 10.3p (2016: earnings per share of 10.4p). Excluding litigation and conduct, losses related to the sell down of BAGL and theone-off net charge due to the re-measurement of US DTAs, RoTE was 5.6% and earnings per share was 16.2p.
2016 compared to 2015
Profit before tax decreased 2%increased to £5,403m.£3,230m (2015: £1,146m). The Group performance reflected good operational performance in Barclays UK and Barclays International while being impacted by theNon-Core loss before tax of £2,786m (2015: £2,603m) driven by the accelerated rundown ofNon-Core and provisions for UK customer redress of £1,000m (2015: £2,772m). The appreciation of average USD and EUR against GBP positively impacted income and adversely affected impairment and operating expenses.
Statutory totalTotal income net of insurance claims increased 1%decreased 3% to £25,454m, including adjusting items for a £496m (2014: £461m) gain on the US Lehman acquisition assets and an own credit gain of £430m (2014: £34m). 2014 statutory total£21,451m asNon-Core income net of insurance claims included a loss of £935m (2015: nil) relating to a revision to the ESHLA valuation methodology.
Adjusted total income net of insurance claims decreased 5% to £24,528m, as Non-Core income reduced £1,776m to a net expense of £164m following assets and securities rundown, business sales, including the impact of the sales of the Spanish and UAE retail businesses, and fair value losses on the ESHLA portfolio of £359m (2014: £156m). Core income remained in line at £24,692m (2014: £24,678m) reflecting: a 13% increase to £4,927m in Barclaycard, primarily reflecting growth in US cards; Investment Bank income remaining broadly in line at £7,572m (2014: £7,588m); a 1% reduction in PCB£1,164m due to the impactacceleration of customer redresstheNon-Core rundown, while Barclays International income increased 9% to £14,995m, with growth in both CIB and Consumer, Cards and Payments, and Barclays UK income increased 2% to £7,517m.
Total income included a £615m (2015: £nil) gain on disposal of Barclays’ share of Visa Europe Limited and an own credit loss of £35m (2015: gain of £430m).
Credit impairment charges increased £611m to £2,373m including a £320m charge in Q316 following the salemanagement review of the UK and US Wealth business;cards portfolio impairment modelling and a 2% reduction in Africa Banking as the ZAR depreciated against GBP. On a constant currency basisa income in Africa Banking increased 7% reflecting goodbalance growth in Retailprimarily within Consumer, Cards and Business Banking and corporate banking in South Africa, and Wealth, Investment Management and Insurance (WIMI).
Net interest income increased 4% to £12,558m, with higher net interest income in PCB, Barclaycard and Non-Core,Payments. This was partially offset by reductionsa reduction in Africa Banking, the Investment Bank and Head Office. Net interest income for PCB, Barclaycard and Africa Banking increased 5%credit impairment charges of 9% to £12,024m£122m inNon-Core due to lower impairment charges in European businesses. This resulted in an 11bps increase in average customer assets to £287.7bn (2014: £280.0bn) with growth in PCB and Barclaycard, partially offset by reductions in Africa Banking as the ZAR depreciated against GBP. Net interest margin increased 10bps to 4.18% primarily due to growth in interest earning lending within Barclaycard.
Credit impairment charges improved 2% to £2,114m, with a loan loss rate of 47bps (2014: 46bps). This reflected higher recoveries in Europeto 53bps.
Operating expenses reduced 12% to £16,338m reflecting lower litigation and the sale of the Spanish business in Non-Core, and lower impairments in PCB due to the benign economic environment in the UK resulting in lower default rates andconduct charges. This was partially offset by a numberthenon-recurrence of single name exposures in the Investment Bank, and increased impairment in Barclaycard reflecting asset growth and updates to impairment model methodologies.
Statutory operating expenses increased 1% to £20,677m. This included adjusting items for additional UK customer redress provisionsprior year gain of £2,772m (2014: £1,110m), £1,237m (2014: £1,250m) of additional provisions for ongoing investigations and litigation including Foreign Exchange, a £429m (2014: nil) gain on the valuation of a component of the defined retirement benefit liability £96m (2014: nil) of impairment of goodwill and other assetsincreased structural reform implementation costs. Operating expenses also included a £395m additional charge in Q416 relating to businesses being disposed,2016 compensation awards reflecting a decision to more closely align income statement recognition with performance awards and £3m (2014: nil)to harmonise deferral structures across the Group.
Operating expenses included provisions for UK customer redress of losses£1,000m (2015: £2,772m).
The cost: income ratio improved to 76% (2015: 84%).
Other net income of £490m (2015: expense of £596m) included gains on the sale of Barclays Risk Analytics and Index Solutions, the Asia wealth and investment management business and the Southern European cards business, partly offset by the loss on sale relating to the Spanish, Portuguese and Italian businesses.
Adjusted operating expenses decreased 6% to £16,998m as a result of savings from strategic cost programmes, particularly in the Investment Bank and PCB, in addition to the continued rundown of Non-Core. Total compensation costs decreased 6% to £8,339m, with the Investment Bank reducing 5% to £3,423m, reflecting lower deferred and current year bonus charges and reduced headcount. Reductions in costs to achieve of 32% to £793m, and in litigation and conduct charges of 16% to £378m, were partially offset by costs associated with the implementation of the structural reform programme and a 3% increase in the UK bank levy to £476m.French retail business of £455m.
The statutory cost:income ratio remained in line at 81% (2014: 81%). The adjusted cost:income ratio decreased to 69% (2014: 70%).
Statutory other net expenses increased to £590m (2014: £435m) and included an adjusting item for losses on sale relating to the Spanish, Portuguese and Italian businesses of £577m (2014: £446m).
The tax charge of £1,450m (2014: £1,411m) on statutory profit before tax of £2,073m (2014: £2,256m) represents an effective tax rate of 69.9% (2014: 62.5%). The effective tax rate on adjusted profit before tax decreased to 30.7% (2015: 100.3%) principally as a result of 31.3% (2014: 31.0%a reduction innon-deductible charges.
Profit after tax in respect of continuing operations increased to £2,237m (2015: loss of £3m). Profit after tax in relation to the Africa Banking discontinued operation decreased 6% to £591m as increased credit impairment charges and operating expenses were partially offset by income growth.
RoE was positive 3.0% (2015: negative 0.6%). RoTE was positive 3.6% (2015: negative 0.7%) is less than the effective tax rate on statutory profit before tax mainly because it excludes the impactand basic earnings per share was 10.4p (2015: loss per share of adjusting items such as non-deductible provisions for ongoing investigations and litigation including Foreign Exchange and provisions for UK customer redress. The adjusted measure of profit before tax is considered to provide a more consistent basis for comparing business performance between periods as it is more representative of the underlying, ongoing performance. Consistent with this, the effective tax rate on adjusted profit before tax is considered a more representative measure of the Group’s underlying, ongoing tax charge.1.9p).
Note
Barclays PLC and Barclays Bank PLC |
Financial review
Income statement commentaryConsolidated summary balance sheet
2014 compared to 2013
As at 31 December | 2017 £m | 2016 £m | 2015 £m | 2014 £m | 2013 £m | |||||||||||||||
Assets | ||||||||||||||||||||
Cash and balances at central banks | 171,082 | 102,353 | 49,711 | 39,695 | 45,687 | |||||||||||||||
Items in the course of collection from other banks | 2,153 | 1,467 | 1,011 | 1,210 | 1,282 | |||||||||||||||
Trading portfolio assets | 113,760 | 80,240 | 77,348 | 114,717 | 133,069 | |||||||||||||||
Financial assets designated at fair value | 116,281 | 78,608 | 76,830 | 38,300 | 38,968 | |||||||||||||||
Derivative financial instruments | 237,669 | 346,626 | 327,709 | 439,909 | 350,300 | |||||||||||||||
Financial investments | 58,916 | 63,317 | 90,267 | 86,066 | 91,756 | |||||||||||||||
Loans and advances to banks | 35,663 | 43,251 | 41,349 | 42,111 | 39,422 | |||||||||||||||
Loans and advances to customers | 365,552 | 392,784 | 399,217 | 427,767 | 434,237 | |||||||||||||||
Reverse repurchase agreements and other similar secured lending | 12,546 | 13,454 | 28,187 | 131,753 | 186,779 | |||||||||||||||
Assets included in disposal groups classified as held for sale | 1,193 | 71,454 | 7,364 | – | – | |||||||||||||||
Other assets | 18,433 | 19,572 | 21,019 | 36,378 | 22,128 | |||||||||||||||
Total assets | 1,133,248 | 1,213,126 | 1,120,012 | 1,357,906 | 1,343,628 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits from banks | 37,723 | 48,214 | 47,080 | 58,390 | 55,615 | |||||||||||||||
Items in the course of collection due to other banks | 446 | 636 | 1,013 | 1,177 | 1,359 | |||||||||||||||
Customer accounts | 429,121 | 423,178 | 418,242 | 427,704 | 431,998 | |||||||||||||||
Trading portfolio liabilities | 37,351 | 34,687 | 33,967 | 45,124 | 53,464 | |||||||||||||||
Financial liabilities designated at fair value | 173,718 | 96,031 | 91,745 | 56,972 | 64,796 | |||||||||||||||
Derivative financial instruments | 238,345 | 340,487 | 324,252 | 439,320 | 347,118 | |||||||||||||||
Debt securities in issuea | 73,314 | 75,932 | 69,150 | 86,099 | 86,693 | |||||||||||||||
Subordinated liabilities | 23,826 | 23,383 | 21,467 | 21,153 | 21,695 | |||||||||||||||
Repurchase agreements and other similar secured borrowings | 40,338 | 19,760 | 25,035 | 124,479 | 196,748 | |||||||||||||||
Liabilities included in disposal groups classified as held for sale | – | 65,292 | 5,997 | – | – | |||||||||||||||
Other liabilities | 13,050 | 14,161 | 16,200 | 31,530 | 20,193 | |||||||||||||||
Total liabilities | 1,067,232 | 1,141,761 | 1,054,148 | 1,291,948 | 1,279,679 | |||||||||||||||
Equity | ||||||||||||||||||||
Called up share capital and share premium | 22,045 | 21,842 | 21,586 | 20,809 | 19,887 | |||||||||||||||
Other equity instruments | 8,941 | 6,449 | 5,305 | 4,322 | 2,063 | |||||||||||||||
Other reserves | 5,383 | 6,051 | 1,898 | 2,724 | 249 | |||||||||||||||
Retained earnings | 27,536 | 30,531 | 31,021 | 31,712 | 33,186 | |||||||||||||||
Total equity excludingnon-controlling interests | 63,905 | 64,873 | 59,810 | 59,567 | 55,385 | |||||||||||||||
Non-controlling interests | 2,111 | 6,492 | 6,054 | 6,391 | 8,564 | |||||||||||||||
Total equity | 66,016 | 71,365 | 65,864 | 65,958 | 63,949 | |||||||||||||||
Total liabilities and equity | 1,133,248 | 1,213,126 | 1,120,012 | 1,357,906 | 1,343,628 | |||||||||||||||
Net asset value per ordinary share | 322p | 344p | 324p | 335p | 331p | |||||||||||||||
Tangible net asset value per share | 276p | 290p | 275p | 285p | 283p | |||||||||||||||
Number of ordinary shares of Barclays PLC (in millions) | 17,060 | 16,963 | 16,805 | 16,498 | 16,113 | |||||||||||||||
Year-end US dollar exchange rate | 1.35 | 1.23 | 1.48 | 1.56 | 1.65 | |||||||||||||||
Year-end Euro exchange rate | 1.13 | 1.17 | 1.36 | 1.28 | 1.20 |
Statutory profit before tax decreased to £2,256m (2013: £2,868m), adjusted profit before tax increased 8% to £5,502m.Note
Statutory total income net of insurance claims decreased 9% to £25,288m including adjusting items for an own credit gain of £34m (2013: loss of £220m), a £461m (2013: £259m) gain on the US Lehman acquisition assets and a valuation revision of £935m (2013: nil) relating to changes in discount rates applied in the valuation methodology of the ESHLA loan portfolio held at fair value.
Adjusted total income net of insurance claims decreased 8% to £25,728m, reflecting a 54% reduction in Non-Core following assets and securities rundown and business disposals, a 12% reduction in the Investment Bank, driven by a decrease in the Markets business, particularly Macro, and a 9% reduction in Africa Banking, due to adverse currency movements, partially offset by growth in Barclaycard and PCB.
Net interest income increased 4% to £12,080m, with higher net interest income in PCB, the Investment Bank and Barclaycard, partially offset by reductions in Africa Banking, Head Office and Non-Core. Net interest income for PCB, Barclaycard and Africa Banking increased 4% to £11,435m driven by strong savings income growth in PCB, and volume growth in Barclaycard, partially offset by a reduction in Africa Banking due to currency movements. This resulted in a net interest margin of 4.08% (2013: 4.02%).
Credit impairment charges improved 29% to £2,168m, with a loan loss rate of 46bps (2013: 64bps). This reflected the non-recurrence of impairments on single name exposures, impairment releases on the wholesale portfolio, and improved performance in Europe withinNon-Core. Within the Core business there were lower impairments in PCB due to the improving UK economic environment, particularly impacting Corporate Banking which benefited from one-off releases and lower defaults from large UK corporate clients, and reduced impairments in the Africa Banking South Africa mortgages portfolio.
As a result, statutory net operating income for the Group decreased 7% to £23,120m. Net adjusted operating income excluding movements in own credit, the gains on US Lehman acquisition assets and the revision of the ESHLA valuation methodology decreased 5% to £23,560m.
Statutory operating expenses reduced 7% to £20,429m. This included adjusting items for an additional PPI redress provision of £1,270m, resulting in a full year net charge of £1,110m (2013: £2,000m) in relation to UK customer redress, £1,250m (2013: £173m) of provisions for ongoing investigations and litigation including Foreign Exchange and goodwill impairment of nil (2013: £79m). Adjusted operating expenses decreased 8% to £18,069m, driven by savings from strategic cost programmes, including a 5% reduction in headcount and currency movements. Total compensation costs decreased 8% to £8,891m, with the Investment Bank reducing 9% to £3,620m, reflecting reduced headcount, and lower deferred and current year bonus charges. Costs to achieve were £1,165m (2013: £1,209m) and the UK bank levy was £462m (2013: £504m).
The statutory cost:income ratio increased to 81% (2013: 79%). The adjusted cost:income ratio excluding movements in own credit, the gains on US Lehman acquisition assets, provisions for UK customer redress, the provision for ongoing investigations and litigation including Foreign Exchange, the revision of the ESHLA valuation methodology and goodwill impairment decreased to 70% (2013: 71%).
Statutory other net expense increased to £435m (2013: £24m) including an adjusting item for a loss on the sale of the Spanish business of £446m, which completed on 2 January 2015. In addition, accumulated currency translation reserve losses of approximately £100m were recognised on completion in Q115.
The tax charge was £1,411m (2013: £1,571m) on statutory profit before tax of £2,256m (2013: £2,868m), representing an effective tax rate of 62.5% (2013: 54.8%). The effective tax rate on adjusted profit before tax decreased to 31.0% (2013: 39.9%). 2013 included a charge of £440m relating to the write-down of deferred tax assets in Spain.
a | Debt securities in issue include covered bonds of £8.5bn (2016: £12.4bn). |
Financial review
Consolidated summary balance sheet
As at 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
|
| 2012 £m |
|
| 2011 £m |
| |||||
Assets | ||||||||||||||||||||
Cash and balances at central banks | 49,711 | 39,695 | 45,687 | 86,191 | 106,894 | |||||||||||||||
Items in the course of collection from other banks | 1,011 | 1,210 | 1,282 | 1,473 | 1,812 | |||||||||||||||
Trading portfolio assets | 77,348 | 114,717 | 133,069 | 146,352 | 152,183 | |||||||||||||||
Financial assets designated at fair value | 76,830 | 38,300 | 38,968 | 46,629 | 36,949 | |||||||||||||||
Derivative financial instruments | 327,709 | 439,909 | 350,300 | 485,140 | 559,010 | |||||||||||||||
Available for sale investments | 90,267 | 86,066 | 91,756 | 75,109 | 68,491 | |||||||||||||||
Loans and advances to banks | 41,349 | 42,111 | 39,422 | 41,799 | 48,576 | |||||||||||||||
Loans and advances to customers | 399,217 | 427,767 | 434,237 | 430,601 | 437,355 | |||||||||||||||
Reverse repurchase agreements and other similar secured lending | 28,187 | 131,753 | 186,779 | 176,522 | 153,665 | |||||||||||||||
Other assets | 28,383 | 36,378 | 22,128 | 22,535 | 23,745 | |||||||||||||||
Total assets | 1,120,012 | 1,357,906 | 1,343,628 | 1,512,351 | 1,588,680 | |||||||||||||||
Liabilities | ||||||||||||||||||||
Deposits from banks | 47,080 | 58,390 | 55,615 | 77,345 | 90,905 | |||||||||||||||
Items in the course of collection due to other banks | 1,013 | 1,177 | 1,359 | 1,587 | 969 | |||||||||||||||
Customer accounts | 418,242 | 427,704 | 431,998 | 390,828 | 371,806 | |||||||||||||||
Trading portfolio liabilities | 33,967 | 45,124 | 53,464 | 44,794 | 45,887 | |||||||||||||||
Financial liabilities designated at fair value | 91,745 | 56,972 | 64,796 | 78,561 | 87,997 | |||||||||||||||
Derivative financial instruments | 324,252 | 439,320 | 347,118 | 480,987 | 548,944 | |||||||||||||||
Debt securities in issue | 69,150 | 86,099 | 86,693 | 119,525 | 129,736 | |||||||||||||||
Subordinated liabilities | 21,467 | 21,153 | 21,695 | 24,018 | 24,870 | |||||||||||||||
Repurchase agreements and other similar secured borrowings | 25,035 | 124,479 | 196,748 | 217,178 | 207,292 | |||||||||||||||
Other liabilities | 22,197 | 31,530 | 20,193 | 17,542 | 16,315 | |||||||||||||||
Total liabilities | 1,054,148 | 1,291,948 | 1,279,679 | 1,452,365 | 1,524,721 | |||||||||||||||
Equity | ||||||||||||||||||||
Called up share capital and share premium | 21,586 | 20,809 | 19,887 | 12,477 | 12,380 | |||||||||||||||
Other equity instruments | 5,305 | 4,322 | 2,063 | – | – | |||||||||||||||
Other reserves | 1,898 | 2,724 | 249 | 3,674 | 3,837 | |||||||||||||||
Retained earnings | 31,021 | 31,712 | 33,186 | 34,464 | 38,135 | |||||||||||||||
Total equity excluding non-controlling interests | 59,810 | 59,567 | 55,385 | 50,615 | 54,352 | |||||||||||||||
Non-controlling interests | 6,054 | 6,391 | 8,564 | 9,371 | 9,607 | |||||||||||||||
Total equity | 65,864 | 65,958 | 63,949 | 59,986 | 63,959 | |||||||||||||||
Total liabilities and equity | 1,120,012 | 1,357,906 | 1,343,628 | 1,512,351 | 1,588,680 | |||||||||||||||
Net tangible asset value per share | 275p | 285p | 283p | 349p | 381p | |||||||||||||||
Net asset value per ordinary share | 324p | 335p | 331p | 414p | 446p | |||||||||||||||
Number of ordinary shares of Barclays PLC (in millions) | 16,805 | 16,498 | 16,113 | 12,243 | 12,199 | |||||||||||||||
Year-end US Dollar exchange rate | 1.48 | 1.56 | 1.65 | 1.62 | 1.54 | |||||||||||||||
Year-end Euro exchange rate | 1.36 | 1.28 | 1.20 | 1.23 | 1.19 | |||||||||||||||
Year-end South African Rand exchange rate | 23.14 | 18.03 | 17.37 | 13.74 | 12.52 |
Financial review
2015 compared to 2014
Total assets
Total assets decreased £238bn£80bn to £1,120bn.£1,133bn.
Cash and balances at central banks and items in the course of collection from other banks increased £10bn£69bn to £51bn,£173bn, as the cash contribution to the Group liquidity pool was increased.
Trading portfolio assets decreased £37bnincreased £34bn to £77bn primarily driven by balance sheet deleveraging resulting in lower securities positions, consistent with client demand in the Investment Bank, and exiting of positions in Non-Core.£114bn due to increased activity.
Financial assets designated at fair value increased £38bn to £116bn primarily due to increased reverse repurchase agreements to fund trading activity.
Derivative financial instrument assets decreased £109bn to £238bn which is consistent with the movement in derivative financial instrument liabilities. The decrease reflects the portfolio rundown of Barclays Non-Core, the adoption of daily settlements under the Chicago Mercantile Exchange (CME), an increase in major interest rate forward curves and the depreciation of period end USD against GBP.
Financial investments decreased £4bn to £59bn due to a decrease in government bonds held in the liquidity pool.
Total loans and advances decreased £35bn to £401bn which comprised of a lending reduction of £22bn and a net decrease of £13bn in settlement and cash collateral balances.
Assets included in disposal groups classified as held for sale decreased £70bn to £1bn driven by £39bnthe disposal of BAGL and the French retail business.
Total liabilities
Total liabilities decreased £75bn to £77bn.£1,067bn.
Deposits from banks decreased £10bn to £38bn driven by a £7bn decrease due to lower cash collateral and a decrease in central bank funding.
Customer accounts increased £6bn to £429bn driven by a £5bn increase due to increased funding requirements to fund the liquidity pool assets and a £14bn increase in deposits. These were partially offset by a £5bn reduction in cash collateral balances and a £7bn reduction in prime brokerage balances.
Repurchase agreements and other similar secured borrowing increased £21bn to £40bn. This was primarily due to £10bn of new USD trades and other similar secured lending.
Derivative financial instruments decreased £102bn to £238bn in line with the decrease in derivative financial instrument assets.
Liabilities included in disposal groups classified as held for sale decreased £65bn to £nil driven by the disposal of BAGL and the French retail business.
Financial liabilities designated at fair value increased £78bn to £174bn. During the period, repurchase agreements designated at fair value have increased £71bn and debt securities by £7bn.
Total shareholders’ equity
Total shareholders’ equity decreased £5.3bn to £66.0bn.
Share capital and share premium increased £0.2bn to £22.0bn due to the issuance of shares under employee share schemes and the Barclays PLC scrip dividend programme.
Other equity instruments increased £2.5bn to £8.9bn primarily due to the issuance of equity accounted AT1 securities.
The available for sale reserve increased £0.4bn to £0.3bn. The reserve movement is driven by fair value movements on available for sale investments.
Cash flow hedging reserve has decreased £0.9bn to £1.2bn driven by a £0.6bn decrease in the fair value of interest rate swaps held for hedging purposes as forward interest rates increased and £0.6bn due to gains recycled to the income statement, offset by a £0.3bn tax charge.
The currency translation reserve remained flat at £3.1bn which principally reflected the depreciation of period end USD against GBP, offset by a £1.6bn net loss from recycling of the currency translation reserve to the income statement. This included a £1.4bn recycling of the currency translation reserve associated with the disposal of BAGL.
Non-controlling interests decreased £4.4bn to £2.1bn, driven by a £3.4bn reduction due to the disposal of BAGL and £0.9bn relating to the redemption of preference shares.
Net asset value per share decreased to 322p (2016: 344p). Tangible net asset value per share decreased to 276p (2016: 290p) as profit before tax was more than offset by the net impact of there-measurement of US DTAs in Q417 and adverse movements across reserves.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 169 |
Financial review
Analysis of results by business
Barclays UK | ||
2017 £m | 2016 £m | 2015 £m | ||||||||||
Income statement information | ||||||||||||
Net interest income | 6,086 | 6,048 | 5,973 | |||||||||
Net fee, commission and other income | 1,297 | 1,469 | 1,370 | |||||||||
Total income | 7,383 | 7,517 | 7,343 | |||||||||
Credit impairment charges and other provisions | (783 | ) | (896 | ) | (706 | ) | ||||||
Net operating income | 6,600 | 6,621 | 6,637 | |||||||||
Operating expenses excluding UK bank levy and litigation and conduct | (4,030 | ) | (3,792 | ) | (3,464 | ) | ||||||
UK bank levy | (59 | ) | (48 | ) | (77 | ) | ||||||
Litigation and conduct | (759 | ) | (1,042 | ) | (2,511 | ) | ||||||
Operating expenses | (4,848 | ) | (4,882 | ) | (6,052 | ) | ||||||
Other net expenses | (5 | ) | (1 | ) | – | |||||||
Profit before tax | 1,747 | 1,738 | 585 | |||||||||
Attributable profit/(loss) | 853 | 828 | (47 | ) | ||||||||
Balance sheet information | ||||||||||||
Loans and advances to customers at amortised cost | £183.8bn | £166.4bn | £166.1bn | |||||||||
Total assets | £237.4bn | £209.6bn | £202.5bn | |||||||||
Customer deposits | £193.4bn | £189.0bn | £176.8bn | |||||||||
Loan: deposit ratio | 95% | 88% | 94% | |||||||||
Risk weighted assets | £70.9bn | £67.5bn | £69.5bn | |||||||||
Key facts | ||||||||||||
Average LTV of mortgage portfolioa | 48% | 48% | 49% | |||||||||
Average LTV of new mortgage lendinga | 64% | 63% | 64% | |||||||||
Number of branches | 1,208 | 1,305 | 1,362 | |||||||||
Mobile banking active customers | 6.4m | 5.4m | 4.5m | |||||||||
30 day arrears rate – Barclaycard Consumer UK | 1.8% | 1.9% | 2.3% | |||||||||
Number of employees (full time equivalent)b | 22,800 | 36,000 | 38,800 | |||||||||
Performance measures | ||||||||||||
Return on equity | 6.6% | 6.4% | (0.2% | ) | ||||||||
Average allocated equity | £13.6bn | £13.4bn | £13.7bn | |||||||||
Return on average allocated tangible equity | 9.8% | 9.6% | (0.3% | ) | ||||||||
Average allocated tangible equity | £9.1bn | £8.9bn | £9.3bn | |||||||||
Cost: income ratio | 66% | 65% | 82% | |||||||||
Loan loss rate (bps) | 42 | 52 | 42 | |||||||||
Net interest margin | 3.49% | 3.62% | 3.56% |
Notes
a | Average LTV of mortgage portfolio and new mortgage lending calculated on the balance weighted basis. |
b | As a result of the establishment of the Group Service Company in September 2017, employees who are now employed by the Group Service Company and who were previously allocated to, or were within, Barclays UK and Barclays International are now reported in Head Office. |
170 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Analysis of Barclays UK | ||||||||||||
2017 £m | 2016 £m | 2015 £m | ||||||||||
Analysis of total income | ||||||||||||
Personal Banking | 3,823 | 3,891 | 3,714 | |||||||||
Barclaycard Consumer UK | 1,977 | 2,022 | 2,065 | |||||||||
Wealth, Entrepreneurs & Business Banking | 1,583 | 1,604 | 1,564 | |||||||||
Total income | 7,383 | 7,517 | 7,343 | |||||||||
Analysis of credit impairment charges and other provisions | ||||||||||||
Personal Banking | (222 | ) | (183 | ) | (194 | ) | ||||||
Barclaycard Consumer UK | (541 | ) | (683 | ) | (488 | ) | ||||||
Wealth, Entrepreneurs & Business Banking | (20 | ) | (30 | ) | (24 | ) | ||||||
Total credit impairment charges and other provisions | (783 | ) | (896 | ) | (706 | ) | ||||||
Analysis of loans and advances to customers at amortised cost | ||||||||||||
Personal Banking | £139.8bn | £135.0bn | £134.0bn | |||||||||
Barclaycard Consumer UK | £16.4bn | £16.5bn | £16.2bn | |||||||||
Wealth, Entrepreneurs & Business Bankinga | £27.6bn | £14.9bn | £15.9bn | |||||||||
Total loans and advances to customers at amortised cost | £183.8bn | £166.4bn | £166.1bn | |||||||||
Analysis of customer deposits | ||||||||||||
Personal Banking | £141.1bn | £139.3bn | £131.0bn | |||||||||
Barclaycard Consumer UK | – | – | – | |||||||||
Wealth, Entrepreneurs & Business Banking | £52.3bn | £49.7bn | £45.8bn | |||||||||
Total customer deposits | £193.4bn | £189.0bn | £176.8bn |
Note
a | Includes the integration of the ESHLA portfolio at amortised cost from BarclaysNon-Core. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 171 |
Financial review
Analysis of results by business
2017 compared to 2016
Profit before tax increased 1% to £1,747m as lower PPI charges of £700m (2016: £1,000m) and a reduction in credit impairment charges were partially offset by thenon-recurrence of the gain on disposal of Barclays’ share of Visa Europe Limited in 2016, higher costs of setting up the ring-fenced bank and increased investment, primarily in cyber resilience, digital and technology.
Total income decreased 2% to £7,383m, of which £151m reflected thenon-recurrence of the gain on disposal of Barclays’ share of Visa Europe Limited in 2016.
Personal Banking income decreased 2% to £3,823m driven by thenon-recurrence of the Visa gain and the impact of the UK base rate reduction in 2016, partially offset by deposit pricing initiatives, growth in balances and an update to EIR modelling. Barclaycard Consumer UK income decreased 2% to £1,977m reflecting a provision for remediation in H217. Wealth, Entrepreneurs & Business Banking (WEBB) income decreased 1% to £1,583m driven by thenon-recurrence of the Visa gain, partially offset by growth in balances.
Net interest income increased 1% to £6,086m due to deposit pricing initiatives and growth in loans and advances to customers and deposits, partially offset by the impact of the UK base rate reduction in 2016. Net interest margin decreased 13bps to 3.49% reflecting the integration of the Education, Social Housing and Local Authority (ESHLA) portfolio fromNon-Core on 1 July 2017. Net fee, commission and other income decreased 12% to £1,297m driven by thenon-recurrence of the Visa gain.
Credit impairment charges decreased 13% to £783m principally reflecting thenon-recurrence of a £200m charge in 2016 following the management review of the cards portfolio impairment modelling, partially offset by higher charges in Barclaycard Consumer UK and Personal Banking.
Operating expenses decreased 1% to £4,848m due to lower charges for PPI of £700m (2016: £1,000m), partially offset by the costs of setting up the ring-fenced bank and increased investment, primarily in cyber resilience, digital and technology. The cost: income ratio was 66% (2016: 65%).
Loans and advances to customers increased 10% to £183.8bn and total assets increased 13% to £237.4bn, reflecting the integration of the ESHLA portfolio fromNon-Core into WEBB on 1 July 2017 and mortgage growth in Personal Banking in H217.
Customer deposits increased 2% to £193.4bn due to deposit growth, partially offset by the realignment of clients between Barclays UK and Barclays International in preparation for structural reform.
RWAs increased to £70.9bn (December 2016: £67.5bn) reflecting the integration of the ESHLA portfolio.
2016 compared to 2015
Profit before tax increased £1,153m to £1,738m reflecting lower provisions for UK customer redress and a reduction in operating expenses. This was partially offset by an increase in credit impairment charges following the management review of the cards portfolio impairment modelling.
Total income, including a gain on disposal of Barclays’ share of Visa Europe Limited recognised in Personal Banking and WEBB, increased 2% to £7,517m.
Personal Banking income increased 5% to £3,891m driven by the gain on disposal of Barclays’ share of Visa Europe Limited, improved deposit margins and balance growth, partially offset by lower mortgage margins. Barclaycard Consumer UK income decreased 2% to £2,022m primarily as a result of the European Interchange Fee Regulation, which came into full effect from December 2015, offset by balance growth and gains from debt sales. WEBB income increased 3% to £1,604m reflecting the gain on disposal of Barclays’ share of Visa Europe Limited, improved margins and deposit growth, partially offset by reduced transactional fee income.
Net interest income increased 1% to £6,048m due to balance growth and deposit pricing initiatives, partially offset by lower mortgage margins. Net interest margin increased 6bps to 3.62% reflecting higher margins on deposits, partially offset by lower mortgage margins. Net fee, commission and other income increased 7% to £1,469m due to the gain on disposal of Barclays’ share of Visa Europe Limited, partially offset by the impact of the European Interchange Fee Regulation in Barclaycard Consumer UK, which came into full effect from December 2015, and reduced fee and commission income in WEBB.
Credit impairment charges increased 27% to £896m due to a £200m charge in Q316 following the management review of the cards portfolio impairment modelling. The 30 day and 90 day arrears rates on the cards portfolio improved year on year to 1.9% (2015: 2.3%) and 0.9% (2015: 1.2%) respectively.
Operating expenses reduced 19% to £4,882m reflecting lower provisions for UK customer redress, savings realised from strategic cost programmes, relating to restructuring of the branch network and technology improvements, partially offset by structural reform programme implementation costs.
The cost: income ratio was 65% (2015: 82%), RoE was 6.4% (2015: negative 0.2%) and RoTE was 9.6% (2015: (0.3%)).
Loans and advances to customers were stable at £166.4bn (December 2015: £166.1bn).
Total assets increased £7.1bn to £209.6bn primarily reflecting an increase in the allocated liquidity pool.
Customer deposits increased 7% to £189.0bn primarily driven by higher balances in Personal Banking and WEBB.
RWAs reduced £2.0bn to £67.5bn primarily driven by changes in the mortgages credit risk model.
172 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Barclays International | ||
2017 £m | 2016 £m | 2015 £m | ||||||||||
Income statement information | ||||||||||||
Net interest income | 4,307 | 4,512 | 4,324 | |||||||||
Net trading income | 3,971 | 4,580 | 3,782 | |||||||||
Net fee, commission and other income | 6,104 | 5,903 | 5,641 | |||||||||
Total income | 14,382 | 14,995 | 13,747 | |||||||||
Credit impairment charges and other provisions | (1,506 | ) | (1,355 | ) | (922 | ) | ||||||
Net operating income | 12,876 | 13,640 | 12,825 | |||||||||
Operating expenses excluding UK bank levy and litigation and conduct | (9,321 | ) | (9,129 | ) | (8,029 | ) | ||||||
UK bank levy | (265 | ) | (284 | ) | (253 | ) | ||||||
Litigation and conduct | (269 | ) | (48 | ) | (1,310 | ) | ||||||
Operating expenses | (9,855 | ) | (9,461 | ) | (9,592 | ) | ||||||
Other net income | 254 | 32 | 45 | |||||||||
Profit before tax | 3,275 | 4,211 | 3,278 | |||||||||
Attributable profit | 847 | 2,412 | 1,758 | |||||||||
Balance sheet information | ||||||||||||
Loans and advances to banks and customers at amortised costa | £198.7bn | £211.3bn | £184.1bn | |||||||||
Trading portfolio assets | £113.0bn | £73.2bn | £61.9bn | |||||||||
Derivative financial instrument assets | £236.2bn | £156.2bn | £111.5bn | |||||||||
Derivative financial instrument liabilities | £237.8bn | £160.6bn | £119.0bn | |||||||||
Reverse repurchase agreements and other similar secured lending | £12.4bn | £13.4bn | £24.7bn | |||||||||
Financial assets designated at fair value | £104.1bn | £62.3bn | £46.8bn | |||||||||
Total assets | £856.1bn | £648.5bn | £532.2bn | |||||||||
Customer depositsb | £225.1bn | £216.2bn | £185.6bn | |||||||||
Loan: deposit ratioc | 62% | 78% | 80% | |||||||||
Risk weighted assets | £210.3bn | £212.7bn | £194.8bn | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent)d | 11,500 | 36,900 | 39,100 | |||||||||
Performance measures | ||||||||||||
Return on equity | 3.2% | 8.8% | 6.6% | |||||||||
Average allocated equity | £30.5bn | £28.2bn | £27.1bn | |||||||||
Return on average allocated tangible equity | 3.4% | 9.8% | 7.2% | |||||||||
Average allocated tangible equity | £28.1bn | £25.5bn | £24.9bn | |||||||||
Cost: income ratio | 69% | 63% | 70% | |||||||||
Loan loss rate (bps) | 75 | 63 | 49 | |||||||||
Net interest margin | 4.16% | 3.98% | 3.80% |
Notes
a | As at 31 December 2017 loans and advances included £170.4bn (December 2016: £185.9bn) of loans and advances to customers (including settlement balances of £15.7bn (December 2016: £19.5bn) and cash collateral of £35.9bn (December 2016: £30.1bn)), and £28.3bn (December 2016: £25.4bn) of loans and advances to banks (including settlement balances of £2.3bn (December 2016: £1.7bn) and cash collateral of £18.0bn (December 2016: £6.3bn)). Loans and advances to banks and customers in respect of Consumer, Cards and Payments were £38.6bn (December 2016: £39.7bn). |
b | As at 31 December 2017 customer deposits included settlement balances of £15.2bn (December 2016: £16.6bn) and cash collateral of £27.3bn (December 2016: £20.8bn). |
c | Loan: deposit ratio excludes investment banking balances other than interest earning lending. Comparatives have been restated to include interest earning lending balances within the investment banking business. |
d | As a result of the establishment of the Group Service Company in September 2017, employees who are now employed by the Group Service Company and who were previously allocated to, or were within, Barclays UK and Barclays International are now reported in Head Office. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 173 |
Financial review
Analysis of results by business
Analysis of Barclays International | ||||||||||||
Corporate and Investment Bank | 2017 £m | 2016 £m | 2015 £m | |||||||||
Income statement information | ||||||||||||
Macro | 1,634 | 2,304 | 2,108 | |||||||||
Credit | 1,241 | 1,185 | 824 | |||||||||
Equities | 1,629 | 1,790 | 1,912 | |||||||||
Markets | 4,504 | 5,279 | 4,844 | |||||||||
Banking fees | 2,612 | 2,397 | 2,087 | |||||||||
Corporate lending | 1,093 | 1,195 | 1,361 | |||||||||
Transaction banking | 1,629 | 1,657 | 1,663 | |||||||||
Banking | 5,334 | 5,249 | 5,111 | |||||||||
Other | 40 | 5 | 495 | |||||||||
Total income | 9,878 | 10,533 | 10,450 | |||||||||
Credit impairment charges and other provisions | (213 | ) | (260 | ) | (199 | ) | ||||||
Operating expenses | (7,742 | ) | (7,624 | ) | (7,929 | ) | ||||||
Other net income | 133 | 1 | – | |||||||||
Profit before tax | 2,056 | 2,650 | 2,322 | |||||||||
Balance sheet information | ||||||||||||
Loans and advances to banks and customers at amortised cost | £160.1bn | £171.6bn | £152.0bn | |||||||||
Customer deposits | £165.9bn | £166.2bn | £143.8bn | |||||||||
Risk weighted assets | £176.2bn | £178.6bn | £167.3bn | |||||||||
Performance measures | ||||||||||||
Return on equty | 1.1% | 5.8% | 5.1% | |||||||||
Average allocated equity | £24.9bn | £23.2bn | £23.1bn | |||||||||
Return on average allocated tangible equity | 1.1% | 6.1% | 5.4% | |||||||||
Average allocated tangible equity | £24.0bn | £21.9bn | £21.9bn | |||||||||
Consumer, Cards and Payments | ||||||||||||
Income statement information | ||||||||||||
Total income | 4,504 | 4,462 | 3,297 | |||||||||
Credit impairment charges and other provisions | (1,293 | ) | (1,095 | ) | (723 | ) | ||||||
Operating expenses | (2,113 | ) | (1,837 | ) | (1,663 | ) | ||||||
Other net income | 121 | 31 | 45 | |||||||||
Profit before tax | 1,219 | 1,561 | 956 | |||||||||
Balance sheet information | ||||||||||||
Loans and advances to banks and customers at amortised cost | £38.6bn | £39.7bn | £32.1bn | |||||||||
Customer deposits | £59.2bn | £50.0bn | £41.8bn | |||||||||
Risk weighted assets | £34.1bn | £34.1bn | £27.5bn | |||||||||
Key facts | ||||||||||||
30 day arrears rate – Barclaycard US | 2.6% | 2.6% | 2.2% | |||||||||
Total number of Barclaycard business clients | 366,000 | 355,000 | 341,000 | |||||||||
Value of payments processed | £322bn | £296bn | £271bn | |||||||||
Performance measures | ||||||||||||
Return on equity | 12.5% | 23.1% | 15.3% | |||||||||
Average allocated equity | £5.6bn | £5.0bn | £4.0bn | |||||||||
Return on average allocated tangible equity | 16.7% | 31.4% | 20.2% | |||||||||
Average allocated tangible equity | £4.2bn | £3.6bn | £3.0bn |
174 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
2017 compared to 2016
Profit before tax decreased 22% to £3,275 driven by a 4% decrease in total income, an 11% increase in credit impairment charges and a 4% increase in operating expenses.
Total income decreased 4% to £14,382m, including the 5% appreciation of average USD and the 7% appreciation of average EUR against GBP, as CIB income decreased 6% to £9,878m, partially offset by a 1% increase in Consumer, Cards and Payments income to £4,504m.
Markets income decreased 15% to £4,504m. Macro income decreased 29% to £1,634m driven by lower market volatility in rates, the exit of the energy-related commodities business and the integration ofNon-Core assets on 1 July 2017. Credit income increased 5% to £1,241m due to improved performance in municipals. Equities income decreased 9% to £1,629m driven by US equity derivatives as a result of lower market volatility, partially offset by improved performance in equity financing.
Banking income increased 2% to £5,334m. Banking fee income increased 9% to £2,612m due to higher debt and equity underwriting fees, with fee share gains in banking overall and debt underwriting. Corporate lending declined 9% to £1,093m driven by lower lending balances due to the realignment of certain clients between Barclays UK and Barclays International in preparation for structural reform and the reallocation of RWAs within CIB, as well as thenon-recurrence of prior year treasury gains and lowerwork-out gains. Transaction banking declined 2% to £1,629m driven by lower trade balances and thenon-recurrence of prior year treasury gains, partially offset by higher average deposit balances.
Consumer, Cards and Payments income increased 1% to £4,504m driven by continued business growth, a gain of £192m relating to the Q117 asset sale in US Cards and a valuation gain on Barclays’ preference shares in Visa Inc. of £74m, partially offset by thenon-recurrence of the £464m gain on the disposal of Barclays’ share of Visa Europe Limited in 2016.
Credit impairment charges increased 11% to £1,506m, including the appreciation of average USD and EUR against GBP. CIB credit impairment charges decreased 18% to £213m primarily due to thenon-recurrence of oil and gas single name charges in 2016, offset by a single name charge in 2017. Consumer, Cards and Payments credit impairment charges increased 18% to £1,293m primarily due to a £168m charge in Q317 relating to deferred consideration from the Q117 asset sale in US Cards, an increase in underlying delinquency trends and business growth in US Cards. This was partially offset by thenon-recurrence of a £120m charge in 2016 following the management review of the cards portfolio impairment modelling. The 30 and 90 day arrears rates within US Cards were stable at 2.6% (December 2016: 2.6%) and 1.3% (December 2016: 1.3%) respectively, including a benefit from the Q117 asset sale in US Cards.
Operating expenses increased 4% to £9,855m, including the appreciation of average USD and EUR against GBP. CIB operating expenses increased 2% to £7,742m reflecting a provision of £240m in respect of Foreign Exchange matters recognised in Q417, continued investment in technology, partially offset by lower restructuring charges and the reduced impact of the change in compensation awards introduced in Q416. Consumer, Cards and Payments increased 15% to £2,113m including continued growth and investment, primarily within the US Cards and merchant acquiring businesses.
Other net income increased to £254m (2016: £32m) due to a gain of £109m on the sale of Barclays’ share in VocaLink to MasterCard and a gain of £76m on the sale of a joint venture in Japan.
Attributable profit reduced to £847m (2016: £2,412m) including the net tax charge due to there-measurement of US DTAs in Q417.
Loans and advances to banks and customers at amortised cost decreased £12.6bn to £198.7bn with CIB decreasing £11.5bn to £160.1bn due to a reduction in lending. Consumer, Cards and Payments decreased £1.1bn to £38.6bn due to the depreciation of period end USD against GBP, partially offset by the realignment of certain clients from Barclays UK to Barclays International in preparation for structural reform.
Trading portfolio assets increased £39.8bn to £113.0bn due to increased activity.
Derivative financial instrument assets and liabilities increased £80.0bn to £236.2bn and £77.2bn to £237.8bn respectively, reflecting the integration of balances fromNon-Core on 1 July 2017, partially offset by adoption of daily settlements under the CME, an increase in major interest rate forward curves and the depreciation of period end USD against GBP.
Financial assets designated at fair value increased £41.8bn to £104.1bn primarily due to increased reverse repurchase agreements activity.
Customer deposits increased £8.9bn to £225.1bn, with Consumer, Cards and Payments increasing £9.2bn to £59.2bn driven by the realignment of certain clients from Barclays UK to Barclays International in preparation for structural reform.
RWAs decreased £2.4bn to £210.3bn due to the net impact of there-measurement of US DTAs and the depreciation of period end USD against GBP, partially offset by increased trading portfolio and securities financing transaction volumes.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 175 |
Financial review
Analysis of results by business
2016 compared to 2015
Profit before tax increased 28% to £4,211m due to the gain on disposal of Barclays’ share of Visa Europe Limited and a 1% decrease in total operating expenses, partially offset by a 47% increase in impairment.
Total income increased 9% to £14,995m, including the appreciation of average USD and EUR against GBP, with Consumer, Cards and Payments income increasing 35% to £4,462m and CIB income increasing 1% to £10,533m.
Markets income increased 9% to £5,279m. Credit income increased 44% to £1,185m driven by strong performance in fixed income flow credit which benefited from increased market volatility and client demand. Equities income decreased 6% to £1,790m with lower client activity in Asia and the simplification of the EMEA business, partially offset by improved performance in cash, derivatives and financing in H216. Macro income increased 9% to £2,304m driven by increased activity post the EU referendum decision and US elections.
Banking income increased 3% to £5,249m. Banking fees income increased 15% to £2,397m driven by higher debt underwriting and advisory fees, partially offset by lower equity underwriting fees. Corporate lending reduced 12% to £1,195m due to losses on fair value hedges and thenon-recurrence ofone-offwork-out gains recognised in Q215. Transaction banking was broadly flat at £1,657m (2015: £1,663m) as income from higher deposit balances was offset by margin compression.
Consumer, Cards and Payments income increased 35% to £4,462m driven by the £464m gain on disposal of Barclays’ share of Visa Europe Limited, growth across all key businesses and the appreciation of average USD and EUR against GBP.
Credit impairment charges increased 47% to £1,355m including the appreciation of average USD and EUR against GBP. CIB credit impairment charges increased 31% to £260m driven by the impairment of a number of single name exposures. Consumer, Cards and Payments credit impairment charges increased 51% to £1,095m primarily driven by balance growth, a change in portfolio mix and a £120m charge in Q316 following a management review of the cards portfolio impairment modelling.
Operating expenses decreased 1% to £9,461m. CIB decreased 4% to £7,624m reflecting lower litigation and conduct costs. This was partially offset by the appreciation of average USD against GBP, an additional charge in Q416 relating to the 2016 compensation awards, higher restructuring costs, £150m of which related to reducing the real estate footprint in Q316, and higher structural reform programme implementation costs including those relating to the incorporation of the US IHC on 1 July 2016. Consumer, Cards and Payments increased 10% to £1,837m due to continued business growth and the appreciation of average USD and EUR against GBP, partially offset by lower restructuring costs.
The cost: income ratio was 63% (2015: 70%), RoE was 8.8% (2015: 6.6%) and RoTE was 9.8% (2015: 7.2%).
Loans and advances to banks and customers at amortised cost increased £27.2bn to £211.3bn with CIB increasing £19.6bn to £171.6bn due to increased lending and cash collateral and the appreciation of USD and EUR against GBP. Consumer, Cards and Payments increased £7.6bn to £39.7bn driven by appreciation of USD and EUR against GBP and growth in Barclaycard US, including the acquisition of the JetBlue credit card portfolio.
Trading portfolio assets increased £11.3bn to £73.2bn due to an increase in client activity and appreciation of major currencies against GBP.
Derivative financial instrument assets and liabilities increased £44.7bn to £156.2bn and £41.6bn to £160.6bn respectively, due to the appreciation of USD and EUR against GBP and decreases in forward interest rates.
Financial assets designated at fair value increased £15.5bn to £62.3bn and reverse repurchase agreements and other similar lending decreased £11.3bn to £13.4bn. Since 2015, new reverse repurchase agreements in certain businesses have been designated at fair value to better align to the way the business manages the portfolio’s risk and performance. This has resulted in an increase of £44bn in this account line. Across fair value and amortised cost classifications, total reverse repurchase agreements have decreased £59bn due to a reduction in matched book trading and general firm financing due to balance sheet deleveraging. Additionally, within financial assets designated at fair value, there was a partial offset by decreases in loans and advances and debt securities.
Derivative financial instrument assets decreased £112bn to £328bn, consistent with the decrease in derivative financial instrument liabilities. This included a £79bn decrease in interest rate derivatives due to net trade reductions and increases in major forward interest rates and a £19bn decrease in foreign exchange derivatives reflecting trade reductions.
Available for sale investments increased £4bn to £90bn due to an increase in government bonds held in the liquidity pool.
Total loans and advances decreased by £29bn to £441bn driven byOn a net £20bn decrease in settlement and cash collateral balances, a £6bn reclassification of loans to other assets, relating to the Portuguese retail business and Italian retail banking branch network which are now held for sale and a £5bn decrease in Africa reflecting the depreciation of ZAR against GBP. This was partially offsetbasis reverse repos have increased by lending growth of £5bn in Barclaycard.
Reverse repurchase agreements and other similar secured lending decreased £104bn to £28bn reflecting a reduction in matched book trading and general firm financing due to balance sheet deleveraging and£4.2bn as a result of the designationincreased matched book trading.
Customer deposits increased £30.6bn to fair value described in the financial assets designated at fair value comment above.
Total liabilities
Total liabilities decreased £238bn£216.2bn, with CIB increasing £22.4bn to £1,054bn.
Deposits from banks decreased £11bn to £47bn£166.2bn primarily driven by a £9bn decreaseincreases in deposits cash collateral dueand the appreciation of USD and EUR against GBP. Consumer, Cards and Payments increased £8.2bn to lower derivative mark to market.
Customer accounts decreased £10bn to £418bn as a result of reclassification of £4bn to other liabilities relating to the Portuguese retail business and Italian retail banking branch network which are now held for sale, a £7bn reduction in settlement balances, a £3bn decrease in cash collateral due to lower derivative mark to market and a £7bn decrease due to depreciation of ZAR. This is partially offset by £13bn growth within PCB, Barclaycard and Africa.
Trading portfolio liabilities decreased £11bn to £34bn primarily£50.0bn driven by balance sheet deleveraging resultinggrowth in lower securities positions, consistent with client demand in the Investment Bank,Barclaycard US and exiting of positions in Non-Core.
Financial liabilities designated at fair value increased by £35bn to £92bn. In line with financial assets designated at fair value, the designation of repurchase agreements to fair value resulted in an increase of £45bn during the year. Across fair value and amortised cost classifications, total repurchase agreements have decreased £54bn due to a reduction in matched book trading and general firm financing due to balance sheet deleveraging. Additionally, within financial liabilities designated at fair value, there was a partial offset in debt securities due to reduced funding requirements.
Derivative financial instrument liabilities decreased £115bn to £324bn in line with the decrease in derivative financial assets.
Debt Securities in issue decreased by £17bn to £69bn primarily driven by a decrease in Certificate of Deposits and Bonds and MTNs due to reduced funding requirements.
Subordinated liabilities increased £0.3bn to £21.5bn due to issuances of dated subordinated notes, partially offset by the redemptions of dated and undated subordinated notes, and fair value hedge movements.
Repurchase agreements and other similar secured borrowings decreased £99bn to £25bn reflecting a reduction in matched book trading and general firm financing due to balance sheet deleveraging and as a result of the designation to fair value described in the financial assets designated at fair value comment above.
Shareholders’ equity
Total shareholders’ equity remained flat at £66bn.
Share capital and share premium increased by £0.8bn to £22bn due to the issuance of shares under employee share schemesPrivate Banking, and the Barclays PLC scrip dividend programme. Other equity instrumentsappreciation of USD and EUR against GBP.
RWAs increased by £1.0bn£17.9bn to £5.3bn£212.7bn, due to issuance of equity accounted AT1 securities to investors.
The available for sale reserve decreased £0.2bn to £0.3bn driven by £0.4bn of losses from changes in the fair value of government bonds, predominantly held in the liquidity pool, £0.1bn of losses from related hedging, £0.4bn of net gains transferred to net profit, partially offset by £0.4bn gains from changes in fair value of equity investments in Visa Europe and an £0.1bn change in insurance liabilities. A tax credit of £0.1bn was recognised in the period relating to these items.
The cash flow hedging reserve decreased £0.6bn to £1.3bn driven by a £0.4bn decrease in the fair value of interest rate swaps held for hedging purposes as interest rate forward curves increased, and £0.2bn of gains recycled to the income statement in line with when the hedged item affects profit or loss, partially offset by a tax credit of £0.1bn.
The currency translation reserve remained stable as the effect of ZAR depreciating against GBP was offset by the appreciation of USD against GBP.
Net tangible asset value per share decreased to 275p (2014: 285p). The decrease was primarily attributable to dividends paidGBP, and a decreasebusiness growth, including the acquisition of the JetBlue credit card portfolio in the cash flow hedging reserve as explained.
CapitalConsumer, Cards and indebtedness
The capital and indebtedness tables with respect to Barclays PLC and Barclays Bank PLC that are exhibited to this Annual Report on Form 20-F as Exhibits 99.1 and 99.2, respectively, are incorporated by reference into thisForm 20-F.Payments.
Financial review
Analysis of results by business
All disclosures in this section are unaudited unless otherwise stated.
Segmental analysis (audited)
Analysis of adjusted results by business | ||||||||||||||||||||||||||||||||
| Personal and Corporate Banking £m | | | Barclaycard £m | | | Africa Banking £m | |
| Investment Bank £m |
| | Head Office £m | |
| Barclays Core £m |
| | Barclays Non-Core £m | | | Group adjusted results £m | | |||||||||
For the year ended 31 December 2015 | ||||||||||||||||||||||||||||||||
Total income net of insurance claims | 8,726 | 4,927 | 3,574 | 7,572 | (107) | 24,692 | (164) | 24,528 | ||||||||||||||||||||||||
Credit impairment charges and other provisions | (378) | (1,251) | (352) | (55) | – | (2,036) | (78) | (2,114) | ||||||||||||||||||||||||
Net operating income | 8,348 | 3,676 | 3,222 | 7,517 | (107) | 22,656 | (242) | 22,414 | ||||||||||||||||||||||||
Operating expenses | (4,774) | (1,927) | (2,169) | (5,362) | (246) | (14,478) | (873) | (15,351) | ||||||||||||||||||||||||
UK bank levy | (93) | (42) | (52) | (203) | (8) | (398) | (78) | (476) | ||||||||||||||||||||||||
Litigation and conduct | (109) | – | – | (107) | (14) | (230) | (148) | (378) | ||||||||||||||||||||||||
Costs to achieve | (292) | (106) | (29) | (234) | (32) | (693) | (100) | (793) | ||||||||||||||||||||||||
Other (losses)/incomea | (40) | 33 | 7 | – | 5 | 5 | (18) | (13) | ||||||||||||||||||||||||
Profit/(loss) before tax from continuing operations | 3,040 | 1,634 | 979 | 1,611 | (402) | 6,862 | (1,459) | 5,403 | ||||||||||||||||||||||||
Total assets (£bn) | 287.2 | 47.4 | 49.9 | 375.9 | 56.4 | 816.9 | 303.1 | 1,120.0 | ||||||||||||||||||||||||
For the year ended 31 December 2014 | ||||||||||||||||||||||||||||||||
Total income net of insurance claims | 8,828 | 4,356 | 3,664 | 7,588 | 242 | 24,678 | 1,050 | 25,728 | ||||||||||||||||||||||||
Credit impairment charges and other provisions | (482) | (1,183) | (349) | 14 | – | (2,000) | (168) | (2,168) | ||||||||||||||||||||||||
Net operating income | 8,346 | 3,173 | 3,315 | 7,602 | 242 | 22,678 | 882 | 23,560 | ||||||||||||||||||||||||
Operating expenses | (4,951) | (1,727) | (2,244) | (5,504) | (57) | (14,483) | (1,510) | (15,993) | ||||||||||||||||||||||||
UK bank levy | (70) | (29) | (45) | (218) | (9) | (371) | (91) | (462) | ||||||||||||||||||||||||
Litigation and conduct | (54) | – | (2) | (129) | (66) | (251) | (198) | (449) | ||||||||||||||||||||||||
Costs to achieve | (400) | (118) | (51) | (374) | (10) | (953) | (212) | (1,165) | ||||||||||||||||||||||||
Other income/(losses)a | 14 | 40 | 11 | – | (3) | 62 | (51) | 11 | ||||||||||||||||||||||||
Profit/(loss) before tax from continuing operations | 2,885 | 1,339 | 984 | 1,377 | 97 | 6,682 | (1,180) | 5,502 | ||||||||||||||||||||||||
Total assets (£bn) | 285.0 | 41.3 | 55.5 | 455.7 | 49.1 | 886.5 | 471.5 | 1,357.9 | ||||||||||||||||||||||||
For the year ended 31 December 2013b | ||||||||||||||||||||||||||||||||
Total income net of insurance claims | 8,723 | 4,103 | 4,039 | 8,596 | 142 | 25,603 | 2,293 | 27,896 | ||||||||||||||||||||||||
Credit impairment charges and other provisions | (621) | (1,096) | (479) | 22 | 3 | (2,171) | (900) | (3,071) | ||||||||||||||||||||||||
Net operating income | 8,102 | 3,007 | 3,560 | 8,618 | 145 | 23,432 | 1,393 | 24,825 | ||||||||||||||||||||||||
Operating expenses | (5,362) | (1,752) | (2,451) | (6,141) | (103) | (15,809) | (1,929) | (17,738) | ||||||||||||||||||||||||
UK bank levy | (66) | (22) | (42) | (236) | (29) | (395) | (109) | (504) | ||||||||||||||||||||||||
Litigation and conduct | (98) | (34) | – | (31) | (10) | (173) | (96) | (269) | ||||||||||||||||||||||||
Costs to achieve | (384) | (49) | (26) | (190) | (22) | (671) | (538) | (1,209) | ||||||||||||||||||||||||
Other income/(losses)a | 41 | 33 | 8 | – | 4 | 86 | (110) | (24) | ||||||||||||||||||||||||
Profit/(loss) before tax from continuing operations | 2,233 | 1,183 | 1,049 | 2,020 | (15) | 6,470 | (1,389) | 5,081 | ||||||||||||||||||||||||
Total assets (£bn) | 278.5 | 34.4 | 54.9 | 438.0 | 26.6 | 832.4 | 511.2 | 1,343.6 |
Head Office
2017 £m | 2016 £m | 2015 £m | ||||||||||
Income statement information | ||||||||||||
Net interest income | (435 | ) | (183 | ) | (305 | ) | ||||||
Net fee, commission and other incomea | 276 | 286 | 643 | |||||||||
Total income | (159 | ) | 103 | 338 | ||||||||
Credit impairment charges and other provisions | (17 | ) | – | – | ||||||||
Net operating (expenses)/income | (176 | ) | 103 | 338 | ||||||||
Operating expenses excluding UK bank levy and litigation and conduct | (277 | ) | (135 | ) | (272 | ) | ||||||
UK bank levy | (41 | ) | (2 | ) | (8 | ) | ||||||
Litigation and conduct | (151 | ) | (27 | ) | (66 | ) | ||||||
Operating expenses | (469 | ) | (164 | ) | (346 | ) | ||||||
Other net (expenses)/income | (189 | ) | 128 | (106 | ) | |||||||
(Loss)/profit before tax | (834 | ) | 67 | (114 | ) | |||||||
Attributable (loss)/profit | (868 | ) | 110 | 11 | ||||||||
Balance sheet information | ||||||||||||
Total assets | £39.7bn | £75.2bn | £59.4bn | |||||||||
Risk weighted assetsb | £31.8bn | £53.3bn | £39.7bn | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent)c | 45,600 | 100 | 100 | |||||||||
Performance measures | ||||||||||||
Average allocated equity | £10.6bn | £8.0bn | £3.9bn | |||||||||
Average allocated tangible equity (£bn) | £9.3bn | £6.5bn | £2.6bn |
Notes
a |
b |
c | As a result of the establishment of the Group Service Company in September 2017, employees who are now employed by the Group Service Company and who were previously allocated to, or were within, Barclays UK and Barclays International are now reported in Head Office. |
2017 compared to 2016
Loss before tax was £834m (2016: profit of £67m).
Total income reduced to an expense of £159m (2016: income of £103m) primarily due to lower net income from treasury operations.
Operating expenses increased to £469m (2016: £164m) due to costs associated withNon-Core assets and businesses, which were integrated on 1 July 2017, and increased litigation and conduct costs, including a settlement to resolve the civil action brought by the US Federal Energy Regulatory Commission’s Office of Enforcement and provisions for other legacy redress.
Other net expenses were £189m (2016: income of £128m) driven by an expense of £180m on the recycling of the currency translation reserve to the income statement on the sale of Barclays Bank Egypt. 2016 included a gain due to recycling of the currency translation reserve on disposal of the Southern European cards business.
Total assets decreased to £39.7bn (December 2016: £75.2bn) primarily due to the accounting deconsolidation of BAGL, which accounted for £65bn of total assets on deconsolidation from the Barclays Group. This was partially offset by the integration ofNon-Core assets on 1 July 2017, of which c.£9bn related to Italian mortgages.
RWAs decreased to £31.8bn (December 2016: £53.3bn) reflecting a £31.1bn reduction as a result of the proportional consolidation of BAGL, partially offset by the integration ofNon-Core assets.
2016 compared to 2015
Profit before tax was £67m (2015: loss of £114m).
Net operating income decreased 70% to £103m due to an own credit charge of £35m (2015: gain of £430m), partially offset by changes in net income from treasury operations.
Operating expenses reduced 53% to £164m primarily due to a reduction in structural reform implementation costs now allocated to the businesses and a reduction in litigation and conduct costs.
Other net income increased to £128m (2015: expense of £106m) primarily due to recycling of the currency translation reserve on the disposal of the Southern European cards business. The 2015 expense included losses on sale relating to legacy businesses.
Total assets increased £15.8bn to £75.2bn primarily driven by the appreciation of ZAR against GBP.
RWAs increased £13.6bn to £53.3bn primarily driven by the appreciation of ZAR against GBP and the reallocation of operational risk RWAs fromNon-Core associated with exited businesses and assets.
Barclays PLC and Barclays Bank PLC |
Financial review
Analysis of results by business
All disclosures in this section are unaudited unless otherwise stated.
Adjusted results reconciliation |
| |||||||||||||||||||||||||||||||||||
2015 | 2014 | 2013a | ||||||||||||||||||||||||||||||||||
For the year ended 31 December |
| Group adjusted results £m |
|
| Adjusting items £m |
|
| Group statutory results £m |
|
| Group adjusted results £m |
|
| Adjusting items £m |
|
| Group statutory results £m |
|
| Group adjusted results £m |
|
| Adjusting items £m |
|
| Group statutory results £m |
| |||||||||
Total income net of insurance claims | 24,528 | 926 | 25,454 | 25,728 | (440 | ) | 25,288 | 27,896 | 39 | 27,935 | ||||||||||||||||||||||||||
Credit impairment charges and other provisions | (2,114 | ) | – | (2,114 | ) | (2,168 | ) | – | (2,168 | ) | (3,071 | ) | – | (3,071 | ) | |||||||||||||||||||||
Net operating income | 22,414 | 926 | 23,340 | 23,560 | (440 | ) | 23,120 | 24,825 | 39 | 24,864 | ||||||||||||||||||||||||||
Operating expenses | (15,351 | ) | 330 | (15,021 | ) | (15,993 | ) | – | (15,993 | ) | (17,738 | ) | (79 | ) | (17,817 | ) | ||||||||||||||||||||
UK bank levy | (476 | ) | – | (476 | ) | (462 | ) | – | (462 | ) | (504 | ) | – | (504 | ) | |||||||||||||||||||||
Litigation and conduct | (378 | ) | (4,009 | ) | (4,387 | ) | (449 | ) | (2,360 | ) | (2,809 | ) | (269 | ) | (2,173 | ) | (2,442 | ) | ||||||||||||||||||
Costs to achieve | (793 | ) | – | (793 | ) | (1,165 | ) | – | (1,165 | ) | (1,209 | ) | – | (1,209 | ) | |||||||||||||||||||||
Other (losses)/incomeb | (13 | ) | (577 | ) | (590 | ) | 11 | (446 | ) | (435 | ) | (24 | ) | – | (24 | ) | ||||||||||||||||||||
Profit/(loss) before tax from continuing operations | 5,403 | (3,330 | ) | 2,073 | 5,502 | (3,246 | ) | 2,256 | 5,081 | (2,213 | ) | 2,868 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Adjusted profit reconciliation | ||||||||||||||||||||||||||||||||||||
For the year ended 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m | a
| |||||||||||||||||||||||||||
Adjusted profit before tax |
| 5,403 | 5,502 | 5,081 | ||||||||||||||||||||||||||||||||
Provisions for UK customer redress |
| (2,772 | ) | (1,110 | ) | (2,000 | ) | |||||||||||||||||||||||||||||
Provisions for ongoing investigations and litigation including Foreign Exchange |
| (1,237 | ) | (1,250 | ) | (173 | ) | |||||||||||||||||||||||||||||
Losses on sale relating to the Spanish, Portuguese and Italian businesses |
| (580 | ) | (446 | ) | – | ||||||||||||||||||||||||||||||
Gain on US Lehman acquisition assets |
| 496 | 461 | 259 | ||||||||||||||||||||||||||||||||
Own credit |
| 430 | 34 | (220 | ) | |||||||||||||||||||||||||||||||
Gain on valuation of a component of the defined retirement benefit liability |
| 429 | – | – | ||||||||||||||||||||||||||||||||
Impairment of goodwill and other assets relating to businesses being disposed |
| (96 | ) | – | (79 | ) | ||||||||||||||||||||||||||||||
Revision of ESHLA valuation methodology |
| – | (935 | ) | – | |||||||||||||||||||||||||||||||
Statutory profit before tax |
| 2,073 | 2,256 | 2,868 | ||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Income by geographic region (audited) | ||||||||||||||||||||||||||||||||||||
Adjusted | Statutory | |||||||||||||||||||||||||||||||||||
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| |||||||||||||||||||
Continuing operations | ||||||||||||||||||||||||||||||||||||
UKc | 11,730 | 12,357 | 11,681 | 12,160 | 11,456 | 11,461 | ||||||||||||||||||||||||||||||
Europe | 2,245 | 2,896 | 4,019 | 2,245 | 2,896 | 4,019 | ||||||||||||||||||||||||||||||
Americasd | 6,114 | 5,547 | 6,775 | 6,610 | 6,008 | 7,034 | ||||||||||||||||||||||||||||||
Africa and Middle East | 3,801 | 4,152 | 4,137 | 3,801 | 4,152 | 4,137 | ||||||||||||||||||||||||||||||
Asia | 638 | 776 | 1,284 | 638 | 776 | 1,284 | ||||||||||||||||||||||||||||||
Total | 24,528 | 25,728 | 27,896 | 25,454 | 25,288 | 27,935 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
Statutory income from individual countries which represent more than 5% of total income (audited)e |
| |||||||||||||||||||||||||||||||||||
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||||||||||||||||||||||||||
Continuing operations | ||||||||||||||||||||||||||||||||||||
UK | 12,160 | 11,456 | 11,461 | |||||||||||||||||||||||||||||||||
US | 6,228 | 5,866 | 6,760 | |||||||||||||||||||||||||||||||||
South Africa | 2,727 | 2,915 | 2,884 |
NotesBarclaysNon-Core
2017a £m | 2016 £m | 2015 £m | ||||||||||
Income statement information | ||||||||||||
Net interest income | (112 | ) | 160 | 615 | ||||||||
Net trading income | (488 | ) | (1,703 | ) | (706 | ) | ||||||
Net fee, commission and other income | 70 | 379 | 703 | |||||||||
Total income | (530 | ) | (1,164 | ) | 612 | |||||||
Credit impairment charges and other provisions | (30 | ) | (122 | ) | (134 | ) | ||||||
Net operating (expenses)/income | (560 | ) | (1,286 | ) | 478 | |||||||
Operating expenses excluding UK bank levy and litigation and conduct | (256 | ) | (1,509 | ) | (1,958 | ) | ||||||
UK bank levy | – | (76 | ) | (88 | ) | |||||||
Litigation and conduct | (28 | ) | (246 | ) | (500 | ) | ||||||
Operating expenses | (284 | ) | (1,831 | ) | (2,546 | ) | ||||||
Other net income/(expenses) | 197 | 331 | (535 | ) | ||||||||
Loss before tax | (647 | ) | (2,786 | ) | (2,603 | ) | ||||||
Attributable loss | (419 | ) | (1,916 | ) | (2,418 | ) | ||||||
Balance sheet information | ||||||||||||
Loans and advances to banks and customers at amortised cost | – | £51.1bn | £51.8bn | |||||||||
Derivative financial instrument assets | – | £188.7bn | £213.7bn | |||||||||
Derivative financial instrument liabilities | – | £178.6bn | £202.1bn | |||||||||
Reverse repurchase agreements and other similar secured lending | – | £0.1bn | £3.1bn | |||||||||
Financial assets designated at fair value | – | £14.5bn | £21.4bn | |||||||||
Total assets | – | £279.7bn | £325.8bn | |||||||||
Customer deposits | – | £12.5bn | £20.9bn | |||||||||
Risk weighted assets | – | £32.1bn | £54.3bn | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | – | 5,500 | 9,900 |
Note
a |
TheNon-Core segment was closed on 1 July 2017 with the residual assets and liabilities reintegrated into, and associated financial performance subsequently reported in, Barclays UK, Barclays International and Head Office.
Financial results up until 30 June 2017 are reflected in theNon-Core segment within the Group’s results for the year ended
31 December 2017.
Discontinued Operation: Africa Banking
2017a £m | 2016 £m | 2015 £m | ||||||||||
Income statement information | ||||||||||||
Net interest income | 1,024 | 2,169 | 1,950 | |||||||||
Net fee, commission and other income | 762 | 1,577 | 1,464 | |||||||||
Total income | 1,786 | 3,746 | 3,414 | |||||||||
Credit impairment charges and other provisions | (177 | ) | (445 | ) | (353 | ) | ||||||
Net operating income | 1,609 | 3,301 | 3,061 | |||||||||
Operating expenses excluding UK bank levy and impairment of Barclays’ holding in BAGL | (1,130 | ) | (2,345 | ) | (2,091 | ) | ||||||
UK bank levy | – | (65 | ) | (50 | ) | |||||||
Other net income excluding loss on sale of BAGL | 5 | 6 | 7 | |||||||||
Profit before tax excluding impairment of Barclays’ holding in BAGL and loss on sale of BAGL | 484 | 897 | 927 | |||||||||
Impairment of Barclays’ holding in BAGL | (1,090 | ) | – | – | ||||||||
Loss on sale of BAGL | (1,435 | ) | – | – | ||||||||
(Loss)/profit before tax | (2,041 | ) | 897 | 927 | ||||||||
Tax charge | (154 | ) | (306 | ) | (301 | ) | ||||||
(Loss)/profit after tax | (2,195 | ) | 591 | 626 | ||||||||
Attributable (loss)/profit | (2,335 | ) | 189 | 302 | ||||||||
Balance sheet information | ||||||||||||
Total assets | – | £ | 65.1bn | £ | 47.9bn | |||||||
Risk weighted assets | – | £ | 42.3bn | £ | 31.7bn | |||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | – | 40,800 | 41,500 |
Note
a | ||
| The Africa Banking income statement represents five months of results as a discontinued operation to 31 May 2017. |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Income statement information | ||||||||||||
Total income net of insurance claims | 24,692 | 24,678 | 25,603 | |||||||||
Credit impairment charges and other provisions | (2,036 | ) | (2,000 | ) | (2,171 | ) | ||||||
Net operating income | 22,656 | 22,678 | 23,432 | |||||||||
Operating expenses | (14,478 | ) | (14,483 | ) | (15,809 | ) | ||||||
UK bank levy | (398 | ) | (371 | ) | (395 | ) | ||||||
Litigation and conduct | (230 | ) | (251 | ) | (173 | ) | ||||||
Costs to achieve | (693 | ) | (953 | ) | (671 | ) | ||||||
Total operating expenses | (15,799 | ) | (16,058 | ) | (17,048 | ) | ||||||
Other net income | 5 | 62 | 86 | |||||||||
Profit before tax | 6,862 | 6,682 | 6,470 | |||||||||
Tax charge | (1,749 | ) | (1,976 | ) | (1,754 | ) | ||||||
Profit after tax | 5,113 | 4,706 | 4,716 | |||||||||
Non-controlling interests | (610 | ) | (648 | ) | (638 | ) | ||||||
Other equity interests | (284 | ) | (194 | ) | – | |||||||
Attributable profit | 4,219 | 3,864 | 4,078 | |||||||||
Balance sheet information | ||||||||||||
Total assets | £816.9bn | £886.5bn | £832.4bn | |||||||||
Risk weighted assets | £311.8bn | £326.6bn | £332.6bn | |||||||||
Leverage exposure | £906.5bn | £955.9bn | n/a | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | 123,800 | 123,400 | 129,700 | |||||||||
Performance measures | ||||||||||||
Return on average tangible equity | 10.9% | 11.3% | 14.4% | |||||||||
Average allocated tangible equity | £39.2bn | £34.6bn | £28.4bn | |||||||||
Return on average equity | 9.0% | 9.2% | 11.3% | |||||||||
Average allocated equity | £47.3bn | £42.3bn | £35.9bn | |||||||||
Period end allocated equity | £47.6bn | £44.9bn | £39.0bn | |||||||||
Cost:income ratio | 64% | 65% | 67% | |||||||||
Loan loss rate (bps) | 51 | 49 | 55 |
On 1 March 2016, Barclays announced its intention to reduce the Group’s 62.3% interest in BAGL to a level which would permit Barclays to deconsolidate BAGL from a regulatory perspective and, prior to that, from an accounting perspective. From this date, BAGL was treated as a discontinued operation. On 5 May 2016, Barclays sold 12.2% of the Group’s interest in BAGL and on 1 June 2017 Barclays sold a further 33.7% of BAGL’s issued share capital, resulting in the accounting deconsolidation of BAGL from the Barclays Group. At this time, Barclays’ holding in BAGL technically met the requirements to be treated as an Associate. However, following a revision of its governance rights in July 2017 and the difference being immaterial, the holding was treated as an AFS asset from the transaction date.
In Q317 Barclays contributed 1.5% of BAGL’s ordinary shares to a Black Economic Empowerment scheme, resulting in Barclays accounting for 126 million ordinary shares in BAGL, representing 14.9% of BAGL’s issued share capital. The retained investment is reported as an AFS asset in the Head Office segment, with Barclays’ share of BAGL’s dividend recognised in the Head Office income statement.
For regulatory reporting purposes, BAGL is treated on a proportional consolidated basis based on a holding of 14.9% as at Q417. Subject to regulatory approval, Barclays expects to fully deconsolidate BAGL from a regulatory perspective by the end of 2018.
Barclays PLC and Barclays Bank PLC |
Financial review
Analysis of results by business
Personal and
Corporate Banking
£8,726m total income
£3,040m profit before tax
2015 compared to 2014
Profit before tax improved 5% to £3,040m driven by the continued reduction in operating expenses and lower impairment due to the benign economic environment in the UK. The reduction in operating expenses was delivered through strategic cost programmes including the restructure of the branch network and technology improvements to increase automation. Corporate performed strongly with income increasing 5% through growth in both lending and cash management.
PCB results were significantly impacted by customer redress in, and the sale of, the US Wealth business. Excluding the US Wealth business profit before tax improved 12% to £3,277m.Margins analysis
Total income reduced 1% to £8,726m. Excluding the US Wealth business income remained flat. Personal income decreased 3% to £4,054m driven by a reduction in fee income and mortgage margin pressure, partially offset by improved deposit margins and balance growth. Corporate income increased 5% to £3,754m due to balance growth in both lending and deposits and improved deposit margins, partially offset by reduced margins in the lending business. Wealth income reduced 15% to £918m primarily as a result of the impact of customer redress in, and the sale of, the US Wealth business. Excluding the US Wealth business income decreased 2%.
Net interest income increased 2% to £6,438m driven by growth in Corporate balances and the change in the overdraft proposition in June 2014. Net interest margin remained broadly in line at 2.99% (2014: 3.00%) as mortgage margin pressure and lower Corporate lending margins were partially offset by increased margins on Corporate and Personal deposits, and the benefit of the change in the overdraft proposition.
Net fee, commission and other income reduced 10% to £2,288m driven primarily by the impact of the change in the overdraft proposition and customer redress in the US.
Credit impairment charges improved 22% to £378m due to the benign economic environment in the UK resulting in lower default rates and charges across all businesses. The loan loss rate reduced 4bps to 17bps.
Total operating expenses reduced 4% to £5,268m reflecting savings realised from strategic cost programmes relating to restructuring of the branch network and technology improvements, and lower costs to achieve, partially offset by increased litigation and conduct charges.
Loans and advances to customers increased 1% to £218.4bn due to increased Corporate lending.
Total assets increased 1% to £287.2bn driven by the growth in loans and advances to customers.
Customer deposits increased 2% to £305.4bn primarily driven by the Personal and Corporate businesses.
RWAs were broadly flat at £120.4bn (2014: £120.2bn).
2014 compared to 2013
Profit before tax increased 29% to £2,885m driven by 3% growth in Personal income, lower impairment due to the improving economic environment in theBarclays UK and the continued reduction in operating expenses delivered through strategic cost programmes. This resulted in a 2.2% increase in return on average equity to 11.9%. In Personal, income increased £119m alongside significant cost reductions, with theBarclays International net closure of 72 branches as part of ongoing branch network optimisation, as well as investment in the customer experience across multiple channels. Corporate increased both loans and deposits, and Wealth undertook a substantial reorganisation to reduce the number of target markets while simplifying operations.
Totalinterest income increased 1% to £8,828m. Personal income increased 3% to £4,159m due to balance growth and improved savings margins, partially offset by lower fee income. Corporate income was broadly in line at £3,592m (2013: £3,620m), with balance growth in both lending and deposits, offset by margin compression. Wealth income was broadly in line at £1,077m (2013: £1,063m) driven by growth in the UK business, offset by client and market exits as part of the reorganisations in the US and EU businesses, and lower fee income.
Net interest income increased 7% to £6,298m driven by lending and deposit growth and margin improvement. Net interest margin improved 9bps to 3.00% primarily due to the launch of a revised overdraft proposition, which recognises the majority of overdraft income as net interest income as opposed to fee income, and higher savings margins within Personal and Wealth. These factors were partially offset by lower Corporate deposit margins.
Net fee, commission and other income reduced 11% to £2,530m due to the launch of the revised overdraft proposition and lower transactional income in Wealth.
Credit impairment charges improved 22% to £482m and the loan loss rate reduced 7bps to 21bps due to the improving economic environment in the UK, particularly impacting Corporate which benefited from one-off releases and lower defaults from large UK Corporate clients.
Total operating expenses reduced 7% to £5,475m reflecting savings realised from strategic cost programmes relating to restructuring of the branch network and technology improvements to increase automation.
Loans and advances to customers increased 2% to £217.0bn due to mortgage growth and Corporate loan growth.
Total assets increased 2% to £285.0bn driven by the growth in loans and advances to customers.
Customer deposits increased to £299.2bn (2013: £295.9bn).
RWAs increased 2% to £120.2bn primarily driven by growth in mortgage and Corporate lending.
| 2015 £m |
|
| 2014 £m |
| 2013 £m | ||||
Income statement information | ||||||||||
Net interest income | 6,438 | 6,298 | 5,893 | |||||||
Net fee, commission and other income | 2,288 | 2,530 | 2,830 | |||||||
Total income | 8,726 | 8,828 | 8,723 | |||||||
Credit impairment charges and other provisions | (378) | (482) | (621) | |||||||
Net operating income | 8,348 | 8,346 | 8,102 | |||||||
Operating expenses | (4,774) | (4,951) | (5,362) | |||||||
UK bank levy | (93) | (70) | (66) | |||||||
Litigation and conduct | (109) | (54) | (98) | |||||||
Costs to achieve | (292) | (400) | (384) | |||||||
Total operating expenses | (5,268) | (5,475) | (5,910) | |||||||
Other net (expenses)/income | (40) | 14 | 41 | |||||||
Profit before tax | 3,040 | 2,885 | 2,233 | |||||||
Attributable profit | 2,179 | 2,058 | 1,681 | |||||||
Balance sheet information | ||||||||||
Loans and advances to customers at amortised cost | £218.4bn | £217.0bn | £212.2bn | |||||||
Total assets | £287.2bn | £285.0bn | £278.5bn | |||||||
Customer deposits | £305.4bn | £299.2bn | £295.9bn | |||||||
Risk weighted assets | £120.4bn | £120.2bn | £118.3bn | |||||||
Key facts | ||||||||||
Average LTV of mortgage lendinga | 49% | 52% | 56% | |||||||
Average LTV of new mortgage lendinga | 64% | 65% | 64% | |||||||
Client assetsb | £112.2bn | £148.6bn | £155.3bn | |||||||
Number of branches | 1,362 | 1,488 | 1,560 | |||||||
Number of employees (full time equivalent) | 45,700 | 45,600 | 50,100 | |||||||
Performance measures | ||||||||||
Return on average tangible equity | 16.2% | 15.8% | 12.7% | |||||||
Average allocated tangible equity | £13.6bn | £13.1bn | £13.2bn | |||||||
Return on average equity | 12.1% | 11.9% | 9.7% | |||||||
Average allocated equity | £18.2bn | £17.5bn | £17.3bn | |||||||
Cost:income ratio | 60% | 62% | 68% | |||||||
Loan loss rate (bps) | 17 | 21 | 28 | |||||||
Net interest margin | 2.99% | 3.00% | 2.91% | |||||||
Analysis of total income | £m | £m | £m | |||||||
Personal | 4,054 | 4,159 | 4,040 | |||||||
Corporate | 3,754 | 3,592 | 3,620 | |||||||
Wealth | 918 | 1,077 | 1,063 | |||||||
Total income | 8,726 | 8,828 | 8,723 | |||||||
Analysis of loans and advances to customers at amortised cost | ||||||||||
Personal | £137.0bn | £136.8bn | £133.8bn | |||||||
Corporate | £67.9bn | £65.1bn | £62.5bn | |||||||
Wealth | £13.5bn | £15.1bn | £15.9bn | |||||||
Total loans and advances to customers at amortised cost | £218.4bn | £217.0bn | £212.2bn | |||||||
Analysis of customer deposits | ||||||||||
Personal | £151.3bn | £145.8bn | £140.5bn | |||||||
Corporate | £124.4bn | £122.2bn | £118.5bn | |||||||
Wealth | £29.7bn | £31.2bn | £36.9bn | |||||||
Total customer deposits | £305.4bn | £299.2bn | £295.9bn |
Notes
Financial review
Analysis of results by business
Barclaycard
£4,927m total income
£1,634m profit before tax
2015 compared to 2014
Profit before tax increased 22% to £1,634m. Strong growth was delivered through the diversified consumer and merchant business model with asset growth across all geographies. The cost to income ratio improved to 42% (2014: 43%) whilst investment in business growth continued. The business focus on risk management was reflected in stable 30 day delinquency rates and improved loan loss rates.
Total income increased 13% to £4,927m driven primarily by business growth in US cards and the appreciation of the average USD rate against GBP.
Net interest income increased 16% to £3,520m driven by business growth. Net interest margin also improved to 9.13% (2014: 8.75%) reflecting growth in interest earning lending.
Net fee, commission and other income increased 7% to £1,407m due to growth in payment volumes, partially offset by the impact of rate capping from European Interchange Fee Regulation.
Credit impairment charges increased 6% to £1,251m primarily reflecting asset growth and updates to impairment model methodologies, partially offset by improved performance in UK Cards. Delinquency rates remained broadly stable and the loan loss rate reduced 19bps to 289bps.
Total operating expenses increased 11% to £2,075m due to continued investment in business growth, the appreciation of the average USD rate against GBP and the impact of one-off items, including a write-off of intangible assets of £55m relating to the withdrawal of the Bespoke product.
Loans and advances to customers increased 9% to £39.8bn reflecting growth across all geographies.
Total assets increased 15% to £47.4bn primarily due to the increase in loans and advances to customers.
Customer deposits increased 40% to £10.2bn driven by the deposits funding strategy in the US.
RWAs increased 4% to £41.3bn primarily driven by the growth in the US cards business.
2014 compared to 2013
Profit before tax increased 13% to £1,339m. Strong growth in 2014 was delivered through a diversified consumer and merchant business model, with customer numbers increasing to 29m (2013: 26m) and asset growth across all geographies generating a 6% increase in income. Growth has been managed on a well-controlled cost base, with the business focusing on scale through insourcing of services, consolidation of sites and digitalisation, resulting in an improvement in the cost to income ratio to 43% (2013: 45%). The business focus on risk management is reflected in stable 30 day delinquency rates and falling loan loss rates. The diversified and scaled business model has allowed the business to deliver a strong return on average equity of 16.0% (2013: 15.5%).
Total income increased 6% to £4,356m reflecting growth in the UK consumer and merchant, Germany and US businesses, partially offset by depreciation of average USD against GBP.
Net interest income increased 8% to £3,044m driven by volume growth. Net interest margin decreased to 8.75% (2013: 8.99%) due to a change in product mix and the impact of promotional offers, particularly in the US, partially offset by lower funding costs.
Net fee, commission and other income increased 3% to £1,312m due to growth in payment volumes.
Credit impairment charges increased 8% to £1,183m due to asset growth and enhanced coverage for forbearance. Delinquency rates remained broadly stable and the loan loss rate reduced 24bps to 308bps.
Total operating expenses increased 1% to £1,874m driven by higher costs to achieve of £118m (2013: £49m), partially offset by depreciation of average USD against GBP, VAT refunds, and savings from strategic cost programmes, including insourcing of services, consolidation of sites and digitalisation.
Loans and advances to customers increased 16% to £36.6bn reflecting growth across all geographies, including the impact of promotional offers and the acquisition of portfolios in the US.
Total assets increased 20% to £41.3bn due to the increase in loans and advances to customers.
Customer deposits increased 43% to £7.3bn driven by the deposits funding strategy in the US.
RWAs increased 12% to £39.9bn primarily driven by the growth in loans and advances to customers.
| 2015 £m |
|
| 2014 £m |
| 2013 £m | ||||||||
Income statement information | ||||||||||||||
Net interest income | 3,520 | 3,044 | 2,829 | |||||||||||
Net fee, commission and other income | 1,407 | 1,312 | 1,274 | |||||||||||
Total income | 4,927 | 4,356 | 4,103 | |||||||||||
Credit impairment charges and other provisions | (1,251) | (1,183) | (1,096) | |||||||||||
Net operating income | 3,676 | 3,173 | 3,007 | |||||||||||
Operating expenses | (1,927) | (1,727) | (1,752) | |||||||||||
UK bank levy | (42) | (29) | (22) | |||||||||||
Litigation and conduct | – | – | (34) | |||||||||||
Costs to achieve | (106) | (118) | (49) | |||||||||||
Total operating expenses | (2,075) | (1,874) | (1,857) | |||||||||||
Other net income | 33 | 40 | 33 | |||||||||||
Profit before tax | 1,634 | 1,339 | 1,183 | |||||||||||
Attributable profit | 1,106 | 938 | 822 | |||||||||||
Balance sheet information | ||||||||||||||
Loans and advances to customers at amortised cost | £39.8bn | £36.6bn | £31.5bn | |||||||||||
Total assets | £47.4bn | £41.3bn | £34.4bn | |||||||||||
Customer deposits | £10.2bn | £7.3bn | £5.1bn | |||||||||||
Risk weighted assets | £41.3bn | £39.9bn | £35.7bn | |||||||||||
Key facts | ||||||||||||||
30 days arrears rates – UK cards | 2.3% | 2.5% | 2.4% | |||||||||||
30 days arrears rates – US cards | 2.2% | 2.1% | 2.1% | |||||||||||
Total number of Barclaycard consumer customers | 28.2m | 29.1m | 26.3m | |||||||||||
Total number of Barclaycard business clients | 341,000 | 340,000 | 350,000 | |||||||||||
Value of payments processed | £293bn | £257bn | £236bn | |||||||||||
Number of employees (full time equivalent) | 13,100 | 12,200 | 11,000 | |||||||||||
Performance measures | ||||||||||||||
Return on average tangible equity | 22.3% | 19.9% | 19.9% | |||||||||||
Average allocated tangible equity | £5.0bn | £4.7bn | £4.1bn | |||||||||||
Return on average equity | 17.7% | 16.0% | 15.5% | |||||||||||
Average allocated equity | £6.3bn | £5.9bn | £5.3bn | |||||||||||
Cost:income ratio | 42% | 43% | 45% | |||||||||||
Loan loss rate (bps) | 289 | 308 | 332 | |||||||||||
Net interest margin | 9.13% | 8.75% | 8.99% |
Financial review
Analysis of results by business
Africa Banking
£3,574m total income net
of insurance claims
£979m profit before tax
2015 compared to 2014
Profit before tax decreased 1% to £979m and total income net of insurance claims decreased 2% to £3,574m. The ZAR depreciated against GBP by 10% based on average rates and by 28% based on the closing exchange rate in 2015. The deterioration was a significant contributor to the movement in the reported results of Africa Banking and therefore the discussion of business performance below is based on results on a constant currency basis.
Results on a constant currency basis
Profit before tax increased 11% to £979m reflecting an increase of 18% in operations outside South Africa and an increase of 9% in South Africa despite the challenging macroeconomic environment. Good growth was delivered in the focus areas of Retail and Business Banking (RBB) and corporate banking in South Africa, and Wealth, Investment Management and Insurance (WIMI), whilst performance in the corporate business outside South Africa was impacted by higher impairment.
Total income net of insurance claims increased 7% to £3,574m.
Net interest income increased 8% to £2,066m driven by higher average customer advances in Corporate and Investment Banking (CIB) and strong growth in customer deposits in RBB. Net interest margin increased 11bps to 6.06% primarily due to improved asset margins in retail in South Africa.
Net fee, commission and other income increased 5% to £1,668m reflecting increased transactional income in RBB, partially offset by lower investment banking income in South Africa.
Credit impairment charges increased 11% to £352m driven by an increase in single name exposures and additional coverage on performing loans. The loan loss rate increased 16bps to 109bps.
Total operating expenses increased 5% to £2,250m reflecting inflationary impacts, partially offset by savings from strategic cost programmes including the restructure of the branch network, technology improvements and property rationalisation.
Loans and advances to customers increased 8% to £29.9bn driven by strong CIB growth.
Total assets increased 14% to £49.9bn primarily due to the increase in loans and advances to customers.
Customer deposits increased 11% to £30.6bn reflecting strong growth in the RBB business.
RWAs increased 8% to £33.9bn primarily due to an increase in corporate lending.
2014 compared to 2013
On a reported basis, total income net of insurance claims decreased 9% to £3,664m and profit before tax decreased 6% to £984m. Based on average rates, the ZAR depreciated against GBP by 18% in 2014. The deterioration was a significant contributor to the movement in the reported results of Africa Banking. The discussion of business performance below is based on results on a constant currency basis unless otherwise stated.
Results on a constant currency basis
Profit before tax increased 13% to £984m, reflecting good growth in Corporate and Investment Banking (CIB) and Retail and Business Banking (RBB). CIB experienced strong income growth, driven by the corporate banking business outside South Africa and improved investment banking trading performance across Africa. Continued progress was made on the RBB South Africa turnaround strategy, with increased net fee and commission income growth in the second half of the year, and Wealth, Investment Management and Insurance (WIMI) delivered strong growth outside South Africa due to expansion initiatives.
Total income net of insurance claims increased 7% to £3,664m.
Net interest income increased 9% to £2,093m, primarily driven by higher average loans and advances to customers in CIB and growth in customer deposits in RBB in South Africa. Net interest margin on a reported basis increased 14bps to 5.95% following the rise in the South African benchmark interest rate and the favourable impact of higher deposit margins, partially offset by lower rates outside South Africa.
Net fee, commission and other income increased 4% to £1,741m mainly reflecting increased RBB transactions in South Africa.
Credit impairment charges decreased 14% to £349m and on a reported basis the loan loss rate improved 35bps to 93bps, driven by reduced impairments in the South Africa mortgages portfolio and business banking, partially offset by increased impairments in the card portfolio.
Total operating expenses increased 8% to £2,342m largely reflecting inflationary increases, resulting in higher staff costs and increased investment spend on key initiatives, including higher costs to achieve of £51m (2013: £23m), partially offset by savings from strategic cost programmes.
Loans and advances to customers increased 5% to £35.2bn primarily driven by strong corporate banking growth across Africa in CIB and limited growth in RBB, mainly due to a modest reduction in the South Africa mortgages portfolio.
Total assets increased 5% to £55.5bn due to the increase in loans and advances to customers.
Customer deposits increased 5% to £35.0bn reflecting strong growth in the South African RBB business.
RWAs increased 1% to £38.5bn on a reported basis, primarily driven by growth in loans and advances to customers, partially offset by the depreciation of ZAR against GBP.
Constant currencya | ||||||||||||||||||||
| 2015 £m |
|
| 2014 £m |
| 2013 £m | 2015 £m | 2014 £m | ||||||||||||
Income statement information | ||||||||||||||||||||
Net interest income | 2,066 | 2,093 | 2,245 | 2,066 | 1,908 | |||||||||||||||
Net fee, commission and other income | 1,668 | 1,741 | 1,979 | 1,668 | 1,583 | |||||||||||||||
Total income | 3,734 | 3,834 | 4,224 | 3,734 | 3,491 | |||||||||||||||
Net claims and benefits incurred under insurance contracts | (160) | (170) | (185) | (160) | (155) | |||||||||||||||
Total income net of insurance claims | 3,574 | 3,664 | 4,039 | 3,574 | 3,336 | |||||||||||||||
Credit impairment charges and other provisions | (352) | (349) | (479) | (352) | (317) | |||||||||||||||
Net operating income | 3,222 | 3,315 | 3,560 | 3,222 | 3,019 | |||||||||||||||
Operating expenses | (2,169) | (2,244) | (2,451) | (2,169) | (2,051) | |||||||||||||||
UK bank levy | (52) | (45) | (42) | (52) | (45) | |||||||||||||||
Litigation and conduct | – | (2) | – | – | (2) | |||||||||||||||
Costs to achieve | (29) | (51) | (26) | (29) | (46) | |||||||||||||||
Total operating expenses | (2,250) | (2,342) | (2,519) | (2,250) | (2,144) | |||||||||||||||
Other net income | 7 | 11 | 8 | 7 | 10 | |||||||||||||||
Profit before tax | 979 | 984 | 1,049 | 979 | 885 | |||||||||||||||
Attributable profit | 332 | 360 | 356 | 332 | 320 | |||||||||||||||
Balance sheet information | ||||||||||||||||||||
Loans and advances to customers at amortised cost | £29.9bn | £35.2bn | £34.9bn | £29.9bn | £27.6bn | |||||||||||||||
Total assets | £49.9bn | £55.5bn | £54.9bn | £49.9bn | £43.8bn | |||||||||||||||
Customer deposits | £30.6bn | £35.0bn | £34.6bn | £30.6bn | £27.6bn | |||||||||||||||
Risk weighted assets | £33.9bn | £38.5bn | £38.0bn | £33.9bn | £31.3bn | |||||||||||||||
Key facts | ||||||||||||||||||||
Average LTV of mortgage portfoliob | 58.4% | 59.9% | 62.3% | |||||||||||||||||
Average LTV of new mortgage lendingb | 74.7% | 74.8% | 74.9% | |||||||||||||||||
Number of employees (full time equivalent) | 44,400 | 45,000 | 45,900 | |||||||||||||||||
Performance measures | ||||||||||||||||||||
Return on average tangible equity | 11.7% | 12.9% | 11.3% | |||||||||||||||||
Average allocated tangible equity | £2.8bn | £2.8bn | £3.2bn | |||||||||||||||||
Return on average equity | 8.7% | 9.3% | 8.1% | |||||||||||||||||
Average allocated equity | £3.8bn | £3.9bn | £4.4bn | |||||||||||||||||
Cost:income ratio | 63% | 64% | 62% | |||||||||||||||||
Loan loss rate (bps) | 109 | 93 | 128 | |||||||||||||||||
Net interest margin | 6.06% | 5.95% | 5.81% |
Notes
Financial review
Analysis of results by business
Investment Bank
|
2015 compared to 2014
Profit before tax increased 17% to £1,611m. Income remained flat despite reductions in RWAs. Focusing on its home markets of the UK and US, the business continued to build on existing strengths in the face of challenging market conditions. Costs decreased as a result of improved cost efficiency and a reduction in costs to achieve.
Total income was broadly flat at £7,572m (2014: £7,588m), including the appreciation of the average USD rate against GBP.
Banking income was flat at £2,529m (2014: £2,528m). Investment Banking fee income reduced 1% to £2,093m driven by lower equity underwriting fees, partially offset by higher financial advisory and debt underwriting fees. Lending income increased to £436m (2014: £417m) due to lower losses on fair value hedges.
Markets income was broadly flat at £5,030m (2014: £5,040m). Credit income decreased 5% to £995m driven by lower income in securitised products as a result of the accelerated strategic repositioning in this asset class and lower income from distressed credit. This was partially offset by higher income as a result of client driven credit flow trading. Equities income decreased 2% to £2,001m driven by lower client activity in EMEA in equity derivatives, partially offset by higher performance in cash equities. Macro income increased 4% to £2,034m due to higher income in rates and currency products reflecting increased market volatility and client activity.
Credit impairment charges of £55m (2014: release of £14m) arose from a number of single name exposures.
Total operating expenses decreased 5% to £5,906m reflecting a 5% reduction in compensation costs to £3,423m and lower costs to achieve. Further cost savings were achieved from strategic cost programmes, including business restructuring, operational streamlining and real estate rationalisation, partially offset by the appreciation of the average USD rate against GBP.
Derivative financial instrument assets and liabilities decreased 25% to £114.3bn and 24% to £122.2bn respectively, due to net trade reduction and increases in major interest rate forward curves.
Trading portfolio assets decreased 31% to £65.1bn primarily driven by balance sheet deleveraging, resulting in lower securities positions.
Total assets decreased 18% to £375.9bn due to a decrease in derivative financial instrument assets, trading portfolio assets, and settlement and cash collateral balances within loans and advances to banks and customers.
RWAs decreased 12% to £108.3bn mainly due to a reduction in securities and derivatives, and improved RWA efficiency.
2014 compared to 2013
Profit before tax decreased 32% to £1,377m. The Investment Bank continues to make progress on its origination-led strategy, building on leading positions in its home markets of the UK and US, while driving cost savings and RWA efficiencies. The business is focused on a simpler product set in Markets, which will enable it to build on existing strengths and adapt to regulatory developments. The business continued to execute this strategy despite difficult market-making conditions and continued low levels of activity. This has particularly impacted credit and interest rate products, resulting in an income decline across the Markets businesses. This decline was partially offset by improved banking performance and significant cost reductions as a result of savings from strategic cost programmes.
Total income decreased 12% to £7,588m, including the impact of depreciation of average USD against GBP. Banking income increased 2% to £2,528m. Investment Banking fee income decreased 2% to £2,111m driven by lower debt underwriting fees, partially offset by higher financial advisory and equity underwriting fees. Lending income increased to £417m (2013: £325m) due to lower fair value losses on hedges and higher net interest and fee income.
Markets income decreased 18% to £5,040m. Credit decreased 17% to £1,044m driven by reduced volatility and client activity, with lower income in distressed credit, US high yield and US high grade products. Equities decreased 11% to £2,046m due to declines in cash equities and equity derivatives, reflecting lower client volumes, partially offset by higher income in equity financing. Macro decreased 24% to £1,950m reflecting subdued client activity in rates and lower volatility in currency markets in the first half of the year.
Net credit impairment release of £14m (2013: £22m) arose from a number of single name exposures.
Total operating expenses decreased 6% to £6,225m reflecting a 9% reduction in compensation costs to £3,620m, savings from strategic cost programmes, including business restructuring, continued rationalisation of the technology platform and real estate infrastructure, and depreciation of average USD against GBP. This was partially offset by increased costs to achieve of £374m (2013: £190m) and litigation and conduct charges.
Loans and advances to customers and banks increased 2% to £106.3bn driven by an increase in cash collateral and lending, partially offset by a reduction in settlement balances due to reduced activity.
Derivative financial instrument assets and liabilities increased 40% to £152.6bn and 38% to £160.6bn respectively, driven by decreases in predominantly GBP, USD and EUR forward interest rates, and strengthening of USD against major currencies.
Reverse repurchase agreements and other similar secured lending decreased 18% to £64.3bn due to decreased match book trading and funding requirements.
Total assets increased 4% to £455.7bn due to an increase in derivative financial instrument assets, partially offset by a decrease in reverse repurchase agreements and other similar secured lending, and financial assets at fair value.
RWAs decreased 2% to £122.4bn primarily driven by risk reductions in the trading book, partially offset by the implementation of a revised credit risk model for assessing counterparty probability of default.
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Income statement information | ||||||||||||
Net interest income | 588 | 647 | 393 | |||||||||
Net trading income | 3,859 | 3,735 | 4,969 | |||||||||
Net fee, commission and other income | 3,125 | 3,206 | 3,234 | |||||||||
Total income | 7,572 | 7,588 | 8,596 | |||||||||
Credit impairment (charges)/releases and other provisions | (55 | ) | 14 | 22 | ||||||||
Net operating income | 7,517 | 7,602 | 8,618 | |||||||||
Operating expenses | (5,362 | ) | (5,504 | ) | (6,141 | ) | ||||||
UK bank levy | (203 | ) | (218 | ) | (236 | ) | ||||||
Litigation and conduct | (107 | ) | (129) | (31 | ) | |||||||
Costs to achieve | (234 | ) | (374 | ) | (190 | ) | ||||||
Total operating expenses | (5,906 | ) | (6,225 | ) | (6,598 | ) | ||||||
Profit before tax | 1,611 | 1,377 | 2,020 | |||||||||
Attributable profit | 804 | 397 | 1,308 | |||||||||
Balance sheet information | ||||||||||||
Loans and advances to banks and customers at amortised costa | £92.2bn | £106.3bn | £104.5bn | |||||||||
Trading portfolio assets | £65.1bn | £94.8bn | £96.6bn | |||||||||
Derivative financial instrument assets | £114.3bn | £152.6bn | £108.7bn | |||||||||
Derivative financial instrument liabilities | £122.2bn | £160.6bn | £116.6bn | |||||||||
Reverse repurchase agreements and other similar secured lendingb | £25.5bn | £64.3bn | £78.2bn | |||||||||
Financial assets designated at fair valueb | £48.1bn | £8.9bn | £16.5bn | |||||||||
Total assets | £375.9bn | £455.7bn | £438.0bn | |||||||||
Risk weighted assets | £108.3bn | £122.4bn | £124.4bn | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | 19,800 | 20,500 | 22,600 | |||||||||
Performance measures | ||||||||||||
Return on average tangible equity | 6.0% | 2.8% | 8.5% | |||||||||
Average allocated tangible equity | £13.9bn | £14.6bn | £15.3bn | |||||||||
Return on average equity | 5.6% | 2.7% | 8.2% | |||||||||
Average allocated equity | £14.8bn | £15.4bn | £15.9bn | |||||||||
Cost:income ratio | 78% | 82% | 77% | |||||||||
Analysis of total income | ||||||||||||
Investment banking fees | 2,093 | 2,111 | 2,160 | |||||||||
Lending | 436 | 417 | 325 | |||||||||
Banking | 2,529 | 2,528 | 2,485 | |||||||||
Credit | 995 | 1,044 | 1,257 | |||||||||
Equities | 2,001 | 2,046 | 2,297 | |||||||||
Macro | 2,034 | 1,950 | 2,580 | |||||||||
Markets | 5,030 | 5,040 | 6,134 | |||||||||
Banking & Markets | 7,559 | 7,568 | 8,619 | |||||||||
Other | 13 | 20 | (23 | ) | ||||||||
Total income | 7,572 | 7,588 | 8,596 |
Notes
Financial review
Analysis of results by business
Head Office
2015 compared to 2014
The loss before tax of £402m (2014: profit of £97m) was primarily due to the net expense from Treasury operations and costs relating to the implementation of the structural reform programme.
Net operating income decreased to an expense of £107m (2014: income of £242m) primarily reflecting the net expense from Treasury operations and the non-recurrence of gains in 2014, including net gains from foreign exchange recycling arising from the restructure of Group subsidiaries.
Total operating expenses increased £158m to £300m primarily due to costs relating to the implementation of the structural reform programme and an increase in costs to achieve, partially offset by reduced litigation and conduct charges.
Total assets increased £7.3bn to £56.4bn due to an increase in the element of the liquidity buffer held centrally.
2014 compared to 2013
Profit before tax of £97m improved from a loss of £15m in 2013.
Net operating income increased to £242m (2013: £145m) predominantly due to net gains of £88m from foreign exchange recycling arising from the restructure of Group subsidiaries.
Total operating expenses decreased £22m to £142m mainly due to a reduction in UK bank levy to £9m (2013: £29m), the non-recurrence of costs associated with the Salz Review and the establishment of the strategic cost programme in the prior year, partially offset by increased litigation and conduct charges.
Total assets increased £22.5bn to £49.1bn reflecting an increase in the Group liquidity pool assets.
RWAs decreased £10.6bn to £5.6bn, including receipt of certain US Lehman acquisition assets and a £6.9bn revision to 2013 RWAs following full implementation of CRD IV reporting, as disclosed in the 30 June 2014 Results Announcement.
Negative average allocated equity reduced to £0.4bn (2013: £7.0bn) as the Group moved towards the allocation rate of 10.5% fully loaded CRD IV CET1 ratio during the year, resulting in a reduction in excess equity allocated to businesses.
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Income statement information | ||||||||||||
Total income | (107 | ) | 242 | 142 | ||||||||
Credit impairment releases and other provisions | – | – | 3 | |||||||||
Net operating (expense)/income | (107 | ) | 242 | 145 | ||||||||
Operating expenses | (246 | ) | (57 | ) | (103 | ) | ||||||
UK bank levy | (8 | ) | (9 | ) | (29 | ) | ||||||
Litigation and conduct | (14 | ) | (66 | ) | (10 | ) | ||||||
Cost to achieve | (32 | ) | (10 | ) | (22 | ) | ||||||
Total operating expenses | (300 | ) | (142 | ) | (164 | ) | ||||||
Other net income/(expense) | 5 | (3 | ) | 4 | ||||||||
(Loss)/profit before tax | (402 | ) | 97 | (15 | ) | |||||||
Attributable (loss)/profit | (202 | ) | 112 | (89 | ) | |||||||
Balance sheet information | ||||||||||||
Total assets | £56.4bn | £49.1bn | £26.6bn | |||||||||
Risk weighted assets | £7.7bn | £5.6bn | £16.2bn | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | 800 | 100 | 100 |
Barclays Non-Core
|
2015 compared to 2014
Loss before tax increased 24% to £1,459m driven by continued progress in the exit of Businesses, Securities and loans, and Derivative assets. RWAs reduced £29bn to £47bn including a £10bn reduction in Derivatives, £9bn reduction in Securities and loans, and Business reductions from the completion of the sales of the Spanish and UK Secured Lending businesses. The announced sales of the Portuguese and Italian retail businesses, which are due to be completed in H116, are expected to result in a further £2.5bn reduction in RWAs.
Total income net of insurance claims reduced to an expense of £164m (2014: income of £1,050m). Businesses income reduced 44% to £613m due to the impact of the sale of the Spanish business and the sale and rundown of legacy portfolio assets. Securities and loans income reduced to an expense of £481m (2014: income of £117m) primarily driven by fair value losses and funding costs on the ESHLA portfolio, the active rundown of securities, exit of historical investment bank businesses and the non-recurring gain on the sale of the UAE retail banking portfolio in 2014. Fair value losses on the ESHLA portfolio were £359m (2014: £156m), of which £156m was in Q415, as gilt swap spreads widened. Derivatives income reduced 76% to an expense of £296m reflecting the active rundown of the portfolios and funding costs.
Credit impairment charges improved 54% to £78m due to higher recoveries in Europe and the sale of the Spanish business.
Total operating expenses improved 40% to £1,199m reflecting savings from the sales of the Spanish, UAE retail, commodities, and several principal investment businesses, as well as a reduction in costs to achieve, and conduct and litigation charges.
Loans and advances to banks and customers reduced 28% to £45.9bn due to the reclassification of £5.5bn of loans relating to the announced sales of the Portuguese and Italian businesses to assets held for sale, and the rundown and exit of historical investment bank assets.
Derivative financial instrument assets and liabilities decreased 26% to £210.3bn and 28% to £198.7bn respectively, largely as a result of trade reduction.
Total assets decreased 36% to £303.1bn due to reduced reverse repurchase agreements and other similar secured lending, and lower derivative financial instrument assets.
Leverage exposure reduced £156.2bn to £121.3bn primarily in reverse repurchase agreements, potential future exposure on derivatives and trading portfolio assets.
RWAs decreased £28.7bn to £46.6bn and period end equity decreased £3.8bn to £7.2bn primarily driven by the sale of the Spanish business, the active rundown of legacy structured and credit products, and derivative trade unwinds.
2014 compared to 2013
Loss before tax reduced 15% to £1,180m as Non-Core made good progress in exiting and running down certain businesses and securities during 2014. This drove a £34.6bn reduction in RWAs, making substantial progress towards the Non-Core target reductions as outlined in the Group Strategy Update on 8 May 2014.
Total income net of insurance claims reduced 54% to £1,050m. Businesses income reduced 27% to £1,101m due to the sale and rundown of legacy portfolio assets and the rationalisation of product offerings within the European retail business. Securities and loans income reduced 82% to £117m primarily driven by the active rundown of securities, fair value losses on wholesale loan portfolios and the non-recurrence of prior year favourable market movements on certain securitised products, partially offset by a £119m gain on the sale of the UAE retail banking portfolio. Derivatives income reduced £321m to an expense of £168m reflecting the funding costs of the traded legacy derivatives portfolio and the non-recurrence of fair value gains in the prior year.
Credit impairment charges improved 81% to £168m due to the non-recurrence of impairments on single name exposures, impairment releases on the wholesale portfolio as a result of confirmation on Spanish government subsidies in the renewable energy sector and improved performance in Europe, primarily due to improved recoveries and delinquencies in the mortgages portfolio.
Total operating expenses improved 25% to £2,011m reflecting savings from strategic cost programmes, including lower headcount and the results of the previously announced European retail restructuring. In addition, costs to achieve reduced 61% to £212m.
Loans and advances to banks and customers reduced 22% to £63.9bn due to a £12.9bn reclassification of loans relating to the Spanish business, which was held for sale, and a reduction in Europe retail driven by a run-off of assets.
Trading portfolio assets reduced 48% to £15.9bn due to the sale and rundown of legacy portfolio assets.
Derivative financial instrument assets and liabilities increased 19% to £285.4bn and 21% to £277.1bn respectively, driven by decreases in major forward interest rates.
Total assets decreased 8% to £471.5bn with reduced reverse repurchase agreements and other similar secured lending, and trading portfolio assets, due to the rundown of legacy portfolio assets, offset by an increase in derivative financial instrument assets. BCBS 270 leverage exposure reduced to £277bn.
RWAs decreased £34.6bn to £75.3bn and average allocated equity decreased £3.7bn to £13.4bn, reflecting the disposal of businesses, rundown and exit of securities and loans, and derivative risk reductions.
Financial review
Analysis of results by business
Barclays Non-Core – continued
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Income statement information | ||||||||||||
Net interest income | 249 | 214 | 307 | |||||||||
Net trading income | (805 | ) | 120 | 1,327 | ||||||||
Net fee, commission and other income | 765 | 1,026 | 983 | |||||||||
Total income | 209 | 1,360 | 2,617 | |||||||||
Net claims and benefits incurred under insurance contracts | (373 | ) | (310 | ) | (324 | ) | ||||||
Total income net of insurance claims | (164 | ) | 1,050 | 2,293 | ||||||||
Credit impairment charges and other provisions | (78 | ) | (168 | ) | (900 | ) | ||||||
Net operating (expense)/income | (242 | ) | 882 | 1,393 | ||||||||
Operating expenses | (873 | ) | (1,510 | ) | (1,929 | ) | ||||||
UK bank levy | (78 | ) | (91 | ) | (109 | ) | ||||||
Litigation and conduct | (148 | ) | (198 | ) | (96 | ) | ||||||
Costs to achieve | (100 | ) | (212 | ) | (538 | ) | ||||||
Total operating expenses | (1,199 | ) | (2,011 | ) | (2,672 | ) | ||||||
Other net expenses | (18 | ) | (51 | ) | (110 | ) | ||||||
Loss before tax | (1,459 | ) | (1,180 | ) | (1,389 | ) | ||||||
Attributable loss | (1,523 | ) | (1,085 | ) | (1,783 | ) | ||||||
Balance sheet information | ||||||||||||
Loans and advances to banks and customers at amortised costb | £45.9bn | £63.9bn | £81.9bn | |||||||||
Derivative financial instrument assets | £210.3bn | £285.4bn | £239.3bn | |||||||||
Derivative financial instrument liabilities | £198.7bn | £277.1bn | £228.3bn | |||||||||
Reverse repurchase agreements and other similar secured lendingc | £2.4bn | £49.3bn | £104.7bn | |||||||||
Financial assets designated at fair valuec | £20.1bn | £22.2bn | £19.5bn | |||||||||
Total assets | £303.1bn | £471.5bn | £511.2bn | |||||||||
Customer deposits | £14.9bn | £21.6bn | £29.3bn | |||||||||
Risk weighted assets | £46.6bn | £75.3bn | £109.9bn | |||||||||
Leverage exposure | £121.3bn | £277.5bn | n/a | |||||||||
Key facts | ||||||||||||
Number of employees (full time equivalent) | 5,600 | 8,900 | 9,900 | |||||||||
Performance measures | ||||||||||||
Return on average tangible equityd | (5.1% | ) | (5.4% | ) | (9.3% | ) | ||||||
Average allocated tangible equity | £8.9bn | £13.2bn | £16.8bn | |||||||||
Return on average equityd | (4.1% | ) | (4.1% | ) | (7.0% | ) | ||||||
Average allocated equity | £9.0bn | £13.4bn | £17.1bn | |||||||||
Period end allocated equity | £7.2bn | £11.0bn | £15.1bn | |||||||||
Analysis of total income net of insurance claims | £m | £m | £m | |||||||||
Businesses | 613 | 1,101 | 1,498 | |||||||||
Securities and loans | (481 | ) | 117 | 642 | ||||||||
Derivatives | (296 | ) | (168 | ) | 153 | |||||||
Total income net of insurance claims | (164 | ) | 1,050 | 2,293 |
Notes
Returns and equity
by business
Returns on average equity and average tangible equity are calculated as profit for the year attributable to ordinary equity holders of the parent (adjusted for the tax credit recorded in reserves in respect of coupons on other equity instruments) divided by average allocated equity or average allocated tangible equity for the period as appropriate, excluding non-controlling and other equity interests for businesses, apart from Africa Banking (see below). Allocated equity has been calculated as 10.5% of CRD IV fully loaded risk weighted assets for each business, adjusted for CRD IV fully loaded capital deductions, including goodwill
and intangible assets, reflecting the assumptions the Group uses for capital planning purposes. The excess of allocated Group equity, caused by the fully loaded CRD IV CET1 ratio being below 10.5% on average in the period, is allocated as negative equity to Head Office. Allocated tangible equity is calculated using the same method, but excludes goodwill and intangible assets.
For Africa Banking, the equity used for return on average equity is Barclays’ share of the statutory equity of the BAGL entity (together with that of the Barclays Egypt and Zimbabwe businesses which remain outside the BAGL corporate entity), as well as Barclays’ goodwill on acquisition of these businesses. The tangible equity for return on tangible equity uses the same basis, but excludes both the Barclays’ goodwill on acquisition and the goodwill and intangibles held within the BAGL statutory equity.
Return on average tangible equity | ||||||||||||
| 2015 % |
|
| 2014 % |
|
| 2013 % | c
| ||||
Personal and Corporate Banking | 16.2 | 15.8 | 12.7 | |||||||||
Barclaycard | 22.3 | 19.9 | 19.9 | |||||||||
Africa Banking | 11.7 | 12.9 | 11.3 | |||||||||
Investment Bank | 6.0 | 2.8 | 8.5 | |||||||||
Barclays Core operating businesses | 12.7 | 10.8 | 11.6 | |||||||||
Head Office impacta | (1.8 | ) | 0.5 | 2.8 | ||||||||
Barclays Core | 10.9 | 11.3 | 14.4 | |||||||||
Barclays Non-Core impacta | (5.1 | ) | (5.4 | ) | (9.3 | ) | ||||||
Barclays Group adjusted totald | 5.8 | 5.9 | 5.1 | |||||||||
Barclays Group statutory total | (0.7 | ) | (0.3 | ) | 1.2 | |||||||
Return on average equity | ||||||||||||
| 2015 % |
|
| 2014 % |
|
| 2013 % | c
| ||||
Personal and Corporate Banking | 12.1 | 11.9 | 9.7 | |||||||||
Barclaycard | 17.7 | 16.0 | 15.5 | |||||||||
Africa Banking | 8.7 | 9.3 | 8.1 | |||||||||
Investment Bank | 5.6 | 2.7 | 8.2 | |||||||||
Barclays Core operating businesses | 10.4 | 8.9 | 9.7 | |||||||||
Head Office impacta | (1.4 | ) | 0.3 | 1.6 | ||||||||
Barclays Core | 9.0 | 9.2 | 11.3 | |||||||||
Barclays Non-Core impacta | (4.1 | ) | (4.1 | ) | (7.0 | ) | ||||||
Barclays Group adjusted totald | 4.9 | 5.1 | 4.3 | |||||||||
Barclays Group statutory total | (0.6 | ) | (0.2 | ) | 1.0 | |||||||
Profit/(loss) attributable to ordinary equity holders of the parentb | ||||||||||||
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m | c
| ||||
Personal and Corporate Banking | 2,203 | 2,075 | 1,681 | |||||||||
Barclaycard | 1,114 | 943 | 822 | |||||||||
Africa Banking | 332 | 360 | 356 | |||||||||
Investment Bank | 829 | 415 | 1,308 | |||||||||
Head Office | (202 | ) | 112 | (89 | ) | |||||||
Barclays Core | 4,276 | 3,905 | 4,078 | |||||||||
Barclays Non-Core | (1,510 | ) | (1,072 | ) | (1,783 | ) | ||||||
Barclays Group adjusted totald | 2,766 | 2,833 | 2,295 | |||||||||
Barclays Group statutory total | (394 | ) | (174 | ) | 540 |
Notes
Financial review
Analysis of results by business
Returns and equity by business – continued
Average allocated tangible equity | ||||||||||
2015 £bn |
| 2014 £bn |
|
| 2013 £bn |
| ||||
Personal and Corporate Banking | 13.6 | 13.1 | 13.2 | |||||||
Barclaycard | 5.0 | 4.7 | 4.1 | |||||||
Africa Banking | 2.8 | 2.8 | 3.2 | |||||||
Investment Bank | 13.9 | 14.6 | 15.3 | |||||||
Head Officea | 3.9 | (0.6 | ) | (7.4 | ) | |||||
Barclays Core | 39.2 | 34.6 | 28.4 | |||||||
Barclays Non-Core | 8.9 | 13.2 | 16.8 | |||||||
Barclays Group adjusted total | 48.1 | 47.8 | 45.2 | |||||||
Barclays Group statutory total | 47.7 | 47.0 | 44.3 | |||||||
Average allocated equity | ||||||||||
2015 £bn |
| 2014 £bn |
|
| 2013 £bn |
| ||||
Personal and Corporate Banking | 18.2 | 17.5 | 17.3 | |||||||
Barclaycard | 6.3 | 5.9 | 5.3 | |||||||
Africa Banking | 3.8 | 3.9 | 4.4 | |||||||
Investment Bank | 14.8 | 15.4 | 15.9 | |||||||
Head Officea | 4.2 | (0.4 | ) | (7.0 | ) | |||||
Barclays Core | 47.3 | 42.3 | 35.9 | |||||||
Barclays Non-Core | 9.0 | 13.4 | 17.1 | |||||||
Barclays Group adjusted total | 56.3 | 55.7 | 53.0 | |||||||
Barclays Group statutory total | 55.9 | 54.9 | 52.2 | |||||||
Period end allocated equity | ||||||||||
2015 £bn |
| 2014 £bn |
|
| 2013 £bn |
| ||||
Personal and Corporate Banking | 18.3 | 17.9 | 17.3 | |||||||
Barclaycard | 6.3 | 6.2 | 5.4 | |||||||
Africa Banking | 3.4 | 4.0 | 3.8 | |||||||
Investment Bank | 13.0 | 14.7 | 14.6 | |||||||
Head Officea | 6.6 | 2.1 | (2.1 | ) | ||||||
Barclays Core | 47.6 | 44.9 | 39.0 | |||||||
Barclays Non-Core | 7.2 | 11.0 | 15.1 | |||||||
Barclays Group adjusted total | 54.8 | 55.9 | 54.1 | |||||||
Barclays Group statutory total | 54.5 | 55.2 | 53.3 | |||||||
Note
Margins analysis
Total PCB, Barclaycard and Africa Banking net interest income increased 5% to £12.0bn£10.4bn due to an increase in average customer assets to £287.7bn (2014: £280.0bn)£278.5bn (2016: £274.6bn) with growth in PCB and Barclaycard,Barclays UK, partially offset by reductionsa reduction in Africa Banking as the ZAR depreciated against GBP. Barclays International.
Net interest margin increased 10bpsdecreased 2bps to 4.18%3.74% primarily due to growthreflecting the integration of ESHLA loans fromNon-Core on 1 July 2017 into Barclays UK, partially offset by broadly stable net interest income in interest earning lending within Barclaycard.
Barclays International, despite reducing average customer assets. Group net interest income increaseddecreased to £12.6bn (2014: £12.1bn)
£9.8bn (2016: £10.5bn) including net structural hedge contributions of £1.5bn (2014: £1.6bn)£1.3bn (2016: £1.5bn). Equity structural hedge income decreased driven by the maintenance of the hedge in a continuing low rate environment.
Net interest margin by business reflects movements in the Group’s internal funding rates which are based on the cost to the Group of alternative funding in wholesale markets. The internal funding rate prices intra-group funding and liquidity to appropriately give appropriate credit to businesses with net surplus liquidity and to charge those businesses in need of alternative funding at a rate that is driven by prevailing market rates and includes a term premium.
Year ended 31 December 2017 | Year ended 31 December 2016 | |||||||||||||||||||||||
Net £m | Average £m | Net % | Net £m | Average £m | Net % | |||||||||||||||||||
Barclays UK | 6,086 | 174,484 | 3.49 | 6,048 | 167,233 | 3.62 | ||||||||||||||||||
Barclays Internationala | 4,326 | 104,039 | 4.16 | 4,275 | 107,333 | 3.98 | ||||||||||||||||||
Total Barclays UK and Barclays International | 10,412 | 278,523 | 3.74 | 10,323 | 274,566 | 3.76 | ||||||||||||||||||
Otherb | (567 | ) | 214 | |||||||||||||||||||||
Total net interest income | 9,845 | 10,537 |
Notes
a | Barclays International margins include interest earning lending balances within the investment banking business. |
b | Other includes Head Office andnon-lending related investment banking balances. BarclaysNon-Core is included for the full comparative period and the first six months of the current period. |
Year ended 31 December 2015 | Year ended 31 December 2014 | |||||||||||||||||||||||
| Net interest income £m |
| | Average customer assets £m | |
| Net interest margin % |
|
| Net interest income £m |
|
| Average customer assets £m |
|
| Net interest margin % |
| |||||||
Personal and Corporate Banking | 6,438 | 214,989 | 2.99 | 6,298 | 210,026 | 3.00 | ||||||||||||||||||
Barclaycard | 3,520 | 38,560 | 9.13 | 3,044 | 34,776 | 8.75 | ||||||||||||||||||
Africa Banking | 2,066 | 34,116 | 6.06 | 2,093 | 35,153 | 5.95 | ||||||||||||||||||
Total Personal and Corporate Banking, Barclaycard and Africa Banking | 12,024 | 287,665 | 4.18 | 11,435 | 279,955 | 4.08 | ||||||||||||||||||
Investment Bank | 588 | 647 | ||||||||||||||||||||||
Head Office | (303 | ) | (216 | ) | ||||||||||||||||||||
Barclays Core | 12,309 | 11,866 | ||||||||||||||||||||||
Barclays Non-Core | 249 | 214 | ||||||||||||||||||||||
Group net interest income | 12,558 | 12,080 |
180 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Financial review
Non-IFRS performance measures
Barclays’ management believes that thenon-IFRS performance measures included in this document provide valuable information to the readers of the financial statements as they enable the reader to identify a more consistent basis for comparing the business’ performance between financial periods, and provide more detail concerning the elements of performance which the managers of these businesses are most directly able to influence or are relevant for an assessment of Barclays
PLC and its subsidiaries (the Group). They also reflect an important aspect of the way in which operating targets are defined and performance is monitored by Barclays’ management.
Anynon-IFRS performance measures in this document are not a substitute for IFRS measures and readers should consider the IFRS measures as well.
Non-IFRS performance measures glossary | ||
Measure | Definition | |
Loan: deposit ratio | Loans and advances divided by customer accounts calculated for Barclays UK and Barclays International, excluding investment banking balances other than interest earning lending. This excludes particular liabilities issued by the retail businesses that have characteristics comparable to retail deposits (for example structured Certificates of Deposit and retail bonds), which are included within debt securities in issue. | |
Period end allocated tangible equity | Allocated tangible equity is calculated as 12.0% (2016: 11.5%) of CRD IV fully loaded risk weighted assets for each business, adjusted for CRD IV fully loaded capital deductions, excluding goodwill and intangible assets, reflecting the assumptions the Group uses for capital planning purposes. Head Office allocated tangible equity represents the difference between the Group’s tangible shareholders’ equity and the amounts allocated to businesses. | |
Average tangible shareholders’ equity | Calculated as the average of the previous month’s period end tangible equity and the current month’s period end tangible equity. The average tangible shareholders’ equity for the period is the average of the monthly averages within that period. | |
Average allocated tangible equity | Calculated as the average of the previous month’s period end allocated tangible equity and the current month’s period end allocated tangible equity. The average allocated tangible equity for the period is the average of the monthly averages within that period. | |
Return on average tangible shareholders’ equity | Statutory profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excludingnon-controlling interests and other equity instruments adjusted for the deduction of intangible assets and goodwill. The components of the calculation have been included on page 182. | |
Return on average allocated tangible equity | Statutory profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average allocated tangible equity. The components of the calculation have been included on page 182. | |
Cost: income ratio | Operating expenses divided by total income. | |
Operating expenses excluding litigation and conduct | Operating expenses excluding charges for litigation and conduct. The components of the calculation have been included on page 183. | |
Loan loss rate | Quoted in basis points and represents total loan impairment divided by gross loans and advances to banks and customers held at amortised cost at the balance sheet date. The components of the calculation have been included on page 105. | |
Net interest margin | Net interest income divided by the sum of average customer assets. The components of the calculation have been included on page 180. | |
Tangible net asset value per share | Calculated by dividing shareholders’ equity, excludingnon-controlling interests and other equity instruments, less goodwill and intangible assets, by the number of issued ordinary shares. The components of the calculation have been included on page 183. |
Barclays PLC and Barclays Bank PLC |
Financial statementsreview
ContentsNon-IFRS performance measures
Returns
Detailed analysis of our statutory accounts, independently audited and providing in-depth disclosureReturn on average tangible equity is calculated as profit for the financial performanceperiod attributable to ordinary equity holders of the Group.parent (adjusted for the tax credit recorded in reserves in respect of interest payments on other equity instruments) divided by average tangible equity for the period, excludingnon-controlling and other equity interests for businesses.
Allocated tangible equity has been calculated as 12.0% (2016: 11.5%) of CRD IV fully loaded RWAs for each business, adjusted for CRD IV fully loaded capital deductions, excluding goodwill and intangible assets, reflecting the assumptions the Group uses for capital planning purposes. Head Office average allocated tangible equity represents the difference between the Group’s average tangible shareholders’ equity and the amounts allocated to businesses.
Attributable £m | Tax credit in respect of interest payments on other equity instruments £m | Profit/(loss) attributable to ordinary equity holders of the parent £m | Average £bn | Return on % | ||||||||||||||||
For the year ended 31 December 2017 | ||||||||||||||||||||
Barclays UK | 853 | 40 | 893 | 9.1 | 9.8 | |||||||||||||||
Corporate and Investment Bank | 167 | 102 | 269 | 24.0 | 1.1 | |||||||||||||||
Consumer, Cards and Payments | 680 | 18 | 698 | 4.2 | 16.7 | |||||||||||||||
Barclays International | 847 | 120 | 967 | 28.1 | 3.4 | |||||||||||||||
Head Officea | (868 | ) | 4 | (864 | ) | 9.3 | n/m | |||||||||||||
BarclaysNon-Core | (419 | ) | 10 | (409 | ) | 2.4 | n/m | |||||||||||||
Africa Banking discontinued operationa | (2,335 | ) | – | (2,335 | ) | n/m | n/m | |||||||||||||
Barclays Group | (1,922 | ) | 174 | (1,748 | ) | 48.9 | (3.6 | ) | ||||||||||||
For the year ended 31 December 2016 | ||||||||||||||||||||
Barclays UK | 828 | 29 | 857 | 8.9 | 9.6 | |||||||||||||||
Corporate and Investment Bank | 1,270 | 72 | 1,342 | 21.9 | 6.1 | |||||||||||||||
Consumer, Cards and Payments | 1,142 | 11 | 1,153 | 3.6 | 31.4 | |||||||||||||||
Barclays International | 2,412 | 83 | 2,495 | 25.5 | 9.8 | |||||||||||||||
Head Officea | 110 | (1 | ) | 109 | 6.5 | n/m | ||||||||||||||
BarclaysNon-Core | (1,916 | ) | 17 | (1,899 | ) | 7.8 | n/m | |||||||||||||
Africa Banking discontinued operationa | 189 | – | 189 | n/m | n/m | |||||||||||||||
Barclays Group | 1,623 | 128 | 1,751 | 48.7 | 3.6 | |||||||||||||||
For the year ended 31 December 2015 | ||||||||||||||||||||
Barclays UK | (47 | ) | 14 | (33 | ) | 9.3 | (0.3 | ) | ||||||||||||
Corporate and Investment Bank | 1,146 | 34 | 1,180 | 21.9 | 5.4 | |||||||||||||||
Consumer, Cards and Payments | 612 | 8 | 620 | 3.0 | 20.2 | |||||||||||||||
Barclays International | 1,758 | 42 | 1,800 | 24.9 | 7.2 | |||||||||||||||
Head Officea | 11 | – | 11 | 2.6 | n/m | |||||||||||||||
BarclaysNon-Core | (2,418 | ) | 14 | (2,405 | ) | 10.9 | n/m | |||||||||||||
Africa Banking discontinued operationa | 302 | – | 302 | n/m | n/m | |||||||||||||||
Barclays Group | (394 | ) | 70 | (324 | ) | 47.7 | (0.7 | ) |
Note
a | Average allocated tangible equity for Africa Banking is included within Head Office. |
Performance measures excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and there-measurement of US DTAs
2017 £m | ||||||||||||
Barclays Group profit attributable to ordinary equity holders of the parenta | ||||||||||||
Barclays Group profit attributable to ordinary equity holders | (1,748 | ) | ||||||||||
Impact of litigation and conduct | 1,150 | |||||||||||
Impact of impairment of Barclays’ holding in BAGL | 1,008 | |||||||||||
Impact of loss on the sale of BAGL | 1,435 | |||||||||||
Net impact of there-measurement of US DTAs | 901 | |||||||||||
Barclays Group profit attributable to ordinary equity holders of the parent excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and there-measurement of US DTAs | 2,746 | |||||||||||
Barclays Group return on average shareholders’ equity | ||||||||||||
Barclays Group average tangible shareholders’ equity | £48.9bn | |||||||||||
Barclays Group return on average tangible shareholders’ equity excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and there-measurement of US DTAs | 5.6% | |||||||||||
Barclays Group average tangible shareholders’ equity based on a CET1 ratio of 13% | £50.3bn | |||||||||||
Barclays Group return on average tangible shareholders’ equity excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and there-measurement of US DTAs based on a CET1 ratio of 13% | 5.5% | |||||||||||
Barclays Group basic earnings per ordinary share | ||||||||||||
Basic weighted average number of shares | 16,996m | |||||||||||
Barclays Group basic earnings per ordinary share excluding litigation and conduct, losses related to Barclays’ sell down of BAGL and there-measurement of US DTAs | 16.2p | |||||||||||
Operating expenses excluding litigation and conduct | ||||||||||||
2017 £m | 2016 £m | 2015 £m | ||||||||||
Barclays Group operating expenses | (15,456 | ) | (16,338 | ) | (18,536 | ) | ||||||
Impact of litigation and conduct | 1,207 | 1,363 | 4,387 | |||||||||
Barclays Group operating expenses excluding litigation and conduct | (14,249 | ) | (14,975 | ) | (14,149 | ) | ||||||
Tangible net asset value | ||||||||||||
2017 £m | 2016 £m | 2015 £m | ||||||||||
Total equity excludingnon-controlling interests | 63,905 | 64,873 | 59,810 | |||||||||
Other equity instruments | (8,941 | ) | (6,449 | ) | (5,305 | ) | ||||||
Shareholders’ equity excluding non-controlling interests attributable to ordinary shareholders of the parent | 54,964 | 58,424 | 54,505 | |||||||||
Goodwill and intangiblesb | (7,849 | ) | (9,245 | ) | (8,222 | ) | ||||||
Tangible shareholders’ equity excludingnon-controlling interests attributable to ordinary shareholders of the parent | 47,115 | 49,179 | 46,283 | |||||||||
Shares in issue | 17,060m | 16,963m | 16,805m | |||||||||
Net asset value per share | 322p | 344p | 324p | |||||||||
Tangible net asset value per share | 276p | 290p | 275p |
Notes
a | The profit after tax attributable to other equity instrument holders of £639m (2016: £457m) is offset by a tax credit recorded in reserves of £174m (2016: £128m). The net amount of £465m (2016: £329m), along withnon-controlling interests is deducted from profit after tax in order to calculate earnings per share and return on average tangible shareholders’ equity. |
b | Comparative figures for 2016 and 2015 included goodwill and intangibles in relation to Africa Banking. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 183 |
Presentation of information
Barclays’Barclays approach to disclosures
The GroupBarclays aims to continually enhance its disclosures and their usefulness to the readers of the financial statements in the light of developing market practice and areas of focus. Consequently Barclays’ disclosures go beyond the minimum standards required by accounting standards and other regulatory requirements.
Barclays continues to support the recommendations and guidance made by the Enhanced Disclosure Taskforce (EDTF). The EDTF was formed by the Financial Stability Board withand its various task forces which continue to promote a remit to broaden and deepen the riskbroadening of disclosures ofby global banks in a number of areas, including liquidity and funding, credit risk and market risk. Barclays has fully adopted the recommendations across the Annual Report and Pillar 3 Report.
In line with the Financial Reporting Council’s guidance on ‘ClearClear and Concise’Concise reporting, for 2015, Barclays has focused reporting on material items and sought to reorganisepresent information in order to aid users understanding.users’ understanding such as including detail on relevant accounting policies within each note.
British Bankers’ Association (BBA) Code for Financial Reporting Disclosure as adopted by UK Finance in 2017
Barclays has adopted the BBA Code for Financial Reporting Disclosure and has prepared the 2017 Annual Report and Accounts in compliance with the Code.
It is Barclays’ view that best in class disclosures will continue to evolve in light of ongoing market and stakeholder engagement withwithin the banking sector. Barclays is committed to engaging with a publishedcontinuously reflect the objectives of reporting set out in the BBA Code for Financial Reporting Disclosure (the Code). The CodeDisclosure. This code sets out five disclosure principles together with supporting guidance which states that UK banks will:
provide high quality, meaningful and decision-useful disclosures |
review and enhance their financial instrument disclosures for key areas of interest |
assess the applicability and relevance of good practice recommendations to their disclosures acknowledging the importance of such guidance |
seek to enhance the comparability of financial statement disclosures across the UK banking sector and |
clearly differentiate in their annual reports between information that is audited and information that is unaudited. |
British Bankers’ Association (BBA) Code for Financial Reporting Disclosure
Barclays has adopted the BBA Code for Financial Reporting Disclosure and has prepared the 2015 Annual Report andStatutory Accounts in compliance with the Code.
Statutory accounts
The consolidated accounts of Barclays PLC and its subsidiaries are set(set out on pages 211188 to 215192 along with the accounts of Barclays PLC itself on pages 216193 to 194) have been prepared in accordance with the International Financial Reporting Standards (IFRS) and 217.interpretations (IFRICs) issued by the interpretations committee, as published by the International Accounting Standards Board (IASB). They are also in accordance with IFRS and IFRIC interpretations endorsed by the European Union. The accounting policies on pages 218195 to 220200 and the Notesnotes commencing on page 221201 apply equally to both sets of accounts unless otherwise stated.
The financial statements have been prepared on a going concern basis, in accordance with The Companies Act 2006 as applicable to companies using IFRS.Capital RequirementsCountry-by Country Reporting
Capital Requirements Country by Country Reporting
HM Treasury has transposed the requirements set out under CRD IV and issued the Capital Requirements Country by CountryCountry-by-Country Reporting Regulations 2013. The legislation requires Barclays PLC to publish additional information in respect of the year ended 31 December 2015.2017. This information is available on the Barclays’Barclays website: home.barclays/ barclays.com/citizenship/reports-and-publications/reports-and- publications/country-snapshot.html
184 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Financial statements
Detailed analysis of our statutory accounts, independently
audited and providingin-depth disclosure on the financial
performance of the Group.
Consolidated financial statements | Page | Note | ||||||||
◾ | Consolidated income statement | 188 | n/a | |||||||
◾ | Consolidated statement of comprehensive income | 189 | n/a | |||||||
◾ | Consolidated balance sheet | 190 | n/a | |||||||
◾ | Consolidated statement of changes in equity | 191 | n/a | |||||||
◾ | Consolidated cash flow statement | 192 | n/a | |||||||
◾ | Parent company accounts | 193 | n/a | |||||||
Notes to the financial statements | ||||||||||
◾ | Significant accounting policies | 195 | 1 | |||||||
Performance/return | ◾ | Segmental reporting | 201 | 2 | ||||||
◾ | Net interest income | 203 | 3 | |||||||
◾ | Net fee and commission income | 203 | 4 | |||||||
◾ | Net trading income | 204 | 5 | |||||||
◾ | Net investment income | 204 | 6 | |||||||
◾ | Credit impairment charges and other provisions | 204 | 7 | |||||||
◾ | Operating expenses | 206 | 8 | |||||||
◾ | Profit/(loss) on disposal of subsidiaries, associates and joint ventures | 206 | 9 | |||||||
◾ | Tax | 207 | 10 | |||||||
◾ | Earnings per share | 211 | 11 | |||||||
◾ | Dividends on ordinary shares | 211 | 12 | |||||||
Assets and liabilities held at fair value | ◾ | Trading portfolio | 212 | 13 | ||||||
◾ | Financial assets designated at fair value | 212 | 14 | |||||||
◾ | Derivative financial instruments | 213 | 15 | |||||||
◾ | Financial investments | 216 | 16 | |||||||
◾ | Financial liabilities designated at fair value | 216 | 17 | |||||||
◾ | Fair value of financial instruments | 216 | 18 | |||||||
◾ | Offsetting financial assets and financial liabilities | 229 | 19 | |||||||
Financial instruments held at amortised cost | ◾ | Loans and advances to banks and customers | 231 | 20 | ||||||
◾ | Finance leases | 231 | 21 | |||||||
◾ | Reverse repurchase and repurchase agreements including other similar lending and borrowing | 232 | 22 | |||||||
Non-current assets and other investments | ◾ | Property, plant and equipment | 233 | 23 | ||||||
◾ | Goodwill and intangible assets | 234 | 24 | |||||||
◾ | Operating leases | 236 | 25 | |||||||
Accruals, provisions, contingent liabilities | ◾ | Accruals, deferred income and other liabilities | 237 | 26 | ||||||
and legal proceedings | ◾ | Provisions | 237 | 27 | ||||||
◾ | Contingent liabilities and commitments | 239 | 28 | |||||||
◾ | Legal, competition and regulatory matters | 239 | 29 | |||||||
Capital instruments, equity and reserves | ◾ | Subordinated liabilities | 248 | 30 | ||||||
◾ | Ordinary shares, share premium and other equity | 251 | 31 | |||||||
◾ | Reserves | 251 | 32 | |||||||
◾ | Non-controlling interests | 252 | 33 | |||||||
Employee benefits | ◾ | Share-based payments | 253 | 34 | ||||||
◾ | Pensions and post-retirement benefits | 255 | 35 | |||||||
Scope of consolidation | ◾ | Principal subsidiaries | 260 | 36 | ||||||
◾ | Structured entities | 261 | 37 | |||||||
◾ | Investments in associates and joint ventures | 264 | 38 | |||||||
◾ | Securitisations | 265 | 39 | |||||||
◾ | Assets pledged | 266 | 40 | |||||||
Other disclosure matters | ◾ | Related party transactions and Directors’ remuneration | 267 | 41 | ||||||
◾ | Auditors’ remuneration | 269 | 42 | |||||||
◾ | Assets included in disposal groups classified as held for sale and associated liabilities | 269 | 43 | |||||||
◾ | Barclays PLC (the Parent company) | 271 | 44 | |||||||
◾ | Related undertakings | 295 | 45 |
Barclays PLC and Barclays Bank PLC |
Independent Registered Public Accounting Firm’s report
Report of Independent Registered Public Accounting Firm
To the shareholders and board of directors
Barclays PLC:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
To The Board of Directors and Shareholders of Barclays PLC
In our opinion,We have audited the accompanying consolidated balance sheetssheet of Barclays PLC and subsidiaries (the “Group”) as of 31 December 2017, the related consolidated income statements,statement, consolidated statementsstatement of comprehensive income, consolidated statementsstatement of changes in equity, and consolidated cash flow statement for the year then ended, and the related notes and specific disclosures described in Note 1 to the financial statements as being part of the consolidated financial statements (collectively, the “consolidated financial statements”). We also have audited the Group’s internal control over financial reporting as of 31 December 2017, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barclays PLC and its subsidiaries atthe Group as of 31 December 2015 and 31 December 2014,2017, and the results of theirits operations and theirits cash flows for each of the three years in the periodyear then ended, 31 December 2015 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the CompanyGroup maintained, in all material respects, effective internal control over financial reporting as of 31 December 2015,2017, based on criteria established inInternal Control -– Integrated Framework 2013(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Commission.
Basis for Opinion
The Company’sGroup’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management’sthe accompanyingManagement’s report on internal control over financial reporting included in the Directors’ Report appearing on page 40 of the Annual Report to Shareholders.reporting. Our responsibility is to express opinionsan opinion on thesethe Group’s consolidated financial statements and an opinion on the Company’sGroup’s internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (US).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopersKPMG LLP
PricewaterhouseCoopers LLPWe have served as the Group’s auditor since 2017.
London, UKUnited Kingdom
2921 February 2016
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Barclays PLC
In our opinion, the consolidated balance sheet as of December 31, 2016 and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2016 present fairly, in all material respects, the financial position of Barclays PLC (the “Company”) and its subsidiaries at December 31, 2016, and the results of their operations, and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
London, United Kingdom
22 February 2017
Note that the report set out above is included for the purposes of Barclays PLC’s Annual Report on Form20-F for 2017 only and does not form part of Barclays PLC’s Annual Report and Accounts for 2017.
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 187 |
Consolidated financial statements
Consolidated income statement
For the year ended 31 December | Notes |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||||
Continuing operations | ||||||||||||||||
Interest income | 3 | 17,201 | 17,363 | 18,315 | ||||||||||||
Interest expense | 3 | (4,643 | ) | (5,283 | ) | (6,715 | ) | |||||||||
Net interest income | 12,558 | 12,080 | 11,600 | |||||||||||||
Fee and commission income | 4 | 9,655 | 9,836 | 10,479 | ||||||||||||
Fee and commission expense | 4 | (1,763 | ) | (1,662 | ) | (1,748 | ) | |||||||||
Net fee and commission income | 7,892 | 8,174 | 8,731 | |||||||||||||
Net trading income | 5 | 3,623 | 3,331 | 6,553 | ||||||||||||
Net investment income | 6 | 1,138 | 1,328 | 680 | ||||||||||||
Net premiums from insurance contracts | 709 | 669 | 732 | |||||||||||||
Other income | 67 | 186 | 148 | |||||||||||||
Total income | 25,987 | 25,768 | 28,444 | |||||||||||||
Net claims and benefits incurred on insurance contracts | (533 | ) | (480 | ) | (509 | ) | ||||||||||
Total income net of insurance claims | 25,454 | 25,288 | 27,935 | |||||||||||||
Credit impairment charges and other provisions | 7 | (2,114 | ) | (2,168 | ) | (3,071 | ) | |||||||||
Net operating income | 23,340 | 23,120 | 24,864 | |||||||||||||
Staff costs | 8 | (9,960 | ) | (11,005 | ) | (12,155 | ) | |||||||||
Infrastructure costs | 8 | (3,180 | ) | (3,443 | ) | (3,531 | ) | |||||||||
Administration and general expenses | 8 | (3,528 | ) | (3,621 | ) | (4,113 | ) | |||||||||
Provision for UK customer redress | 27 | (2,772 | ) | (1,110 | ) | (2,000 | ) | |||||||||
Provision for ongoing investigations and litigation including Foreign Exchange | 27 | (1,237 | ) | (1,250 | ) | (173 | ) | |||||||||
Operating expenses | 8 | (20,677 | ) | (20,429 | ) | (21,972 | ) | |||||||||
Share of post-tax results of associates and joint ventures | 47 | 36 | (56 | ) | ||||||||||||
(Loss)/profit on disposal of subsidiaries, associates and joint ventures | 9 | (637 | ) | (471 | ) | 6 | ||||||||||
Gain on acquisitions | – | – | 26 | |||||||||||||
Profit before tax | 2,073 | 2,256 | 2,868 | |||||||||||||
Taxation | 10 | (1,450 | ) | (1,411 | ) | (1,571 | ) | |||||||||
Profit after tax | 623 | 845 | 1,297 | |||||||||||||
Attributable to: | ||||||||||||||||
Equity holders of the parent | (394 | ) | (174 | ) | 540 | |||||||||||
Other equity holdersa | 345 | 250 | – | |||||||||||||
Total equity holders | (49 | ) | 76 | 540 | ||||||||||||
Non-controlling interests | 33 | 672 | 769 | 757 | ||||||||||||
Profit after tax | 623 | 845 | 1,297 | |||||||||||||
p | p | p | ||||||||||||||
Earnings per share | ||||||||||||||||
Basic (loss)/earnings per share | 11 | (1.9 | ) | (0.7 | ) | 3.8 | ||||||||||
Diluted (loss)/earnings per share | 11 | (1.9 | ) | (0.7 | ) | 3.7 |
For the year ended 31 December | Notes | 2017 £m | 2016 £m | 2015 £m | ||||||||||||
Continuing operations | ||||||||||||||||
Interest income | 3 | 13,631 | 14,541 | 13,953 | ||||||||||||
Interest expense | 3 | (3,786 | ) | (4,004 | ) | (3,345 | ) | |||||||||
Net interest income | 9,845 | 10,537 | 10,608 | |||||||||||||
Fee and commission income | 4 | 8,751 | 8,570 | 8,470 | ||||||||||||
Fee and commission expense | 4 | (1,937 | ) | (1,802 | ) | (1,611 | ) | |||||||||
Net fee and commission income | 6,814 | 6,768 | 6,859 | |||||||||||||
Net trading income | 5 | 3,500 | 2,768 | 3,426 | ||||||||||||
Net investment income | 6 | 861 | 1,324 | 1,097 | ||||||||||||
Other income | 56 | 54 | 50 | |||||||||||||
Total income | 21,076 | 21,451 | 22,040 | |||||||||||||
Credit impairment charges and other provisions | 7 | (2,336 | ) | (2,373 | ) | (1,762 | ) | |||||||||
Net operating income | 18,740 | 19,078 | 20,278 | |||||||||||||
Staff costs | 8 | (8,560 | ) | (9,423 | ) | (8,853 | ) | |||||||||
Infrastructure costs | 8 | (2,949 | ) | (2,998 | ) | (2,691 | ) | |||||||||
Administration and general expenses | 8 | (3,247 | ) | (2,917 | ) | (2,983 | ) | |||||||||
Provision for UK customer redress | (700 | ) | (1,000 | ) | (2,772 | ) | ||||||||||
Provision for ongoing investigations and litigation relating to Foreign Exchange | – | – | (1,237 | ) | ||||||||||||
Operating expenses | 8 | (15,456 | ) | (16,338 | ) | (18,536 | ) | |||||||||
Share ofpost-tax results of associates and joint ventures | 70 | 70 | 41 | |||||||||||||
Profit/(loss) on disposal of subsidiaries, associates and joint ventures | 9 | 187 | 420 | (637 | ) | |||||||||||
Profit before tax | 3,541 | 3,230 | 1,146 | |||||||||||||
Taxation | 10 | (2,240 | ) | (993 | ) | (1,149 | ) | |||||||||
Profit/(loss) after tax in respect of continuing operations | 1,301 | 2,237 | (3 | ) | ||||||||||||
(Loss)/profit after tax in respect of discontinued operation | (2,195 | ) | 591 | 626 | ||||||||||||
(Loss)/profit after tax | (894 | ) | 2,828 | 623 | ||||||||||||
Attributable to: | ||||||||||||||||
Equity holders of the parent | (1,922 | ) | 1,623 | (394 | ) | |||||||||||
Other equity instrument holdersa | 639 | 457 | 345 | |||||||||||||
Total equity holders of the parent | (1,283 | ) | 2,080 | (49 | ) | |||||||||||
Non-controlling interests in respect of continuing operations | 33 | 249 | 346 | 348 | ||||||||||||
Non-controlling interests in respect of discontinued operation | 33 | 140 | 402 | 324 | ||||||||||||
(Loss)/profit after tax | (894 | ) | 2,828 | 623 | ||||||||||||
Earnings per share | ||||||||||||||||
Basic (loss)/earnings per ordinary share | 11 | (10.3 | ) | 10.4 | (1.9 | ) | ||||||||||
Basic earnings/(loss) per ordinary share in respect of continuing operations | 11 | 3.5 | 9.3 | (3.7 | ) | |||||||||||
Basic (loss)/earnings per ordinary share in respect of discontinued operation | 11 | (13.8 | ) | 1.1 | 1.8 | |||||||||||
Diluted (loss)/earnings per share | 11 | (10.1 | ) | 10.3 | (1.9 | ) | ||||||||||
Diluted earnings/(loss) per ordinary share in respect of continuing operations | 11 | 3.4 | 9.2 | (3.7 | ) | |||||||||||
Diluted (loss)/earnings per ordinary share in respect of discontinued operation | 11 | (13.5 | ) | 1.1 | 1.8 |
Note
a | The profit after tax attributable to other equity instrument holders of |
188 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Consolidated financial statements
Consolidated statement of comprehensive income
For the year ended 31 December | 2017 £m | 2016 £m | 2015 £m | |||||||||
(Loss)/profit after tax | (894 | ) | 2,828 | 623 | ||||||||
Profit/(loss) after tax in respect of continuing operations | 1,301 | 2,237 | (3 | ) | ||||||||
(Loss)/profit after tax in respect of discontinued operation | (2,195 | ) | 591 | 626 | ||||||||
Other comprehensive (loss)/income that may be recycled to profit or loss from continuing operations: | ||||||||||||
Currency translation reserve | ||||||||||||
Currency translation differencesa | (1,337 | ) | 3,024 | 748 | ||||||||
Available for sale reserve | ||||||||||||
Net gains from changes in fair value | 473 | 2,147 | 64 | |||||||||
Net gains transferred to net profit on disposal | (294 | ) | (912 | ) | (374 | ) | ||||||
Net losses transferred to net profit due to impairment | 3 | 20 | 17 | |||||||||
Net losses/(gains) transferred to net profit due to fair value hedging | 283 | (1,677 | ) | (148 | ) | |||||||
Changes in insurance liabilities and other movements | 11 | 53 | 86 | |||||||||
Tax | (27 | ) | (18 | ) | 126 | |||||||
Cash flow hedging reserve | ||||||||||||
Net (losses)/gains from changes in fair value | (626 | ) | 1,455 | (312 | ) | |||||||
Net gains transferred to net profit | (643 | ) | (365 | ) | (238 | ) | ||||||
Tax | 321 | (292 | ) | 57 | ||||||||
Other | (5 | ) | 13 | 20 | ||||||||
Other comprehensive (loss)/income that may be recycled to profit or loss from continuing operations: | (1,841 | ) | 3,448 | 46 | ||||||||
Other comprehensive income/(loss) not recycled to profit or loss from continuing operations: | ||||||||||||
Retirement benefit remeasurements | 115 | (1,309 | ) | 1,176 | ||||||||
Own credit | (7 | ) | – | – | ||||||||
Tax | (66 | ) | 329 | (260 | ) | |||||||
Other comprehensive income/(loss) not recycled to profit or loss from continuing operations | 42 | (980 | ) | 916 | ||||||||
Other comprehensive (loss)/income for the year from continuing operations | (1,799 | ) | 2,468 | 962 | ||||||||
Other comprehensive income/(loss) for the year from discontinued operation | 1,301 | 1,520 | (1,348 | ) | ||||||||
Total comprehensive (loss)/income for the year | ||||||||||||
Total comprehensive (loss)/income for the year, net of tax from continuing operations | (498 | ) | 4,705 | 959 | ||||||||
Total comprehensive (loss)/income for the year, net of tax from discontinued operation | (894 | ) | 2,111 | (722 | ) | |||||||
Total comprehensive (loss)/income for the year | (1,392 | ) | 6,816 | 237 | ||||||||
Attributable to: | ||||||||||||
Equity holders of the parent | (1,749 | ) | 5,233 | 45 | ||||||||
Non-controlling interests | 357 | 1,583 | 192 | |||||||||
Total comprehensive (loss)/income for the year | (1,392 | ) | 6,816 | 237 |
Note
a | Includes £189m loss (2016: £101m gain) on recycling of currency translation differences. |
Barclays PLC and Barclays Bank PLC |
Consolidated financial statements
Consolidated statement of comprehensive income
For the year ended 31 December | | 2015 £m | | | 2014 £m | | | 2013 £m | | |||
Profit after tax | 623 | 845 | 1,297 | |||||||||
Other comprehensive (loss)/income from continuing operations: | ||||||||||||
Currency translation reserve | ||||||||||||
Currency translation differences | (476 | ) | 486 | (1,767 | ) | |||||||
Available for sale reserve | ||||||||||||
Net gains/(losses) from changes in fair value | 33 | 5,333 | (2,734 | ) | ||||||||
Net gains transferred to net profit on disposal | (373 | ) | (619 | ) | (145 | ) | ||||||
Net losses/(gains) transferred to net profit due to impairment | 17 | (31 | ) | (7 | ) | |||||||
Net (gains)/losses transferred to net profit due to fair value hedging | (148 | ) | (4,074 | ) | 2,376 | |||||||
Changes in insurance liabilities | 86 | (94 | ) | 28 | ||||||||
Tax | 134 | (102 | ) | 100 | ||||||||
Cash flow hedging reserve | ||||||||||||
Net (losses)/gains from changes in fair value | (407 | ) | 2,687 | (1,914 | ) | |||||||
Net gains transferred to net profit | (268 | ) | (767 | ) | (547 | ) | ||||||
Tax | 81 | (380 | ) | 571 | ||||||||
Other | 21 | (42 | ) | (37 | ) | |||||||
Total comprehensive (loss)/income that may be recycled to profit or loss | (1,300 | ) | 2,397 | (4,076 | ) | |||||||
Other comprehensive income/(loss) not recycled to profit or loss: | ||||||||||||
Retirement benefit remeasurements | 1,174 | 268 | (512 | ) | ||||||||
Tax | (260 | ) | (63 | ) | (3 | ) | ||||||
Other comprehensive (loss)/income for the period
|
| (386
| )
|
| 2,602
|
|
| (4,591
| )
| |||
Total comprehensive income/(loss) for the year | 237 | 3,447 | (3,294 | ) | ||||||||
Attributable to: | ||||||||||||
Equity holders of the parent | 45 | 2,756 | (3,406 | ) | ||||||||
Non-controlling interests | 192 | 691 | 112 | |||||||||
237 | 3,447 | (3,294 | ) |
Consolidated financial statements
Consolidated balance sheet
As at 31 December | Notes |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| Notes | 2017 £m | 2016 £m | 2015 £m | ||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and balances at central banks | 49,711 | 39,695 | 45,687 | 171,082 | 102,353 | 49,711 | ||||||||||||||||||||||||||
Items in the course of collection from other banks | 1,011 | 1,210 | 1,282 | 2,153 | 1,467 | 1,011 | ||||||||||||||||||||||||||
Trading portfolio assets | 13 | 77,348 | 114,717 | 133,069 | 13 | 113,760 | 80,240 | 77,348 | ||||||||||||||||||||||||
Financial assets designated at fair value | 14 | 76,830 | 38,300 | 38,968 | 14 | 116,281 | 78,608 | 76,830 | ||||||||||||||||||||||||
Derivative financial instruments | 15 | 327,709 | 439,909 | 350,300 | 15 | 237,669 | 346,626 | 327,709 | ||||||||||||||||||||||||
Available for sale investments | 16 | 90,267 | 86,066 | 91,756 | ||||||||||||||||||||||||||||
Financial investments | 16 | 58,916 | 63,317 | 90,267 | ||||||||||||||||||||||||||||
Loans and advances to banks | 20 | 41,349 | 42,111 | 39,422 | 20 | 35,663 | 43,251 | 41,349 | ||||||||||||||||||||||||
Loans and advances to customers | 20 | 399,217 | 427,767 | 434,237 | 20 | 365,552 | 392,784 | 399,217 | ||||||||||||||||||||||||
Reverse repurchase agreements and other similar secured lending | 22 | 28,187 | 131,753 | 186,779 | 22 | 12,546 | 13,454 | 28,187 | ||||||||||||||||||||||||
Prepayments, accrued income and other assets | 3,010 | 3,607 | 3,920 | 2,389 | 2,893 | 3,010 | ||||||||||||||||||||||||||
Investments in associates and joint ventures | 38 | 573 | 711 | 653 | 38 | 718 | 684 | 573 | ||||||||||||||||||||||||
Property, plant and equipment | 23 | 3,468 | 3,786 | 4,216 | 23 | 2,572 | 2,825 | 3,468 | ||||||||||||||||||||||||
Goodwill and intangible assets | 24 | 8,222 | 8,180 | 7,685 | 24 | 7,849 | 7,726 | 8,222 | ||||||||||||||||||||||||
Current tax assets | 10 | 415 | 334 | 219 | 10 | 482 | 561 | 415 | ||||||||||||||||||||||||
Deferred tax assets | 10 | 4,495 | 4,130 | 4,807 | 10 | 3,457 | 4,869 | 4,495 | ||||||||||||||||||||||||
Retirement benefit assets | 35 | 836 | 56 | 133 | 35 | 966 | 14 | 836 | ||||||||||||||||||||||||
Non current assets classified as held for sale | 44 | 7,364 | 15,574 | 495 | ||||||||||||||||||||||||||||
Assets included in disposal groups classified as held for sale | 43 | 1,193 | 71,454 | 7,364 | ||||||||||||||||||||||||||||
Total assets | 1,120,012 | 1,357,906 | 1,343,628 | 1,133,248 | 1,213,126 | 1,120,012 | ||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Deposits from banks | 47,080 | 58,390 | 55,615 | 37,723 | 48,214 | 47,080 | ||||||||||||||||||||||||||
Items in the course of collection due to other banks | 1,013 | 1,177 | 1,359 | 446 | 636 | 1,013 | ||||||||||||||||||||||||||
Customer accounts | 418,242 | 427,704 | 431,998 | 429,121 | 423,178 | 418,242 | ||||||||||||||||||||||||||
Repurchase agreements and other similar secured borrowing | 22 | 25,035 | 124,479 | 196,748 | 22 | 40,338 | 19,760 | 25,035 | ||||||||||||||||||||||||
Trading portfolio liabilities | 13 | 33,967 | 45,124 | 53,464 | 13 | 37,351 | 34,687 | 33,967 | ||||||||||||||||||||||||
Financial liabilities designated at fair value | 17 | 91,745 | 56,972 | 64,796 | 17 | 173,718 | 96,031 | 91,745 | ||||||||||||||||||||||||
Derivative financial instruments | 15 | 324,252 | 439,320 | 347,118 | 15 | 238,345 | 340,487 | 324,252 | ||||||||||||||||||||||||
Debt securities in issue | 69,150 | 86,099 | 86,693 | 73,314 | 75,932 | 69,150 | ||||||||||||||||||||||||||
Subordinated liabilities | 30 | 21,467 | 21,153 | 21,695 | 30 | 23,826 | 23,383 | 21,467 | ||||||||||||||||||||||||
Accruals, deferred income and other liabilities | 26 | 10,610 | 11,423 | 12,934 | 26 | 8,565 | 8,871 | 10,610 | ||||||||||||||||||||||||
Provisions | 27 | 4,142 | 4,135 | 3,886 | 27 | 3,543 | 4,134 | 4,142 | ||||||||||||||||||||||||
Current tax liabilities | 10 | 903 | 1,021 | 1,042 | 10 | 586 | 737 | 903 | ||||||||||||||||||||||||
Deferred tax liabilities | 10 | 122 | 262 | 373 | 10 | 44 | 29 | 122 | ||||||||||||||||||||||||
Retirement benefit liabilities | 35 | 423 | 1,574 | 1,958 | 35 | 312 | 390 | 423 | ||||||||||||||||||||||||
Liabilities included in disposal groups classified as held for sale | 44 | 5,997 | 13,115 | – | 43 | – | 65,292 | 5,997 | ||||||||||||||||||||||||
Total liabilities | 1,054,148 | 1,291,948 | 1,279,679 | 1,067,232 | 1,141,761 | 1,054,148 | ||||||||||||||||||||||||||
Total equity | ||||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||||
Called up share capital and share premium | 31 | 21,586 | 20,809 | 19,887 | 31 | 22,045 | 21,842 | 21,586 | ||||||||||||||||||||||||
Other equity instruments | 31 | 5,305 | 4,322 | 2,063 | 31 | 8,941 | 6,449 | 5,305 | ||||||||||||||||||||||||
Other reserves | 32 | 1,898 | 2,724 | 249 | 32 | 5,383 | 6,051 | 1,898 | ||||||||||||||||||||||||
Retained earnings | 31,021 | 31,712 | 33,186 | 27,536 | 30,531 | 31,021 | ||||||||||||||||||||||||||
Total equity excluding non-controlling interests | 59,810 | 59,567 | 55,385 | 63,905 | 64,873 | 59,810 | ||||||||||||||||||||||||||
Non-controlling interests | 33 | 6,054 | 6,391 | 8,564 | 33 | 2,111 | 6,492 | 6,054 | ||||||||||||||||||||||||
Total equity | 65,864 | 65,958 | 63,949 | 66,016 | 71,365 | 65,864 | ||||||||||||||||||||||||||
Total liabilities and equity | 1,120,012 | 1,357,906 | 1,343,628 | 1,133,248 | 1,213,126 | 1,120,012 |
The Board of Directors approved the financial statements on pages 211188 to 305271 on 2921 February 2016.2018.
John McFarlane
Group Chairman
JesJames E Staley
Group Chief Executive
Tushar Morzaria
Group Finance Director
190 Barclays PLC and Barclays Bank PLC |
Consolidated financial statements
Consolidated statement of changes in equity
| Called up share capital and share premium £m |
|
| Other equity instruments £m |
|
| Available for sale reserve £m |
|
| Cash flow hedging reserve £m |
|
| Currency translation reserve £m |
|
| Other reserves and treasury shares £m |
|
| Retained earnings £m |
|
| Total equity excluding non- controlling interests £m |
|
| Non- controlling interests £m |
|
| Total equity £m |
| |||||||||||
Balance as at 1 January 2015 | 20,809 | 4,322 | 562 | 1,817 | (582 | ) | 927 | 31,712 | 59,567 | 6,391 | 65,958 | |||||||||||||||||||||||||||||
Profit after tax | – | 345 | – | – | – | – | (394 | ) | (49 | ) | 672 | 623 | ||||||||||||||||||||||||||||
Currency translation movements | – | – | – | – | (41 | ) | – | – | (41 | ) | (435 | ) | (476 | ) | ||||||||||||||||||||||||||
Available for sale investments | – | – | (245 | ) | – | – | – | – | (245 | ) | (6 | ) | (251 | ) | ||||||||||||||||||||||||||
Cash flow hedges | – | – | – | (556 | ) | – | – | – | (556 | ) | (38 | ) | (594 | ) | ||||||||||||||||||||||||||
Pension remeasurement | – | – | – | – | – | – | 916 | 916 | (2 | ) | 914 | |||||||||||||||||||||||||||||
Other | – | – | – | – | – | – | 20 | 20 | 1 | 21 | ||||||||||||||||||||||||||||||
Total comprehensive (loss)/income for the year | – | 345 | (245 | ) | (556 | ) | (41 | ) | – | 542 | 45 | 192 | 237 | |||||||||||||||||||||||||||
Issue of new ordinary shares | 137 | – | – | – | – | – | – | 137 | – | 137 | ||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 640 | – | – | – | – | – | 571 | 1,211 | – | 1,211 | ||||||||||||||||||||||||||||||
Issue and exchange of other equity instruments | – | 995 | – | – | – | – | – | 995 | – | 995 | ||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (345 | ) | – | – | – | – | 70 | (275 | ) | – | (275 | ) | |||||||||||||||||||||||||||
Redemption of preference shares | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Increase in treasury shares | – | – | – | – | – | (602 | ) | – | (602 | ) | – | (602 | ) | |||||||||||||||||||||||||||
Vesting of shares under employee share schemes | – | – | – | – | – | 618 | (755 | ) | (137 | ) | – | (137 | ) | |||||||||||||||||||||||||||
Dividends paid | – | – | – | – | – | – | (1,081 | ) | (1,081 | ) | (552 | ) | (1,633 | ) | ||||||||||||||||||||||||||
Other reserve movements | – | (12 | ) | – | – | – | – | (38 | ) | (50 | ) | 23 | (27 | ) | ||||||||||||||||||||||||||
Balance as at 31 December 2015 | 21,586 | 5,305 | 317 | 1,261 | (623 | ) | 943 | 31,021 | 59,810 | 6,054 | 65,864 | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Balance as at 1 January 2014 | 19,887 | 2,063 | 148 | 273 | (1,142 | ) | 970 | 33,186 | 55,385 | 8,564 | 63,949 | |||||||||||||||||||||||||||||
Profit after tax | – | 250 | – | – | – | – | (174 | ) | 76 | 769 | 845 | |||||||||||||||||||||||||||||
Currency translation movements | – | – | – | – | 560 | – | – | 560 | (74 | ) | 486 | |||||||||||||||||||||||||||||
Available for sale investments | – | – | 414 | – | – | – | – | 414 | (1 | ) | 413 | |||||||||||||||||||||||||||||
Cash flow hedges | – | – | – | 1,544 | – | – | – | 1,544 | (4 | ) | 1,540 | |||||||||||||||||||||||||||||
Pension remeasurement | – | – | – | – | – | – | 205 | 205 | – | 205 | ||||||||||||||||||||||||||||||
Other | – | – | – | – | – | – | (43 | ) | (43 | ) | 1 | (42 | ) | |||||||||||||||||||||||||||
Total comprehensive (loss)/income for the year | – | 250 | 414 | 1,544 | 560 | – | (12 | ) | 2,756 | 691 | 3,447 | |||||||||||||||||||||||||||||
Issue of new ordinary shares | 150 | – | – | – | – | – | – | 150 | – | 150 | ||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 772 | – | – | – | – | – | 693 | 1,465 | – | 1,465 | ||||||||||||||||||||||||||||||
Issue and exchange of other equity instruments | – | 2,263 | – | – | – | – | (155 | ) | 2,108 | (1,527 | ) | 581 | ||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (250 | ) | – | – | – | – | 54 | (196 | ) | – | (196 | ) | |||||||||||||||||||||||||||
Redemption of preference shares | – | – | – | – | – | – | (104 | ) | (104 | ) | (687 | ) | (791 | ) | ||||||||||||||||||||||||||
Increase in treasury shares | – | – | – | – | – | (909 | ) | – | (909 | ) | – | (909 | ) | |||||||||||||||||||||||||||
Vesting of shares under employee share schemes | – | – | – | – | – | 866 | (866 | ) | – | – | – | |||||||||||||||||||||||||||||
Dividends paid | – | – | – | – | – | – | (1,057 | ) | (1,057 | ) | (631 | ) | (1,688 | ) | ||||||||||||||||||||||||||
Other reserve movements | – | (4 | ) | – | – | – | – | (27 | ) | (31 | ) | (19 | ) | (50 | ) | |||||||||||||||||||||||||
Balance as at 31 December 2014 | 20,809 | 4,322 | 562 | 1,817 | (582 | ) | 927 | 31,712 | 59,567 | 6,391 | 65,958 | |||||||||||||||||||||||||||||
Balance as at 1 January 2013 | 12,477 | – | 527 | 2,099 | 59 | 989 | 34,464 | 50,615 | 9,371 | 59,986 | ||||||||||||||||||||||||||||||
Profit after tax | – | – | – | – | – | – | 540 | 540 | 757 | 1,297 | ||||||||||||||||||||||||||||||
Currency translation movements | – | – | – | – | (1,201 | ) | – | – | (1,201 | ) | (566 | ) | (1,767 | ) | ||||||||||||||||||||||||||
Available for sale investments | – | – | (379 | ) | – | – | – | – | (379 | ) | (3 | ) | (382 | ) | ||||||||||||||||||||||||||
Cash flow hedges | – | – | – | (1,826 | ) | – | – | – | (1,826 | ) | (64 | ) | (1,890 | ) | ||||||||||||||||||||||||||
Pension remeasurement | – | – | – | – | – | – | (503 | ) | (503 | ) | (12 | ) | (515 | ) | ||||||||||||||||||||||||||
Other | – | – | – | – | – | – | (37 | ) | (37 | ) | – | (37 | ) | |||||||||||||||||||||||||||
Total comprehensive (loss)/income for the year | – | – | (379 | ) | (1,826 | ) | (1,201 | ) | – | – | (3,406 | ) | 112 | (3,294 | ) | |||||||||||||||||||||||||
Issue of new ordinary shares | 6,620 | – | – | – | – | – | – | 6,620 | – | 6,620 | ||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 790 | – | – | – | – | – | 689 | 1,479 | – | 1,479 | ||||||||||||||||||||||||||||||
Issue and exchange of other equity instruments | – | 2,063 | – | – | – | – | – | 2,063 | – | 2,063 | ||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Redemption of preference shares | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Increase in treasury shares | – | – | – | – | – | (1,066 | ) | – | (1,066 | ) | – | (1,066 | ) | |||||||||||||||||||||||||||
Vesting of shares under employee share schemes | – | – | – | – | – | 1,047 | (1,047 | ) | – | – | – | |||||||||||||||||||||||||||||
Dividends paid | – | – | – | – | – | – | (859 | ) | (859 | ) | (813 | ) | (1,672 | ) | ||||||||||||||||||||||||||
Other reserve movements | – | – | – | – | – | – | (61 | ) | (61 | ) | (106 | ) | (167 | ) | ||||||||||||||||||||||||||
Balance as at 31 December 2013 | 19,887 | 2,063 | 148 | 273 | (1,142 | ) | 970 | 33,186 | 55,385 | 8,564 | 63,949 |
Called up share capital and share premiuma £m | Other equity instru- mentsa £m | Available for sale reserveb £m | Cash flow hedging reserveb £m | Currency translation reserveb £m | Own credit reserveb £m | Other reserves and treasury sharesb £m | Retained earnings | Total equity excluding non- controlling interests £m | Non- controlling interests | Total equity | ||||||||||||||||||||||||||||||||||
Balance as at 31 December 2016 | 21,842 | 6,449 | (74 | ) | 2,105 | 3,051 | – | 969 | 30,531 | 64,873 | 6,492 | 71,365 | ||||||||||||||||||||||||||||||||
Effects of changes in accounting policiesc | – | – | – | – | – | (175 | ) | – | 175 | – | – | – | ||||||||||||||||||||||||||||||||
Balance as at 1 January 2017 | 21,842 | 6,449 | (74 | ) | 2,105 | 3,051 | (175 | ) | 969 | 30,706 | 64,873 | 6,492 | 71,365 | |||||||||||||||||||||||||||||||
Profit after tax | – | 639 | – | – | – | – | – | 413 | 1,052 | 249 | 1,301 | |||||||||||||||||||||||||||||||||
Currency translation movements | – | – | – | – | (1,336 | ) | – | – | – | (1,336 | ) | (1 | ) | (1,337 | ) | |||||||||||||||||||||||||||||
Available for sale investments | – | – | 449 | – | – | – | – | – | 449 | – | 449 | |||||||||||||||||||||||||||||||||
Cash flow hedges | – | – | – | (948 | ) | – | – | – | – | (948 | ) | – | (948 | ) | ||||||||||||||||||||||||||||||
Pension remeasurement | – | – | – | – | – | – | – | 53 | 53 | – | 53 | |||||||||||||||||||||||||||||||||
Own credit reserve | – | – | – | – | – | (11 | ) | – | – | (11 | ) | – | (11 | ) | ||||||||||||||||||||||||||||||
Other | – | – | – | – | – | – | – | (5 | ) | (5 | ) | – | (5 | ) | ||||||||||||||||||||||||||||||
Total comprehensive income net of tax from continuing operations | – | 639 | 449 | (948 | ) | (1,336 | ) | (11 | ) | – | 461 | (746 | ) | 248 | (498 | ) | ||||||||||||||||||||||||||||
Total comprehensive income net of tax from discontinued operation | – | – | (11 | ) | 4 | 1,339 | – | – | (2,335 | ) | (1,003 | ) | 109 | (894 | ) | |||||||||||||||||||||||||||||
Total comprehensive income for the year | – | 639 | 438 | (944 | ) | 3 | (11 | ) | – | (1,874 | ) | (1,749 | ) | 357 | (1,392 | ) | ||||||||||||||||||||||||||||
Issue of new ordinary shares | 117 | – | – | – | – | – | – | – | 117 | – | 117 | |||||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 86 | – | – | – | – | – | – | 505 | 591 | – | 591 | |||||||||||||||||||||||||||||||||
Issue and exchange of other equity instruments | – | 2,490 | – | – | – | – | – | – | 2,490 | – | 2,490 | |||||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (639 | ) | – | – | – | – | – | 174 | (465 | ) | – | (465 | ) | ||||||||||||||||||||||||||||||
Redemption of preference shares | – | – | – | – | – | – | – | (479 | ) | (479 | ) | (860 | ) | (1,339 | ) | |||||||||||||||||||||||||||||
Increase in treasury shares | – | – | – | – | – | – | (315 | ) | – | (315 | ) | – | (315 | ) | ||||||||||||||||||||||||||||||
Vesting of shares under employee share schemes | – | – | – | – | – | – | 329 | (636 | ) | (307 | ) | – | (307 | ) | ||||||||||||||||||||||||||||||
Dividends paid | – | – | – | – | – | – | – | (509 | ) | (509 | ) | (415 | ) | (924 | ) | |||||||||||||||||||||||||||||
Net equity impact of BAGL disposal | – | – | – | – | – | – | – | (359 | ) | (359 | ) | (3,462 | ) | (3,821 | ) | |||||||||||||||||||||||||||||
Other reserve movements | – | 2 | – | – | – | 7 | – | 8 | 17 | (1 | ) | 16 | ||||||||||||||||||||||||||||||||
Balance as at 31 December 2017 | 22,045 | 8,941 | 364 | 1,161 | 3,054 | (179 | ) | 983 | 27,536 | 63,905 | 2,111 | 66,016 | ||||||||||||||||||||||||||||||||
Balance as at 1 January 2016 | 21,586 | 5,305 | 317 | 1,261 | (623 | ) | – | 943 | 31,021 | 59,810 | 6,054 | 65,864 | ||||||||||||||||||||||||||||||||
Profit after tax | – | 457 | – | – | – | – | – | 1,434 | 1,891 | 346 | 2,237 | |||||||||||||||||||||||||||||||||
Currency translation movements | – | – | – | – | 3,022 | – | – | – | 3,022 | 2 | 3,024 | |||||||||||||||||||||||||||||||||
Available for sale investments | – | – | (387 | ) | – | – | – | – | – | (387 | ) | – | (387 | ) | ||||||||||||||||||||||||||||||
Cash flow hedges | – | – | – | 798 | – | – | – | – | 798 | – | 798 | |||||||||||||||||||||||||||||||||
Pension remeasurement | – | – | – | – | – | – | – | (980 | ) | (980 | ) | – | (980 | ) | ||||||||||||||||||||||||||||||
Other | – | – | – | – | – | – | – | 12 | 12 | 1 | 13 | |||||||||||||||||||||||||||||||||
Total comprehensive income net of tax from continuing operations | – | 457 | (387 | ) | 798 | 3,022 | – | – | 466 | 4,356 | 349 | 4,705 | ||||||||||||||||||||||||||||||||
Total comprehensive income net of tax from discontinued operation | – | – | (4 | ) | 46 | 652 | – | – | 183 | 877 | 1,234 | 2,111 | ||||||||||||||||||||||||||||||||
Total comprehensive income for the year | – | 457 | (391 | ) | 844 | 3,674 | – | – | 649 | 5,233 | 1,583 | 6,816 | ||||||||||||||||||||||||||||||||
Issue of new ordinary shares | 68 | – | – | – | – | – | – | – | 68 | – | 68 | |||||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 188 | – | – | – | – | – | – | 668 | 856 | – | 856 | |||||||||||||||||||||||||||||||||
Issue and exchange of other equity instruments | – | 1,132 | – | – | – | – | – | – | 1,132 | – | 1,132 | |||||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (457 | ) | – | – | – | – | – | 128 | (329 | ) | – | (329 | ) | ||||||||||||||||||||||||||||||
Redemption of preference shares | – | – | – | – | – | – | – | (417 | ) | (417 | ) | (1,170 | ) | (1,587 | ) | |||||||||||||||||||||||||||||
Increase in treasury shares | – | – | – | – | – | – | (140 | ) | – | (140 | ) | – | (140 | ) | ||||||||||||||||||||||||||||||
Vesting of shares under employee share schemes | – | – | – | – | – | – | 166 | (415 | ) | (249 | ) | – | (249 | ) | ||||||||||||||||||||||||||||||
Dividends paid | – | – | – | – | – | – | – | (757 | ) | (757 | ) | (575 | ) | (1,332 | ) | |||||||||||||||||||||||||||||
Net equity impact of partial BAGL disposal | – | – | – | – | – | – | – | (349 | ) | (349 | ) | 601 | 252 | |||||||||||||||||||||||||||||||
Other reserve movements | – | 12 | – | – | – | – | – | 3 | 15 | (1 | ) | 14 | ||||||||||||||||||||||||||||||||
Balance as at 31 December 2016 | 21,842 | 6,449 | (74 | ) | 2,105 | 3,051 | – | 969 | 30,531 | 64,873 | 6,492 | 71,365 | ||||||||||||||||||||||||||||||||
Balance as at 1 January 2015 | 20,809 | 4,322 | 562 | 1,817 | (582 | ) | – | 927 | 31,712 | 59,567 | 6,391 | 65,958 | ||||||||||||||||||||||||||||||||
Profit after tax | – | 345 | – | – | – | – | – | (696 | ) | (351 | ) | 348 | (3 | ) | ||||||||||||||||||||||||||||||
Currency translation movements | – | – | – | – | 747 | – | – | – | 747 | 1 | 748 | |||||||||||||||||||||||||||||||||
Available for sale investments | – | – | (229 | ) | – | – | – | – | – | (229 | ) | – | (229 | ) | ||||||||||||||||||||||||||||||
Cash flow hedges | – | – | – | (493 | ) | – | – | – | – | (493 | ) | – | (493 | ) | ||||||||||||||||||||||||||||||
Pension remeasurement | – | – | – | – | – | – | – | 916 | 916 | – | 916 | |||||||||||||||||||||||||||||||||
Other | – | – | – | – | – | – | – | 20 | 20 | – | 20 | |||||||||||||||||||||||||||||||||
Total comprehensive income net of tax from continuing operations | – | 345 | (229 | ) | (493 | ) | 747 | – | – | 240 | 610 | 349 | 959 | |||||||||||||||||||||||||||||||
Total comprehensive income net of tax from discontinued operation | – | – | (16 | ) | (63 | ) | (788 | ) | – | – | 302 | (565 | ) | (157 | ) | (722 | ) | |||||||||||||||||||||||||||
Total comprehensive income for the year | – | 345 | (245 | ) | (556 | ) | (41 | ) | – | – | 542 | 45 | 192 | 237 | ||||||||||||||||||||||||||||||
Issue of new ordinary shares | 137 | – | – | – | – | – | – | – | 137 | – | 137 | |||||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 640 | – | – | – | – | – | – | 571 | 1,211 | – | 1,211 | |||||||||||||||||||||||||||||||||
Issue and exchange of other equity instruments | – | 995 | – | – | – | – | – | – | 995 | – | 995 | |||||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (345 | ) | – | – | – | – | – | 70 | (275 | ) | – | (275 | ) | ||||||||||||||||||||||||||||||
Increase in treasury shares | – | – | – | – | – | – | (602 | ) | – | (602 | ) | – | (602 | ) | ||||||||||||||||||||||||||||||
Vesting of shares under employee share schemes | – | – | – | – | – | – | 618 | (755 | ) | (137 | ) | – | (137 | ) | ||||||||||||||||||||||||||||||
Dividends paid | – | – | – | – | – | – | – | (1,081 | ) | (1,081 | ) | (552 | ) | (1,633 | ) | |||||||||||||||||||||||||||||
Other reserve movements | – | (12 | ) | – | – | – | – | – | (38 | ) | (50 | ) | 23 | (27 | ) | |||||||||||||||||||||||||||||
Balance as at 31 December 2015 | 21,586 | 5,305 | 317 | 1,261 | (623 | ) | – | 943 | 31,021 | 59,810 | 6,054 | 65,864 |
Notes
a | For further details refer to Note 31. |
b | For further details refer to Note 32. |
c | As a result of the early adoption of the own credit provisions of IFRS 9 on 1 January 2017, own credit which was previously recorded in the income statement is now recognised within other comprehensive income. The cumulative unrealised own credit net loss of £175m has therefore been reclassified from retained earnings to a separate own credit reserve, within other reserves. During 2017 a £4m loss (net of tax) on own credit has been booked in the reserve. |
Barclays PLC and Barclays Bank PLC |
Consolidated financial statements
Consolidated cash flow statement
For the year ended 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| Notes | 2017 £m | 2016 £m | 2015 £m | |||||||||||||||
Continuing operations | ||||||||||||||||||||||||||||
Reconciliation of profit before tax to net cash flows from operating activities: | ||||||||||||||||||||||||||||
Profit before tax | 2,073 | 2,256 | 2,868 | 3,541 | 3,230 | 1,146 | ||||||||||||||||||||||
Adjustment for non-cash items: | ||||||||||||||||||||||||||||
Allowance for impairment | 2,105 | 2,168 | 3,071 | 2,336 | 2,357 | 1,752 | ||||||||||||||||||||||
Depreciation, amortisation and impairment of property, plant, equipment and intangibles | 1,324 | 1,279 | 1,274 | 1,241 | 1,261 | 1,215 | ||||||||||||||||||||||
Other provisions, including pensions | 4,333 | 3,600 | 3,674 | 1,875 | 1,964 | 4,241 | ||||||||||||||||||||||
Net loss on disposal of investments and property, plant and equipment | (374 | ) | (619 | ) | (145 | ) | ||||||||||||||||||||||
Other non-cash movements | (635 | ) | (808 | ) | (1,293 | ) | ||||||||||||||||||||||
Net profit on disposal of investments and property, plant and equipment | (325 | ) | (912 | ) | (374 | ) | ||||||||||||||||||||||
Othernon-cash movements including exchange rate movements | 1,031 | (20,025 | ) | 226 | ||||||||||||||||||||||||
Changes in operating assets and liabilities | ||||||||||||||||||||||||||||
Net decrease/(increase) in loans and advances to banks and customers | 27,565 | 3,684 | (3,915 | ) | 27,361 | (25,385 | ) | 22,641 | ||||||||||||||||||||
Net decrease/(increase) in reverse repurchase agreements and other similar secured lending | 103,566 | 55,021 | (10,264 | ) | ||||||||||||||||||||||||
Net (decrease) in deposits and debt securities in issue | (37,721 | ) | (2,113 | ) | (13,392 | ) | ||||||||||||||||||||||
Net (decrease) in repurchase agreements and other similar secured borrowing | (99,444 | ) | (72,269 | ) | (20,430 | ) | ||||||||||||||||||||||
Net (increase)/decrease in derivative financial instruments | (2,868 | ) | 2,593 | 971 | ||||||||||||||||||||||||
Net decrease in trading assets | 37,342 | 18,368 | 13,443 | |||||||||||||||||||||||||
Net (decrease)/increase in trading liabilities | (11,157 | ) | (8,340 | ) | 8,670 | |||||||||||||||||||||||
Net (increase) in financial investments | (3,757 | ) | (7,156 | ) | (6,114 | ) | ||||||||||||||||||||||
Net (increase)/decrease in other assets | (2,324 | ) | (14,694 | ) | 128 | |||||||||||||||||||||||
Net (decrease)/increase in other liabilities | (2,230 | ) | 8,141 | (1,930 | ) | |||||||||||||||||||||||
Net decrease in reverse repurchase agreements and other similar lending | 908 | 14,733 | 103,471 | |||||||||||||||||||||||||
Net (decrease)/increase in deposits and debt securities in issue | (7,166 | ) | 49,064 | (33,120 | ) | |||||||||||||||||||||||
Net increase/(decrease) in repurchase agreements and other similar borrowing | 20,578 | (4,852 | ) | (99,602 | ) | |||||||||||||||||||||||
Net decrease/(increase) in derivative financial instruments | 6,815 | (2,318 | ) | (3,315 | ) | |||||||||||||||||||||||
Net (increase)/decrease in trading assets | (33,492 | ) | (5,577 | ) | 37,091 | |||||||||||||||||||||||
Net increase/(decrease) in trading liabilities | 2,664 | 880 | (10,877 | ) | ||||||||||||||||||||||||
Net decrease/(increase) in financial assets and liabilities designated at fair value | 40,014 | 807 | (3,064 | ) | ||||||||||||||||||||||||
Net (increase) in other assets | (3,775 | ) | (2,629 | ) | (2,661 | ) | ||||||||||||||||||||||
Net (decrease) in other liabilities | (2,187 | ) | (532 | ) | (1,766 | ) | ||||||||||||||||||||||
Corporate income tax paid | (1,670 | ) | (1,552 | ) | (1,558 | ) | 10 | (708 | ) | (780 | ) | (1,670 | ) | |||||||||||||||
Net cash from operating activities | 16,128 | (10,441 | ) | (24,942 | ) | 60,711 | 11,286 | 15,334 | ||||||||||||||||||||
Purchase of available for sale investments | (120,251 | ) | (108,645 | ) | (92,015 | ) | (83,127 | ) | (65,086 | ) | (120,061 | ) | ||||||||||||||||
Proceeds from sale or redemption of available for sale investments | 113,048 | 120,843 | 69,473 | 88,298 | 102,515 | 114,529 | ||||||||||||||||||||||
Purchase of property, plant and equipment | (852 | ) | (657 | ) | (736 | ) | ||||||||||||||||||||||
Purchase of property, plant and equipment and intangibles | (1,456 | ) | (1,707 | ) | (1,928 | ) | ||||||||||||||||||||||
Proceeds from sale of property, plant and equipment and intangibles | 283 | 358 | 393 | |||||||||||||||||||||||||
Disposal of discontinued operation, net of cash disposed | (1,060 | ) | – | – | ||||||||||||||||||||||||
Disposal of subsidiaries, net of cash disposed | 358 | 595 | – | |||||||||||||||||||||||||
Other cash flows associated with investing activities | (379 | ) | (886 | ) | 633 | 206 | 32 | 516 | ||||||||||||||||||||
Net cash from investing activities | (8,434 | ) | 10,655 | (22,645 | ) | 3,502 | 36,707 | (6,551 | ) | |||||||||||||||||||
Dividends paid | (1,496 | ) | (1,688 | ) | (1,672 | ) | ||||||||||||||||||||||
Proceeds of borrowings and issuance of subordinated debt | 1,138 | 826 | 700 | |||||||||||||||||||||||||
Repayments of borrowings and redemption of subordinated debt | (682 | ) | (1,100 | ) | (1,425 | ) | ||||||||||||||||||||||
Dividends paid and other coupon payments on equity instruments | (1,273 | ) | (1,304 | ) | (1,496 | ) | ||||||||||||||||||||||
Issuance of subordinated debt | 30 | 3,041 | 1,457 | 879 | ||||||||||||||||||||||||
Redemption of subordinated debt | 30 | (1,378 | ) | (1,143 | ) | (556 | ) | |||||||||||||||||||||
Net issue of shares and other equity instruments | 1,278 | 559 | 9,473 | 2,490 | 1,400 | 1,278 | ||||||||||||||||||||||
Repurchase of shares and other equity instruments | (1,339 | ) | (1,587 | ) | – | |||||||||||||||||||||||
Net purchase of treasury shares | (679 | ) | (909 | ) | (1,066 | ) | (580 | ) | (140 | ) | (679 | ) | ||||||||||||||||
Net redemption of shares issued to non-controlling interests | – | (746 | ) | (100 | ) | |||||||||||||||||||||||
Net cash from financing activities | (441 | ) | (3,058 | ) | 5,910 | 961 | (1,317 | ) | (574 | ) | ||||||||||||||||||
Effect of exchange rates on cash and cash equivalents | 824 | (431 | ) | 198 | (4,773 | ) | 10,473 | 1,689 | ||||||||||||||||||||
Net increase/(decrease) in cash and cash equivalents | 8,077 | (3,275 | ) | (41,479 | ) | |||||||||||||||||||||||
Net increase in cash and cash equivalents from continuing operations | 60,401 | 57,149 | 9,898 | |||||||||||||||||||||||||
Net cash from discontinued operation | 43 | 101 | 405 | (1,821 | ) | |||||||||||||||||||||||
Net increase in cash and cash equivalents | 60,502 | 57,554 | 8,077 | |||||||||||||||||||||||||
Cash and cash equivalents at beginning of year | 78,479 | 81,754 | 123,233 | 144,110 | 86,556 | 78,479 | ||||||||||||||||||||||
Cash and cash equivalents at end of year | 86,556 | 78,479 | 81,754 | 204,612 | 144,110 | 86,556 | ||||||||||||||||||||||
Cash and cash equivalents comprise: | ||||||||||||||||||||||||||||
Cash and balances at central banks | 49,711 | 39,695 | 45,687 | 171,082 | 102,353 | 49,711 | ||||||||||||||||||||||
Loans and advances to banks with original maturity less than three months | 35,876 | 36,282 | 35,259 | 32,820 | 38,252 | 35,876 | ||||||||||||||||||||||
Available for sale treasury and other eligible bills with original maturity less than three months | 816 | 2,322 | 644 | 682 | 356 | 816 | ||||||||||||||||||||||
Trading portfolio assets with original maturity less than three months | 153 | 180 | 164 | 28 | – | 153 | ||||||||||||||||||||||
Cash and cash equivalents held for sale | – | 3,149 | – | |||||||||||||||||||||||||
86,556 | 78,479 | 81,754 | 204,612 | 144,110 | 86,556 |
Interest received was £20,376m (2014: £21,372m, 2013: £23,387m)£21,784m (2016: £22,099m; 2015: £20,376m) and interest paid was £7,534m (2014: £8,566m, 2013: £10,709m)£10,310m (2016: £8,850m; 2015: £7,534m).
The Group is required to maintain balances with central banks and other regulatory authorities and these amounted to £4,369m (2014: £4,448m, 2013: £4,722m)£3,360m (2016: £4,254m; 2015: £4,369m).
For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits and cash equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value with original maturities of three months or less. Repurchase and reverse repurchase agreements are not considered to be part of cash equivalents.
192 Barclays PLC and Barclays Bank PLC |
Financial statements of Barclays PLC
Parent company accounts
Income statement | ||||||||||||||||
For the year ended 31 December | Notes | | 2015 £m | | | 2014 £m | | | 2013 £m | | ||||||
Dividends received from subsidiary | 876 | 821 | 734 | |||||||||||||
Net interest expense | (7 | ) | (6 | ) | (6 | ) | ||||||||||
Other income/(expense) | 45 | 227 | 275 | (137 | ) | |||||||||||
Management charge from subsidiary | (6 | ) | (6 | ) | (6 | ) | ||||||||||
Profit before tax | 1,090 | 1,084 | 585 | |||||||||||||
Tax | (43 | ) | (57 | ) | 35 | |||||||||||
Profit after tax | 1,047 | 1,027 | 620 | |||||||||||||
Attributable to | ||||||||||||||||
Ordinary equity holders | 702 | 777 | 620 | |||||||||||||
Other equity holders | 345 | 250 | – |
Profit
Statement of comprehensive income | ||||||||||||||
For the year ended 31 December | Notes | 2017 £m | 2016 £m | 2015 £m | ||||||||||
Dividends received from subsidiary | 674 | 621 | 876 | |||||||||||
Net interest (expense)/income | (10 | ) | 5 | (7 | ) | |||||||||
Other income | 44 | 690 | 334 | 227 | ||||||||||
Operating expenses | (96 | ) | (26 | ) | (6 | ) | ||||||||
Profit before tax | 1,258 | 934 | 1,090 | |||||||||||
Tax | (111 | ) | (60 | ) | (43 | ) | ||||||||
Profit after tax | 1,147 | 874 | 1,047 | |||||||||||
Other comprehensive income | 60 | 26 | – | |||||||||||
Total comprehensive income | 1,207 | 900 | 1,047 | |||||||||||
Profit after tax attributable to: | ||||||||||||||
Ordinary equity holders | 508 | 417 | 702 | |||||||||||
Other equity instrument holders | 639 | 457 | 345 | |||||||||||
Profit after tax | 1,147 | 874 | 1,047 | |||||||||||
Total comprehensive income attributable to: | ||||||||||||||
Ordinary equity holders | 568 | 443 | 702 | |||||||||||
Other equity instrument holders | 639 | 457 | 345 | |||||||||||
Total comprehensive income | 1,207 | 900 | 1,047 |
For the year ended 31 December 2017, profit after tax was £1,147m (2016: £874m) and total comprehensive income for the year was £1,047m (2014: £1,027m)£1,207m (2016: £900m). There were no other components of total
Other comprehensive income other thanof £60m (2016: £26m) relates to the profit after tax.
gain on AFS instruments. The Company had nohas 90 members of staff during the year (2014: nil, 2013: nil)(2016:
7).
Balance sheet | ||||||||||||||||||||||||||
As at 31 December | Notes |
| 2015 £m |
|
| 2014 £m |
| Notes | 2017 £m | 2016 £m | ||||||||||||||||
Assets | ||||||||||||||||||||||||||
Investment in subsidiary | 45 | 35,303 | 33,743 | |||||||||||||||||||||||
Loans and advances to subsidiary | 45 | 7,990 | 2,866 | |||||||||||||||||||||||
Derivative financial instrument | 45 | 210 | 313 | |||||||||||||||||||||||
Investment in subsidiaries | 44 | 39,354 | 36,553 | |||||||||||||||||||||||
Loans and advances to subsidiaries | 44 | 23,970 | 19,421 | |||||||||||||||||||||||
Financial investments | 44 | 4,782 | 1,218 | |||||||||||||||||||||||
Derivative financial instruments | 44 | 161 | 268 | |||||||||||||||||||||||
Other assets | 133 | 174 | 202 | 105 | ||||||||||||||||||||||
Total assets | 43,636 | 37,096 | 68,469 | 57,565 | ||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||
Deposits from banks | 494 | 528 | 500 | 547 | ||||||||||||||||||||||
Subordinated liabilities | 45 | 1,766 | 810 | 44 | 6,501 | 3,789 | ||||||||||||||||||||
Debt securities in issue | 45 | 6,224 | 2,056 | 44 | 22,110 | 16,893 | ||||||||||||||||||||
Other liabilities | – | 10 | 153 | 14 | ||||||||||||||||||||||
Total liabilities | 8,484 | 3,404 | 29,264 | 21,243 | ||||||||||||||||||||||
Shareholders’ equity | ||||||||||||||||||||||||||
Called up share capital | 31 | 4,201 | 4,125 | 31 | 4,265 | 4,241 | ||||||||||||||||||||
Share premium account | 31 | 17,385 | 16,684 | 31 | 17,780 | 17,601 | ||||||||||||||||||||
Other equity instruments | 31 | 5,321 | 4,326 | 31 | 8,943 | 6,453 | ||||||||||||||||||||
Capital redemption reserve | 394 | 394 | ||||||||||||||||||||||||
Other reserves | 480 | 420 | ||||||||||||||||||||||||
Retained earnings | 7,851 | 8,163 | 7,737 | 7,607 | ||||||||||||||||||||||
Total shareholders’ equity | 35,152 | 33,692 | ||||||||||||||||||||||||
Total liabilities and shareholders’ equity | 43,636 | 37,096 | ||||||||||||||||||||||||
Total equity | 39,205 | 36,322 | ||||||||||||||||||||||||
Total liabilities and equity | 68,469 | 57,565 |
The financial statements on pages 216 and 217193 to 194 and the accompanying note on page 298271 were approved by the Board of Directors on 2921 February 20162018 and signed on its behalf by:
John McFarlane
Group Chairman
JesJames E Staley
Group Chief Executive
Tushar Morzaria
Group Finance Director
Barclays PLC and Barclays Bank PLC |
Parent company accounts
Statement of changes in equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes |
| Called up share capital and share premium £m |
|
| Other equity instruments £m |
|
| Capital reserves and other equity |
| | Retained earnings | | | Total equity £m | | Notes | Called up £m | Other equity instruments £m | Capital £m | Available for sale reserve | Retained earnings £m | Total £m | ||||||||||||||||||||||||||||||
Balance as at 1 January 2017 | 21,842 | 6,453 | 394 | 26 | 7,607 | 36,322 | ||||||||||||||||||||||||||||||||||||||||||||||
Profit after tax and other comprehensive income | – | 639 | – | 60 | 508 | 1,207 | ||||||||||||||||||||||||||||||||||||||||||||||
Issue of new ordinary shares | 117 | – | – | – | – | 117 | ||||||||||||||||||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 86 | – | – | – | 27 | 113 | ||||||||||||||||||||||||||||||||||||||||||||||
Issue of other equity instruments | – | 2,490 | – | – | – | 2,490 | ||||||||||||||||||||||||||||||||||||||||||||||
Vesting of employee share schemes | – | – | – | – | (11 | ) | (11 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Dividends | 12 | – | – | – | – | (509 | ) | (509 | ) | |||||||||||||||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (639 | ) | – | – | 123 | (516 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Other | – | – | – | – | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Balance as at 31 December 2017 | 22,045 | 8,943 | 394 | 86 | 7,737 | 39,205 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance as at 1 January 2016 | 21,586 | 5,321 | 394 | – | 7,851 | 35,152 | ||||||||||||||||||||||||||||||||||||||||||||||
Profit after tax and other comprehensive income | – | 457 | – | 26 | 417 | 900 | ||||||||||||||||||||||||||||||||||||||||||||||
Issue of new ordinary shares | 68 | – | – | – | – | 68 | ||||||||||||||||||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 188 | – | – | – | – | 188 | ||||||||||||||||||||||||||||||||||||||||||||||
Issue of other equity instruments | – | 1,132 | – | – | – | 1,132 | ||||||||||||||||||||||||||||||||||||||||||||||
Dividends | 12 | – | – | – | – | (757 | ) | (757 | ) | |||||||||||||||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (457 | ) | – | – | 91 | (366 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Other | – | – | – | – | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance as at 31 December 2016 | 21,842 | 6,453 | 394 | 26 | 7,607 | 36,322 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance as at 1 January 2015 | 20,809 | 4,326 | 394 | 8,163 | 33,692 | 20,809 | 4,326 | 394 | – | 8,163 | 33,692 | |||||||||||||||||||||||||||||||||||||||||
Profit after tax and total comprehensive income | – | 345 | – | 702 | 1,047 | |||||||||||||||||||||||||||||||||||||||||||||||
Profit after tax and other comprehensive income | – | 345 | – | – | 702 | 1,047 | ||||||||||||||||||||||||||||||||||||||||||||||
Issue of new ordinary shares | 137 | – | – | – | 137 | 137 | – | – | – | – | 137 | |||||||||||||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 640 | – | – | – | 640 | 640 | – | – | – | – | 640 | |||||||||||||||||||||||||||||||||||||||||
Issue of other equity instruments | – | 995 | – | – | 995 | – | 995 | – | – | – | 995 | |||||||||||||||||||||||||||||||||||||||||
Dividends | 12 | – | – | – | (1,081 | ) | (1,081 | ) | 12 | – | – | – | – | (1,081 | ) | (1,081 | ) | |||||||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (345 | ) | – | 70 | (275 | ) | – | (345 | ) | – | – | 70 | (275 | ) | |||||||||||||||||||||||||||||||||||||
Other | – | – | – | (3 | ) | (3 | ) | – | – | – | – | (3 | ) | (3 | ) | |||||||||||||||||||||||||||||||||||||
Balance as at 31 December 2015 | 21,586 | 5,321 | 394 | 7,851 | 35,152 | 21,586 | 5,321 | 394 | – | 7,851 | 35,152 | |||||||||||||||||||||||||||||||||||||||||
Balance as at 1 January 2014 | 19,887 | 2,063 | 394 | 8,398 | 30,742 | |||||||||||||||||||||||||||||||||||||||||||||||
Profit after tax and total comprehensive income | – | 250 | – | 777 | 1,027 | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of new ordinary shares | 150 | – | – | – | 150 | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 772 | – | – | – | 772 | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of other equity instruments | – | 2,263 | – | – | 2,263 | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends | 12 | – | – | – | (1,057 | ) | (1,057 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Other equity instruments coupons paid | – | (250 | ) | – | 54 | (196 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Other | – | – | – | (9 | ) | (9 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Balance as at 31 December 2014 | 20,809 | 4,326 | 394 | 8,163 | 33,692 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as at 1 January 2013 | 12,477 | – | 394 | 8,654 | 21,525 | |||||||||||||||||||||||||||||||||||||||||||||||
Profit after tax and total comprehensive income | – | – | – | 620 | 620 | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of new ordinary shares | 6,620 | – | – | – | 6,620 | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of shares under employee share schemes | 790 | – | – | – | 790 | |||||||||||||||||||||||||||||||||||||||||||||||
Issue of other equity instruments | – | 2,063 | – | – | 2,063 | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends | 12 | – | – | – | (859 | ) | (859 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Other | – | – | (17 | ) | (17 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Balance as at 31 December 2013 | 19,887 | 2,063 | 394 | 8,398 | 30,742 | |||||||||||||||||||||||||||||||||||||||||||||||
Cash flow statement | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended 31 December |
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| 2017 £m | 2016 £m | 2015 £m | ||||||||||||||||||||||||||||||||||||||||
Reconciliation of profit before tax to net cash flows from operating activities: | Reconciliation of profit before tax to net cash flows from operating activities: | |||||||||||||||||||||||||||||||||||||||||||||||||||
Profit before tax | 1,090 | 1,084 | 585 | 1,258 | 934 | 1,090 | ||||||||||||||||||||||||||||||||||||||||||||||
Changes in operating assets and liabilities | 100 | 734 | (546 | ) | 102 | 37 | 100 | |||||||||||||||||||||||||||||||||||||||||||||
Other non-cash movements | 52 | (43 | ) | (20 | ) | 76 | 62 | 52 | ||||||||||||||||||||||||||||||||||||||||||||
Corporate income tax (paid)/received | (27 | ) | 38 | (3 | ) | – | – | (27 | ) | |||||||||||||||||||||||||||||||||||||||||||
Net cash from operating activities | 1,215 | 1,813 | 16 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net cash generated from operating activities | 1,436 | 1,033 | 1,215 | |||||||||||||||||||||||||||||||||||||||||||||||||
Capital contribution to subsidiary | (1,560 | ) | (3,684 | ) | (8,630 | ) | (2,801 | ) | (1,250 | ) | (1,560 | ) | ||||||||||||||||||||||||||||||||||||||||
Net cash used in investing activities | (1,560 | ) | (3,684 | ) | (8,630 | ) | (2,801 | ) | (1,250 | ) | (1,560 | ) | ||||||||||||||||||||||||||||||||||||||||
Issue of shares and other equity instruments | 1,771 | 3,185 | 9,473 | 2,581 | 1,388 | 1,771 | ||||||||||||||||||||||||||||||||||||||||||||||
Net (increase) in loans and advances to bank subsidiaries of the Parent | (4,973 | ) | (2,866 | ) | – | |||||||||||||||||||||||||||||||||||||||||||||||
Net increase in deposits and debt securities in issue | 4,052 | 2,056 | – | |||||||||||||||||||||||||||||||||||||||||||||||||
Net increase in loans and advances to subsidiaries of the Parent | (9,707 | ) | (10,942 | ) | (4,973 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Net increase in debt securities in issue | 6,503 | 9,314 | 4,052 | |||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds of borrowings and issuance of subordinated debt | 921 | 803 | (859 | ) | 3,019 | 1,671 | 921 | |||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | (1,081 | ) | (1,057 | ) | – | (392 | ) | (757 | ) | (1,081 | ) | |||||||||||||||||||||||||||||||||||||||||
Coupons paid | (345 | ) | (250 | ) | – | |||||||||||||||||||||||||||||||||||||||||||||||
Net cash from financing activities | 345 | 1,871 | 8,614 | |||||||||||||||||||||||||||||||||||||||||||||||||
Coupons paid on AT1 instruments | (639 | ) | (457 | ) | (345 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Net cash generated from financing activities | 1,365 | 217 | 345 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net increase/(decrease) in cash and cash equivalents | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents at beginning of year | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents at end of year | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||
Net cash from operating activities includes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net cash generated from operating activities includes: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends received | 876 | 821 | 734 | 674 | 621 | 876 | ||||||||||||||||||||||||||||||||||||||||||||||
Interest paid | (7 | ) | (6 | ) | (6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Interest (paid)/received | (10 | ) | 5 | (7 | ) |
The Parent Company’scompany’s principal activity is to hold the investment in its wholly-owned subsidiary,subsidiaries, Barclays Bank PLC.PLC and Barclays Services Limited. Dividends received are treated as operating income.
The Company was not exposed at 31 December 20152017 or 20142016 to significant risks arising from the financial instruments it holds, which comprised loans and advances and other assets which had no marketMarket risk or material creditCredit risk.
194 Barclays PLC and Barclays Bank PLC |
Notes to the financial statements
Forfor the year ended 31 December 20152017
This section describes Barclays’ significant accounting policies and critical accounting estimates that
relate to the financial statements and notes as a whole. If an accounting policy or a critical
accounting estimate relates to a specificparticular note, the applicable accounting policy and/or critical
accounting estimate is contained withinwith the relevant note.
1 Significant accounting policies
1. Reporting entity
|
These financial statements are prepared for Barclays PLC and its subsidiaries (the Barclays PLC Group or the Group) under Section 399 of the Companies Act 2006. The Group is a major global financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management and investment management services. In addition, individual financial statements have been presented for the holding company.
2. Compliance with International Financial Reporting Standards
The consolidated financial statements of the Group, and the individual financial statements of Barclays PLC, have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations (IFRICs) issued by the Interpretations Committee, as published by the International Accounting Standards Board (IASB). They are also in accordance with IFRS and IFRIC interpretations endorsed by the European Union. The principal accounting policies applied in the preparation of the consolidated and individual financial statements are set out below, and in the relevant notes to the financial statements. These policies have been consistently applied.
3. Basis of preparation
The consolidated and individual financial statements have been prepared under the historical cost convention modified to include the fair valuation of investment property, and particular financial instruments, to the extent required or permitted under IFRS as set out in the relevant accounting policies. They are stated in millions of pounds Sterling (£m), the functional currency of Barclays PLC.
The financial statements have been prepared on a going concern basis, in accordance with The Companies Act 2006 as applicable to companies using IFRS.
4. Accounting policies
Barclays prepares financial statements in accordance with IFRS. The Group’s significant accounting policies relating to specific financial statement items, together with a description of the accounting estimates and judgements that were critical to preparing them, are set out under the relevant notes. Accounting policies that affect the financial statements as a whole are set out below.
(i) Consolidation
Barclays applies IFRS 10 Consolidated Financial Statements.
The consolidated financial statements combine the financial statements of Barclays PLC and all its subsidiaries. Subsidiaries are entities over which Barclays PLC has control. The Group has control over another entity when the Group has all of the following:
1) power over the relevant activities of the investee, for example through voting or other rights;
2) exposure to, or rights to, variable returns from its involvement with the investee; and
3) the ability to affect those returns through its power over the investee.
The assessment of control is based on the consideration of all facts and circumstances. The Group reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.
Intra-group transactions and balances are eliminated on consolidation. Consistent accounting policies are used throughout the Group for the purposes of the consolidation.
Changes in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has already been obtained and they do not result in loss of control.
As the consolidated financial statements include partnerships where the Group member is a partner, advantage has been taken of the exemption under Regulation 7 of the Partnership (Accounts) Regulations 2008 with regard to preparing and filing of individual partnership financial statements.
Details of the principal subsidiaries are given in Note 36, and a complete list of all subsidiaries is presented in Note 45.
(ii) Foreign currency translation
The Group applies IAS 21The Effects of Changes in Foreign Exchange Rates. Transactions and balances in foreign currencies are translated into Sterling at the rate ruling on the date of the transaction. Foreign currency balances are translated into Sterling at the period end exchange rates. Exchange gains and losses on such balances are taken to the income statement.
The Group’s foreign operations (including subsidiaries, joint ventures, associates and branches) based mainly outside the UK may have different functional currencies. The functional currency of an operation is the currency of the main economy to which it is exposed.
Prior to consolidation (or equity accounting) the assets and liabilities ofnon-Sterling operations are translated at the closing rate and items of income, expense and other comprehensive income are translated into Sterling at the rate on the date of the transactions. Exchange differences arising on the translation of foreign operations are included in currency translation reserves within equity. These are transferred to the income statement when the Group disposes of the entire interest in a foreign operation, when partial disposal results in the loss of control of an interest in a subsidiary, when an investment previously accounted for using the equity method is accounted for as a financial asset, or on the disposal of an autonomous foreign operation within a branch.
Barclays PLC and Barclays Bank PLC |
for the year ended 31 December 2017
1 Significant accounting policiescontinued
(iii) Financial assets and liabilities
The Group applies IAS 39 Financial Instruments: Recognition and Measurement to the recognition, classification and measurement, and derecognition of financial assets and financial liabilities, the impairment of financial assets, and hedge accounting.
Recognition
The Group recognises financial assets and liabilities when it becomes a party to the terms of the contract. Trade date or settlement date accounting is applied depending on the classification of the financial asset.
Classification and measurement
Financial assets and liabilities are initially recognised at fair value and may be held at fair value or amortised cost depending on the Group’s intention toward the assets and the nature of the assets and liabilities, mainly determined by their contractual terms.
The accounting policy for each type of financial asset or liability is included within the relevant note for the item. The Group’s policies for determining the fair values of the assets and liabilities are set out in Note 18.
Derecognition
The Group derecognises a financial asset, or a portion of a financial asset, from its balance sheet where the contractual rights to cash flows from the asset have expired, or have been transferred, usually by sale, and with them either substantially all the risks and rewards of the asset or significant risks and rewards, along with the unconditional ability to sell or pledge the asset.
Financial liabilities arede-recognised when the liability has been settled, has expired or has been extinguished. An exchange of an existing financial liability for a new liability with the same lender on substantially different terms – generally a difference of 10% in the present value of the cash flows or a substantive qualitative amendment – is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
Transactions in which the Group transfers assets and liabilities, portions of them, or financial risks associated with them can be complex and it may not be obvious whether substantially all of the risks and rewards have been transferred. It is often necessary to perform a quantitative analysis. Such an analysis compares the Group’s exposure to variability in asset cash flows before the transfer with its retained exposure after the transfer.
A cash flow analysis of this nature may require judgement. In particular, it is necessary to estimate the asset’s expected future cash flows as well as potential variability around this expectation. The method of estimating expected future cash flows depends on the nature of the asset, with market and market-implied data used to the greatest extent possible. The potential variability around this expectation is typically determined by stressing underlying parameters to create reasonable alternative upside and downside scenarios. Probabilities are then assigned to each scenario. Stressed parameters may include default rates, loss severity, or prepayment rates.
(iv) Issued debt and equity instruments
The Group applies IAS 32,Financial Instruments: Presentation, to determine whether funding is either a financial liability (debt) or equity.
Issued financial instruments or their components are classified as liabilities if the contractual arrangement results in the Group having an obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder of the instrument. If this is not the case, the instrument is generally an equity instrument and the proceeds included in equity, net of transaction costs. Dividends and other returns to equity holders are recognised when paid or declared by the members at the AGM and treated as a deduction from equity.
Where issued financial instruments contain both liability and equity components, these are accounted for separately. The fair value of the debt is estimated first and the balance of the proceeds is included within equity.
5. New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year, with the exception of the accounting treatment of own credit on financial liabilities designated at fair value though profit or loss under the fair value option. Barclays has elected to early adopt the presentation of Barclays own credit gains and losses in other comprehensive income as allowed by IFRS 9Financial Instruments, from 1 January 2017. This will have no effect on net assets, and any changes due to own credit in prior periods have not been restated. The cumulative own credit amount has been reclassified from retained earnings to a separate reserve. Any realised and unrealised amounts recognised in other comprehensive income will not be reclassified to the income statement in future periods; refer to Note 32 for further details.
There were no other material or amended standards or interpretations that resulted in a change in accounting policy.
Future accounting developments
There have been and are expected to be a number of significant changes to the Group’s financial reporting after 2017 as a result of amended or new accounting standards that have been or will be issued by the IASB. The most significant of these are as follows:
IFRS 9 – Financial instruments
IFRS 9Financial Instruments which replaces IAS 39Financial Instruments: Recognition and Measurement is effective for periods beginning on or after 1 January 2018 and was endorsed by the EU in November 2016. IFRS 9, in particular the impairment requirements, will lead to significant changes in the accounting for financial instruments.
|
1 Significant accounting policiescontinued
i) Impairment
IFRS 9 introduces a revised impairment model which will require entities to recognise expected credit losses based on unbiased forward-looking information. This replaces the existing IAS 39 incurred loss model which only recognises impairment if there is objective evidence that a loss has already been incurred and would measure the loss at the most probable outcome. The IFRS 9 impairment model will be applicable to all financial assets at amortised cost, lease receivables, debt financial assets at fair value through other comprehensive income, loan commitments and financial guarantee contracts. This contrasts to the IAS 39 impairment model which is not applicable to loan commitments and financial guarantee contracts, which were covered by IAS 37. In addition, IAS 39 required the impairment of available for sale debt to be based on the fair value loss rather than estimated future cash flows as for amortised cost assets. Intercompany exposures, including loan commitments and financial guarantee contracts, are also in scope under IFRS 9 in the standalone reporting entity accounts.
The measurement of expected credit loss will involve increased complexity and judgement including estimation of probabilities of default, loss given default, a range of unbiased future economic scenarios, estimation of expected lives and estimation of exposures at default and assessing significant increases in credit risk. It is expected to have a material financial impact and impairment charges will tend to be more volatile. Impairment will also be recognised earlier and the amounts will be higher. Unsecured products with longer expected lives, such as revolving credit cards, are expected to be most impacted.
The expected increase in the accounting impairment provision reduces CET1 capital, but the impact is partially mitigated by releasing the ‘excess of expected loss over impairment’ deduction from CET1 capital. In addition, the European Union will be adopting transitional arrangements to mitigate or spread the capital impacts of IFRS 9 adoption over a5-year period from 1 January 2018 which Barclays will apply. Separately, the Basel Committee on Banking Supervision is considering the need for permanent changes to the regulatory capital framework in order to take account of expected credit loss provisioning.
Key concepts and management judgements
The impairment requirements are complex and require management judgements, estimates and assumptions. Key concepts and management judgements include:
The accounting policy for each type of financial asset or liability is included within the relevant note for the item. The Group’s policies for determining the fair values of the assets and liabilities are set out
◾ | Determining a significant increase in
|
IFRS 9 requires the recognition of 12 month expected credit losses (the portion of lifetime expected credit losses from default events that are expected within 12 months of the reporting date) if credit risk has not significantly increased since initial recognition (stage 1), and lifetime expected credit losses for financial instruments for which the credit risk has increased significantly since initial recognition (stage 2) or which are credit impaired (stage 3). Barclays will assess when a significant increase in credit risk has occurred based on quantitative and qualitative assessments. Exposures are considered to have resulted in a significant increase in credit risk and are moved to stage 2 when:
– Quantitative Test
The annualised cumulative weighted average lifetime probability of default (PD) has increased by more than the agreed threshold relative to the equivalent at origination. The relative thresholds are defined as percentage increases and set at an origination score band and segment level.
– Qualitative Test
Accounts that meet the portfolio’s ‘high risk’ criteria and are subject to closer credit monitoring.
– Backstop Criteria
Accounts that are 30 calendar days or more past due. The 30 days past due criteria is a backstop rather than a primary driver of moving exposures into stage 2.
Exposures will move back to stage 1 once they no longer meet the criteria for a significant increase in credit risk and when any cure criteria used for credit risk management are met. This is subject to all payments being up to date and the customer evidencing ability and willingness to maintain future payments.
Barclays will not rely on the low credit risk exemption which would assume facilities of investment grade are not significantly deteriorated.
Determining the probability of default at initial recognition is expected to require management estimates, in particular for exposures issued before the effective date of IFRS 9. For certain revolving facilities such as credit cards and overdrafts, this is expected to be when the facility was first entered into which could be a long time in the past.
Management overlays and other exceptions to model outputs are applied only if consistent with the objective of identifying significant increases in credit risk.
Expected credit losses are the unbiased probability of default weighted average credit losses determined by evaluating a range of possible outcomes and forecast future economic conditions. Credit losses are the expected cash shortfalls from what is contractually due over the expected life of the financial instrument, discounted at the effective interest rate.
Under IFRS 9, impairment will be recognised earlier than is the case under IAS 39 because it requires expected losses to be recognised before the loss event arises. Measurement will involve increased complexity and judgement including estimation of probabilities of defaults, loss given default, a range of unbiased future economic scenarios, estimation of expected lives, estimation of exposures at default and assessing increases in credit risk. It is expected to have a material financial impact, but it will not be practical to disclose reliable financial impact estimates until the implementation programme is further advanced.
◾ | Forward-looking information |
Credit losses are the expected cash shortfalls from what is contractually due over the expected life of the financial instrument, discounted at the original effective interest rate. Expected credit losses are the unbiased probability-weighted credit losses determined by evaluating a range of possible outcomes and considering future economic conditions. When there is anon-linear relationship between forward looking economic scenarios and their associated credit losses, a range of forward looking economic scenarios, currently expected to be a minimum of five, will be considered to ensure a sufficient unbiased representative sample of the complete distribution is included in determining the expected loss. Stress testing methodologies will be leveraged within forecasting economic scenarios for IFRS 9 purposes.
Barclays PLC and Barclays Bank PLC |
Notes to the financial statements
Forfor the year ended 31 December 20152017
1 Significant accounting policiescontinued
Based on the current requirements of CRD IV, the expected increase in the accounting impairment provision would reduce CET1 capital but the impact would be partially mitigated by the ‘excess of expected losses over impairment’ included in the CET1 calculation as discussed on page 150).
Classification and measurement IFRS 9 will require financial assets to be classified on the basis of two criteria:
1) the business model within which financial assets are managed, and
2) their contractual cash flow characteristics (whether the cash flows represent ‘solely payments of principal and interest’).
Financial assets will be measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest.
Financial assets will be measured at fair value through other comprehensive income if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows represent solely payments of principal and interest.
Other financial assets are measured at fair value through profit and loss. There is an option to make an irrevocable election for non-traded equity investments to be measured at fair value through other comprehensive income.
The accounting for financial liabilities is largely unchanged, except for financial liabilities designated at fair value through profit and loss. Gains and losses on such financial liabilities arising from changes in Barclays’ own credit risk will be presented in other comprehensive income rather than in profit and loss.
Hedge accounting IFRS 9 contains revised requirements on hedge accounting, which are more closely aligned with an entity’s risk management strategies and risk management objectives. The new rules would replace the current quantitative effectiveness test with a simpler version, and requires that an economic relationship exist between the hedged item and the hedging instrument. Under the new rules, voluntary hedge de-designations would not be allowed.
Adoption of the IFRS 9 hedge accounting requirements is optional, and certain aspects of IAS 39, being the portfolio fair value hedge for interest rate risk, would continue to be available for entities (while applying IFRS 9 to the remainder of the entity’s hedge accounting relationships) until the IASB completes its accounting for dynamic risk management project. Barclays is considering the most appropriate approach to adopt in this area.
IFRS 15 – Revenue from Contracts with Customers In 2014, the IASB issued IFRS 15Revenue from Contracts with Customerswhich will replace IAS 18Revenue and IAS 11Construction Contracts. It applies to all contracts with customers except leases, financial instruments and insurance contracts. The standard will establish a more systematic approach for revenue measurement and recognition. During July 2015, the IASB confirmed the deferral of the effective date by one year to 1 January 2018. The standard has not yet been endorsed by the EU. Adoption of the standard is not expected to have a significant impact.
IFRS 16 – Leases In January 2016, the IASB issued IFRS 16Leases, which will replace IAS 17Leases. Under the new requirements, lessees would be required to recognise assets and liabilities arising from both operating and finance leases on the balance sheet. The expected effective date is 1 January 2019. The standard has not yet been endorsed by the EU.
Insurance contracts The IASB also plans to issue a new standard on insurance contracts.
The Group is in the process of considering the financial impacts of the new standards.
Critical accounting estimates and judgements The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise judgement in applying the accounting policies. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the consolidated and individual financial statements are highlighted under the relevant note. Critical accounting estimates and judgements are disclosed in:
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Page
| Page
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Credit impairment charges and other provisions
| 223
| Fair value of financial instruments
| 234
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Income taxes
| 226
| Provisions
| 259
| |||
Available for sale assets | 234 | Retirement benefit obligations | 281 | |||
Other disclosures To improve transparency and ease of reference, by concentrating related information in one place, and to reduce duplication, certain disclosures required under IFRS have been included within the Risk management section as follows:
§ Segmental reporting on pages 191 to 221
§ Credit risk management, on pages 99 and 100, including exposures to selected countries
§ Market risk, on pages 101 and 102
§ Funding risk – capital, on pages 103 and 104 and
§ Funding risk – liquidity, on page 105.
These are covered by the Audit opinion included on page 210.
|
◾ | Definition of default, credit impaired assets, write-offs, and interest income recognition |
The definition of default for the purpose of determining expected credit losses has been aligned to the Regulatory Capital CRR Article 178 definition of default, which considers indicators that the debtor is unlikely to pay, includes exposures in forbearance and is no later than when the exposure is more than 90 days past due or 180 days past due in the case of UK mortgages. When exposures are identified as credit impaired or purchased or originated as such, IFRS 9 requires separate disclosure and interest income is required to be calculated on the carrying value net of the impairment allowance.
Credit impaired is expected to be when the exposure has defaulted which is also anticipated to align to when an exposure is identified as individually impaired under the incurred loss model of IAS 39.Write-off polices are not expected to change from IAS 39.
◾ | Expected life |
Lifetime expected credit losses must be measured over the expected life. This is restricted to the maximum contractual life and takes into account expected prepayment, extension, call and similar options. The exceptions are certain revolver financial instruments, such as credit cards and bank overdrafts, that include both a drawn and an undrawn component where the entity’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the entity’s exposure to credit losses to the contractual notice period. The expected life for these revolver facilities is expected to be behavioural life. Where data is insufficient or analysis inconclusive, an additional ‘maturity factor’ may be incorporated to reflect the full estimated life of the exposures, based upon experienced judgement and/or peer analysis. Potential future modifications of contracts are not taken into account when determining the expected life or exposure at default until they occur.
◾ | Discounting |
Expected credit losses are discounted at the effective interest rate (EIR) at initial recognition or an approximation thereof and consistent with income recognition. For loan commitments the EIR is that rate that is expected to apply when the loan is drawn down and a financial asset is recognised. Issued financial guarantee contracts are discounted at the risk free rate. Lease receivables are discounted at the rate implicit in the lease as prescribed in IAS 17. For variable/floating rate financial assets, the spot rate at the reporting date is used and projections of changes in the variable rate over the expected life are not made to estimate future interest cash flows or for discounting.
◾ | Modelling techniques |
Expected credit losses (ECL) are calculated by multiplying three main components, being the probability of default (PD), loss given default (LGD) and the exposure at default (EAD), discounted at the original effective interest rate. The regulatory Basel Committee of Banking Supervisors (BCBS) ECL calculations are leveraged for IFRS 9 modelling but adjusted for key differences which include:
BCBS requires 12 month through the economic cycle losses whereas IFRS 9 requires 12 months or lifetime point in time losses based on conditions at the reporting date and multiple forecasts of the future economic conditions over the expected lives; and
IFRS 9 models do not include certain conservative BCBS model floors and downturn assessments and require discounting to the reporting date at the original effective interest rate rather than using the cost of capital to the date of default.
Management adjustments will be made to modelled output to account for situations where known or expected risk factors and information have not been considered in the modelling process, for example forecast economic scenarios for uncertain political events.
ECL is measured at the individual financial instrument level, however a collective approach where financial instruments with similar risk characteristics are grouped together, with apportionment to individual financial instruments, is used where effects can only be seen at a collective level, for example for forward looking information.
For the IFRS 9 impairment assessment, Barclays Risk Models are used to determine the probability of default (PD), loss given default (LGD) and exposure at default (EAD). For stage 2 and 3, Barclays applies lifetime PDs but uses 12 month PDs for stage 1. The ECL drivers of PD, EAD and LGD are modelled at an account level which considers vintage, among other credit factors. Also, the assessment of significant increase in credit risk is based on the initial lifetime PD curve, which accounts for the different credit risk underwritten over time.
ii) Forbearance
Both performing andnon-performing forbearance assets are classified as stage 3 except where it is established that the concession granted has not resulted in diminished financial obligation and that no other regulatory definitions of default criteria has been triggered, in which case the asset is classified as stage 2. The minimum probationary period fornon-performing forbearance is 12 months and for performing forbearance, 24 months. Hence, a minimum of 36 months is required fornon-performing forbearance to move out of a forborne state.
iii) Project governance and credit risk management
Barclays has a jointly accountable Risk and Finance implementation and governance programme with representation from all impacted departments. The current impairment Committee structures were initiated and tested from H1 2017, providing oversight for both IAS 39 and IFRS 9 impairment results.
The impairment reporting process commences with the production of economic scenarios. The Senior Scenario Review Committee (SSRC) reviews and approves the scenario narratives, the core set of macroeconomic variables, probability weightings, and any scenario specific management overlays which are used in all ECL models. The SSRC attests that the scenarios adequately account for thenon-linearity and asymmetry of the loss distribution.
The Group Impairment Committee, formed of members from both Finance and Risk and attended by both the Group Finance Director and the CRO, is responsible for overseeing impairment policy and practice across Barclays Group and will approve impairment results.
Reported results and key messages are communicated to the Board Audit Committee, which has an oversight role and provides challenge of key assumptions, including the basis of the scenarios adopted.
198 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
1 Significant accounting policiescontinued
iv) Classification and measurement
IFRS 9 requires financial assets to be classified on the basis of two criteria:
1) the business model within which financial assets are managed, and
2) their contractual cash flow characteristics (whether the cash flows represent ‘solely payments of principal and interest’).
Financial assets will be measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest.
Financial assets will be measured at fair value through other comprehensive income if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows represent solely payments of principal and interest.
Business models are determined on initial application and this may differ from the model before 1 January 2018 for certain portfolios. Barclays assesses the business model at a portfolio level. Information that is considered in determining the business model includes (i) policies and objectives for the relevant portfolio, (ii) how the performance and risks of the portfolio are managed, evaluated and reported to management, and (iii) the frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for such sales. Financial assets managed on a fair value basis and those that are held for trading are held at fair value through profit and loss.
In assessing whether contractual cash flows are solely payments of principal and interest, terms that could change the contractual cash flows so that it would not meet the condition for solely payments of principal and interest are considered, including: (i) contingent and leverage features,(ii) non-recourse arrangements and (iii) features that could modify the time value of money.
Other financial assets are measured at fair value through profit and loss. There is an option to make an irrevocable election for non traded equity investments to be measured at fair value through other comprehensive income, in which case dividends are recognised in profit or loss, but gains or losses are not reclassified to profit or loss upon derecognition, and impairment is not recognised in the income statement.
On 12 October 2017, the IASB published an amendment to IFRS 9, relating to prepayment features with negative compensation; this amendment is effective from 1 January 2019 with early application permitted, however has yet to be endorsed by the EU. This amendment allows financial assets with such features to be measured at amortised cost or fair value through other comprehensive income provided the SPPI (solely payments of principal and interest) criteria in IFRS 9 are otherwise met. In addition the amendment to IFRS 9 clarifies that a financial asset passes the SPPI criterion regardless of the event or circumstance that cause the early termination of the contract, and irrespective of which party pays or receives reasonable compensation for the early termination of the contract. Such prepayment features are present in some fixed rate corporate and investment bank loans, and are considered to meet the criteria for amortised cost under IFRS 9. Prepayment features are consistent with the solely payments of principal and interest criteria if the prepayment feature substantially represents unpaid amounts of principal and interest and reasonable compensation for early termination of the contract.
While there are some classification changes these are not significant from a Group perspective.
v) Hedge accounting
IFRS 9 contains revised requirements on hedge accounting, adoption of which is optional. In addition certain aspects of IAS 39, being the portfolio fair value hedge for interest rate risk, continues to be available for entities (while applying IFRS 9 to the remainder of the entity’s hedge accounting relationships) until the IASB completes its accounting for dynamic risk management project.
Based on analysis performed, Barclays will continue applying IAS 39 hedge accounting, although it will implement the amended IFRS 7 hedge accounting disclosure requirements.
vi) Own credit
Barclays has applied the option in IFRS 9 to recognise changes in own credit for financial liabilities designated at fair value through profit and loss under the fair value option in other comprehensive income from 1 January 2017.
vii) Expected impact
IFRS 9 will be applied retrospectively on adoption on 1 January 2018. Opening shareholders’ equity is expected to decrease by approximately
£2.2bn post tax. This impact assessment has been estimated under an interim control environment with models that continue to undergo validation. The implementation of the comprehensive end state control environment will continue as Barclays introduces business as usual controls throughout 2018. Barclays will not restate comparatives on initial application of IFRS 9 on 1 January 2018.
IFRS 15 – Revenue from Contracts with Customers
In 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers which will replace IAS 18 Revenue and IAS 11 Construction Contracts. It applies to all contracts with customers except leases, financial instruments and insurance contracts. The standard establishes a more systematic approach for revenue measurement and recognition by introducing a five-step model governing revenue recognition. The five-step model includes 1) identifying the contract with the customer, 2) identifying each of the performance obligations included in the contract, 3) determining the amount of consideration in the contract, 4) allocating the consideration to each of the identified performance obligations and 5) recognising revenue as each performance obligation is satisfied. In April 2016, the IASB issued clarifying amendments to IFRS 15 which provide additional application guidance but did not change the underlying principles of the standard. The standard was endorsed by the EU in September 2016.
Barclays will implement this standard on 1 January 2018. Barclays has elected the cumulative effect transition method with a transition adjustment calculated as of 1 January 2018 and recognised in retained earnings without restating comparative periods. There are no significant impacts from the adoption of IFRS 15 in relation to the timing of when Barclays recognises revenues or when revenue should be recognised gross as a principal or net as an agent.
Barclays PLC and Barclays Bank PLC |
Notes to the financial statements
Performance/returnfor the year ended 31 December 2017
1 Significant accounting policiescontinued
IFRS 16 – Leases
In January 2016, the IASB issued IFRS 16 Leases, which will replace IAS 17 Leases. IFRS 16 will apply to all leases with the exception of licenses of intellectual property, rights held by licensing agreement within the scope of IAS 38 Intangible Assets, service concession arrangements, leases of biological assets within the scope of IAS 41 Agriculture, and leases of minerals, oil, natural gas and similarnon-regenerative resources. IFRS 16 will not result in a significant change to lessor accounting; however for lessee accounting there will no longer be a distinction between operating and finance leases. Instead lessees will be required to recognise both a right of use asset and lease liability on balance sheet for all leases. As a result Barclays will observe an increase in both assets and liabilities for transactions currently accounted for as operating leases as at 1 January 2019 (the effective date of IFRS 16). A scope exemption will apply to short term and low value leases. Current project implementation efforts are focused on preparing and sourcing information. The standard was endorsed by the EU in November 2017. Barclays will implement this standard on 1 January 2019. Barclays is currently assessing the expected impact of adopting this standard.
IFRS 17 – Insurance contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts that was issued in 2005.
IFRS 17 applies to all types of insurance contracts (i.e. life,non-life, direct insurance andre-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The standard is effective from 1 January 2021 and has not yet been endorsed by the EU. Barclays is currently assessing the expected impact of adopting this standard.
IFRS 2 Classification and Measurement of Share-based Payment Transactions – Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. The amendments are effective for annual periods beginning on or after1 January 2018. Adoption of the amendments will not have a significant impact on Barclays.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
IFRIC 23 clarifies the application of IAS 12 to accounting for income tax treatments that have yet to be accepted by tax authorities, in scenarios where it may be unclear how tax law applies to a particular transaction or circumstance, or whether a taxation authority will accept an entity’s tax treatment. The effective date is 1 January 2019. Barclays is currently assessing the impact of IFRIC 23.
6. Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise judgement in applying the accounting policies. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the consolidated and individual financial statements are highlighted under the relevant note. Critical accounting estimates and judgements are disclosed in:
◾ | Credit impairment charges on page 204; |
◾ | Taxes on page 207; |
◾ | Fair value of financial instruments on page 216; |
◾ | Pensions and post retirement benefits - obligations on page 255; and |
◾ | Provisions including conduct and legal, competition and regulatory matters on page 237. |
7. Other disclosures
To improve transparency and ease of reference, by concentrating related information in one place, certain disclosures required under IFRS have been included within the Risk review section as follows:
◾ | Credit risk on page 85 and tables on pages 96 to 116; |
◾ | Market risk on page 87 and the tables on pages 117 to 121; |
◾ | Treasury and capital risk – capital on pages 137 to 145; and |
◾ | Treasury and capital risk – liquidity on pages 124 to 136. |
These disclosures are covered by the Audit opinions (included on pages 186 and 187) where referenced as audited.
8. Parent company accounts
The Parent company’s financial statements on pages 193 to 194 also form part of the notes to the consolidated financial statements.
200 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
The notes included in this section focus on the results and performance of the Group.
Information on the income generated, expenditure incurred, segmental performance, tax,
earnings per share and dividends are included here. For further detail on performance, please
see income statement commentary within Financial review (unaudited) on page 167.
2 Segmental reporting
Presentation of segmental reporting
The Group’s segmental reporting is in accordance with IFRS 8Operating Segments. Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Committee, which is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the chief operating decision maker. All transactions between business segments are conducted on an arm’s length basis, with intra-segment revenue and costs being eliminated in Head Office. Income and expenses directly associated with each segment are included in determining business segment performance.
Barclays PLC is a transatlantic consumer and wholesale bank and for segmental reporting purposes defines its divisions as follows:
◾ | Barclays UK which offers everyday products and services to retail customers and small to medium sized enterprises based in the UK. The division includes the UK Personal business; the small UK Corporate and UK Wealth businesses; and the Barclaycard UK consumer credit cards business. |
◾ | Barclays Internationalwhich delivers products and services designed for our larger corporate, wholesale and international banking clients. The division includes the large UK Corporate business; the international Corporate and Wealth businesses; the Investment Bank; the international Barclaycard business; and Barclaycard Business Solutions. |
◾ | Head Office which comprises head office and central support functions (including treasury) and businesses in transition. |
2 Segmental reportingTheNon-Core segment was closed on 1 July 2017 with the residual assets and liabilities reintegrated into, and associated financial performance subsequently reported in, Barclays UK, Barclays International and Head Office. Financial results up until 30 June 2017 are reflected in theNon-Core segment within the Group’s results for the year ended 31 December 2017. Comparative results have not been restated.
Analysis of results by business | ||||||||||||||||||||
Barclays UK £m | Barclays International £m | Head Officea £m | Barclays Non-Coreb £m | Group results £m | ||||||||||||||||
For the year ended 31 December 2017 | ||||||||||||||||||||
Total income | 7,383 | 14,382 | (159 | ) | (530 | ) | 21,076 | |||||||||||||
Credit impairment charges and other provisions | (783 | ) | (1,506 | ) | (17 | ) | (30 | ) | (2,336 | ) | ||||||||||
Net operating income/(expenses) | 6,600 | 12,876 | (176 | ) | (560 | ) | 18,740 | |||||||||||||
Operating expenses excluding UK bank levy and litigation and conduct | (4,030 | ) | (9,321 | ) | (277 | ) | (256 | ) | (13,884 | ) | ||||||||||
UK bank levy | (59 | ) | (265 | ) | (41 | ) | – | (365 | ) | |||||||||||
Litigation and conduct | (759 | ) | (269 | ) | (151 | ) | (28 | ) | (1,207 | ) | ||||||||||
Operating expenses | (4,848 | ) | (9,855 | ) | (469 | ) | (284 | ) | (15,456 | ) | ||||||||||
Other net (expenses)/incomec | (5 | ) | 254 | (189 | ) | 197 | 257 | |||||||||||||
Profit/(loss) before tax from continuing operations | 1,747 | 3,275 | (834 | ) | (647 | ) | 3,541 | |||||||||||||
Total assets (£bn) | 237.4 | 856.1 | 39.7 | – | 1,133.2 | |||||||||||||||
Number of employees (full time equivalent)d | 22,800 | 11,500 | 45,600 | – | 79,900 | |||||||||||||||
For the year ended 31 December 2016 | ||||||||||||||||||||
Total income | 7,517 | 14,995 | 103 | (1,164 | ) | 21,451 | ||||||||||||||
Credit impairment charges and other provisions | (896 | ) | (1,355 | ) | – | (122 | ) | (2,373 | ) | |||||||||||
Net operating income/(expenses) | 6,621 | 13,640 | 103 | (1,286 | ) | 19,078 | ||||||||||||||
Operating expenses excluding UK bank levy and litigation and conduct | (3,792 | ) | (9,129 | ) | (135 | ) | (1,509 | ) | (14,565 | ) | ||||||||||
UK bank levy | (48 | ) | (284 | ) | (2 | ) | (76 | ) | (410 | ) | ||||||||||
Litigation and conduct | (1,042 | ) | (48 | ) | (27 | ) | (246 | ) | (1,363 | ) | ||||||||||
Operating expenses | (4,882 | ) | (9,461 | ) | (164 | ) | (1,831 | ) | (16,338 | ) | ||||||||||
Other net (expenses)/income | (1 | ) | 32 | 128 | 331 | 490 | ||||||||||||||
Profit/(loss) before tax from continuing operations | 1,738 | 4,211 | 67 | (2,786 | ) | 3,230 | ||||||||||||||
Total assets (£bn)e | 209.6 | 648.5 | 75.2 | 279.7 | 1,213 | |||||||||||||||
Number of employees (full time equivalent)f | 36,000 | 36,900 | 100 | 5,500 | 119,300 |
Notes
a | The reintegration ofNon-Core assets on 1 July 2017 resulted in the transfer of c.£9bn of assets into Head Office relating to a portfolio of Italian mortgages. The portfolio generated a loss before tax of £37m in the second half of the year and included assets of £9bn as at 31 December 2017. |
b | TheNon-Core segment was closed on 1 July 2017. Financial results up until 30 June 2017 are reflected in theNon-Core segment for 2017. |
c | Other net (expenses)/income represents the share ofpost-tax results of associates and joint ventures, profit (or loss) on disposal of subsidiaries, associates and joint ventures, and gains on acquisitions. |
d | As a result of the establishment of the Group Service Company in September 2017, employees who are now employed by the Group Service Company and who were previously allocated to, or were within, Barclays UK and Barclays International are now reported in Head Office. |
e | Africa Banking assets held for sale were reported in Head Office for 2016. |
f | Number of employees included 40,800 in relation to Africa Banking for 2016. |
Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F 201 |
Notes to the financial statements
Performance/return
2 Segmental reportingcontinued
Analysis of results by business | ||||||||||||||||||||
Barclays £m | Barclays International £m | Head Office £m | Barclays Non-Core £m | Group £m | ||||||||||||||||
For the year ended 31 December 2015 | ||||||||||||||||||||
Total income | 7,343 | 13,747 | 338 | 612 | 22,040 | |||||||||||||||
Credit impairment charges and other provisions | (706 | ) | (922 | ) | – | (134 | ) | (1,762 | ) | |||||||||||
Net operating income | 6,637 | 12,825 | 338 | 478 | 20,278 | |||||||||||||||
Operating expenses excluding UK bank levy and litigation and conduct | (3,464 | ) | (8,029 | ) | (272 | ) | (1,958 | ) | (13,723 | ) | ||||||||||
UK bank levy | (77 | ) | (253 | ) | (8 | ) | (88 | ) | (426 | ) | ||||||||||
Litigation and conduct | (2,511 | ) | (1,310 | ) | (66 | ) | (500 | ) | (4,387 | ) | ||||||||||
Operating expenses | (6,052 | ) | (9,592 | ) | (346 | ) | (2,546 | ) | (18,536 | ) | ||||||||||
Other net income/(expenses)a | – | 45 | (106 | ) | (535 | ) | (596 | ) | ||||||||||||
Profit/(loss) before tax from continuing operations | 585 | 3,278 | (114 | ) | (2,603 | ) | 1,146 | |||||||||||||
Total assets (£bn)b | 202.5 | 532.2 | 59.4 | 325.8 | 1,120.0 | |||||||||||||||
Number of employees (full time equivalent)c | 38,800 | 39,100 | 100 | 9,900 | 129,400 |
Notes
a | Other net income/(expenses) represents the share ofpost-tax results of associates and joint ventures, profit (or loss) on disposal of subsidiaries, associates and joint ventures, and gains on acquisitions. |
b | Africa Banking assets held for sale were reported in Head Office for 2015. |
c | Number of employees included 41,500 in relation to Africa Banking for 2015. |
Income by geographic region | ||||||||||||
For the year ended 31 December | 2017 £m | 2016 £m | 2015 £m | |||||||||
Continuing operations | ||||||||||||
UK | 11,190 | 11,096 | 12,160 | |||||||||
Europe | 1,663 | 2,087 | 2,245 | |||||||||
Americas | 7,443 | 7,278 | 6,610 | |||||||||
Africa and Middle East | 251 | 419 | 387 | |||||||||
Asia | 529 | 571 | 638 | |||||||||
Total | 21,076 | 21,451 | 22,040 | |||||||||
Income from individual countries which represent more than 5% of total incomea | ||||||||||||
For the year ended 31 December | 2017 £m | 2016 £m | 2015 £m | |||||||||
Continuing operations | ||||||||||||
UK | 11,190 | 11,096 | 12,160 | |||||||||
United States | 6,871 | 6,876 | 6,228 |
Note
a | Total income based on counterparty location. Income from each single external customer does not amount to 10% or greater of the Group’s total income. |
202 Barclays PLC and Barclays Bank PLC 2017 Annual Report on Form 20-F |
Presentation of segmental reporting
The Group’s segmental reporting is in accordance with IFRS 8Operating Segments. Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Committee, which is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the chief operating decision maker. All transactions between business segments are conducted on an arm’s-length basis, with intra-segment revenue and costs being eliminated in Head Office. Income and expenses directly associated with each segment are included in determining business segment performance.
An analysis of the Group’s performance by business segment and income by geographic segment is included on pages 191 and 192. Further details on each of the segments are provided on pages 193 to 221.
|
| 2015 £m |
|
| 2014 £m |
|
| 2013 £m |
| ||||
Cash and balances with central banks | 158 | 193 | 219 | |||||||||
Available for sale investments | 1,387 | 1,615 | 1,804 | |||||||||
Loans and advances to banks | 541 | 446 | 468 | |||||||||
Loans and advances to customers | 14,732 | 14,677 | 15,613 | |||||||||
Other | 383 | 432 | 211 | |||||||||
Interest income | 17,201 | 17,363 | 18,315 | |||||||||
Deposits from banks | (177 | ) | (199 | ) | (201 | ) | ||||||
Customer accounts | (930 | ) | (1,473 | ) | (2,656 | ) | ||||||
Debt securities in issue | (1,722 | ) | (1,922 | ) | (2,176 | ) | ||||||
Subordinated liabilities | (1,644 | ) | (1,622 | ) | (1,572 | ) | ||||||
Other | (170 | ) | (67 | ) | (110 | ) | ||||||
Interest expense | (4,643 | ) | (5,283 | ) | (6,715 | ) | ||||||
Net interest income | 12,558 | 12,080 | 11,600 |
Accounting for interest income and expenses
The Group applies IAS 39Financial Instruments: Recognition and Measurement. Interest income on loans and advances at amortised cost, financial investments debt securities, and interest expense on financial liabilities held at amortised cost, are calculated using the effective interest method which allocates interest, and direct and incremental fees and costs, over the expected lives of the assets and liabilities.
The effective interest method requires the Group to estimate future cash flows, in some cases based on its experience of customers’ behaviour, considering all contractual terms of the financial instrument, as well as the expected lives of the assets and liabilities.
Barclays incurs certain costs to originate credit card balances with the most significant beingco-brand partner fees. To the extent these costs are attributed to revolving customer balances they are capitalised and subsequently included within the calculation of the effective interest rate. They are amortised to interest income over the period of expected repayment of the originated balance. Costs attributed to transacting customer balances are recorded within fee and commission expense when incurred. There are no other individual estimates involved in the calculation of effective interest rates that are material to the results or financial position.
2017 £m | 2016 £m | 2015 £m | ||||||||||
Cash and balances with central banks | 583 | 186 | 157 | |||||||||
Financial investments | 754 | 740 | 698 | |||||||||
Loans and advances to banks | 286 | 600 | 487 | |||||||||
Loans and advances to customers | 11,783 | 12,958 | 12,512 | |||||||||
Other | 225 | 57 | 99 | |||||||||
Interest income | 13,631 | 14,541 | 13,953 | |||||||||
Deposits from banks | (370 | ) | (265 | ) | (128 | ) | ||||||
Customer accounts | (1,123 | ) | (1,514 | ) | (1,406 | ) | ||||||
Debt securities in issue | (915 | ) | (990 | ) | (553 | ) | ||||||
Subordinated liabilities | (1,223 | ) | (1,104 | ) | (1,015 | ) | ||||||
Other | (155 | ) | (131 | ) | (243 | ) | ||||||
Interest expense | (3,786 | ) | (4,004 | ) | (3,345 | ) | ||||||
Net interest income | 9,845 | 10,537 | 10,608 |
Costs to originate credit card balances of £497m (2016: £480m; 2015: £368m) have been amortised to interest income during the period.
Interest income includes £149m (2014: £153m)£48m (2016: £75m; 2015: £91m) accrued on impaired loans.
Other interest income principally includes interest income relating to reverse repurchase agreements and hedging activity. Similarly, other interest expense principally includes interest expense relating to repurchase agreements and hedging activity.
Included in net interest income is hedge ineffectiveness as detailed on page 233.in Note 15 amounting to £(43)m in 2017 (2016: £71m; 2015: £81m).
20154 Net fee and commission income
Net interest income increased by 4% to £12,558m, driven by margin improvement in Barclaycard and Africa Banking, and volume growth in both PCB and Barclaycard. This was partially offset by a decrease in Head Office due to a reduction in interest income on AFS investments. Interest income decreased by 1% to £17,201m, driven by a decline in income on AFS investments which fell 14% to £1,387m. Interest expense decreased 12% to £4,643m, driven by reduced interest expense on customer accounts falling by 37% to £930m.
2014Accounting for net fee and commission income
Net interest income increasedThe Group applies IAS 18Revenue. Fees and commissions charged for services provided or received by 4% to £12,080m, driven by improvements in PCB savings margins and volume growth in Barclaycard, partially offset by a reduction in Africa Banking due to currency movements and the sale and rundownGroup are recognised as the services are provided, for example on completion of assets in Non-Core. Interest income decreased by 5% to £17,363m, driven by a reduction in income from loans and advances to customers which fell 6% to £14,677m. Interest expense reduced 21% to £5,283m, driven by a reduction in interest on customer accounts of £1,183m to £1,473m.the underlying transaction.
2017 £m | 2016 £m | 2015 £m | ||||||||||
Fee and commission income | ||||||||||||
Banking, investment management and credit related fees and commissions | 8,622 | 8,452 | 8,340 | |||||||||
Foreign exchange commission | 129 | 118 | 130 | |||||||||
Fee and commission income | 8,751 | 8,570 | 8,470 | |||||||||
Fee and commission expense | (1,937 | ) | (1,802 | ) | (1,611 | ) | ||||||
Net fee and commission income | 6,814 | 6,768 | 6,859 |
Barclays PLC and Barclays Bank PLC |
Notes to the financial statements
Performance/return
45 Net fee and commissiontrading income
|
| 2015 £m | | | 2014 £m | | | 2013 £m | | ||||
Fee and commission income | ||||||||||||
Banking, investment management and credit related fees and commissions | 9,497 | 9,681 | 10,311 | |||||||||
Foreign exchange commission | 158 | 155 | 168 | |||||||||
Fee and commission income | 9,655 | 9,836 | 10,479 | |||||||||
Fee and commission expense | (1,763 | ) | (1,662 | ) | (1,748 | ) | ||||||
Net fee and commission income | 7,892 | 8,174 | 8,731 |
2015Accounting for net trading income
Net feeIn accordance with IAS 39, trading positions are held at fair value, and commissionthe resulting gains and losses are included in the income decreased £282mstatement, together with interest and dividends arising from long and short positions and funding costs relating to £7,892m. This was primarily driven by lower income due totrading activities.
Income arises from both the sale and purchase of the US Wealthtrading positions, margins which are achieved through market-making and Spanish retail businessescustomer business and launch of the revised PCB overdraft propositionfrom changes in mid 2014, which recognises the majority of the overdraft income as netfair value caused by movements in interest income as opposed to fee income. Investment Bank income decreased, driven by lowerand exchange rates, equity underwriting fees partially offset by higher financial advisoryprices and debt underwriting fees. Growth in Africa Banking was offset by adverse currency movements. These movements were partly offset by increases in Barclaycard, driven by growth in payment volumes.other market variables.
2014Own credit gains/(losses)
Net fee and commission income decreased £557m to £8,174m. This was driven by lower fees asAs a result of decreased debt underwriting feesthe early adoption of the own credit provisions of IFRS 9 on 1 January 2017, own credit on financial liabilities designated at fair value through profit and declines in cash commissions, reflecting lower volumesloss which was previously recorded in the Investment Bank. Further decreases were caused by the launch of the revised PCB overdraft proposition, which recognises the majority of the overdraft income as net interest income as opposed to fee income, and adverse currency movements in Africa Banking. These movements were partly offset by increases in Barclaycard, driven by growth in payment volumes.statement is now recognised within other comprehensive income.
|
| 2015 £m | | | 2014 £m | | | 2013 £m | | 2017 £m | 2016 £m | 2015 £m | |||||||||||||
Trading income | 3,193 | 3,297 | 6,773 | 3,500 | 2,803 | 2,996 | ||||||||||||||||||
Own credit gains/(losses) | 430 | 34 | (220 | ) | ||||||||||||||||||||
Own credit (losses)/gains | – | (35 | ) | 430 | ||||||||||||||||||||
Net trading income | 3,623 | 3,331 | 6,553 | 3,500 | 2,768 | 3,426 |
Included within net trading income were gains of £640m (2016: £31m gain; 2015: £992m (2014: £1,051m loss, 2013: £914m gain) on financial assets designated at fair value and lossesgains of £472m (2016: £346m gain; 2015: £187m (2014: £65m loss, 2013: £684m loss) on financial liabilities designated at fair value.
2015
Net trading income increased 9% to £3,623m, primarily reflecting a £396m favourable variance in own credit due to widening of credit spreads on Barclays’ issued debt. Trading income decreased by £104m, mainly driven by the continued disposal and running down of certain businesses and fair value movements on the ESHLA portfolio within Non-Core, and depreciation of ZAR against GBP. This was partially offset by increases in various Investment Bank businesses driven by higher volatility and trading activity during the year.
2014
Net trading income decreased 49% to £3,331m, primarily reflecting a £2,541m decrease in trading income, as lower volatility and subdued trading activity combined with tighter spreads reduced income across a number of businesses. Disposals and running down of certain Non-Core businesses and the £935m fair value reduction on the ESHLA portfolio (see Note 18 for further details) also contributed to the lower income. This was partially offset by a £254m favourable variance in own credit gains/losses.
Accounting for net investment income Dividends are recognised when the right to receive the dividend has been established. Other accounting policies relating to net |
| 2015 £m | | | 2014 £m | | | 2013 £m | | ||||
Net gain from disposal of available for sale investments | 374 | 620 | 145 | |||||||||
Dividend income | 8 | 9 | 14 | |||||||||
Net gain from financial instruments designated at fair value | 238 | 233 | 203 | |||||||||
Other investment income | 518 | 466 | 318 | |||||||||
Net investment income | 1,138 | 1,328 | 680 |
2015
Net investment income decreased by £190m to £1,138m. This was largely driven by lower gainsare set out in Note 14 and fewer disposals of available for sale investments due to unfavourable market conditions. During the year, a gain of £496m (2014: £461m) was recognised in other investment income due to the final and full legal settlement in respect of US Lehman acquisition assets.Note 16.
2017 £m | 2016 £m | 2015 £m | ||||||||||
Net gain from disposal of available for sale investments | 298 | 912 | 385 | |||||||||
Dividend income | 48 | 8 | 8 | |||||||||
Net gain from financial instruments designated at fair value | 338 | 158 | 193 | |||||||||
Other investment income | 177 | 246 | 511 | |||||||||
Net investment income | 861 | 1,324 | 1,097 |
2014
Net investment income increased by £648m to £1,328m. This was largely driven by an increase in disposals of available for sale investments due to favourable market conditions and increases in other investment income as a result of greater certainty regarding the recoverability of certain assets not yet received from the 2008 US Lehman acquisition (2014: £461m gain; 2013: £259m gain).
7 Credit impairment charges and other provisions
Accounting for the impairment of financial assets Loans and other assets held at amortised cost In accordance with IAS 39, the Group assesses at each balance sheet date whether there is objective evidence that loan assets An impairment loss is recognised if there is objective evidence of impairment as a result of events that have occurred and these have adversely impacted the estimated future cash flows from the assets. These events include:
Impairment assessments are conducted individually for significant assets, which comprise all wholesale customer loans and larger retail business loans, and collectively for smaller loans and for portfolio level risks, such as country or sectoral risks. For the purposes of the assessment, loans with similar credit risk characteristics are grouped together – generally on the basis of their product type, industry, geographical location, collateral type, past due status and other factors relevant to the evaluation of expected future cash flows. The impairment assessment includes estimating the expected future cash flows from the asset or the group of assets, which are then discounted using the original effective interest rate calculated for the asset. If this is lower than the carrying value of the asset or the portfolio, an impairment allowance is raised. If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement. Following impairment, interest income continues to be recognised at the original effective interest rate on the restated carrying amount, representing the unwind of the discount of the expected cash flows, including the principal due onnon-accrual loans. Uncollectable loans are written off against the related allowance for loan impairment on completion of the Group’s internal processes when all reasonably expected recoverable amounts have been collected. Subsequent recoveries of amounts previously written off are credited to the income statement.
7 Credit impairment charges and other provisionscontinued
Increases in the fair value of equity instruments after impairment 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 homogeneous assets with similar risk characteristics where credit scoring techniques are generally used, statistical techniques are used to
Notes to the financial statements Performance/return
Accounting for staff costs The Group applies IAS 19Employee benefits in its accounting for most of the components of staff costs. Short-term employee benefits – salaries, accrued performance costs and social security are recognised over the period in which the employees provide the services to which the payments relate. Performance costs – recognised to the extent that the Group has a present obligation to its employees that can be measured reliably and are recognised over the period of service that employees are required to work to qualify for the payments. Deferred cash and share awards are made to employees to incentivise performance over the period employees provide services. To receive payment under an award, employees must provide service over the vesting period. The period over which the expense for deferred cash and share awards is recognised is based upon the period employees consider their services contribute to the awards. For past awards, the Group considers that it is appropriate to recognise the awards over the period from the date of grant to the date that the awards vest. In relation to awards granted from 2017, the Group, taking into account the changing employee understanding surrounding those awards, considered it appropriate for expense to be recognised over the vesting period including the financial year prior to the grant date. The accounting policies for share-based payments, and pensions and other post-retirement benefits are included in Note 34 and Note 35 respectively.
9 Profit/(loss) on disposal of subsidiaries, associates and joint ventures During the year, the profit on disposal of subsidiaries, associates and joint ventures was £187m (2016: profit of £420m; 2015: loss of £637m), principally relating to the sale of VocaLink and Barclays Wealth Services Japan. Please refer to Note 43 for further detail.
10 Tax Accounting for income taxes Barclays applies IAS 12Income Taxes in accounting for taxes on income. Income tax payable on taxable profits (Current tax) is recognised as an expense in the periods in which the profits arise. Withholding taxes are also treated as income taxes. Income tax recoverable on tax allowable losses is recognised as a current tax asset only to the extent that it is regarded as recoverable by offset against taxable profits arising in the current or prior periods. Current tax is measured using tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except in certain circumstances where the deferred tax asset relating to The Group considers an uncertain tax position to exist when it considers that ultimately, in the A current tax provision is recognised when it is considered probable that the outcome of a review by a tax Deferred tax provisions are adjustments made to the carrying value of deferred tax assets in respect of uncertain tax positions. A deferred tax provision is recognised when it is considered probable that the outcome of a review by a tax authority of an uncertain tax position will result in a reduction in the carrying value of the deferred tax asset. From recognition of a provision, measurement of the underlying deferred tax asset is adjusted to take into account the expected impact of resolving the uncertain tax position on the loss or temporary difference giving rise to the deferred tax asset. The approach taken to measurement takes account of whether the uncertain tax position is a discrete position that will be reviewed by the tax authority in isolation from any other position, or one of a number of issues which are expected to be reviewed together concurrently and resolved simultaneously with a tax authority. Barclays’ measurement of provisions is based Critical accounting estimates and judgements There are two key areas of judgement that impact the reported tax position. Firstly, the level of provisioning for uncertain tax positions; and secondly, the recognition and measurement of deferred tax assets. The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of current and deferred tax balances, including provisions for uncertain tax positions in the next financial year. The provisions for uncertain tax positions cover a diverse range of issues and reflect advice from external counsel where relevant. It should be noted that only a proportion of the total uncertain tax positions will be under audit at any point in time, and could therefore be subject to challenge by a tax authority over the next year. Deferred tax assets have been recognised based on business profit forecasts. Detail on the recognition of deferred tax assets is provided in this note.
Notes to the financial statements Performance/return 10 Taxcontinued The table below shows the reconciliation between the actual tax charge and the tax charge that would result from applying the standard UK corporation tax rate to the Group’s profit before tax.
Factors driving the effective tax rate The effective tax rate of In addition the effective tax rate is also affected by profits earned outside the UK being taxed at local statutory tax rates that are higher than the UK tax rate, provisions for UK customer redress,
The Group’s future tax charge will be sensitive to the geographic mix of profits earned and the tax rates in force in the jurisdictions that we operate in. In the UK, legislation to reduce the corporation tax rate to 17% from 1 April 2020 has been enacted. The reduction of the US federal corporate income tax rate to 21% from 1 January 2018 is expected to have a positive impact on the Tax in the consolidated statement of comprehensive income The tax relating to each component of other comprehensive income can be found in the consolidated statement of comprehensive income which additionally includes within Other a tax charge of £5m (2016: £21m credit) relating to share-based payments. Tax in respect of discontinued operation Tax relating to the discontinued operation can be found in the BAGL disposal group income statement (refer to Note 43). The tax charge of £154m (2016: £306m charge) relates entirely to the profit from the ordinary activities of the discontinued operation.
10 Taxcontinued Current tax assets and liabilities Movements on current tax assets and liabilities were as follows:
US deferred tax assets in The deferred tax asset in The
In prior periods the US Branch UK tax group deferred tax asset The deferred tax asset in the UK tax group of Other deferred tax assets The deferred tax asset of
Notes to the financial statements Performance/return 10 Taxcontinued Of the deferred tax asset of
The table below shows movements on deferred tax assets and liabilities during the year. The amounts are different from those disclosed on the balance sheet and in the preceding table as they are presented before offsetting asset and liability balances where there is a legal right toset-off and an intention to settle on a net basis.
Other movements include the impact of changes in foreign exchange rates as well as deferred tax amounts relating to acquisitions, disposals and The amount of deferred tax liability expected to be settled after more than 12 months is Unrecognised deferred tax Tax losses and temporary differences Deferred tax assets have not been recognised in respect of gross deductible temporary differences of Group investments in subsidiaries, branches and associates Deferred tax is not recognised in respect of the value of
The calculation of basic earnings per share is based on the profit attributable to equity holders of the parent and the basic weighted average number of shares excluding treasury shares held in employee benefit trusts or held for trading. When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effects of all dilutive potential ordinary shares held in respect of Barclays PLC, totalling Of the total number of employee share options and share awards at 31 December The 12 Dividends on ordinary shares The Directors have approved a final dividend in respect of
Notes to the financial statements Assets and liabilities held at fair value
13 Trading portfolio
Accounting for trading portfolio assets and liabilities In accordance with IAS 39, all assets and liabilities held for trading purposes are held at fair value with gains and losses in the changes in fair value taken to the income statement in net trading income (Note 5).
14 Financial assets designated at fair value Accounting for financial assets designated at fair value In accordance with IAS 39, financial assets may be designated at fair value, with gains and losses taken to the income statement within net trading income (Note 5) and net investment income (Note 6). The Group has the ability to make the fair value designation when holding the instruments at fair value reduces an accounting mismatch (caused by an offsetting liability or asset being held at fair value), or is managed by the Group on the basis of its fair value, or includes terms that have substantive derivative characteristics described in Note 15. The details on how the fair value amounts are derived for financial assets designated at fair value are described in Note 18.
Credit risk of loans and advances designated at fair value and related credit derivatives The following table shows the maximum exposure to credit risk, the changes in fair value attributable to changes in credit risk, and the cumulative changes in fair value since initial recognition together with the amount by which related credit derivatives mitigate this risk:
15 Derivative financial instruments
The fair value changes adjust the carrying value of If hedge relationships no longer meet the criteria for hedge accounting, hedge accounting is discontinued. For fair value hedges of interest rate Cash flow hedge accounting For qualifying cash flow hedges, the fair value gain or loss associated with the effective portion of the cash flow hedge is recognised initially in other comprehensive income, and then recycled to the income statement in the periods when the hedged item will affect profit or loss. Any ineffective portion of the gain or loss on the hedging instrument is recognised in the income statement immediately. When a Hedges of net investments The Group’s net investments in foreign
Further information on netting arrangements of derivative financial instruments Trading derivatives are managed within the Group’s market risk management policies, which are outlined on pages The Group’s exposure to credit risk arising from derivative contracts are outlined in the Credit
Notes to the financial statements Assets and liabilities held at fair value
15 Derivative financial instrumentscontinued The fair values and notional amounts of derivative instruments held for trading are set out in the following table:
15 Derivative financial instrumentscontinued The fair values and notional amounts of derivative instruments held for risk management are set out in the following table:
The Group has hedged the following forecast cash flows, which primarily vary with interest rates. These cash flows are expected to impact the income statement in the following periods, excluding any hedge adjustments that may be applied:
The maximum length of time over which the Group hedges exposure to the variability in future cash flows for forecast transactions, excluding those forecast transactions related to the payment of variable interest on existing financial instruments is 10 years (2016: 10 years).
Gains and losses transferred from the cash flow hedging reserve to the income statement included a
Notes to the financial statements Assets and liabilities held at fair value
Accounting for financial investments Available for sale financial assets are held at fair value with gains and losses being included in other comprehensive income. The Group uses this classification for assets that are not derivatives and are not held for trading purposes or otherwise designated at fair value through profit or loss, or at amortised cost. Dividends and interest (calculated using the effective interest method) are recognised in the income statement in net interest income (Note 3) or, net investment income (Note 6). On disposal, the cumulative gain or loss recognised in other comprehensive income is also included in net investment income. Held to maturity assets are held at amortised cost. The Group uses this classification when there is an intent and ability to hold the asset to maturity. Interest on the investments are recognised in the income statement within net interest income (Note 3).
17 Financial liabilities designated at fair value
Accounting for liabilities designated at fair value through profit and loss In accordance with IAS 39, financial liabilities may be designated at fair value, with gains and losses taken to the income statement within net trading income (Note 5) and net investment income (Note 6). Movements in own credit are reported through other comprehensive income from January 2017 upon early adoption of IFRS 9. The Group has the ability to make the fair value designation when holding the instruments at fair value reduces an accounting mismatch (caused by an offsetting liability or asset being held at fair value), or is managed by the Group on the basis of its fair value, or includes terms that have substantive derivative characteristics (Note 15). The details on how the fair value amounts are arrived for financial liabilities designated at fair value are described in Note 18.
The cumulative own credit net loss recognised is 18 Fair value of financial instruments
Accounting for financial assets and liabilities – fair values The Group applies IAS 39. All financial instruments are initially recognised at fair value on the date of initial recognition (including transaction costs, other than financial instruments held at fair value through profit or loss) and, depending on the classification of the asset or liability, may continue to be held at fair value either through profit or loss or other comprehensive income. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Wherever possible, fair value is determined by reference to a quoted market price for that instrument. For many of the Group’s financial assets and liabilities, especially derivatives, quoted prices are not available and valuation models are used to estimate fair value. The models calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. These models use as their basis independently sourced market inputs including, for example, interest rate yield curves, equities and commodities prices, option volatilities and currency rates. For financial liabilities measured at fair value, the carrying amount reflects the effect on fair value of changes in own credit spreads derived from observable market data such as in primary issuance and redemption activity for structured notes.
For valuations that have made use of unobservable inputs, the difference between the model valuation and the initial transaction price (‘Day One profit’) is recognised in profit or loss either: on a straight-line basis over the term of the transaction; or over the period until all model inputs will become observable where appropriate; or released in full when previously unobservable inputs become observable.
18 Fair value of
Various factors influence the availability of observable inputs and these may vary from product to product and change over time. Factors include the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in the marketplace, the maturity of market modelling and the nature of the transaction (bespoke or generic). To the extent that valuation is based on models or inputs that are not observable in the market, the determination of fair value can be more subjective, dependent on the significance of the unobservable input to the overall valuation. Unobservable inputs are determined based on the best information available, for example by reference to similar assets, similar maturities or other analytical techniques. The sensitivity of valuations used in the financial statements to possible changes in significant unobservable inputs is shown on page 224. Critical accounting estimates and judgements The valuation of financial instruments often involves a significant degree of judgement and complexity, in particular where valuation models make use of unobservable inputs (‘Level 3’ assets and liabilities). This note provides information on these instruments, including the related unrealised gains and losses recognised in the period, a description of significant valuation techniques and unobservable inputs, and a sensitivity analysis. Valuation IFRS 13Fair Value Measurement requires an entity to classify its assets and liabilities according to a hierarchy that reflects the observability of significant market inputs. The three levels of the fair value hierarchy are defined below. Quoted market prices – Level 1 Assets and liabilities are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis. Valuation technique using observable inputs – Level 2 Assets and liabilities classified as Level 2 have been valued using models whose inputs are observable Valuation technique using significant unobservable inputs – Level 3 Assets and liabilities are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price. Unobservable input levels are generally determined via reference to observable inputs, historical observations or using other analytical techniques.
The following table shows the Group’s assets and liabilities that are held at fair value disaggregated by valuation technique (fair value hierarchy) and balance sheet classification:
Notes to the financial statements Assets and liabilities held at fair value
18 Fair value of The following table shows the Group’s assets and liabilities that are held at fair value disaggregated by valuation technique (fair value hierarchy) and product
Valuation techniques and sensitivity analysis Sensitivity analysis is performed on products with significant unobservable inputs (Level 3) to generate a range of reasonably possible alternative valuations. The sensitivity methodologies applied take account of the nature of the valuation techniques used, as well as the availability and reliability of observable proxy and historical data and the impact of using alternative models. Sensitivities are dynamically calculated on a monthly basis. The calculation is based on range or spread data of a reliable reference source or a scenario based on relevant market analysis alongside the impact of using alternative models. Sensitivities are calculated without reflecting the impact of any diversification in the portfolio. The valuation techniques used for the material products within Levels 2 and 3, and observability and sensitivity analysis for products within Level 3, are described below. Interest rate derivatives Description: Valuation:Interest rate
18 Fair value Observability: In general, Level 3 sensitivity: Sensitivity to unobservable valuation inputs is based on the dispersion of consensus data services where available, or alternatively it is based on stress scenarios or historic data. Foreign exchange derivatives Description: Derivatives linked to the foreign exchange (FX) market. The category includes FX forward contracts, FX swaps and FX options. The majority are traded as over the counter (OTC) derivatives. Valuation: FX derivatives are valued using industry standard and bespoke models depending on the product type. Valuation inputs include FX rates, interest rates, FX volatilities, interest rate volatilities, FX interest rate correlations and others as appropriate. Observability: FX correlations, forwards and Level 3 sensitivity:
Credit derivatives Description: Valuation:CDS are valued on industry standard models using Observability:CDS contracts referencing entities that are Level 3 sensitivity:
Equity derivatives Description: Valuation: Observability: In general, Level 3 sensitivity:Sensitivity is generally estimated Commodity derivatives Description: Valuation: Observability: Commodity correlations, forwards and volatilities are generally observable up to liquid maturities which are determined separately for each input and underlying. Unobservable inputs are set with reference to similar observable products, or by applying extrapolation techniques
Level 3 sensitivity:Sensitivity is determined primarily by measuring historical variability over
Complex derivative instruments Valuation estimates made by counterparties with respect to complex derivative instruments, for the purpose of determining the amount of collateral to be posted, often differ, sometimes significantly, from Barclays’ own estimates. In almost all cases, Barclays has been able to successfully resolve such differences or otherwise reach an accommodation with respect to collateral posting levels, including in certain cases by entering into compromise collateral arrangements. Due to the ongoing nature of collateral calls, Barclays will often be engaged in discussion with one or more counterparties in respect of such differences at any given time. Valuation estimates made by counterparties for collateral purposes are considered, like any other Government and government sponsored debt Description: Valuation:Liquid Observability: prices for actively traded bonds are
Level 3 sensitivity:Sensitivity is
Notes to the financial statements Assets and liabilities held at fair value 18 Fair value of financial instrumentscontinued Corporate debt Description: Valuation:Corporate bonds are valued using observable market prices Observability: Prices for actively traded bonds are
Level 3 sensitivity: Certificates of Deposit, Commercial Paper and other money market instruments Description: Certificates of deposit, commercial paper and other money market instruments. Valuation: Instruments are valued using observable market prices sourced from broker quotes, inter-dealer prices or other reliable pricing services. Observability: Prices for actively traded instruments are considered observable. Unobservable instrument prices are generally determined by reference to bond yields or CDS spreads for actively traded instruments issued by or referencing the same (or a similar) issuer. Level 3 sensitivity: Sensitivity is generally calculated by using a range of observable alternative prices. Reverse repurchase and repurchase agreements Description: Valuation: Observability: Level 3 sensitivity:Sensitivity Non-asset backed loans Description: Valuation: Fixed rate loans are valued using models that Observability: Within this loan population, the loan spread is generally unobservable. Unobservable loan spreads
Asset backed securities Description: Valuation:Where available, valuations are based on observable market prices Proxying to observed transactions, indices or research requires an assessment and comparison of the relevant securities’ underlying attributes including collateral, tranche, vintage, underlying asset composition (historical losses, borrower characteristics and loan attributes such as Observability: Where an asset backed product does not have an observable market price and the valuation is determined using a discounted cash flow analysis, Level 3 sensitivity: The sensitivity analysis for asset backed products is based on externally sourced pricing dispersion or by stressing the inputs of
Issued debt Description: Valuation: Observability:Barclays issued notes are generally observable. Structured notes are debt instruments containing embedded derivatives. Where either an input to the embedded derivative or the debt instrument is deemed unobservable and significant to the overall valuation of the note, the structured note is classified as Level 3. Level 3 sensitivity: Sensitivity to the unobservable input in the embedded derivative is calculated in line with the method used for the
Description: Valuation: Observability: Level 3 sensitivity: Private equity investments Description: Valuation:Private equity investments are valued in accordance with the ‘International Private Equity and Venture Capital Valuation Guidelines’ Observability: Inputs are considered observable if there is active trading in a liquid market of products with significant sensitivity to the inputs. Unobservable inputs include earnings estimates, multiples of comparative companies, marketability discounts and discount rates. Level 3 sensitivity: Assets and Description:Assets and liabilities held for sale consist of disposal groups Barclays intend to sell. Valuation:Assets and liabilities held for sale are valued at the Level 3 sensitivity:The disposal groups that are measured at fair value less cost to sell are valued at the agreed price less costs to sell and are not expected to display significant sensitivity. The sensitivity of the assets and liabilities measured at carrying value is explained within the relevant product descriptions. Other Description: Other includes commercial real estate loans, funds and fund-linked products, asset-backed loans, physical commodities and investment property. Assets and liabilities reclassified between Level 1 and Level 2 During the period, there were transfers of £3,807m of government bond assets and £1,023m/£(950)m of commodity derivative assets and liabilities from Level 1 to Level 2 (2016: £2,340m of government bond assets transferred from Level 2 to Level 1) to reflect the market observability of these product types. These transfers are reflected as if they had taken place at the beginning of the year. Level 3 movement analysis The following table summarises the movements in the Level 3 balances during the period. Transfers have been reflected as if they had taken place at the beginning of the year. Assets and liabilities included in disposal groups classified as held for sale and measured at fair value less cost to sell are not included as these are measured at fair value on Asset and liability transfers between Level 2 and Level 3 are primarily due to i) an increase or decrease in observable market activity related to an input or ii) a change in the significance of the unobservable input, with assets and liabilities classified as Level 3 if an unobservable input is deemed significant. During the year:
Notes to the financial statements Assets and liabilities held at fair value
18 Fair value of
Note
18 Fair value of financial instrumentscontinued
Note
Notes to the financial statements Assets and liabilities held at fair value 18 Fair value of financial instrumentscontinued Unrealised gains and losses on Level 3 financial assets and liabilities The following table discloses the unrealised gains and losses recognised in the year arising on Level 3 financial assets and liabilities held at year end.
Note
The effect of stressing unobservable inputs to a range of reasonably possible alternatives, alongside considering the impact of using alternative models, would be to increase fair values by up to
18 Fair value of Significant unobservable inputs The following table discloses the valuation techniques and significant unobservable inputs for assets and liabilities recognised at fair value and classified as Level 3 along with the range of values used for those significant unobservable inputs:
Notes
The following section describes the significant unobservable inputs identified in the table above, and the sensitivity of fair value measurement of the instruments categorised as Level 3 assets or liabilities to increases in significant unobservable inputs. Where sensitivities are described, the inverse relationship will also generally apply. Where reliable interrelationships can be identified between significant unobservable inputs used in fair value
In general, a significant increase in
Credit spread Credit spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Credit spreads reflect the additional yield that a market participant In general, a significant increase in credit spread in isolation will result in a movement in a fair value For a derivative instrument, a significant increase in credit spread in isolation can result in a Volatility Volatility is a measure of the variability or uncertainty in return for a given derivative underlying. It is an estimate of how much a particular underlying instrument input or index will change in value over time. In general, volatilities are implied from observed option prices. For unobservable options the implied volatility may reflect additional assumptions about the nature of the underlying risk, and the strike/maturity profile of a specific contract. In general a significant increase in volatility in isolation will result in a fair value increase for the holder of a simple option, but the sensitivity is dependent on the specific terms of the instrument. There may be interrelationships between unobservable volatilities and other unobservable inputs (e.g. when equity prices fall, implied equity volatilities generally rise) but these are generally specific to individual markets and may vary over time.
Notes to the financial statements Assets and liabilities held at fair value 18 Fair value of financial instrumentscontinued Correlation Correlation is a measure of the relationship between the movements of two variables. Correlation can be a significant input into valuation of derivative contracts with more than one underlying instrument. Credit correlation generally refers to the correlation between default processes for the separate names that A significant increase in correlation in isolation can result in a fair value increase or Comparable price Comparable instrument prices are used in valuation by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparable observable instrument, then adjusting that yield (or spread) to account for relevant differences such as maturity or credit quality. Alternatively, aprice-to-price basis can be assumed between the comparable and unobservable instruments in order to establish a value. In general, a significant increase in comparable price in isolation will result in an increase in the price of the unobservable instrument. For derivatives, a change in the comparable price in isolation can result in a fair value increase or decrease depending on the specific terms of the instrument. Loan spread Loan spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Loan spreads typically reflect The ESHLA portfolio primarily consists of long dated fixed rate loans extended to counterparties in the UK Education, Social Housing and Local Authority sectors. The loans are categorised as Level 3 in the fair value hierarchy due to their illiquid nature and the significance of unobservable loan spreads to the valuation. Valuation uncertainty arises from the long dated nature of the portfolio, the lack of secondary market in the loans and the lack of observable loan spreads. The majority of ESHLA loans are to borrowers in heavily regulated sectors that are considered extremely low credit risk, and have a history of zero defaults since inception. While the overall In general, a significant increase in loan spreads in isolation will result in a
Loss given default (LGD)
In general, a significant increase in the LGD in isolation will translate to lower recovery and lower projected cash flows to pay to the securitisation, resulting in a movement in fair value that is unfavourable for the holder of the securitised product.
Earnings before interest, taxes, depreciation and amortization. In general a significant increase in
Fair value adjustments Key balance sheet valuation adjustments are quantified below:
The Group uses Bid-offer levels are generally derived from market
Exit price adjustments derived from marketbid-offer spreads have reduced by Discounting approaches for derivative instruments Collateralised In line with market practice, the methodology for discounting collateralised derivatives takes into account the nature and currency of the collateral that can be posted within the relevant
18 Fair value of financial instrumentscontinued Uncollateralised A fair value adjustment of FFVA is determined by calculating the net expected exposure at a counterparty level and applying a funding rate to FFVA incorporates a scaling factor which is an estimate of the extent to which the cost of funding is incorporated into observed traded levels. On calibrating the scaling factor, it is with the assumption that Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA) are retained as valuation components incorporated into such levels. The effect of incorporating this scaling factor at 31 December
Barclays continues to monitor market practices and activity to ensure the approach to uncollateralised derivative valuation remains appropriate. The above approach has been in use since 2012 with no significant changes. Derivative credit and debit valuation adjustments
Exposure at default is generally Probability of default and recovery rate information is generally sourced from the CDS markets. Correlation between counterparty credit and underlying derivative risk factors, CVA decreased by Portfolio exemptions The Group uses the portfolio exemption in IFRS 13Fair Value Measurement to measure the fair value of groups of financial assets and liabilities. Instruments are measured using the price that would be received to sell a net long position Unrecognised gains as a result of the use of valuation models using unobservable inputs
For financial instruments measured at
Third party credit enhancements Structured and brokered certificates of deposit issued by Barclays
Notes to the financial statements Assets and liabilities held at fair value
18 Fair value of Comparison of carrying amounts and fair values for assets and liabilities not held at fair value The following table summarises the fair value of financial assets and liabilities measured at amortised cost on the Group’s balance sheet:
The fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As a wide range of valuation techniques are
Financial assets The carrying value of financial assets held at amortised cost Loans and advances to banks The fair value of loans and advances, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that reflects the current market price for lending to issuers of similar credit quality. Where market data or credit information on the underlying borrowers is unavailable, a number of proxy/extrapolation techniques are employed to determine the appropriate discount rates. There is minimal difference between the fair value and carrying amount due to the Loans and advances to customers The fair value of loans and advances to customers, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that reflects the current market price for lending to issuers of similar credit quality. For retail lending, Key inputs to these models are the differentials between historic and current product margins and estimated prepayment rates. The discount of fair value to carrying amount for home loans has reduced to The fair value of corporate loans is calculated by the use of discounted cash flow techniques where the gross loan values are discounted at a rate of difference between contractual margins and hurdle rates or spreads where Barclays charges a margin over LIBOR depending on credit quality and loss given default and years to maturity. The discount between the carrying and fair value has
18 Fair value of financial instrumentscontinued Reverse repurchase agreements The fair value of reverse repurchase agreements approximates carrying amount as these balances are generally short dated and fully collateralised. Financial liabilities The carrying value of financial liabilities held at amortised cost Deposits from banks and customer accounts In many cases, the fair value disclosed approximates carrying value because the instruments are short term in nature or have interest rates that reprice frequently, such as customer accounts and other deposits and The fair value for deposits with longer term maturities Debt securities in issue Fair values of other debt securities in issue are based on quoted prices where available, or where the instruments are short dated, carrying amount approximates fair value. The fair value difference has Repurchase agreements The fair value of repurchase agreements approximates carrying amounts as these balances are generally short dated. Subordinated liabilities Fair values for dated and undated convertible andnon-convertible loan capital are based on quoted market rates for the 19 Offsetting financial assets and financial liabilities In accordance with IAS 32Financial
The table identifies the amounts that have been offset in the balance sheet and also those amounts that are covered by enforceable netting arrangements (offsetting arrangements and financial collateral) but do not qualify for netting under the requirements of IAS 32 described above. The ‘Net amounts’ presented
Notes to the financial statements Assets and liabilities held at fair value
19 Offsetting financial assets and financial liabilitiescontinued
Notes
Derivative assets and liabilities The ‘Financial instruments’ column identifies financial assets and liabilities that are subject to Financial collateral refers to cash andnon-cash collateral obtained, typically daily or weekly, to cover the net exposure between counterparties by enabling the collateral to be realised in an event of default or if other predetermined events occur. Repurchase and reverse repurchase agreements and other similar secured lending and borrowing The ‘Amounts offset’ column identifies financial assets and liabilities that are subject to set off under netting agreements, such as Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated in the event of counterparty default. These offsetting and collateral arrangements and other credit risk mitigation strategies used by the Group are further explained in the Credit risk mitigation section on page
Notes to the financial statements Financial instruments held at amortised cost
The notes included in this section focus on assets that are held at amortised cost arising from the Group’s retail and wholesale lending including loans and advances, finance leases, repurchase and reverse repurchase agreements and similar secured lending. Detail regarding the Group’s 145. 20 Loans and advances to banks and customers
21 Finance leases Accounting for finance leases The Group applies IAS 17Leases in accounting for finance leases, both where it is the lessor or the lessee. A finance lease is a lease which confers substantially all the risks and rewards of the leased assets on the lessee. Where the Group is the lessor, the leased asset is not held
Interest income or expense is recognised in interest receivable or payable, allocated to accounting periods to reflect a constant periodic rate of return.
Finance lease receivables Finance lease receivables are included within loans and advances to customers. The Group
Following a review in 2017, a portfolio of assets within loans and advances to customers has been identified as finance leases. This has resulted in an increase in the finance lease receivables balance of £1,537m in 2017 as reflected in the table above. The impairment allowance for uncollectable finance lease receivables
Finance lease liabilities The Group leases items of property, plant and equipment on terms that meet the definition of finance leases. Finance lease liabilities are included within Note As at 31 December
Notes to the financial statements Financial instruments held at amortised cost 22 Reverse repurchase and repurchase agreements including other similar lending and borrowing Reverse repurchase agreements (and stock borrowing or similar transaction) are a form of secured lending whereby the Group provides a loan or cash collateral in exchange for the transfer of collateral, generally in the form of marketable securities subject to an agreement to transfer the securities back at a fixed price in the future. Repurchase agreements are where the Group obtains such loans or cash collateral, in exchange for the transfer of collateral.
Accounting for reverse repurchase and repurchase agreements including other similar lending and borrowing The Group purchases (a reverse repurchase agreement) or borrows securities subject to a commitment to resell or return them. The securities are not included in the balance sheet as the Group does not acquire the risks and rewards of ownership. Consideration paid (or cash collateral provided) is accounted for as a loan asset at amortised cost, unless it is designated at fair value through profit and loss. The Group may also sell (a repurchase agreement) or lend securities subject to a commitment to repurchase or redeem them. The securities are retained on the balance sheet as the Group retains substantially all the risks and rewards of ownership. Consideration received (or cash collateral provided) is accounted for as a financial liability at amortised cost, unless it is designated at fair value through profit and loss.
Notes to the financial statements Non-current assets and other investments
The notes included in this section focus on the Group’snon-current tangible and intangible assets and property, plant and equipment, which provide long-term future economic benefits.
23 Property, plant and equipment
This section describes the governance structure specific to the management of market risks, as well as a discussion of measurement techniques.
The rest of the section
Barclays’ approach to managing risks Management of market risk
Overview
Market risk oversight and challenge is provided by business Roles and responsibilities The objectives of market risk management are to:
To The BRC recommends market risk appetite to the Board for their approval. The Market Risk Principal Risk
The head of each business is accountable for all market risks associated with its activities, while the head of the market risk team covering each business is responsible for implementing the Risk management in the setting of strategy Appetite for market risk is recommended by the risk function to BRC for agreement by the Board. Mandate and scales are set to control levels of market risk and
Market risk culture Market risk managers are independent from the businesses they cover, and their line management reports into the CRO. This embeds a risk culture with strong adherence to limits that support Group-wide risk appetite.
Barclays’ approach to managing risks Management of Management of market risk, mitigation and hedging policies The governance structure helps Traded market risk is generated primarily as a result of market making activities, syndications and providing risk management solutions to clients. Group Treasury supports the businesses in managing their interest rate risk. Positions will contribute both to market risk limits and regulatory capital if relevant. As part of the continuous monitoring of the risk profile, Market Risk meets with the businesses to discuss the risk profile on a regular basis. The outcome of these reviews includes further detailed assessments of event risk via stress testing, risk mitigation and risk reduction.
Market risk management measures A range of complementary approaches to measure
The use of Management VaR for traded market risk is broader than the application for use of VaR for regulatory capital, and captures standardised, advanced and certain banking books where Stress testing and scenario analysis are also an important part of the risk management framework, to capture potential risk that may arise in severe but plausible events. Management VaR
VaR is an estimate of the potential loss arising from unfavourable market movements if the current positions were to be held unchanged for one business day. For internal market risk management purposes, a historical simulation methodology with a two-year equally weighted historical period, at the 95% confidence level is used for all trading books and some banking books. Risk factors driving VaR are grouped into key risk types as
In some instances, historical data is not available for particular market risk factors for the entire look-back period, for example, complete historical data would not be available for our equity security following an initial public offering. In these cases, market risk managers will proxy the unavailable market risk factor data with available data for a related market risk factor. The output of the Management VaR model can be readily tested through back testing. This checks instances where actual losses exceed the predicted potential loss estimated by the VaR model. If the number of instances is higher than expected, where actual losses exceed the predicted potential loss estimated by the VaR model, this may indicate limitations with the VaR calculation, for example, a risk factor that would not be adequately captured by the model. The Management VaR model in some instances may not appropriately measure some market risk exposures, especially for market moves that are not directly observable via prices. Market risk managers are required to identify risks which are not adequately captured in VaR (‘risks not in VaR’ or ‘RNIVs’, discussed below). When reviewing VaR estimates, the following considerations are taken into account:
Limits are applied at the total level as well as by risk factor type, which are then cascaded down to particular trading desks and businesses by the market risk management function.
Barclays’ approach to managing risks Management of Primary stress tests Primary stress tests are key tools used by management to measure liquid market risks from extreme market movements or scenarios in each major trading asset class. Stress testing provides an estimate of potential significant future losses that might arise from extreme market moves or scenarios. Primary stress tests apply stress moves to key liquid risk factors for each of the major trading asset classes, namely:
Primary stresses apply moves to liquid assets incorporating up to 10 days holding period. Shock scenarios are determined by a combination of observed extreme historical moves and forward looking elements as appropriate. Primary stresses are calculated for each asset class on a standalone basis. Risk managers calculate several stress scenarios and communicate the results to senior managers to highlight concentrations and the level of exposures. Primary stress loss limits are applied across the trading businesses and is a key market risk control. Secondary stress tests Secondary stress tests are key tools used by management to measure illiquid market risks from extreme market movements or scenarios in each major trading asset class. Secondary stress tests are used in measuring potential losses arising from market risks that are not captured in the primary stress tests. These may relate to financial instruments or risk exposures which are not readily or easily tradable or markets that are naturally sensitive to a rapid deterioration in market conditions.
For each asset class, secondary stresses are aggregated to a single stress loss which allows the business to manage its liquid and illiquid risk factors. Limits against secondary stress losses are also applied, which allows the firm to manage and control the level of illiquid risk factors. Stresses are specific to the exposure held and are calibrated on both observed extreme moves and some forward-looking elements as appropriate. Business scenario stresses Business scenario stresses are key tools used by management to measure aggregated losses across the entire trading book as a result of extreme forward-looking scenarios encompassing simultaneous shocks to multiple asset classes. Business scenario stresses apply simultaneous shocks to all risk factors assessed by applying changes to foreign exchange rates, interest rates, credit spreads, commodities and equities to the entire portfolio, for example, the impact of a rapid and extreme slowdown in the global economy. The measure shows results on a multi-asset basis across all trading exposures. Business scenarios are used for risk appetite monitoring purposes and are useful in identifying concentrations of exposures and highlighting areas that may provide some diversification. The estimated Scenarios
Regulatory view of traded positions For regulatory purposes, the trading book is defined as one that consists of all positions in CRD financial instruments and commodities held either with trading intent, or in order to hedge other elements of trading, and which are either free of any restrictive covenants on their tradability, or able to be hedged. A CRD financial instrument is defined as a contract that gives rise to both a financial asset of one party and a financial liability or equity instrument of another party. All of the below regulatory measures, including the standardised approach, generate market risk capital requirements, in line with the regulatory requirements set out in the Capital Requirements Directive (‘CRD IV’) and Regulation. Positions which cannot be included in the trading book are included within the banking book and generate risk capital requirements in line with this treatment. Inclusion of exposures in the regulatory trading book The Group maintains a Trading Book Policy, which defines the minimum requirements a business must meet to run trading positions and the process by which positions are allocated to trading or banking books. Trading intent is a key element in deciding whether a position should be treated as a trading or banking book exposure. Positions in the trading book are subject to market risk capital, computed using models where regulatory approval has been granted, otherwise the market risk capital requirement is calculated using standard rules as defined in the Capital Requirement Regulation (CRR), part of the CRD IV package. If any of the criteria specified in the policy are not met for a position, then that position must be allocated to the banking book. Most of the Group’s market risk regulatory models are assigned the highest model materiality rating. Consequently, the Regulatory VaR model is subject to annual re-approval Valuation standards CRR article 105 defines regulatory principles which need to be applied to fair value assets and liabilities, in order to determine a prudent valuation. The Prudent Valuation Adjustment (PVA) is applied to accounting fair values where there are a range of plausible alternative valuations. It is calculated in accordance with Article 105 of the
Barclays’ approach to managing risks Management of market risk Regulatory measures for There are a number of regulatory measures which the Group has permission to use in calculating regulatory capital (internal models approval)
The legal entities for which the PRA has given permission to use internal models for market risk regulatory capital are: BBPlc Trading and BCSL (consolidated), BBPlc Trading, BCSL and BBSA. The legal entity for which the FRBNY has given permission to use internal models is IHC. Regulatory VaR
Regulatory VaR allows oversight of the total potential losses, at a given confidence level, of those trading books which received approval from the regulator to be covered via an internal model. The Group uses a Regulatory VaR Management VaR allows the bank to supervise the total market risk across the Group, including all trading books and some banking books. Management VaR is also utilised for the internal capital model (economic capital). Regulatory VaR is fundamentally the same as the Management VaR (see page The model is complemented with RNIVs, as described on page
Stressed Value at Risk (SVaR)
The SVaR model must be identical to the VaR model used by the Group, with the exception that the SVaR model must be calibrated to a one-year period of significant financial stress (‘the SVaR period’). The Group selects the SVaR period to be a one-year period that maximises the sum of general market risk Regulatory VaR and specific market risk Regulatory VaR for positions in scope of regulatory approval. The SVaR period is reviewed on a SVaR cannot be meaningfully backtested as it is not sensitive to current market conditions. Many market risk factors with complete historical data over a two-year period may not have complete data covering the SVaR period and consequently, more proxies may be required for SVaR than for VaR. The SVaR metric itself has the same strengths and weaknesses as the Group’s VaR model. Incremental Risk Charge (IRC)
IRC captures the risk arising from ratings migrations or defaults in the traded credit portfolio. IRC measures this risk at a 99.9% confidence level with a one-year holding period and applies to all positions in scope for specific risk including sovereign exposure. The Group’s IRC model simulates default and ratings transition events for individual names. The behaviour of names is correlated with one another to simulate a systemic factor to model the possibility of multiple downgrades or defaults. The correlations between non-sovereign names are based on the Basel-defined correlations stipulated in the IRB approach to measuring credit risk capital, with a fixed correlation between sovereign names. The Group’s IRC model simulates the impact of a ratings transition by estimating the improvement or deterioration in credit spreads resulting from the transition and assumes that the historically observed average change in credit spreads (measured in relative terms) resulting from ratings transitions provides an accurate estimate of likely widening or tightening of credit spreads in future transitions. For each position, the model computes the impact of spread moves up or down at pre-specified relative movements, and the actual impact is obtained by interpolating or extrapolating the actual spread move from these pre-computed values. The Group’s IRC model assumes that ratings transitions, defaults and any spread increases occur on an instantaneous basis.
Barclays’ approach to managing risks Management of market risk
The model captures the following risk factors in the correlation trading portfolio:
The Group’s The Group’s CRM model assumes that ratings transitions, defaults and any spread increases occur on an instantaneous basis. The Group applies stress tests to the modelling parameters based on combinations of changes in credit spreads, correlations and default events. Regulatory back testing Back testing is the method by which the Group checks and affirms that its procedures for estimating VaR are reasonable and serve its purpose of estimating the potential loss arising from unfavourable market movements. The back testing process is a regulatory requirement and seeks to estimate the performance of the regulatory VaR model. Performance is measured by the number of exceptions to the model i.e. net trading P&L loss in one trading day is greater than the estimated VaR for the same trading day. The Group’s procedures could be underestimating VaR if exceptions occur Back testing is performed at a legal entity level, sub-portfolio levels and business-aligned portfolios (shown in the table below and in the charts on the next page) on the Group’s regulatory VaR model. Regulatory back testing compares Regulatory VaR at 99% confidence level (one-day holding period equivalent) to actual and hypothetical changes in portfolio value as defined in CRR Article 366. The consolidated Barclays Bank PLC and Barclays Capital Securities Ltd is the highest level of consolidation for the VaR models that are used in the calculation of regulatory capital. A back testing exception is generated when a loss is greater than the daily VaR for any given day. As defined by the PRA, a green days when a loss exceeds the corresponding VaR estimate, measured at the 99% regulatory confidence level. For the Investment Bank’s regulatory DVaR model at the consolidated legal entity level, green model status was maintained for Back testing is also performed on management VaR to
The table below shows the VaR back testing exceptions on legal entities aligned to the Group’s business
Notes
Barclays’ approach to managing risks Management of market risk The charts below show VaR for the Group’s regulatory portfolios aligned
itself but separately captured as non VaR-type, namely Risks Not in VaR (RNIVs). Exceptions are reported to internal management and regulators on a regular basis and
Barclays’ approach to managing risks Management of market risk
Management of risks not fully captured in models, including Risks not in VaR (RNIVs) The
In some instances, the Management and Regulatory VaR model may not appropriately measure some market risks, especially where market moves are not directly observable via prices, the Group has policies to
The treatment of RNIVs follows whether the risks are considered VaR type or non-VaR type, which depends on, and can change with, the evolving state of financial markets:
For regulatory capital these RNIVs are aggregated without any offsetting or diversification benefit.
The metrics that are used to measure market risk are controlled through the implementation of appropriate limit frameworks. Limits are set at the total Group level, asset class level, for example, interest rate risk, and at business level, for example, Firm-wide limits are reported to the BRC and are termed A-level limits for total management VaR, asset class VaR, primary stress and secondary stresses and business scenarios. These are then cascaded down by risk managers in order to meet the firm-wide risk appetite. Each A-level limit is set after consideration is given to revenue generation opportunities and overall risk appetite approved by the Board. Compliance with limits is monitored by the independent risk functions in the trading businesses with oversight provided by Group Market Risk. Throughout
Trading businesses market risk managers produce a number of detailed and summary market risk reports daily, weekly, fortnightly and monthly for business and risk managers. Where relevant on a Group-wide basis, these are sent to Group Market Risk for review and a risk summary is presented at the Group Market Risk Committee and the trading businesses’ various market risk committees. The overall market risk profile is also presented to BRC on a regular basis.
Barclays’ approach to managing risks Management of Securitisations give rise to credit, market and other risks. This section discusses the types of business activities and exposures that we incur in the course of activities related to securitisations.
Barclays’ approach to managing risks Management of securitisation exposures This section discloses information about the Group’s securitisation activities distinguishing between the various functions performed in supporting its customers and managing its risks. It includes traditional securitisations as well as synthetic transactions effected through the use of derivatives or guarantees. A securitisation is defined as a transaction or scheme where the payments are dependent upon the performance of a single exposure or pool of exposures and where the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme. Such transactions are ordinarily undertaken to transfer risk Certain transactions undertaken by the Group are not disclosed in the quantitative sectionas they do not fall under the regulatory securitisation framework (defined under Part Three, Title II, Chapter 5 of the CRR, part of the CRD IV package). These include funding transactions for the purposes of generating term liquidity, and certain government guaranteed transactions. Objectives of securitisation activities In the course of its business, the Group has undertaken securitisations of its own originated assets as well as the securitisation of third party assets via special purpose vehicles, sponsored conduit vehicles and shelf programmes. The Group has securitised its own originated assets in order to manage the Group’s credit risk position and to generate term funding for the Group balance sheet. The Group also participates in primary securitisations and distributes bonds to the market to facilitate term liquidity for its clients. The Group also purchases asset backed loans and securities for the purpose of supporting client franchise, and purchases asset backed securities (ABS) for the purpose of investing its liquidity pool. Further, the Group makes a secondary market for a range of securitised products globally, including residential mortgage backed securities (RMBS), commercial mortgage backed securities (CMBS) and ABS. The role and involvement of the Group in securitisations in 2017 The Group adopts the following roles in the securitisation processes in which it is involved: Originator of assets prior to securitisation The Group originates or purchases commercial mortgage loans for the purpose of securitisation. The securities are then sold to investors through a broker-dealer subsidiary. The Group securitises assets otherwise originated in the ordinary course of business including corporate loans, consumer loans and commercial mortgage loans. The Group also provides derivative transactions to securitisations sponsored by itself and third parties. These transactions carry counterparty credit risk and are included in the Group trading book. Providing warehousing facilities collateralised by third party assets prior to securitisation or exit via whole-loan sale The Group provides warehouse financing to third party loan originators, including for agency eligible loans that can be securitised by the Federal National Mortgage Association (‘Fannie Mae’), the Federal Home Loan Mortgage Corporation (‘Freddie Mac’), or the Government National Mortgage Association (‘Ginnie Mae’) and for corporate loans that can be securitised via collateralised loan obligations (CLO). Executor of securitisation trades including bond marketing and syndication The Group transacts primarily as a principal in RMBS, ABS, CLO and CMBS with institutional investors and other broker-dealers. Agency backed residential and commercial mortgage securitisations include Credit Risk Transfer securities (Fannie Mae-sponsored CAS and Freddie Mac-sponsored STACR bonds). ABS securitisations include consumer ABS (e.g. credit card, student loan and auto) and non-traditional ABS (e.g. timeshares, wireless towers and whole business securitisations). Non-agency commercial mortgage securitisations include CMBS and commercial real estate collateralised loan obligations (CRE CLO). The Group makes secondary market in CLOs and acts as arranger on behalf of clients to structure and place arbitrage CLOs. Purchaser of third party securitisations to support client franchise The Group may purchase third party securitisations. The Group also funds on its own balance sheet securitisations similar to the ones funded via its sponsored conduits (see below). In such transactions the Group would not be defined as an originator or sponsor for regulatory purposes. Sponsoring conduit vehicles The Group acts as managing agent and administrative agent of two multi-seller asset backed commercial paper (ABCP) conduits, Sheffield Receivables Company, LLC (Sheffield) and Salisbury Receivables Company, LLC (Salisbury), through which interests in securitisations of third party originated assets are funded via a variety of funding mechanics including the issuance of ABCP. From a regulatory perspective, Barclays acts as a sponsor of Sheffield and Salisbury. In relation to such conduit activity, the Group provides all or a portion of the backstop liquidity to the commercial paper, programme-wide credit enhancement and, as appropriate, interest rate and foreign currency hedging facilities. The Group receives fees for the provision of these services. Sheffield and Salisbury hold securities classified as available for sale, measured at fair value with changes in fair value recognised through other comprehensive income (OCI) and non-securities classified as loans and receivables, measured at amortised cost on its standalone financial statements. It funds the assets through the issuance of ABCP. Note that Sheffield and Salisbury are consolidated for accounting but not regulatory purposes. Funding transactions to generate term liquidity Secured funding forms one of the key components of the Group’s diversified funding sources providing access to the secured wholesale market and complementing the diversification of funding by maturity, currency and geography. The Group issues ABS and covered bonds secured primarily by customer loans and advances. The Group currently manages four key, on-balance sheet asset backed funding programmes to obtain term financing for mortgage loans and credit card receivables. These programmes also support retained issuances for the Group to access central bank liquidity and funding. The UK regulated covered bond and the residential mortgage master trust securitisation programmes both utilise assets originated by the Group’s UK residential mortgage business. The third programme is a credit card master trust securitisation and uses receivables from the Group’s UK credit card business. The fourth programme is a SEC registered securitisation programme backed by US domiciled credit card receivables. Risk transfer transactions The Group has entered into synthetic and cash securitisations of corporate and commercial loans (originated in the ordinary course of business) for the purposes of the transfer of credit risk to third party investors. The regulatory capital requirements of these transactions fall under CRD IV.
Barclays’ approach to managing risks Management of securitisation exposures Securitisation risks, monitoring and hedging policies
Credit risks In a securitisation structure, the payments are dependent upon the performance of a single exposure or pool of exposures. As these underlying exposures are usually credit instruments, the performance of the securitisation is exposed to credit risk. Securitisation exposures are subject to the Group Credit Risk policies and standards and business level procedures. This includes the requirement to review in detail each transaction at a minimum on an annual basis. As collateral risk is the primary driver the analysis places a particular focus on the underlying collateral performance, key risk drivers, servicer due diligence and cash flows, and the impact of these risks on the securitisation notes. The risk is addressed through the transaction structure and by setting an appropriate modelled tolerance level. Structural features incorporate wind-down triggers set against factors including, but not limited to, defaults/ charge-offs, delinquencies, excess spread, dilution, payment rates and yield, all of which help to mitigate potential credit deterioration. Qualitative aspects such as counterparty risk and ancillary issues (operational and legal risk) are also considered. Changes to the credit risk profile of securitisation exposures will also be identified through ongoing transaction performance monitoring. In addition, periodic stress tests of the portfolio as part of ongoing risk management are conducted as well as in response to Group-wide or regulatory requests. The principal committee responsible for the monitoring of the credit risk arising from securitisations is Wholesale Credit Risk Management Committee (WCRMC). Executive responsibility rests with the Regional Heads of Financial Institutions Credit Risk. Market and liquidity risks Market risk for securitised products is measured, controlled and limited through a suite of VaR, non-VAR and stress metrics in accordance with the Group’s Market Risk Policies and Procedures. The key risks of securitisation structures are interest rate, credit, spread, prepayment and liquidity risk. Interest rate and spread risk are hedged with standard liquid interest rate instruments (including interest rate swaps, US Treasuries and US Treasury futures). The universe of hedging instruments for credit and prepayment risk is limited and relatively illiquid, resulting in basis risks. In providing warehouse financing, the Group is exposed to mark to market (if counterparty defaults on related margin call). Hedging Securitisation and re-securitisation exposures benefit from the relative seniority of the exposure in the capital structure. Due to lack of availability in the credit default swap market for individual asset backed securities, there are no material CDS hedge counterparties relating to the securitisation and re-securitisation population. Operational risks Operational risks are incurred in all of the Group’s operations. In particular, all securitised (and re-securitised) assets are subject to a degree of risk associated with documentation and the collection of cash flows. In providing warehouse financing, the Group incurs potential contingent operational risks related to representations and warranties should there be a need to foreclose on the line and it later be discovered that the underlying loans were not underwritten to agency agreed criteria. Such risks are mitigated by daily collateral margining and ready agency bids. Market risk is also mitigated by employing forward trades. The Operational Risk Review Forum oversees the management of operational risks for the entire range of the Group’s activities. Rating methodologies, ECAIs and RWA calculations RWAs reported for securitised and re-securitised banking book and trading book assets at 31 December 2017 are calculated in line with CRR and UK PRA rules and guidance. The Group has approval to use, and therefore applies, the internal ratings based approach for the calculation of RWAs where appropriate, and the Standardised Approach elsewhere. The Group employs eligible ratings issued by nominated External Credit Assessment Institutions (ECAIs) to risk weight its securitisation and re- securitisation exposure where their use is permitted. Ratings are considered eligible for use based on their conformance with the internal rating standard which is compliant with both CRR and European Credit Rating Agency regulation. The ECAIs nominated by the Group for this purpose are Standard & Poor’s, Moody’s, Fitch, DBRS and Kroll. As required by CRR, the Group uses credit ratings issued by these ECAIs consistently for all exposures within the securitisation exposure class. For that reason, there is no systematic assignment of particular agencies to types of transactions within the securitisation exposure class. For Sheffield and Salisbury, the Internal Assessment Approach (IAA) framework mirrors the ECAI methodology, which also includes Moody’s and Fitch, who rate the Sheffield and Salisbury programmes. Under the IAA framework, the securitisation exposure must be internally rated, and the bank’s internal assessment process must meet certain requirements in order to map its own internal rating to an ECAI. Cash flow stress analysis on a securitisation structure is performed as prescribed by an ECAI methodology for the relevant ratings level, and is at least as conservative as the published methodology. Stress factors may include, among other factors, asset yields, principal payment rates, losses, delinquency rates and interest rates. In determining an internal rating, collateral risks are the primary driver and are addressed through the transaction structure and modelled statistical confidence. The analysis reflects the Group’s view on the transaction, including dilution risk, concentration and tenor limits, as well as qualitative aspects such as counterparty risk and important ancillary issues (operational and legal risks). The adequacy and integrity of the servicer’s systems and processes for underwriting, collections policies and procedures are also reviewed. The Group conducts a full due diligence review of the servicer for each transaction. Each transaction is reviewed on, at least, an annual basis with a focus on the performance of underlying assets. The results of any due diligence review and the financial strength of the seller/servicer, are also factored into the analysis. Ratings of the transaction are reaffirmed with the most up to date ECAI methodologies. Any transaction which deviates from the current methodology is amended accordingly.
Barclays’ approach to managing risks Management of securitisation exposures Summary of the accounting policies for securitisation activities Certain Group-sponsored entities have issued debt securities or have entered into funding arrangements with lenders in order to finance specific assets. An entity is consolidated by the Group when the Group has control over the entity. The Group controls an entity if it has all of the three elements of control which are i) power over the entity; and ii) exposure, or rights, to variable returns from its involvement with the entity; iii) the ability to use its power over the entity to affect the amount of the Group returns. The consolidation treatment must be initially assessed at inception and is reassessed if facts and circumstances indicate that there are changes to one or more of the three elements of control. Typically, assets that are awaiting securitisation on the Group balance sheet are measured at fair value through P&L, using the appropriate method for the asset class as they are classified as held for trading or are designed at fair value through profit and loss, under the IAS 39 fair value option. However some non-derivative assets held prior to securitisation may qualify as loans and receivables and are measured at amortised cost. When securitised assets have been included on the Group balance sheet it is necessary to consider whether those assets may be removed from the Group balance sheet. Assets which have been transferred to third parties (i.e. an unconsolidated Group entity), will remain on the Group balance sheet, and treated as financings, unless the following criteria apply:
Any financial support or contractual arrangements provided to unconsolidated entities, over securitised assets, would be recognised as a liability on balance sheet if it met the relevant IFRS criteria, or gave rise to a provision under IAS 37, and have to be disclosed (see Note 39 on page 265). Note, however, that the Group has a Significant Risk Transfer policy that does not allow for any support to be provided to any transactions that fall under the securitisation framework. Assets may be transferred to a third party through a legal sale or an arrangement that meets the ‘pass through’ criteria where the substance of the arrangement is principally that the Group is acting solely as a cash collection agent on behalf of the eventual recipients. Where the transfer applies to a fully proportionate share of all or specifically identified cash flows, the relevant accounting treatment is applied to that proportion of the asset. When the above criteria support the case that the securitisation should not be accounted for as financing, the transaction will result in sale treatment or partial continued recognition of the assets to the extent of the Group’s continuing involvement in those assets. Gains are recognised to the extent that proceeds that can be measured using observable market data exceed the assets derecognised. Any retained interests, which will consist of loans and/or securities depending on the nature of the transaction, are valued in accordance with the Group’s Accounting Policies, as set out in the 2017 Annual Report. To the extent that these interests are measured at fair value, they will be included within the fair value disclosures in the financial statements in the Annual Report. As outlined in these disclosures, key valuation assumptions for retained interests of this nature will include spreads to discount rates, default and recovery rates and prepayment rates that may be observable or unobservable. In a synthetic securitisation transaction, the underlying assets are not sold into the relevant special purpose entity (SPE). Instead, their performance is transferred into the vehicle through a synthetic instrument such as a CDS, a credit linked note or a financial guarantee. The accounting policies outlined above will apply to synthetic securitisations.
Barclays’ approach to managing risks Management of treasury and capital risk This section provides an analysis of the management of liquidity, capital and interest rate risk in the banking book
Barclays’ approach to managing risks Management of treasury and capital risk Treasury and capital risk
Overview Barclays Treasury manages treasury and capital risk on a day-to-day basis with the Liquidity risk management Overview The efficient management of liquidity is essential to the Group in retaining the confidence of the financial markets and maintaining that the business is sustainable. There is a control framework in place for managing liquidity risk and this is designed to meet the following objectives:
This is achieved via a combination of policy formation, review and governance, analysis, stress testing, limit setting and monitoring. Together, these meet internal and regulatory requirements. Roles and responsibilities The Treasury and Capital Risk function is responsible for the management and governance of the liquidity risk mandate defined by the Board and the production of ILAAPs. Treasury has the primary responsibility for managing liquidity risk within the set risk appetite. The CRO for treasury and capital risk reports to the Group CRO. Organisation and structure Liquidity risk management A control framework is in place for Liquidity Risk under which the Treasury function operates. The control framework describes liquidity risk management processes, associated policies and controls that the Group has implemented to manage liquidity risk within the Liquidity Risk Appetite (LRA) and is subject to annual review. Internal architecture is in place to record and measure our group wide liquidity metrics reporting The Board sets the LRA based on the internal liquidity risk model and external regulatory requirements namely the Liquidity Coverage Ratio (LCR). The LRA is represented as the level of risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The approved LRA is implemented in line with the control framework and policy for liquidity risk. Control framework Barclays comprehensive control framework for managing the Group’s liquidity risk is designed to deliver the appropriate term and structure of funding consistent with the LRA set by the Board. The control framework incorporates a range of ongoing business management tools to monitor, limit and stress test the Group’s balance sheet and contingent liabilities and the Recovery Plan. Limit setting and transfer pricing are tools that are designed to control the level of liquidity risk taken and drive the appropriate mix of funds. Together, these tools reduce the likelihood that a liquidity stress event could lead to an inability to meet the Group’s obligations as they fall due. The control framework is subject to internal conformance testing and internal audit review The liquidity stress tests assess the potential contractual and contingent stress outflows under a range of scenarios, which are then used to determine the size of the liquidity pool that is immediately available to meet anticipated outflows if a stress occurs.
Barclays’ approach to managing risks Management of treasury and capital risk The Group maintains a range of management actions for use in a liquidity stress, these are documented in the Group Recovery Plan. Since the precise nature of any stress event cannot be known in advance, the actions are designed to be flexible to the nature and severity of the stress event and provide a menu of options that can be drawn upon as required. The Barclays Group Recovery Plan also contains more severe recovery options to generate additional liquidity in order to facilitate recovery in a severe stress. Any stress event would be regularly monitored and reviewed using key management information by key Treasury, Risk and business representatives. Risk Appetite and planning Barclays has established an LRA over Group stress tests to represent the level of liquidity risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The key expression of the liquidity risk is through stress tests. It is measured with reference to the liquidity pool compared to anticipated net stressed outflows for each of five stress scenarios. Barclays has defined both internal short term and long term LRA stress test metrics. The LRA for internal stress tests is approved by the Board. The LRA is reviewed on a continuous basis and is subject to formal review at least annually as part of the Individual Liquidity Adequacy Assessment Process (ILAAP). Statement of Liquidity Risk Appetite: For 2017, the Board has approved that the Group will maintain an amount of available liquidity resources to meet modelled and prescribed regulatory liquidity stress outflows over a period of time (minimum buffer duration):
The stress outflows are used to determine the size of the Group Liquidity Pool, which represents those resources immediately available to meet outflows in a stress. In addition to the liquidity pool, the control framework and policy provides for other management actions, including generating liquidity from other liquid assets on the Group’s balance sheet in order to meet additional stress outflows, or to preserve or restore the Liquidity Pool in the event of a liquidity stress.
Barclays’ approach to managing risks Management of treasury and capital risk Liquidity limits Barclays manages limits on a variety of on and off-balance sheet exposures, a sample of which is shown in the table below. These limits serve to control the overall extent and composition of liquidity risk taken by managing exposure to the cash outflows. Early warning indicators Barclays monitors a range of market indicators for early signs of liquidity risk either in the market or specific to Barclays, a sample of which are shown in the table below. These are designed to immediately identify the emergence of increased liquidity risk to maximise the time available to execute appropriate mitigating actions. Early warning indicators are used as part of the assessment of whether to invoke the Group Recovery Plan, which provides a framework for how the liquidity stress would be managed. Recovery & resolution planning Barclays maintains a Group Recovery Plan (GRP) which is designed to provide a framework to effectively manage a severe financial stress. The GRP is proportionate to the nature, scale and complexity of the business and is tested to assess that it is operationally robust. The GRP details the escalation and invocation process for the plan, including integration with i) BAU monitoring of capital and liquidity Early Warning Indicators (EWI) to detect signs of approaching financial stress, ii) existing processes within Barclays Treasury and Risk to respond to mild/moderate stress and iii) a governance process for formally invoking the GRP. The Plan would be formally invoked by the Group Board and would be overseen and executed by the Barclays Crisis Leadership Team (BCLT), a flexible committee of senior management for responding to all types of stress events. In invoking and executing the plan, the BCLT (in consultation with the Group Board) would assess the likely impact of the stress event on the Group and its subsidiaries and determine the appropriate response for the nature and severity of the stress. The GRP includes a range of recovery options to respond to financial stresses of varying severity and includes detailed information on financial and non-financial impacts of options and a communications plan.
Barclays’ approach to managing risks Management of treasury and capital risk Capital risk management Overview Capital risk is managed through ongoing monitoring and management of the capital position, regular stress testing and a robust capital governance framework. Roles and responsibilities The management of capital risk is integral to the Group’s approach to financial stability and sustainability management, and is embedded in the way businesses and legal entities operate. Capital risk management is underpinned by a control framework and policy. The capital management strategy, outlined in the Group and legal entity capital plans, is developed in alignment with the control framework and policy for capital risk, and is implemented consistently in order to deliver on the Group’s objectives. The Board approves the Group capital plan, internal stress tests and results of regulatory stress tests, and the Group recovery plan. The Treasury Committee is responsible for monitoring and managing capital risk in line with the Group’s capital management objectives, capital plan and risk frameworks. The Treasury and Capital Risk Committee monitors and reviews the capital risk profile and control environment, providing Second Line oversight of the management of capital risk. The Board Risk Committee reviews the risk profile, and annually reviews risk appetite and the impact of stress scenarios on the Group capital plan/forecast in order to agree the Group’s projected capital adequacy. Local management assures compliance with an entity’s minimum regulatory capital requirements by reporting to local Asset and Liability Committees with oversight by the Group’s Treasury Committee, as required. Treasury has the primary responsibility for managing and monitoring capital and reports to the Group Finance Director. The Treasury and Capital Risk function contains a Capital Risk Oversight team, and is an independent risk function that reports to the Group CRO and is responsible for oversight of capital risk and production of ICAAPs. Capital risk management The Group’s capital management strategy is driven by the strategic aims of the Group and the risk appetite set by the Board. The Group’s objectives are achieved through well embedded capital management practices. Capital planning and allocation The Group assesses its capital requirements on multiple bases, with the Group’s capital plan set in consideration of the Group’s risk profile and appetite, strategic and performance objectives, regulatory requirements, and market and internal factors, including the results of stress testing. The capital plan is managed on a top-down and bottom-up basis through both short-term and medium-term financial planning cycles, and is developed with the objective that the Group maintains an adequate level of capital to support its capital requirements. The PRA determines the regulatory capital requirements for the consolidated Group. Under these regulatory frameworks, capital requirements are set in consideration of the level of risk that the firm is exposed to and the factors above, and are measured through both risk-based Risk Weighted Assets (RWAs) and leverage-based metrics. An internal assessment of the Bank’s capital adequacy is undertaken through the Internal Capital Adequacy Assessment Process (ICAAP) and is used to inform the capital requirements of the firm. The Group expects to meet the minimum requirements for capital and leverage at all times and also holds an internal buffer sized according to the firm’s assessment of capital risk. Through the capital planning process, capital allocations are approved by the Group Executive committee, taking into consideration the risk appetite and strategic aims of the Group. Regulated legal entities are, at a minimum, capitalised to meet their current and forecast regulatory and business requirements. Monitoring and reporting Capital is managed and monitored to maintain that Barclays’ capital plans are appropriate and that risks to the plans are considered. Limits are in place to support alignment with the capital plan and adherence to regulatory requirements, and are monitored through appropriately governed forums. Capital risks against firm-specific and macroeconomic early warning indicators are monitored and reported to the Treasury Committee, with clear escalation channels to senior management. This enables a consistent and objective approach to monitoring the capital outlook against the capital plan, and supports the early identification when outlooks deteriorate. Capital management information is readily available to support Senior Management’s strategic and day-to-day business decision making. Stress testing and risk mitigation Internal group-wide stress testing is undertaken to quantify and understand the impact of sensitivities on the capital plan and capital ratios arising from stressed macroeconomic conditions. Recent economic, market and peer institution stresses are used to inform the assumptions developed for internal stress tests and to assess the effectiveness of mitigation strategies. The Group also undertakes stress tests prescribed by the BoE and EBA, and legal entities undertake stress tests prescribed by their local regulators. These stress tests inform decisions on the size and quality of the internal capital buffer required and the results are incorporated into the Group capital plan to maintain adequacy of capital under normal and severe, but plausible stressed conditions. Actions are identified as part of the stress tests that can be taken to mitigate the risks that may arise in the event of material adverse changes in the current economic and business outlook. As an additional layer of protection, the Group Recovery Plan defines the actions and implementation strategies available to the Group to increase or preserve capital resources in the situation that a stress occurs that is more severe than anticipated.
Barclays’ approach to managing risks Management of treasury and capital risk Capitalisation of legal entities Barclays as a group comprises legal entities across multiple jurisdictions. The Group and regulated legal entities are subject to prudential requirements from the PRA and/or local regulators. Sufficient capital needs to be available to meet these requirements both at a consolidated Group and individual legal entity level. Where aggregate requirements for individual entities in the Group are higher than the consolidated requirement, the firm may use debt or capital other than CET1 to meet these incremental requirements (so called ‘double leverage’). There are regulatory and rating agency expectations that constrain the amount of double leverage that can be used. This might increase the overall level of capital the Group is required to hold. The capitalisation of legal entities is reviewed annually as part of the capital planning process and monitored on an ongoing basis. Transferability of capital Surplus capital held in Group entities is required to be repatriated to Barclays Bank PLC in the form of dividends and/or capital repatriation, subject to local regulatory requirements, exchange controls and tax implications. This approach provides optimal flexibility on the re-deployment of capital across legal entities. Pre and post the implementation of ring-fencing, capital is managed for the Group as a whole as well as its operating subsidiaries to enable fungibility and redeployment of capital while meeting relevant internal and regulatory targets at entity levels. Foreign exchange risk The Group has capital resources and risk weighted assets denominated in foreign currencies. Changes in foreign exchange rates result in changes in the Sterling equivalent value of foreign currency denominated capital resources and RWAs. As a result, the Group’s regulatory capital ratios are sensitive to foreign currency movements. The Group’s capital ratio management strategy is to minimise the volatility of the capital ratios caused by foreign exchange rate movements. To achieve this, the Group aims to maintain the ratios of foreign currency CET1, Tier 1 and Total capital resources to foreign currency RWAs at the same The Group’s investments in foreign currency subsidiaries and branches, to the extent that they are not hedged for foreign exchange movements, translate into GBP upon consolidation creating CET1 capital resources sensitive to foreign currency movements. Changes in the GBP value of the investments due to foreign currency movements are captured in the currency translation reserve, resulting in a movement in CET1 capital. To create foreign currency Tier 1 and Total Capital resources additional to the CET1 capital resources, the Group issues debt capital in non-Sterling currencies, where possible. This is primarily achieved through the issuance of debt capital from Barclays Pension risk The Group maintains a number of defined benefit pension schemes for past and current employees. The ability of the Pension risk arises because the estimated market value of the pension fund assets might decline; investment returns might reduce; or the estimated value of the pension liabilities might increase. The Group monitors the pension risks arising from its defined benefit pension schemes and Management of pension risk Many of the Group’s defined benefit (DB) pension funds are established as trusts in order to keep the fund’s assets separate from the sponsor (Barclays). As such the Trustees are responsible for:
The legal structure of Barclays’ DB pension funds and Pension Forums The Pension Executive Board (PEB) has accountability for the effective operation of pensions across Barclays Group. It is the most senior executive body for pensions in Barclays. The Pension Management Group (PMG) is accountable for the oversight and workflow management of the group’s responsibilities of the pension arrangements operated by Barclays PLC and its subsidiaries globally. The PMG is accountable to the PEB. The PEB and PMG are not created or mandated under the ERMF. However these forums provide Risk the opportunity to discuss pension risk in a wider context as other relevant stakeholders from HR, Legal, Treasury and Finance are also represented at these meetings. Key Pension Risk controls and governance include:
Barclays’ approach to managing risks Management of treasury and capital risk Interest Rate Risk in the Banking Book Overview Banking book operations generate non-traded market risk, primarily through the mismatch between the duration of assets and liabilities and where interest rates on products reset at different dates. As per the Group’s policy to remain within the defined risk appetite, interest rate and FX risks residing in the banking books of the businesses are transferred to Treasury where they are centrally managed. Currently, these risks are transferred to Treasury via funding arrangements, interest rate or FX swaps. However, the businesses remain susceptible to market risk from seven key sources:
Furthermore, liquidity buffer investments are generally subject to Available for Sale (AFS) accounting rules, whereby changes in the value of these assets impact capital via Other Comprehensive Income, creating volatility in capital directly Roles and responsibilities The Non-traded Market Risk team provides risk management oversight and monitoring of all traded and non-traded market risk in Treasury and customer banking books, which specifically includes:
Management of IRRBB Barclays seeks to minimise interest rate risk and maintain it is within the agreed risk appetite, whilst actively managing the associated risk which could reduce the value of
Barclays uses a range of complementary technical approaches to measure Summary of measures for non-traded market risk
Annual Earnings at Risk (AEaR) AEaR measures the sensitivity of net interest income over The main model assumptions are: The balance sheet is kept at the current level, i.e. no growth is assumed Contractual positions are adjusted for an assumed behavioural profile, more closely matching the actual product life-cycle. AEaR is applied to the entire banking book, including the liquidity buffer
Barclays’ approach to managing risks Management of Economic Value of Equity (EVE) EVE calculates the change in the present value of The EVE measure is applied to the entire banking book, that is, the same coverage as AEaR, and covers the full life of transactions and hedges Economic Capital (EC, for recruitment, prepayment and residual risk) EC consistent models, based on
Advantages of EC are that it can calculate unexpected losses to an appropriate degree of confidence given the nature of the risks, and that it covers sources of loss beyond the scope of other models
Value at Risk (VaR) VaR is an estimate of the potential loss arising from unfavourable market movements, if the current positions were to be held unchanged for a set period. For internal market risk management purposes, a historical simulation methodology is used with a two-year equally weighted historical period, at Daily VaR is used to measure residual interest and foreign exchange risks within certain banking book portfolios. Quarterly scaled VaR is used to measure risk in the Stress testing
All non-traded market risk positions are subject to the Group’s annual stress testing exercise, where scenarios based on adverse economic parameters are used to determine the potential
Barclays’ approach to managing risks Management of operational risk
Barclays’ approach to managing risks Management of operational risk
Overview The management of operational risk has
The Group is committed to the management and measurement of operational risk and was granted a waiver by the FSA (now the PRA) to operate an Advanced Measurement Approach (AMA) for operational risk, which commenced in January 2008. The majority of the Group calculates regulatory capital requirements using AMA benchmark its internal operational risk management and measurement practices with peer The Group is committed to operating within a strong system of internal Organisation and
Barclays’ approach to managing risks Management of operational risk
These risks may result in financial and/or non-financial impacts including legal/regulatory breaches or reputational
Roles and responsibilities The prime responsibility for the management of operational risk and the compliance with control requirements rests with the business and functional units where the risk arises. The operational risk profile and control environment is reviewed by business management through specific meetings which cover governance, risk and control. Businesses are required to report their operational risks on both a regular and an event-driven basis. The reports include a profile of the material risks that may threaten the achievement of their objectives and the effectiveness of key controls,
The Group Head of Operational Risk Operational
Operational risk framework The Operational Risk The Operational Risk The Risk and The Group identifies and assesses all material risks within each business and evaluates the key controls in place to mitigate those risks. Managers in the businesses use self-assessment techniques to identify risks, evaluate the effectiveness of key controls in place and assess whether the risks are being effectively Risk events An operational risk event is any circumstance where, through the lack or failure of a control, the Group has actually, or could have, made a loss. The definition includes situations in which the Group could have made a loss, but in fact made a gain, as well as incidents resulting in reputational damage or regulatory impact only. A standard threshold is used across the Group for reporting risk events and part of the analysis includes the identification of improvements to processes or controls, to reduce the recurrence and/or magnitude of risk events. For significant events, both financial and non-financial, this analysis includes the completion of a formal lessons The Group also maintains a record of external risk events which are publicly available and is a member of the Operational
Barclays’ approach to managing risks Management of operational risk
Operational risk appetite and tolerance The Group’s approach to determining its operational risk appetite combines both quantitative measures and qualitative judgement, in order to best reflect the nature of non-financial risks. The monitoring and tracking of operational risk measures is supplemented with qualitative review and discussion at senior management executive committees on the actions being taken to improve controls and reduce risk to an acceptable residual level. Operational risk appetite is aligned to the Group’s Risk Appetite Framework. The BRC considers, and recommends to the Board for approval, the Group’s risk appetite statement for operational risk based on performance in the current year and the projections for financial volatility the following year.
Key indicators Key indicators (KIs) are metrics which allow the Group to monitor its operational risk profile. KIs include measurable thresholds that reflect the risk appetite of the business and are monitored to alert management when risk levels exceed acceptable ranges or risk appetite levels and drive timely decision making and actions.
Management may then conclude whether the potential risk is acceptable The Reporting The ongoing monitoring and reporting of operational risk is a key component of the Operational Risk Framework. Reports and management information are used by the The operational risk profile is reviewed by senior management at the Businesses Risk Committee meetings as well as the second line of defence Operational Risk Review Forum Operational risk measurement The Group assesses its
Insurance As part of its risk management approach, the Group also uses insurance to mitigate the impact of some operational risks.
Barclays’ approach to managing risks Management of model risk The types of model risk, and how they are managed, are detailed in this section ◾ The types of risks that are classified as model risk are described on page 175. ◾ Governance, management and measurement techniques are covered on page 175.
Barclays’ approach to managing risks Management of model risk
Model risk The risk of the potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports.
Overview Barclays uses models to support a broad range of activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures, conducting stress testing, assessing capital adequacy, managing client assets, and meeting reporting requirements. Since models are imperfect and incomplete representations of reality, they may be subject to errors affecting the Robust model risk management is crucial to assessing and managing model risk within a defined risk appetite. Strong model risk culture, appropriate technology environment, and adequate focus on understanding and resolving model limitations are crucial components. Organisation and structure Barclays allocates substantial resources to identify and record models and their usage, document and monitor the performance of models, validate models and adequately address model limitations. Barclays manages model risk as an enterprise level
Barclays has a approval, and Model Governance and Controls (MGC), covering model risk governance, controls and reporting, including ownership of model risk policy and the The Barclays is continuously enhancing model risk management. The function reports to the
The key
Barclays’ approach to managing risks Management of
This section provides an analysis of the management of conduct
Barclays’ approach to managing risks Management of conduct risk
Conduct risk The risk Overview The Group defines, manages and mitigates conduct risk with the goal of providing
Organisation and structure The The
Roles and responsibilities The Conduct Risk
activities and areas for which they are accountable. The primary responsibility for managing conduct risk and compliance with control requirements sits with the business where the risk arises. The The Businesses are required to report their conduct risks on both a quarterly and an event-driven basis. The quarterly reports detail conduct risks inherent within the business strategy and include forward looking horizon scanning analysis as well as backward looking evidence-based indicators from both internal and external sources. The Business Unit Risk Committees and the Financial Crime Business
Barclays’ approach to managing risks
This section provides an analysis of the
Barclays’ approach to managing risks Management of reputation risk Reputation risk The risk that an action, transaction, investment or event will reduce trust in the firm’s integrity and Overview A reduction of
Organisation and structure The GRC is the most senior executive body responsible for reviewing and monitoring the effectiveness of Barclays’ management of reputation risk. Roles and responsibilities The Chief Compliance Officer is accountable for developing a reputation risk Framework and policies and that they are subject to limits, monitored, reported on and escalated, as required. Reputation risk The primary responsibility for Barclays International and Barclays UK are required to operate within established reputation risk appetite and their component businesses submit quarterly reports to the Group Reputation Management team, highlighting their most significant current and potential reputation risks and issues and how they are being managed. These reports are a key internal source of information for the quarterly reputation risk reports which are prepared for the GRC and RepCo.
Barclays’ approach to managing risks Management of legal risk This section provides an analysis of the management of legal risk
Barclays’ approach to managing risks Management of
Legal risk The risk of loss or imposition of penalties, damages or fines from the failure of the firm to meet its legal obligations including regulatory or contractual requirements. Overview The Legal Risk
The LRMF requires businesses and functions to integrate the management of legal risk within their In addition to legal risk detailed above, legal outcomes, including losses or Organisation and structure Business/function risk forums have Roles and The primary responsibility for identifying and managing legal risk and adherence to the On behalf of the
The Group General Counsel supported by the
Additional information Additional financial disclosure (unaudited)
Deposits and short-term borrowings Deposits Deposits include deposits from banks and
Customer accounts deposits in offices in the United Kingdom received fromnon-residents amounted to Note a Calculated based onmonth-end balances. The average balance differs to the average balance sheets as the latter excludesnon-interest bearing settlement balances.
Additional information Additional financial disclosure (unaudited) Short-term borrowings Short-term borrowings include deposits from banks, commercial paper, negotiable certificates of deposit and repurchase agreements. Deposits from banks Deposits from banks are taken from a wide range of counterparties and generally have maturities of less than one year.
Additional information
Repurchase Agreements Repurchase agreements are entered into with both customers and banks and generally have maturities of not more than three months.
Notes
Commitments and contractual obligations Commercial commitments include guarantees, contingent liabilities and standby facilities.
Additional information Additional financial disclosure (unaudited) Contractual obligations include debt securities, operating lease and purchase obligations.
Notes a Long-term debt has been prepared to reflect cash flows on an undiscounted basis, which includes interest payments. Net cash flows from derivatives used to hedge long-term debt amount to Further information on the contractual maturity of the Group’s assets and liabilities is given in the Funding section of the
Additional information Additional financial disclosure (unaudited)
Securities
Investment debt securities include government securities held as part of the Group’s treasury management portfolio for asset and liability, liquidity and regulatory purposes and are for use on a continuing basis in the activities of the Group. In addition, the Group holds as investments listed and unlisted corporate securities.
The yield for each range of maturities is calculated by dividing the annualised interest income prevailing at 31 December
Additional information Additional financial disclosure (unaudited)
Average balance sheet Average balances are based upon monthly averages.
Notes
Additional information Additional financial disclosure (unaudited)
Notes
Additional information Additional financial disclosure (unaudited)
Notes
Additional information Additional financial disclosure (unaudited)
Additional information Additional financial disclosure (unaudited)
Additional information Additional financial disclosure (unaudited)
Additional information Additional financial disclosure (unaudited)
Changes in total interest – volume and rate analysis The following tables allocate changes in interest between changes in volume and changes in interest rates for the last two years. Volume and rate variances have been calculated on the movement in the average balances and the change in the interest rates on average interest earning assets and average interest bearing liabilities. Where variances have arisen from changes in both volumes and interest rates, these have been allocated proportionately between the two.
Additional information Additional financial disclosure (unaudited)
Credit risk additional disclosure This section of the report contains supplementary information that is more detailed or contains longer histories than the data presented in the credit risk management section. A. Impairment
Additional information Additional financial disclosure (unaudited)
The industry classifications in the tables below have been prepared at the level of the borrowing entity. This means that a loan to a subsidiary of a major corporation is classified by the industry in which the subsidiary operates, even though the Parent’s predominant business may be in a different industry.
Additional information Additional financial disclosure (unaudited)
Additional information Additional financial disclosure (unaudited) B. Potential credit risk loans
Additional information Additional financial disclosure (unaudited)
Additional information Additional financial disclosure (unaudited) C. Maturity analysis of loans and advances
Additional information Additional financial disclosure (unaudited)
Additional information Additional financial disclosure (unaudited)
D. Industrial and Geographical Concentrations of Loans and Advances
Additional information Additional financial disclosure (unaudited)
Additional information Additional financial disclosure (unaudited)
Notes
Additional information Additional financial disclosure (unaudited)
Note
Additional information Additional financial disclosure (unaudited)
Note
Additional Related Parties disclosures For US disclosure purposes, the aggregate emoluments of all Directors and Officers of Barclays PLC who held office during the year
To the shareholders and board of directors Barclays Bank PLC: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Barclays Bank PLC and subsidiaries (the “Company”) as of 31 December 2017, the related consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, and consolidated cash flow statement for the year then ended, and the related notes and specific disclosures described in the financial Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2017. London, United Kingdom 21 February 2018
Independent Registered Public Accounting Firm’s Report Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Barclays Bank PLC In our opinion, the /s/ PricewaterhouseCoopers LLP
London, United Kingdom
Note that the report set out above is included for the purposes of Barclays Bank PLC’s Annual Report on Form20-F for 2017 only and does not form part of Barclays Bank PLC’s Annual Report and Accounts for 2017.
Barclays Bank PLC
[•••] Consolidated income statement [•••] Consolidated statement of comprehensive income [•••] Consolidated balance sheet [•••] Consolidated statement of changes in equity [•••] Consolidated cash flow statement [•••] Notes to the accounts [•••] Barclays Bank PLC is a public limited company, registered in England under company number 1026167. The bank was incorporated on 7 August 1925 under the Colonial Bank Act 1925 and on the 4 October 1971 was registered as a company limited by shares under the Companies Act 1948 to 1967. Pursuant to The Barclays Bank Act 1984, on 1 January 1985 the Bank was registered as a public limited company and its name was changed from Barclays Bank International Limited to Barclays Bank PLC. All of the issued ordinary share capital of Barclays Bank PLC is owned by Barclays PLC. Barclays approach to disclosures The Group aims to continually enhance its disclosures and their usefulness to the readers of the financial statements in the light of developing market practice and areas of focus. Consequently Barclays disclosures go beyond the minimum standards required by accounting standards and other regulatory requirements. Barclays continue to support the recommendations and guidance made by the Enhanced Disclosure Taskforce (EDTF). The EDTF was formed by the Financial Stability Board with a remit to broaden and deepen the risk disclosures of global banks in a number of areas, including liquidity and funding, credit risk and market risk. Barclays has adopted the recommendations across the Annual Report and Pillar 3 report. In line with the Financial Reporting Council’s guidance on Clear and Concise reporting, Barclays has focused reporting on material items and sought to reorganise information to aid users understanding. It is Barclays view that best in class disclosures will continue to evolve in light of ongoing market and stakeholder engagement with the banking sector. Barclays are committed to engaging with a published Code for Financial Reporting Disclosure (the Code). The Code sets out five disclosure principles together with supporting guidance which states that UK banks will: Provide high quality, meaningful and decision-useful disclosures; Review and enhance their financial instrument disclosures for key areas of interest; Assess the applicability and relevance of good practice recommendations to their disclosures acknowledging the importance of such guidance; Seek to enhance the comparability of financial statement disclosures across the UK banking sector; and Clearly differentiate in their annual reports between information that is audited and information that is unaudited. British Bankers’ Association (BBA) Code for Financial Reporting Disclosure Barclays has adopted the BBA Code for Financial Reporting Disclosure and has prepared the 2017 Annual Report and Accounts in compliance with the Code. Statutory Accounts The consolidated accounts of Barclays PLC and its subsidiaries are set out on pages 188 to 271 along with the accounts of Barclays PLC itself on pages 193 to 194. The accounting policies on pages 195 to 200 and the Notes commencing on page 201 apply equally to both sets of accounts unless otherwise stated. The financial statements have been prepared on going concern basis, in accordance with The Companies Act 2006 as applicable to companies using IFRS. Capital RequirementsCountry-by Country Reporting HM Treasury has transposed the requirements set out under CRD IV and issued the Capital RequirementsCountry-by-Country Reporting Regulations 2013. The legislation requires Barclays PLC to publish additional information in respect of the year ended 31 December 2017. This information is available on the Barclays’s website:barclays.com/citizenship/reports-and-publications/country-snapshot.html
Barclays Bank PLC Barclays Bank PLC is a wholly owned subsidiary of Barclays PLC, which is the Group’s ultimate parent company. The business activities of Barclays Bank PLC Group and Barclays PLC Group are fundamentally the same Differences between Barclays PLC and Barclays Bank PLC
The differences occur primarily due to the ◾ Funding structures ◾ Cash flow hedging ◾ Group Service Company More detail regarding the main differences
Barclays Bank PLC Funding structures
Barclays PLC shares held for the purposes of employee share schemes and for trading are recognised as available for sale investments and trading portfolio assets respectively within Barclays Bank PLC. Barclays PLC deducts these treasury shares from shareholders’ equity.
Arising from the redemption or exchange of Barclays PLC or Barclays Bank PLC shares respectively.
Barclays Bank PLC has in issue two series of contingent capital notes (CCNs). These both pay interest and principal to the holder unless the consolidated CRD IV
The accounting for these instruments differs between the consolidated financial statements of Barclays PLC and Barclays Bank PLC as follows:
Barclays Bank PLC data Cash flow
Barclays PLC cash flow hedging reserve is larger than Barclays Bank PLC, as Barclays Bank PLC is no longer
The ownership of the Group service company was transferred in November 2016 contributing to the following key differences between Barclays PLC and Barclays Bank PLC.
Employees within the Group Service Company were reallocated from Barclays Bank PLC
The difference is driven by Group Service Company balances reflected in Barclays PLC only, or in the case of customer accounts, intercompany balances between the Group Service Company and Barclays Bank PLC, which
The note numbers refer to the notes on pages Where there are differences between Barclays PLC and Barclays Bank PLC, these are set out on pages 390 and 391. Barclays Bank PLC supplementary notes
Notes
The note numbers refer to the notes on pages These financial statements have been approved for issue by the Board of Directors on
Barclays Bank PLC data Consolidated statement of changes in equity
Barclays Bank PLC data Consolidated statement of changes in equity
Notes
Barclays Bank PLC data Consolidated cash flow statement
Barclays Bank PLC data Consolidated cash flow statement
Interest received by The Group was The Group is required to maintain balances with central banks and other regulatory authorities and these amounted to For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits, and cash equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value with original maturities of three months or less. Repurchase and reverse repurchase agreements are not considered to be part of cash equivalents.
Barclays Bank PLC data Notes to the accounts
a Net interest income
Barclays Bank PLC data Notes to the accounts
Notes
Barclays Bank PLC data Notes to the accounts
Tax relating to each component of other comprehensive income can be found in the consolidated statement of comprehensive income which additionally includes within Other a tax charge of £6m (2016: £49m credit) principally relating to share based payments. The table below shows the reconciliation between the actual tax charge and the tax charge that would result from applying the standard UK corporation tax rate to The Group’s profit before tax.
Barclays Bank PLC data Notes to the accounts
Current tax assets and liabilities Movements on current tax assets and liabilities were as follows:
g Trading portfolio assets
i Loans and advances to banks and customers
Barclays Bank PLC data Notes to the accounts
j Derivative financial instruments
k Subordinated liabilities
l Ordinary shares, share premium, and other equity
Ordinary shares The issued ordinary share capital of Barclays Bank PLC, as at 31 December Ordinary share capital constitutes 60% Preference shares The issued preference share capital of Barclays Bank PLC, as at 31 December Preference share capital constitutes 40%
Barclays Bank PLC data Notes to the accounts Sterling £1 Preference Shares 1,000 Sterling cumulative callable preference shares of £1 each (the £1 Preference Shares) were issued on 31 December 2004 at nil premium. The £1 Preference Shares entitle the holders thereof to receive Sterling cumulative cash dividends out of distributable profits of Barclays Bank PLC, semi-annually at a rate reset semi-annually equal to the Sterling interbank offered rate forsix-month sterling deposits. Barclays Bank PLC shall be obliged to pay such dividends if: (1) it has profits available for the purpose of distribution under the Companies Act 2006 as at each dividend payment date; and (2) it is solvent on the relevant dividend payment date, provided that a capital regulations condition is satisfied on such dividend payment date. The dividends shall not be due and payable on the relevant dividend payment date except to the extent that Barclays Bank PLC could make such payment and still be solvent immediately thereafter. Barclays Bank PLC shall be considered solvent on any date if: (1) it is able to pay its debts to senior creditors as they fall due; and (2) its auditors have reported within the previous six months that its assets exceed its liabilities. If Barclays Bank PLC shall not pay, or shall pay only in part, a dividend for a period of seven days or more after the due date for payment, the holders of the £1 Preference Shares may institute proceedings for thewinding-up of Barclays Bank PLC. No remedy against Barclays Bank PLC shall be available to the holder of any £1 Preference Shares for the recovery of amounts owing in respect of £1 Preference Shares other than the institution of proceedings for thewinding-up of Barclays Bank PLC and/or proving in suchwinding-up.
On awinding-up or other return of capital (other than a redemption or purchase by Barclays Bank PLC of any of its issued shares, or a reduction of share capital, permitted by the Articles of Barclays Bank PLC and under applicable law), the assets of Barclays Bank PLC available to shareholders shall be applied in priority to any payment to the holders of ordinary shares and any other class of shares in the capital of Barclays Bank PLC then in issue ranking junior to the £1 Preference Shares on such a return of capital and pari passu on such a return of capital with the holders of any other class of shares in the capital of Barclays Bank PLC then in issue (other than any class of shares in the capital of Barclays Bank PLC then in issue ranking in priority to the £1 Preference Shares on awinding-up or other such return of capital), in payment to the holders of the £1 Preference Shares of a sum equal to the aggregate of: (1) an amount equal to the dividends accrued thereon for the then current dividend period (and any accumulated arrears thereof) to the date of the commencement of thewinding-up or other such return of capital; and (2) an amount equal to £1 per £1 Preference Share. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the £1 Preference Shares will have no right or claim to any of the remaining assets of Barclays Bank PLC and will not be entitled to any further participation in such return of capital. The £1 Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, subject to the Companies Act 2006 and its Articles. Holders of the £1 Preference Shares are not entitled to receive notice of, or to attend, or vote at, any general meeting of Barclays Bank PLC. Euro Preference Shares 140,000 Euro 4.75%non-cumulative callable preference shares of€100 each (the 4.75% Preference Shares) were issued on 15 March 2005 for a consideration of€1,383.3m (£966.7m), of which the nominal value was€14m and the balance was share premium. The 4.75% Preference Shares entitle the holders thereof to receive Euronon-cumulative cash dividends out of distributable profits of Barclays Bank PLC, annually at a fixed rate of 4.75% per annum on the amount of€10,000 per preference share until 15 March 2020, and thereafter quarterly at a rate reset quarterly equal to 0.71% per annum above the Euro interbank offered rate for three-month Euro deposits. The 4.75% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on 15 March 2020, and on each dividend payment date thereafter at€10,000 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption. Sterling Preference Shares 75,000 Sterling 6.0%non-cumulative callable preference shares of £100 each (the 6.0% Preference Shares) were issued on 22 June 2005 for a consideration of £743.7m, of which the nominal value was £7.5m and the balance was share premium. The 6.0% Preference Shares entitle the holders thereof to receive Sterlingnon-cumulative cash dividends out of distributable profits of Barclays Bank PLC, annually at a fixed rate of 6.0% per annum on the amount of £10,000 per preference share until 15 December 2017, and thereafter quarterly at a rate reset quarterly equal to 1.42% per annum above the London interbank offered rate for three-month Sterling deposits. The 6.0% Preference Shares
2017. US Dollar Preference Shares 100,000 US Dollar 6.278%non-cumulative callable preference shares of $100 each (the 6.278% Preference Shares), represented by 100,000 American Depositary Shares, Series 1, were issued on 8 June 2005 for a consideration of $995.4m (£548.1m), of which the nominal value was $10m and the balance was share premium. The 6.278% Preference Shares entitle the holders thereof to receive US Dollarnon-cumulative cash dividends out of distributable profits of Barclays Bank PLC, semi-annually at a fixed rate of 6.278% per annum on the amount of $10,000 per preference share until 15 December 2034, and thereafter quarterly at a rate reset quarterly equal to 1.55% per annum above the London interbank offered rate for three-month US Dollar deposits. The 6.278% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole but not in part only, on 15 December 2034, and on each dividend payment date thereafter at $10,000 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption.
55 million US Dollar 7.1%non-cumulative callable preference shares of $0.25 each (the 7.1% Preference Shares), represented by 55 million American Depositary Shares, Series 3, were issued on 13 September 2007 for a consideration of $1,335m (£657m), of which the nominal value was $13.75m and the balance was share premium. The 7.1% Preference Shares entitle the holders thereof to receive US Dollarnon-cumulative cash dividends out of distributable profits of Barclays Bank PLC, quarterly at a fixed rate of 7.1% per annum on the amount of $25 per preference share. The 7.1% Preference Shares
106 million US Dollar 8.125%non-cumulative callable preference shares of $0.25 each (the 8.125% Preference Shares), represented by 106 million American Depositary Shares, Series 5, were issued on 11 April 2008 and 25 April 2008 for a total consideration of $2,650m (£1,345m), of which the nominal value was $26.5m and the balance was share premium. The 8.125% Preference Shares entitle the holders thereof to receive US Dollarnon-cumulative cash dividends out of distributable profits of Barclays Bank PLC, quarterly at a fixed rate of 8.125% per annum on the amount of $25 per preference share.
Barclays Bank PLC data Notes to the accounts
The 8.125% Preference Shares are redeemable at the option of Barclays Bank PLC, in whole or in part, on any dividend payment date at $25 per share plus any dividends accrued for the then current dividend period to the date fixed for redemption. No redemption or purchase of any 4.75% Preference Shares, the On awinding-up of Barclays Bank PLC or other return of capital (other than a redemption or purchase of shares of Barclays Bank PLC, or a reduction of share capital), a holder of Preference Shares will rank in the application of assets of Barclays Bank PLC available to shareholders: (1) junior to the holder of any shares of Barclays Bank PLC in issue ranking in priority to the Preference Shares; (2) equally in all respects with holders of other preference shares and any other shares of Barclays Bank PLC in issue ranking pari passu with the Preference Shares; and (3) in priority to the holders of ordinary shares and any other shares of Barclays Bank PLC in issue ranking junior to the Preference Shares. The holders of the £13m 6% Callable Perpetual Core Tier One Notes and the $569m 6.86% Callable Perpetual Core Tier One Notes of Barclays Bank PLC (together, the TONs) and the holders of the £35m 5.3304%Step-up Subject to such ranking, in such event, holders of the preference shares will be entitled to receive out of assets of Barclays Bank PLC available for distributions to shareholders, liquidating distributions in the amount of€10,000 per 4.75% Preference Share, This dividend restriction will mean that neither Barclays Bank PLC nor Barclays PLC may (a) declare or pay a dividend (other than payment by Barclays PLC of a final dividend declared by its shareholders prior to the relevant dividend payment date, or a dividend paid by Barclays Bank PLC to Barclays PLC or to a wholly owned subsidiary) on any of their respective ordinary shares, other preference shares or other share capital or (b) redeem, purchase, reduce or otherwise acquire any of their respective share capital, other than shares of Barclays Bank PLC held by Barclays PLC or a wholly owned subsidiary, until the earlier of: (1) the date on which Barclays Bank PLC next declares and pays in full a preference dividend; and (2) the date on or by which all the preference shares are redeemed in full or purchased by Barclays Bank PLC. Holders of the preference shares are not entitled to receive notice of, or to attend, or vote at, any general meeting of Barclays Bank PLC. Barclays Bank PLC is not permitted to create a class of shares ranking as regards participation in the profits or assets of Barclays Bank PLC in priority to the preference shares, save with the sanction of a special resolution of a separate general meeting of the holders of the preference shares (requiring a majority of not less than three-fourths of the holders of the
preference shares voting at the separate general meeting) or with the consent in writing of the holders of three-fourths of the preference shares. Except as described above, the holders of the preference shares have no right to participate in the surplus assets of Barclays Bank PLC. Other equity instruments Other equity instruments of The AT1 securities are perpetual securities with no fixed maturity and are structured to qualify as AT1 instruments under CRD IV. Other shareholders’ equity
Included in other shareholders’ equity are capital notes which bear interest at rates fixed periodically in advance, based on London interbank rates. These notes are repayable in each case, at the option of the Bank, in whole on any interest payment date. The Bank is not obliged to make a payment of interest on its capital notes if, in the preceding six months, a dividend has not been declared or paid on any class of shares of Barclays PLC.
Barclays Bank PLC data Notes to the accounts m Reserves Currency translation reserve The currency translation reserve represents the cumulative gains and losses on the retranslation of the Group’s net investment in foreign operations, net of the effects of hedging.
Available for sale reserve The available for sale reserve represents the unrealised change in the fair value of available for sale investments since initial recognition.
Cash flow hedging reserve The cash flow hedging reserve represents the cumulative gains and losses on effective cash flow hedging instruments that will be recycled to the income statement when the hedged transactions affect profit or loss. Own credit reserve As Other reserves and other shareholders’ equity Other reserves relate to Included in other shareholders’ equity are capital notes which bear interest at rates fixed periodically in advance, based on London interbank rates. These notes are repayable in each case, at the option of the Bank, in whole on any interest payment date. The Bank is not obliged to make payment of interest on its capital notes if, in the preceding six months, a dividend has not been declared or paid on any class of shares of Barclays PLC.
Note
nNon-controlling interests
o Dividends on ordinary shares Ordinary dividends were paid to enable Barclays PLC to fund its dividend to shareholders. The Dividends paid on the 4.75%€100 preference shares amounted to
Barclays Bank PLC data Notes to the accounts £1.49). Dividends paid on the 6.0% £100 preference shares amounted to £600.00 per share Dividends paid on preference shares amounted to p Capital The Barclays Bank PLC Group’s policies and objectives for managing capital are the same as those for the Barclays PLC Group, disclosed on The table below provides details of the Barclays Bank PLC Group at 31 December
q Segmental reporting Segmental reporting by Barclays Bank PLC is the same as that presented in the Barclays PLC financial statements, except for:
r Related Parties The aggregate emoluments of all Directors and Officers of Barclays Bank PLC who held office during the year
Additional Financial data
Notes
Glossary of terms
Glossary of terms ‘A-IRB’ / ‘Advanced-Internal Ratings Based’ See ‘Internal Ratings Based (IRB)’. ‘ABS CDO Super Senior’ Super senior tranches of debt linked to collateralised debt obligations of asset backed securities (defined below). Payment of super senior tranches takes priority over other obligations. ‘Acceptances and endorsements’ An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Group expects most acceptances to be presented, but reimbursement by the customer is normally immediate. Endorsements are residual liabilities of the Group in respect of bills of exchange which have been paid and subsequently rediscounted. ‘Additional Tier 1 (AT1) capital’ In the context of CRD IV, a ‘Additional Tier 1 (AT1) securities’ Securities that are
‘Advanced Measurement Approach’ Under CRD IV, operational risk charges can be calculated by using one of three methods (or approaches) that increase in sophistication and risk sensitivity: (i) the Basic Indicator Approach; (ii) the Standardised Approach; and (iii) the Advanced Measurement Approach (AMA). Under the AMA the banks are allowed to develop their own empirical model to quantify required capital for operational risk.
Banks can only use this approach subject to approval from their local regulators.
‘Agencies’ Bonds issued by state and / or government agencies or government-sponsored entities. ‘Agency Mortgage-Backed Securities’ Mortgage-Backed Securities issued by government-sponsored ‘All price risk (APR)’ An estimate of all the material market risks, including rating migration and default for the correlation trading portfolio. ‘American Depository Receipts (ADR)’ A negotiable certificate that represents the ownership of shares in anon-US company (for example Barclays) trading in US financial markets. ‘Americas’ Geographic segment comprising the USA, Canada and countries where Barclays operates within Latin America. ‘Annual Earnings at Risk (AEaR)’ ‘Application scorecards’ Algorithm based decision tools used to aid business decisions and manage credit risk based on available customer data at the point of application for a product. ‘Arrears’ Customers are said to be in arrears when they are behind in fulfilling their obligations with the result that an outstanding loan is unpaid or overdue. Such customers are also said to be in a state of delinquency. When a customer is in arrears, their entire outstanding balance is said to be delinquent, meaning that delinquent balances are the total outstanding loans on which payments are overdue. ‘Arrears Managed ‘Asia’ Geographic segment comprising countries where Barclays operates within Asia ‘Asset Backed Commercial Paper’ Typically short-term notes secured on specified assets issued by consolidated special purpose entities for funding purposes. ‘Asset Backed Securities (ABS)’ Securities that represent an interest in an underlying pool of referenced assets. The referenced pool can comprise any assets which attract a set of associated cash flows but are commonly pools of residential or commercial mortgages and, in the case of Collateralised Debt Obligations (CDOs), the referenced pool may be ABS or other classes of assets. ‘Attributable profit’ Profit after tax that is attributable to ordinary equity holders of
Glossary of terms ‘Average allocated tangible shareholders equity’ Calculated as the average of the previous month’s period end allocated tangible shareholders’ equity and the current month’s period end allocated tangible shareholders’ equity. The average allocated tangible shareholders’ equity for the quarter / year is the average of the monthly averages within that quarter / year. ‘Average tangible shareholders equity’ Calculated as the average of the previous month’s period end tangible shareholders’ equity and the current month’s period end tangible shareholders’ equity. The average tangible shareholders’ equity for the quarter / year is the average of the monthly averages within that quarter / year. ‘Back testing’ Includes a number of techniques that assess the continued statistical validity of a model by simulating how the model would have predicted recent experience. ‘BAGL’ or ‘Barclays Africa’ Barclays Africa Group Limited, which was previously a subsidiary of the Group. Following a sell down of shares resulting in a loss of control, the Group’s shareholding in BAGL is now classified as an Available for Sale asset. ‘Balance weighted Loan to Value (LTV) ratio’ In the context of the credit risk disclosures on secured home loans, a means of calculating marked to market LTVs derived by calculating individual LTVs at account level and weighting it by the balances to arrive at the average position. Balance weighted loan to value is calculated using the following formula: LTV = ((loan balance 1 x MTM LTV% for loan 1) + (loan balance 2 x MTM LTV% for loan 2) + ... ‘The Bank’ Barclays Bank PLC. ‘Barclaycard’ An international consumer payments
‘Barclays Investment ‘Barclays Direct’A Barclays brand, comprising the savings and mortgage ‘Barclays ‘BarclaysNon-Core’ The previously reported unit ‘ ‘Basel 3’ The third of the Basel Accords on banking supervision. Developed in response to the financial crisis of 2008, setting new requirements on composition of capital, counterparty credit risk, liquidity and leverage ratios. ‘Basel Committee of Banking Supervisors (BCBS or The Basel Committee)’ A forum for regular cooperation on banking supervisory matters which develops global supervisory standards for the banking industry. Its members are officials from central banks or prudential supervisors from 27 countries and territories. ‘
‘Basis risk’
Glossary of ‘Behavioural scorecards’ Algorithm based decision tools used to aid business decisions and manage credit risk based on existing customer data derived from account usage. ‘Book quality’ In the context of the Funding Risk, Capital Risk section, changes in RWAs caused by factors such as underlying customer behaviour or demographics leading to changes in risk profile. ‘Book size’In the context of the Funding Risk, Capital Risk section, changes in RWAs driven by business activity, including net originations or repayments. ‘Businesses’ In the context ofNon-Core Analysis of Total income, Barclays Non Core ‘Business Lending’ Business Lending in ‘Business scenario stresses’ Multi asset scenario analysis of extreme, but plausible events that may impact the market risk exposures of the Investment Bank. ‘Buy to let mortgage’ A mortgage where the intention of the customer (investor) was to let the property at origination. ‘Capital Conservation Buffer (CCB)’ Common Equity Tier 1 capital required to be held under CRD IV to ensure that banks build up surplus capital outside periods of stress which can be drawn down if losses are incurred. ‘Capital deduction approach’ An approach available to institutions when calculating risk-weighted assets for securitisation exposures. It is the same as a deduction from capital where the most punitive risk weight of 1250% is applied (assuming 8% Capital Adequacy ratio). ‘Capital ratios’ Key financial ratios measuring the Group’s capital adequacy or financial strength. These include the ‘Capital requirements’ Amount to be held by the Group to cover the risk of losses to a certain confidence level.
‘Capital Requirements Regulation (CRR)’ Regulation (EU) No 575/2013, which accompanies CRD IV and sets out detailed rules for capital eligibility, the calculation of RWAs, the measurement of leverage, the management of large exposures and minimum standards for liquidity. ‘Capital requirements on the underlying exposures (KIRB)’ An approach available to banks when calculating risk weighted assets (RWA) for securitisation exposures. This is based upon the RWA amounts that would be calculated under the IRB approach for the underlying pool of securitised exposures in the program, had such exposures not been securitised. ‘Capital resources’ Financial instruments on balance sheet that are eligible to satisfy capital requirements. ‘Central Counterparty’ / ‘Central Clearing Counterparties (CCPs)’ A clearing house mediating between the buyer and the seller in a financial transaction, such as a derivative contract or repurchase agreement (repo). Where a central counterparty is used, a singlebi-lateral contract between the buyer and seller is replaced with two contracts, one between the buyer and the CCP and one between the CCP and the seller. The use of CCPs allows for greater oversight and improved credit risk mitigation inover-the-counter (OTC) markets. ‘Charge-off’ In the retail segment this refers to the point in time when collections activity changes from the collection of arrears to the recovery of the full balance. This is normally when six payments are in arrears. ‘Chargesadd-on and non VaR’ In the context of ‘Client Assets’ Assets managed or administered by Barclays on behalf of clients including ‘CLOs and Other insured assets’ Highly rated CLO positions wrapped by monolines,non-CLOs wrapped by monolines and other assets wrapped with Credit Support Annex (CSA) protection.
Glossary of terms ‘Collateralised Debt Obligation (CDO)’ Securities issued by a third party which reference Asset Backed Securities (ABSs) (defined above) and/or certain other related assets purchased by the issuer. CDOs may feature exposure tosub-prime mortgage assets through the underlying assets. ‘Collateralised Loan Obligation (CLO)’ A security backed by the repayments from a pool of commercial loans. The payments may be made to different classes of owners (in tranches). ‘Collateralised Mortgage Obligation (CMO)’ A type of security backed by mortgages. A special purpose entity receives income from the mortgages and passes them on to investors of the security. ‘Collectively assessed impairment allowances’ Impairment of financial assets is measured collectively where a portfolio comprises homogenous assets and where appropriate statistical techniques are available. ‘Combined Buffer Requirement’ In the context of the CRD IV capital obligations, the combined requirements of the Capital Conservation Buffer, the GSII Buffer, the OSII buffer, the Systemic Risk buffer and an institution specific counter-cyclical buffer. ‘Commercial paper (CP)’ Short-term notes issued by entities, including banks, for funding purposes. ‘Commercial real ‘Committee of Sponsoring Organisations of the Treadway Commission Framework (COSO)’ A joint initiative of five private sector organisations dedicated to providing development of frameworks and guidance on enterprise risk management, internal control and fraud deterrence. ‘Commodity derivatives’ Exchange traded andover-the-counter (OTC) derivatives based on an underlying commodity (e.g. metals, precious metals, oil and oil related, power and natural gas). ‘Commodity risk’ Measures the impact of changes in commodity prices and volatilities, including the basis between related commodities (e.g. Brent vs. WTI crude prices). ‘Common Equity Tier 1 (CET1) capital’In the context of CRD IV, a ‘Common Equity Tier 1 (CET1) ratio’ A measure of the Group’s Common Equity Tier 1 capital as a percentage of ‘Compensation: income ratio’ The ratio of compensation
income. Compensation represents total staff costs lessnon-compensation items consisting of outsourcing, bank payroll tax, staff training, redundancy costs and retirement costs. ‘Comprehensive Risk Measure (CRM)’ An estimate of all the material market risks, including rating migration and default for the correlation trading portfolio. Also referred to as All Price Risk (APR) and Comprehensive Risk Capital Charge (CRCC). ‘Constant Currency Basis’ ‘Contingent capital notes (CCNs)’ Interest bearing debt securities issued by Barclays PLC or its subsidiaries that are either permanently written off or converted into an equity instrument from the issuer’s perspective in the event of ‘Core deposit intangibles’ Premium paid to acquire the deposit base of an institution. ‘Correlation risk’ Refers to the change in marked to market value of a security when the correlation between the underlying assets changes over time.
Glossary of terms ‘Corporate and Investment Banking (CIB)’ Barclays Corporate and Investment Banking businesses which form part of Barclays International. ‘Cost: income ratio’ Operating expenses ‘Cost of Equity’ The rate of return targeted by the equity holders of a company. ‘Cost: net operating income ratio’ Operating expenses compared to total income ‘Cost to Achieve (CTA)’Non-recurring investment in initiatives to drive cost and business efficiency across Barclays through rightsizing, industrialisation and innovation. ‘Cost to income jaws’ Relationship of the percentage change movement in ‘Counter-Cyclical Capital Buffer ‘Countercyclical leverage ratio buffer (CCLB)’ A macroprudential buffer that applies to all Prudential Regulation Authority (PRA) regulated institutions from 2018 and is calculated at 35% of any risk weighted countercyclical capital buffer set by the Financial Policy Committee (FPC). The CCLB applies in addition to the minimum of 3% and anyG-SII additional Leverage Ratio Buffer that applies. ‘Counterparty credit risk’ In the context of Risk Weighted Assets, ‘Coverage ratio’ In the context of the ‘Covered bonds’ Debt securities backed by a portfolio of mortgages that are segregated from the issuer’s other assets solely for the benefit of the holders of the covered bonds. ‘CRD IV’ The Fourth Capital Requirements Directive, an EU Directive and an accompanying Regulation (CRR) that together prescribe EU capital adequacy and liquidity requirements and implements Basel 3 in the European Union.
‘Credit default swaps (CDS)’ A contract under which the protection seller receives premiums or interest-related payments in return for contracting to make payments to the protection buyer in the event of a defined credit event. Credit events normally include bankruptcy, payment default on a reference asset or assets, or downgrades by a rating agency. ‘Credit derivatives (CDs)’ An arrangement whereby the credit risk of an asset (the reference asset) is transferred from the buyer to the seller of the protection. ‘Credit
‘Credit market exposures’ Assets and other instruments relating to commercial real estate and leveraged finance businesses that have been significantly impacted by the deterioration in the global credit markets. The exposures include positions subject to fair value movements in the Income Statement, positions that are classified as loans and advances and available for sale and other assets.
‘Credit Products’Represents ‘Credit quality step’ In the context of the Standardised Approach to calculating credit risk RWAs, a “credit quality assessment scale” maps the credit assessments of a recognised credit rating agency or export credit agency to credit quality steps that determine the risk weight to be applied to an exposure. ‘Credit Rating’ An evaluation of the creditworthiness of an entity seeking to enter into a credit agreement.
Glossary of terms ‘Credit risk’ The risk of the Group suffering financial loss if a counterparty fails to fulfil its contractual obligations to the Group under a loan agreement or similar. In the context of Risk Weighted Assets, ‘Credit Risk Loans (CRLs)’ A loan becomes a credit risk loan when evidence of deterioration has been observed, for example a missed payment or other breach of covenant. A loan may be reported in one of three categories: (i) impaired ‘Credit risk mitigation’ A range of techniques and strategies to actively mitigate credit risks to which the bank is exposed. These can be broadly divided into three types; ‘Credit spread’ The premium over the benchmark or risk-free rate required by the market to accept a lower credit quality. ‘Credit Valuation Adjustment (CVA)’ The difference between the risk-free value of a portfolio of trades and the market value which takes into account the counterparty’s risk of default. The CVA therefore represents an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk of the counterparty due to any failure to perform on contractual agreements. ‘CRL Coverage’ Impairment allowances as a percentage of total CRL (See ‘Credit Risk Loans’). Also known as the ‘CRL coverage ratio’. ‘CRR leverage exposure’ Is calculated in accordance with article 429 as per the CRR which was amended effective from January 2015. ‘CRR leverage ratio’ As per the CRR which was amended effective from January 2015, is calculated as the using theend-point CRR definition of Tier 1 capital for the numerator and the CRR definition of leverage exposure as the denominator. ‘Customer assets’ Represents loans and advances to customers. Average balances are calculated as the sum of all daily balances for the year to date divided by number of days in the year to date. ‘Customer deposits’ In the context of Funding Risk, Liquidity Risk section, money deposited by all individuals and companies that are not credit institutions. Such funds are recorded as liabilities in the Group’s balance sheet under Customer Accounts. ‘Customer liabilities’ Customer deposits. ‘Customer net interest income’ The sum of customer asset and customer liability net interest income. Customer net interest income reflects interest related to customer assets and liabilities only and does not include any interest on securities or othernon-customer assets and liabilities. ‘CVA volatility charge’ The volatility charge added to exposures that adjusts formid-market valuation on a portfolio of transactions with a counterparty. This is to reflect the current market value of the credit risk associated with the counterparty to the Bank. The charge is prescribed by the CRR. ‘Daily Value at Risk (DVaR)’ ‘DBRS’ A credit rating agency. ‘Debit Valuation Adjustment (DVA)’ The opposite of
‘Debtbuy-backs’ Purchases of the Group’s issued debt securities, including equity accounted instruments, leading to theirde-recognition from the balance sheet.
Glossary of terms ‘Debt securities in issue’ Transferable securities evidencing indebtedness of the Group. These are liabilities of the Group and include certificates of deposit and commercial paper. ‘Default grades’ Barclays classify ranges of default probabilities into a set of 21 intervals called default grades, in order to distinguish differences in the probability of default risk. ‘Default fund contributions’ The amount of contribution made by members of a central counterparty (CCP). All members are required to contribute to this fund in advance of using a CCP. The default fund can be used by the CCP to cover losses incurred by the CCP where losses are greater than the margins provided by that member. ‘Derivatives’ In the context ofNon-Core Analysis of Total income, Derivatives comprise non strategic businesses from thenon-core Investment Bank ‘Derivatives netting’ Adjustments applied across asset and liabilitymark-to-market derivative positions pursuant to legally enforceable bilateral netting agreements and eligible cash collateral received in derivative transactions that meet the requirements of BCBS 270. ‘Diversification effect’ Reflects the fact the risk of a diversified portfolio is smaller than the sum of the risks of its constituent parts. It is measured as the sum of the individual asset class DVaR (see above) estimates less the total DVaR. ‘Dodd-Frank Act (DFA)’ The US Dodd-Frank Wall Street Reform and Consumer Protection ‘Early warning lists (EWL)’ Categorisations for wholesale customers used ‘Early Warning List (EWL) Managed accounts’ EWL Managed accounts are Business Lending customers that exceed the Arrears Managed Accounts limits and are monitored with standard processes that record heightened levels of risk through an EWL grading. ‘Earnings per Share contribution’ The attributable profit or loss generated by a particular business or segment divided by the weighted average number of Barclays shares in issue to illustrate on a per share basis how that business or segment contributes total ‘Economic Value of Equity (EVE)’ ‘Encumbrance’ The use of assets to secure liabilities, such as by way of a lien or charge. ‘Enterprise Risk Management Framework (ERMF)’ Barclays ‘Equities’ Trading businesses encompassing Cash Equities, Equity Derivatives & Equity Financing ‘Equity and stock index derivatives’ Derivatives whose value is derived from equity securities. This category includes equity and stock index swaps and options (including warrants, which are equity options listed on an exchange). The Group also enters into fund-linked derivatives, being swaps and options whose underlyings include mutual funds, hedge funds, indices and multi-asset portfolios. An equity swap is an agreement between two parties to exchange periodic payments, based upon a notional principal amount, with one side paying fixed or floating interest and the other side paying based on the actual return of the stock or stock index. An equity option provides the buyer with the right, but not the obligation, either to purchase or sell a specified stock, basket of stocks or stock index at a specified price or level on or before a specified date. ‘Equity risk’ In the context of trading book capital requirements, the risk of change in market value of an equity investment. ‘Equity structural hedge’ An interest rate hedge in place to
Glossary of terms
‘Euro Interbank Offered Rate (EURIBOR)’ A benchmark interest rate at which banks can borrow funds from other banks in the European interbank market. ‘Europe’ Geographic segment comprising countries in which Barclays operates within the EU (excluding UK), Northern Continental and Eastern Europe. ‘European Securities and Markets Authority (ESMA)’ An independent European Supervisory Authority with the remit of enhancing the protection of investors and reinforcing stable and well-functioning financial markets in the European Union. ‘Expected losses’ The Group’s measure of anticipated losses for exposures captured under an internal ratings based credit risk approach for capital adequacy calculations. It is measured as the Barclays modelled view of anticipated losses based on Probability of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD), with a one year time horizon.
‘Exposure’ Generally refers to positions or actions taken by the firm, or consequences thereof, that may put a certain amount of a bank’s resources at risk. ‘Exposure ‘External Credit Assessment Institutions (ECAI)’ Institutions whose credit assessments may be used by credit institutions for the determination of risk weight exposures according to ‘F-IRB / Foundation-Internal Ratings Based’ See ‘Internal Ratings Based (IRB)’. ‘Financial Conduct Authority (FCA)’ The statutory body responsible for conduct of business regulation and supervision of UK authorised ‘Financial Services Compensation Scheme (FSCS)’ The UK’s fund for compensation of authorised financial services firms that are unable to pay claims. ‘Financial collateral comprehensive method (FCCM)’ A counterparty credit risk exposure calculation approach which applies volatility adjustments to the market value of exposure and collateral when calculating risk weighted asset values. ‘Fitch’ A credit rating agency. ‘Forbearance’ Forbearance programmes to assist customers in financial difficulty through agreements to accept less than contractual amounts due where financial distress would otherwise prevent satisfactory repayment within the original terms and conditions of the contract. These agreements may be initiated by the customer, Barclays or a third party and include approved debt counselling plans, minimum due reductions, interest rate concessions and switches from capital and interest repayments to interest-only payments. ‘Forbearance Programmes for Credit Cards’ Can be split into 2 main types: Repayment plans- A temporary reduction in the minimum payment due, for a maximum of 60 months. This may involve a reduction in interest rates to prevent negative amortization; Fully amortising- A permanent conversion of the outstanding balance into a fully amortising loan, over a maximum period of 60 months for cards and 120 months for loans. ‘Forbearance Programmes for Home Loans’ Can be split into 4 main types: Interest-only conversions- A temporary change from a capital and interest repayment to an interest-only repayment, for a maximum of 24 months; Interest rate reductions- A temporary reduction in interest rate, for a maximum of 12 months; Payment concessions- An agreement to temporarily accept reduced loan repayments, for a maximum of 24 months; Term extensions- A permanent extension to the loan maturity date which may involve a reduction in interest rates, and usually involves the capitalisation of arrears.
Glossary of terms ‘Forbearance Programmes for Unsecured Loans’ Can be split into 3 main types: Payment concessions- An agreement to temporarily accept reduced loan repayments, for a maximum of 12 months; Term extensions- A permanent extension to the loan maturity date, usually involving the capitalisation of arrears; Fully amortising- A permanent conversion of the
outstanding balance into a fully amortising loan, over a maximum period of 60 months for cards and 120 months for loans. ‘Foreclosures in Progress’ The process by which the bank initiates legal action against a customer with the intention of terminating a loan agreement whereby the bank may repossess the property subject to local law and recover amounts it is owed. ‘Foreign exchange derivatives’ The Group’s principal exchange rate-related contracts are forward foreign exchange contracts, currency swaps and currency options. Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreign currency, usually on a specified future date at an agreed rate. Currency swaps generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment to exchange interest periodically until the principal amounts arere-exchanged on a future date. Currency options provide the buyer with the right, but not the obligation, either to purchase or sell a fixed amount of a currency at a specified exchange rate on or before a future date. As compensation for assuming the option risk, the option writer generally receives a premium at the start of the option period. ‘Foreign exchange risk’ In the context of DVaR, the impact of changes in foreign exchange rates and volatilities. ‘Front Arena’ A deal solution that helps to trade and manage positions and risk in the global capital markets. ‘Full time equivalent’ Full time equivalent units are theon-job hours paid for employee services divided by the number of ordinary-time hours normally paid for a full-time staff member when on the job (or contract employees where applicable). ‘Fully loaded’ When a measure is presented or described as being on a fully loaded basis, it is calculated without applying the transitional provisions set out in Part Ten of ‘Fully loaded CET1 ratio’ ‘Funding for Lending Scheme (FLS)’ Scheme launched by the Bank of England ‘Funding mismatch’ In the context of Eurozone balance sheet funding exposures, the excess of local euro denominated external assets, such as customer loans, over local euro denominated liabilities, such as customer deposits. ‘Funding risk’ The risk that the Group may not be able to achieve its business plans due to being unable to maintain appropriate capital ratios (Capital Risk), being unable to meet its obligations as they fall due (Liquidity Risk), rating agency methodology changes or of adverse changes in interest rate curves impacting structural hedges of non – interest bearing assets/ liabilities or on income or foreign exchange rates on capital ratios (Structural risk). ‘Funds and fund-linked products’ Includes holdings in mutual funds, hedge funds, fund of funds and fund linked derivatives. ‘Gains on acquisitions’ The amount by which the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities, recognised in a business combination, exceeds the cost of the combination. ‘General market risk’ The risk of a price change in a financial instrument due to a change in level of interest rates or owing to a broad equity market movement unrelated to any specific attributes of individual securities. ‘
Glossary of terms ‘G-SII additional leverage ratio buffer(G-SII ALRB)’ A macroprudential buffer that applies to globally systemically important banks(G-SIBs) and other major domestic UK banks and building societies, including banks that are subject to ring-fencing requirements. TheG-SII ALRB will be calibrated as 35% (on a phased basis) of the combined systemic risk buffers that applies to the bank. ‘ ’Grandfathering’ In the context of CRD IV capital resources, the application of the rules on instrument eligibility during the transitional period as defined in the Capital Requirements Regulation.
‘Grosscharge-off rates’ Represents the balancescharged-off to recoveries in the reporting period, expressed as a percentage of average outstanding balances excluding balances in recoveries.Charge-off to recoveries generally occurs when the collections focus switches from the collection of arrears to the recovery of the entire outstanding balance, and represents a fundamental change in the relationship between the bank and the customer. This is a measure of the proportion of customers that have gone into default during the period. ‘Gross new lending’ New lending advanced to customers during the period. ‘Group’ Barclays PLC together with its subsidiaries. ‘Group Service Company’ or ‘BSerL’ Barclays Services Limited, the Group services company set up to provide services to Barclays UK and Barclays International to deliver operational continuity. ‘Guarantee’ Unless otherwise described, an undertaking by a third party to pay a creditor should a debtor fail to do so. It is a form of credit substitution. ‘Head Office and Other Operations’ A business segment comprising Brand and Marketing, Finance, Head Office, Human Resources, Internal Audit, Legal and Compliance, Risk, Treasury and Tax and other operations. ‘High Net Worth’ Businesses within ‘High Risk’ In ‘Home loan’ A loan to purchase a residential property. The property is then used as collateral to guarantee repayment of the loan. The borrower gives the lender a lien against the property and the lender can foreclose on the property if the borrower does not repay the loan per the agreed terms. Also known as a residential mortgage. ‘IHC’ or ‘US IHC’ Barclays US LLC, the intermediate holding company established by Barclays in July 2016, which holds most of Barclays’ subsidiaries and assets in the United States. ‘IMA / Internal Model Approach’ In the context of Risk Weighted Assets, ‘IMM / Internal Model Method’ In the context of Risk Weighted Assets, Risk Weighted Assets for which the exposure amount has been derived via the use of a PRA approved internal counterparty credit risk model. ‘Impairment allowances’ A provision held on the balance sheet as a result of the raising of a charge against profit for incurred losses in the lending book. An impairment allowance may either be identified or unidentified and individual or collective. ‘Impairment coverage ratio’ Impairment allowance held against balances in specific LTV band expressed as a percentage of balances in the specific LTV Band. ‘Income’ Total income, ‘Incremental Risk Charge’ An estimate of the incremental risk arising from rating migrations and defaults beyond what is already captured in specific market risk VaR for the non correlation trading portfolio.
Glossary of terms ‘Independent Commission on Banking (ICB)’ Body set up by HM Government to identify structural andnon-structural measures to reform the UK banking system and promote competition. ‘Individual liquidity guidance (ILG)’ Guidance given to a firm about the amount, quality and funding profile of liquidity resources that the PRA has asked the firm to maintain. ‘Inflation risk’ In the context of DVaR, the impact of changes in inflation rates and volatilities on cash instruments and derivatives. ‘Insurance Risk’ The risk of the Group’s aggregate insurance premiums received from policyholders under a portfolio of insurance contracts being inadequate to cover the claims arising from those policies. ‘Interchange’ Income paid to a credit card issuer for the clearing and settlement of a sale or cash advance transaction. ‘Interest only home loans’ Under the terms of these loans, the customer makes payments of interest only for the entire term of the mortgage, although customers may make early repayments of the principal within the terms of their agreement. The customer is responsible for repaying the entire outstanding principal on maturity, which may require the sale of the mortgaged property. ‘Interest rate derivatives’ Derivatives linked to interest rates. This category includes interest rate swaps, collars, floors options and swaptions. An interest rate swap is an agreement between two parties to exchange fixed rate and floating rate interest by means of periodic payments based upon a notional principal amount and the interest rates defined in the contract. Certain agreements combine interest rate and foreign currency swap transactions, which may or may not include the exchange of principal amounts. A basis swap is a form of interest rate swap, in which both parties exchange interest payments based on floating rates, where the floating rates are based upon different underlying reference indices. In a forward rate agreement, two parties agree a future settlement of the difference between an agreed rate and a future interest rate, applied to a notional principal amount. The settlement, which generally occurs at the start of the contract period, is the discounted present value of the payment that would otherwise be made at the end of that period.
‘Interest rate risk’ The risk of interest rate volatility adversely impacting the Groups net interest margin. In the context of the calculation of market risk DVaR, measures the impact of changes in interest (swap) rates and volatilities on cash instruments and derivatives. ‘Internal Assessment Approach (IAA)’ ‘Internal Capital Adequacy Assessment Process (ICAAP)’ Companies are required to perform a formal ‘ ‘Internal Ratings Based (IRB)’ An approach under the CRR framework that relies on the bank’s internal models to derive the risk weights. The IRB approach is divided into two alternative applications, Advanced and Foundation:
Glossary of terms ‘Investment Bank’ ‘Investment Banking Fees’ In the context of Investment Bank Analysis of Total Income, fees generated from origination activity businesses – including financial advisory, ‘Investment grade’ A debt security, treasury bill or similar instrument with a credit rating of AAA to BBB as measured by external credit rating agencies. ‘ISDA Master Agreement’ The most commonly used master contract for OTC derivative transactions internationally. It is part of a framework of documents, designed to enable OTC derivatives to be documented fully and flexibly. The framework consists of a master agreement, a schedule, confirmations, definition booklets, and a credit support annex. The ISDA master agreement is published by the International Swaps and Derivatives Association (ISDA). ‘Key Risk Scenarios (KRS)’ Key Risk Scenarios are a summary of the extreme potential risk exposure for each Key Risk in each business and function, including an assessment of the potential frequency of risk events, the average size of losses and three extreme scenarios. The Key Risk Scenario assessments are a key input to the Advanced Measurement Approach calculation of regulatory and economic capital requirements. ‘Lag risk’ Arises from the delay inre-pricing customer rates for certain variable/managed rate products, following an underlying change to market interest rates. This is typically driven by either regulatory constraint around customer notification on pricing changes, processing time for the Group’s and/or Entity’s notification systems or contractual agreements within a product’s terms and conditions. ‘Large exposure’ A large exposure is defined as the total exposure of a firm to a counterparty or group of connected clients, whether in the banking book or trading book or both, which in aggregate equals or exceeds 10% of the firm’s eligible capital. ‘Lender Option Borrower Option (LOBO)’ A clause previously included in ESHLA loans that allowed Barclays, on specific dates, to raise the fixed interest rate on the loan, upon which the borrower had the option to either continue with the loan at the higher rate, orre-pay the loan at par. ‘Lending’ In the context of Investment Bank Analysis of Total Income, lending income includes net interest income, gains or losses on loan sale activity, and risk management activity relating to the loan portfolio. ‘Letters of credit’ A letter typically used for the purposes of international trade guaranteeing that a debtor’s payment to a creditor will be made on time and in full. In the event that the
debtor is unable to make payment, the bank will be required to cover the full or remaining amount of the purchase. ‘Level 1 assets’ High quality liquid assets under the Basel Committee’s Liquidity Coverage Ratio (LCR), including cash, central bank reserves and higher quality government securities. ‘Level 2 assets’ Under the Basel Committee’s Liquidity Coverage Ratio high quality liquid assets (HQLA) are comprised of Level 1 and Level 2 assets, with the latter comprised of Level 2A and Level 2B assets. Level 2A assets include, for example, lower quality government securities, covered bonds and corporate debt securities. Level 2B assets include, for example, lower rated corporate bonds, residential mortgage backed securities and equities that meet certain conditions.
‘Liquidity Coverage Ratio (LCR)’ The ratio of the stock of high quality liquid assets to expected net cash outflows over the next 30 days. High-quality liquid assets should be unencumbered, liquid in markets during a time of stress and, ideally, be central bank eligible. These include, for example, cash and claims on central governments and central banks. ‘Liquidity Pool’ The Group liquidity pool comprises cash at central banks and highly liquid collateral specifically held by the Group as a contingency to enable the bank to meet cash outflows in the event of stressed market conditions. ‘Liquidity risk appetite (LRA)’ The level of liquidity risk that the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations.
Glossary of terms ‘Liquidity Risk Management Framework (the Liquidity Framework)’ The Liquidity Risk Management Framework (the Liquidity Framework), which is sanctioned by the Board Risk Committee (BRC) ‘Litigation and conduct charges’ Litigation and conduct charges include regulatory fines, litigation settlements and conduct related customer redress. ‘Loan loss rate’ Is quoted in basis points and represents total loan impairment divided by gross loans and advances to customers and banks held at amortised cost at the balance sheet date. ‘Loan to deposit ratio’ ‘Loan to value (LTV) ratio’ Expresses the amount borrowed against an asset (i.e. a mortgage) as a percentage of the appraised value of the asset. The ratios are used in determining the appropriate level of risk for the loan and are generally reported as an average for new mortgages or an entire portfolio. Also see ‘Marked to market ‘London Interbank Offered Rate (LIBOR)’ A benchmark interest rate at which banks can borrow funds from other banks in the London interbank market. ‘Long-term refinancing operation (LTRO)’ The European Central Bank’s 3 year long term bank refinancing operation. ‘Loss Given Default (LGD)’ The fraction of Exposure at Default (EAD) (defined above) that will not be recovered following default. LGD comprises the actual loss (the part that is not expected to be recovered), together with the economic costs associated with the recovery process. ‘Macro Products’ Represents Rates, ‘Management ‘Mandatory break clause’In the context of counterparty credit risk, a contract clause that means a trade will be ended on a particular date. ‘Marked to market approach’ A counterparty credit risk exposure calculation approach which uses the current mark to market value of derivative positions as well as a potential future exposureadd-on to calculate an exposure to which a risk weight can be applied. ‘Marked to market (MTM) LTV ratio’ The loan amount as a percentage of the current value of the asset used to secure the loan. Also see ‘Balance weighted Loan to Value (LTV) ratio’ and ‘Valuation weighted Loan to Value (LTV) ratio.’
‘Market risk’ The risk of the Group suffering financial loss due to changes in market prices. In the context of Risk Weighted Assets, ‘Master netting agreements’ An agreement that provides for a single net settlement of all financial instruments and collateral covered by the agreement in the event of the counterparty’s default or bankruptcy or insolvency, resulting in a reduced exposure. ‘Master trust securitisation programmes’ A securitisation structure where a trust is set up for the purpose of acquiring a pool of receivables. The trust issues multiple series of securities backed by these receivables. ‘Matchbook (or matched book)’ An asset/liability management strategy where assets are matched against liabilities of equivalent value and maturity.
Glossary of terms ‘Material Risk Takers (MRTs)’ Categories of staff whose professional activities have or are deemed to have a material impact on Barclays’ risk profile, as determined in accordance with the European Banking Authority regulatory technical standard on the identification of such staff. ‘Methodology and policy’ In the context of the Funding Risk, Capital Risk section, the effect on RWAs of methodology changes driven by regulatory policy changes. ‘Minimum capital requirement’ Under Pillar 1 of the Basel framework, the amount of capital required for an exposure. ‘Model updates’ In the context of the Funding Risk, Capital Risk section, changes in RWAs caused by model implementation, changes in model scope or any changes required to address model malfunctions. ‘Model validation’ Process through which models are independently challenged, tested and verified to prove that they have been built, implemented and used correctly, and that they continue to befit-for-purpose. ‘Modelled—VaR’ In the context of ‘Money market funds’ Investment funds typically invested in short-term debt securities. ‘Monoline derivatives’ Derivatives with a monoline insurer such as credit default swaps referencing the underlying exposures held. ‘Moody’s’ A credit rating agency. ‘Mortgage Current Accounts (MCA) Reserves’ A secured overdraft facility available to home loan customers which allows them to borrow against the equity in their home. It allows draw-down up to an agreed available limit on a separate but connected account to the main mortgage loan facility. The balance drawn must be repaid on redemption of the mortgage. ‘Multilateral development banks’ Financial institutions created for the purposes of development, where membership transcends national boundaries. ‘National discretion’ Discretions in CRD IV given to member states to allow the local regulator additional powers in the application of certain CRD IV rules in its jurisdiction. ‘Net asset value per share’ Calculated by dividing ‘Net interest income’ The difference between interest income on assets and interest expense on liabilities. ‘Net interest margin’ Net interest income divided by the sum of ‘Net investment income’ Changes in the fair value of financial instruments designated at fair value, dividend income and the net result on disposal of available for sale assets. ‘Net Stable Funding Ratio (NSFR)’ The ratio of available stable funding to required stable funding over a one year time horizon, assuming a stressed scenario. The ratio is required to be over 100%
‘Net tangible asset value per share’ Calculated by dividing shareholders equity, excludingnon-controlling interests and other equity instruments, less goodwill and intangible assets, by the number of issued ordinary shares. ‘Net trading income’ Gains and losses arising from trading positions which are held at fair value, in respect of both market-making and customer business, together with interest, dividends and funding costs relating to trading activities. ‘Net written credit protection’ In the context of leverage exposure, the net notional value of credit derivatives protection sold and credit derivatives protection bought.
Glossary of terms ‘New bookings’ The total of the original balance on accounts opened in the reporting period, including any applicable fees and charges included in the loan amount. ‘Non-asset backed debt instruments’ Debt instruments not backed by collateral, including government bonds; US agency bonds; corporate bonds; commercial paper; certificates of deposit; convertible bonds; corporate bonds and issued notes. ‘Non-customer net interest ‘Non-model method (NMM)’ In the context of Risk Weighted Assets, Counterparty credit risk, Risk Weighted Assets where the exposure amount has been derived through the use of CRR norms, as opposed to an internal model. ‘Non-performance costs’ Costs other than performance costs. ‘Non-performing proportion of outstanding balances’ Defined as balances greater than 90 days delinquent (including forbearance accounts greater than 90 days and accounts charged off to recoveries), expressed as a percentage of outstanding balances.
‘Non-performing balances impairment coverage ratio’ Impairment allowance held against non performing balances expressed as a percentage of non performing balances. ‘Non-Traded Market Risk’ The risk ‘Non-Traded VaR’ Reflects the volatility in the value of the available for sale investments in the liquidity pool which flow directly through capital via the available for sale reserve. The underlying methodology to calculate non traded VaR is similar to Traded Management VaR, but the two measures are not directly comparable. The Non Traded VaR represents the volatility to capital driven by the available for sale exposures. These exposures are in the banking book and do not meet the criteria for trading book treatment. ‘Notable items’ Notable items are considered to be significant items impacting comparability of performance and are shown for each of the business segments. ‘Notch’ A single unit of measurement in a credit rating scale. ‘Notional amount’ The nominal or face amount of a financial instrument, such as a loan or a derivative, that is used to calculate payments made on that instrument. ‘Operational risk’ The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including legal risk. In the context of Risk Weighted Assets, it is the component of ‘Operational ‘Origination led’ Focus on high margin, low capital fee based activities and related hedging opportunities. ‘Origination exposure model’ A technique used to measure the counterparty credit risk of losing anticipated cash flows from forwards, swaps, options and other derivatives contracts in the event the counterparty to the contract should default. ‘OSII’ Other systemically important institutions are institutions that are deemed to create risk to financial stability due to their systemic importance. ‘Over-the-counter (OTC) derivatives’ Derivative contracts that are traded (and privately negotiated) directly between two parties. They offer flexibility because, unlike standardised exchange-traded products, they can be tailored to fit specific needs. ‘Own credit’ The effect of changes in the Group’s own credit standing on the fair value of financial liabilities. ‘Owner occupied mortgage’ A mortgage where the intention of the customer was to occupy the property at origination.
Glossary of terms ‘Past due items’ Refers to loans where the borrower has failed to make a payment when due under the terms of the loan contract.
‘Payment Protection Insurance (PPI) redress’ Provision for the settlement of PPI miss-selling claims and related claims management costs. ‘Pension Risk’ The risk of the Group’s earnings and capital being adversely impacted by the Group’s defined benefit obligations increasing or the value of the assets backing these defined benefit obligations decreasing due to changes in both the level and volatility of prices. ‘Performance costs’ The accounting charge recognised in the period for performance awards. For deferred incentives and long-term incentives, the accounting charge is spread over the relevant periods in which the employee delivers service. ‘ ‘Pillar 1’ The part of the Basel framework that sets outs the rules that govern the calculation of ‘Pillar 2’ The part of the Basel framework that covers the supervisory reviews of the bank’s internal assessment of capital to ensure that firms have adequate capital to support all the relevant risks in their business. ‘Pillar 3’ The part of the Basel framework that covers external communication of risk and capital information by banks to promote transparency and good risk management. ‘Post-model adjustment (PMA)’ In the context of Basel models, a PMA is a short term increase in regulatory capital applied at portfolio level to account for model input data deficiencies, inadequate model performance or changes to regulatory definitions (e.g. definition of default) to ensure the model output is accurate, complete and appropriate. ‘Potential Credit Risk Loans (PCRLs)’ Comprise the outstanding balances to Potential Problem Loans (defined below) and the three categories of Credit Risk Loans (defined above). ‘Potential Future Exposure on Derivatives’ A regulatory calculation in respect of the Group’s potential future credit exposure on both exchange traded and OTC derivative contracts, calculated by assigning a standardised percentage (based on the underlying risk category and residual trade maturity) to the gross notional value of each contract. ‘Potential Problem Loans (PPLs)’ Loans where serious doubt exists as to the ability of the borrowers to continue to comply with repayment terms in the near future. ‘PRA waivers’ PRA approvals that specifically give permission to the Bank to either modify or waive existing rules. Waivers are specific to an organisation and require applications being submitted to and approved by the PRA. ‘Primary securitisations’The issuance of securities (bonds and commercial papers) for fund-raising. ‘Primary Stress Tests’ In the context of Traded Market Risk, ‘Prime Services’ Involves financing of fixed income and equity positions using Repo and ‘Principal’ In the context of a loan, the amount borrowed, or the part of the amount borrowed which remains unpaid (excluding interest). ‘Principal Investments’ Private equity investments. ‘Principal Risks’ the principal risks affecting the Group described in the risk review section of the Barclays PLC Annual Report.
Glossary of terms ‘Private equity investments’
‘Private-label securitisation’ Residential mortgage backed security transactions sold or guaranteed by entities that are not sponsored or owned by the government. ‘Probability of Default (PD)’ The likelihood that a loan will not be repaid and will fall into default. PD may be calculated for each client who has a loan (normally applicable to wholesale customers/clients) or for a portfolio of clients with similar attributes (normally applicable to retail customers). To calculate PD, Barclays assesses the credit quality of borrowers and other counterparties and assigns them an internal risk rating. Multiple rating methodologies may be used to inform the rating decision on individual large credits, such as internal and external models, rating agency ratings, and for wholesale assets market information such as credit spreads. For smaller credits, a single source may suffice such as the result from an internal rating model. ‘Product structural hedge’ An interest rate hedge ‘Properties in Possession held as ‘Properties in Possession held as ‘Other Real Estate Owned’’ Properties in South Africa, ‘Proprietary trading’ When a bank, brokerage or other financial institution trades on its own account, at its own risk, rather than on behalf of customers, so as to make a profit for itself. ‘Prudential Regulation Authority (PRA)’ The statutory body responsible for the prudential supervision of banks, building societies, insurers and a small number of significant investment firms in the ‘Prudential valuation adjustment (PVA)’ A calculation which adjusts the accounting values of positions held on balance sheet at fair value to comply with regulatory valuation standards, which place greater emphasis on the inherent uncertainty around the value at which a trading book position could be exited. ‘Public benchmark’ Unsecured medium term notes issued in public syndicated transactions. ‘Qualifying Revolving Retail Exposure (QRRE)’ In the context of the IRB approach to credit risk RWA calculations, an exposure meeting the criteria set out in BIPRU 4.6.42 R (2). ‘Rates’ In the context of Investment Bank income analysis, trading revenue relating to government bonds and linear interest rate derivatives. ‘Re-aging’ ‘Real Estate Mortgage Investment Conduits (REMICs)’An entity that holds a fixed pool of mortgages and that is separated into multiple classes of interests for issuance to investors. ‘Recoveries Impairment Coverage Ratio’ Impairment allowance held against recoveries balances expressed as a percentage of balance in recoveries. ‘Recoveries proportion of outstanding balances’ Represents the amount of recoveries (grossmonth-end customer balances of all accounts that havecharged-off) as at the period end compared to total outstanding balances. The size of the recoveries book would ultimately have an impact on the overall impairment requirement on the portfolio. Balances in recoveries will
Glossary of terms decrease if: assets arewritten-off; amounts are collected; or assets are sold to a third party (i.e. debt sale). ‘Redenomination risk’The risk of financial loss to the Group should one or more countries exit from the Euro, potentially leading to the devaluation of local balance sheet assets and liabilities.
‘Regulatory capital’ The amount of capital that a bank holds to satisfy regulatory requirements. ‘Renegotiated loans’ Loans 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 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. ‘Repricing lag risk’ The risk that when underlying interest rates change it can take a number of months to change the customer rate e.g. should rates decrease then we would need to let our variable savings rate customers know that we would be decreasing their savings rates. This could result in a loss of income as ‘Repurchase agreement ‘Re-securitisations’The repackaging of positions where the underlying assets are also predominantly securitisation positions. ‘Reserve Capital Instruments (RCIs)’ Hybrid issued capital securities which may be debt or equity accounted, depending on the terms. ‘Residential Mortgage-Backed Securities (RMBS)’ Securities that represent interests in a group of residential mortgages. Investors in these securities have the right to cash received from future mortgage payments (interest and/or principal). ‘Residual maturity’ The remaining contractual term of a credit obligation associated with a credit exposure. ‘Restructured loans’ Comprises loans where, for economic or legal reasons related to the debtor’s financial difficulties, a concession has been granted to the debtor that would not otherwise be considered. Where the concession results in the expected cash flows discounted at the original effective interest rate being less than the loan’s carrying value, an impairment allowance will be raised. ‘Retail Loans’ Loans to individuals or small and medium sized enterprises rather than to financial institutions and larger businesses. It includes both secured and unsecured loans such as mortgages and credit card balances, as well as loans to certain smaller business customers, typically with exposures up to £3m or with a turnover up to £5m. ‘Return on average ‘Return on average shareholders’ equity’ Statutory profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity, excludingnon-controlling interests and other equity instruments. ‘Return on average tangible shareholders’ equity’ Statutory profit after tax attributable to ordinary equity holders of the parent, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average shareholders’ equity excludingnon-controlling interests and other equity instruments, adjusted for the deduction of intangible assets and goodwill.
Glossary of terms ‘Return on average allocated tangible shareholders’ equity’ Statutory profit after tax attributable to ordinary shareholders, including an adjustment for the tax credit in reserves in respect of other equity instruments, as a proportion of average allocated tangible shareholders’ ‘Risk Appetite’ ‘Risk weighted assets (RWAs)’ A measure of a bank’s assets adjusted for their associated risks. Risk weightings are established in accordance with the Basel rules as implemented by CRD IV and local regulators.
‘Risks not in VaR (RNIVS)’ Refers to all the key risks which are not captured or not well captured within the VaR model framework. ‘Roll rate analysis’The measurement of the rate at which retail accounts deteriorate through delinquency phases. ‘Sales commissions, commitments and other incentives’ Includes commission-based arrangements, guaranteed incentives and Long Term Incentive Plan awards. ‘Sarbanes-Oxley requirements’ The Sarbanes-Oxley Act 2002 (SOX), which was introduced by the U.S. Government to safeguard against corporate governance scandals such as Enron, WorldCom and Tyco. AllUS-listed companies must comply with SOX. ‘Second Lien’ Debt that is issued against the same collateral as higher lien debt but that is subordinate to it. In the case of default, compensation for this debt will only be received after the first lien has been repaid and thus represents a riskier investment than the first lien. ‘Secondary Stress Tests’ Secondary stress tests are used in measuring potential losses arising from illiquid market risks that cannot be hedged or reduced within the time period covered in Primary Stress ‘Securities and loans’ In the context ofNon-Core Analysis of Total income, BarclaysNon-Core Securities and Loans comprise non strategic businesses, predominantly from thenon-core Investment Bank and ‘Securities Financing Transactions (SFT)’ In the context of ‘Securities financing transactions adjustments’ In the context of leverage ratio, a regulatoryadd-on calculated as exposure less collateral, taking into account master netting agreements. ‘Securities lending arrangements’ Arrangements whereby securities are legally transferred to a third party subject to an agreement to return them at a future date. The counterparty generally provides collateral against non performance in the form of cash or other assets. ‘Securitisation’ Typically, a process by which debt instruments such as mortgage loans or credit card balances are aggregated into a pool, which is used to back new securities. A company sells assets to a special purpose vehicle (SPV) which then issues securities backed by the assets. This allows the credit quality of the assets to be separated from the credit rating of the original borrower and transfers risk to external investors. ‘Securitised Products’ A business within the Investment Bank that offers a range of products relating to residential mortgage backed securities, commercial mortgage backed securities and other asset backed securities, in addition to restructuring and unwinding legacy credit structures. ‘Set-off clauses’In the context of ‘Settlement balances’ Are receivables or payables recorded between the date (the trade date) a financial instrument (such as a bond) is sold, purchased or otherwise closed out, and the date the asset is delivered by or to the entity (the settlement date) and cash is received or paid.
Glossary of terms ‘Settlement risk’ The risk that settlement in a transfer system will not take place as expected, usually owing to a party defaulting on one or more settlement obligations. ‘Slotting’Slotting is a Basel 2 approach that requires a standard set of rules to be used in the calculation of RWAs, based upon an assessment of factors such as the financial strength of the counterparty. The requirements for the application of the Slotting approach
‘Sovereign exposure(s)’ Exposures to central governments, including holdings in government bonds and local government bonds. ‘Specific market risk’ A risk that is due to the individual nature of an asset and can potentially be diversified or the risk of a price change in an investment due to factors related to the issuer or, in the case of a derivative, the issuer of the underlying investment.
‘Spread risk’ Measures the impact of changes to the swap spread, i.e. the difference between swap rates and government bond yields. ‘Standard & Poor’s’ A credit rating agency. ‘Standby facilities, credit lines and other commitments’ Agreements to lend to a customer in the future, subject to certain conditions. Such commitments are either made for a fixed period, or have no specific maturity but are cancellable by the lender subject to notice requirements. ‘Statutory’ Line items of income, expense, profit or loss, assets, liabilities or equity stated in accordance with the requirements of the UK Companies Act 2006 ‘Statutory return on average shareholders’ equity’ Statutory profit after tax attributable to ordinary shareholders as a proportion of average shareholders’ equity. ‘STD’ / ‘Standardised ‘Stress Testing’ A process which involves identifying possible future adverse events or changes in economic conditions that could have unfavourable effects on the Group (either financial ornon-financial), assessing the Group’s ability to withstand such changes, and identifying management actions to mitigate the impact. ‘Stressed Value at Risk (SVaR)’ An estimate of the potential loss arising from a 12 month period of significant financial stress over a one day horizon. ‘Structured entity’ An entity in which voting or similar rights are not the dominant factor in deciding control. Structured entities are generally created to achieve a narrow and well defined objective with restrictions around their ongoing activities. ‘Structural hedge’ / ‘hedging’ An interest rate hedge ‘Structural model of default’ A model based on the assumption that an obligor will default when its assets are insufficient to cover its liabilities. ‘Structured credit’ Includes legacy structured credit portfolio primarily comprising derivative exposure and financing exposure to structured credit vehicles. ‘Subordinated liabilities’ Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors and other creditors of the issuer. ‘Supranational bonds’ Bonds issued by an international organisation, where membership transcends national boundaries (e.g. the European Union or World Trade Organisation). ‘Synthetic Securitisation Transactions’Securitisation transactions effected through the use of derivatives. ‘Systemic Risk Buffer’ CET1 capital that may be required to be held as part of the Combined Buffer Requirement increasing the capacity of UK banks to absorb stress and limiting the damage to the economy as a results of restricted lending.
Glossary of terms ‘Tangible net asset value’ Shareholders’ equity excludingnon-controlling interests adjusted for the deduction of intangible assets and goodwill. ‘Tangible net asset value per share’ Shareholders’ equity excludingnon-controlling interests adjusted for the deduction of intangible assets and goodwill, divided by the number of issued ordinary shares. ‘Tangible shareholders equity’ Shareholders’ equity excludingnon-controlling interests adjusted for the deduction of intangible assets and goodwill. ‘Term premium’ Additional interest required by investors to hold assets with a longer period to maturity. ‘The three lines of defence’ The three lines of defence operating model enables Barclays to separate risk management activities between those ‘Tier 1 capital’ The sum of the Common Equity Tier 1 capital and Additional Tier 1 capital.
‘Tier 1 capital ratio’ The ratio which expresses Tier 1 capital as a percentage of ‘Tier 2 (T2) capital’ In the context of CRD IV, a ‘Tier 2 (T2) securities’ Securities that are treated as Tier 2 (T2) capital in the context of CRD IV. ‘Total capital ratio’Total ‘Total outstanding balance’ In ‘Total return swap’ An instrument whereby the seller of protection receives the full return of the asset, including both the income and change in the capital value of the asset. The buyer of the protection in return receives a predetermined amount. ‘Total balances on forbearance programmes coverage ratio’ Impairment allowance held against Forbearance balances expressed as a percentage of balance in forbearance. ‘Traded Market Risk’ The risk of a reduction to earnings or capital due to volatility of trading book positions. ‘Trading book’ All positions in financial instruments and commodities held by an institution either with trading intent, or in order to hedge positions held with trading intent. ‘Traditional Securitisation Transactions’Securitisation transactions in which an underlying pool of assets generates cash flows to service payments to investors.
‘Transitional’ In the context of CRD IV a measure is described as transitional when the transitional provisions set out in Part Ten of the CRD IV Regulation are applied in its calculation. ‘ ‘United Kingdom (UK)’ Geographic segment where Barclays operates comprising the UK. Also see ‘Europe’. ‘UK Bank levy’ A levy that applies to UK banks, building societies and the UK operations of foreign banks. The levy is payable based on a percentage of the chargeable equity and liabilities of the bank on its balance sheet date. ‘UK leverage exposure’ Is calculated as per the updated PRA rulebook, where the average exposure calculation also includes the FPC’s recommendation to allow firms to exclude claims on the central bank from the calculation of the leverage exposure measure, as long as these are matched by deposits denominated in the same currency and of identical or longer maturity.
Glossary of terms ‘UK leverage ratio’ As per the updated PRA rulebook, is calculated as the average capital measure divided by the average exposure measure for the quarter, where the average is based on the capital and exposure measure on the last day of each month in the quarter. ‘US Partner Portfolio’Co-branded credit card programs with companies across various sectors including travel, entertainment, retail and financial sectors. ‘US Residential Mortgages’ Securities that represent interests in a group of US residential mortgages. ‘ ‘Valuation weighted Loan to Value (LTV) Ratio’ In the context of credit risk disclosures on secured home loans, a means of calculating marked to market LTVs derived by comparing total outstanding balance and the value of total collateral we hold against these balances. Valuation weighted loan to value is calculated using the following formula: LTV = total outstandings in ‘Value at Risk (VaR)’ ‘Weighted off balance sheet commitments’ Regulatoryadd-ons to the leverage exposure measure based on credit conversion factors used in the ‘Wholesale loans’ / ‘lending’ Lending to larger businesses, financial institutions and sovereign entities. ‘Write-off’ Refers to the point where it is determined that an asset is irrecoverable, or it is no longer considered economically viable to try to recover the asset or it is deemed immaterial or full and final settlement is reached and the shortfall written off. In the event ofwrite-off, the customer balance is removed from the balance sheet and the impairment ‘Wrong-way risk’ Arises, in a trading exposure, when there is significant correlation between the underlying asset and the counterparty, which in the event of default would lead to a significant mark to market loss. When assessing the credit exposure of awrong-way trade, analysts take into account the correlation between the counterparty and the underlying asset as part of the sanctioning process.
Key dates 5 April 2018 Final dividend payment date 26 April 2018 Q1 Results Announcement 1 May 2018 Annual General Meeting, at 10.00am 17 September 2018 Interim dividend payment date Annual General Meeting (AGM) This year’s AGM will be held at the The Chairman and Chief Executive will update shareholders on our performance in
We
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If you are a Shareview member, you can update your bank or building society account or address details online. If you hold 2,500 shares or less, you can update details quickly and easily over the telephone using the Equiniti contact details overleaf. If you hold more than 2,500 shares you will need to write to Equiniti. You must provide a copy of your share certificate, Sharestore statement or most recent dividend Dividends The final dividend for the year ended 31 December 2017 will be 2.0 pence per share, making the 2017 total dividend 3.0 pence. Barclays understands the importance of the ordinary dividend for our shareholders. Barclays is therefore committed to maintaining an appropriate balance between total cash returns to shareholders, investment in the business, and maintaining a strong capital position. Going forward, Barclays intends to pay an annual ordinary dividend that takes into account these objectives and the medium-term earnings outlook of the Group. It is also the Board’s intention to supplement the ordinary dividends with additional returns to shareholders as and when appropriate. The Board notes that in determining any proposed distributions to shareholders, the Board will consider the expectation of servicing more senior securities. For 2018, Barclays anticipates resuming a total cash dividend of 6.5p, subject to regulatory approvals. How do Barclays shareholders receive their dividends? As at 31 December 2017, Barclays shareholders received their dividends in the following ways: Save time and receive your dividends faster by choosing to have them paid directly into your bank or building society account It is easy to set up and your money will be in your bank account on the dividend payment date. If you hold 2,500 shares or less, you can provide your bank or building society details quickly and easily over the telephone using the Equiniti contact details overleaf. If you hold more than 2,500 shares, please contact Equiniti for details of how to change your payment instruction. Scrip Dividend Programme Shareholders can choose to have their dividends reinvested in new ordinary Barclays shares through the Scrip Dividend Programme. More information, including the Terms and Conditions and application form, are available on our website.
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Front cover image Out of Africa, into new territory After more than 150 years on the continent, the decision to sell down Barclays’ investment in Africa was not an easy one. But with people like Win Chung and Sophia Aluko working hard to ensure a thoughtful separation, we broke new ground for Barclays in 2017. This Report is printed on Cocoon Preprint made from 100% FSC® Recycled certified fibre sourced fromde-inked post-consumer waste. The printer and the manufacturing mill are both credited with ISO14001 Environmental Management Systems Standard and both are FSC® certified. By printing this publication on Cocoon Preprint, the environmental impact was reduced by: 4,952 kg of landfill, 732 kg CO and greenhouse gases, 102,989 litres of water, 9,490 kWh of energy and 8,046 kg of wood. Source: Carbon footprint data evaluated by Labelia Conseil in accordance with the Bilan Carbone methodology. Calculations are based on a comparison between the recycled paper used versus a virgin fibre paper according to the latest European BREF data (virgin fibre paper) available. Registered office: 1 Churchill Place, London E14 5HP © Barclays Bank PLC 2018 000000 Registered in England. Registered No: 48839 Designed by FleishmanHillard Fishburn www.fhflondon.co.uk
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Signatures The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.
The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.
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