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
strategies 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.
The credit risk management teams in each
legal entity are accountable to the relevant
Legal Entity CRO, who reports to the
Group CRO.
For wholesale portfolios, credit risk
managers are organised in sanctioning
teams by geography, industry and/or
product. In 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 assigned 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 a legal entity Senior Credit Officer. For
exposures in excess of the legal entity
Senior Credit Officer\u2019s authority, approval
by Group Senior Credit Officer/Board Risk
Committee is also required. The Group
Credit Risk Committee, attended by legal
entity Senior Credit Officers, provides a
formal mechanism for the Group Senior
Credit Officer to exercise the highest level
of credit authority over the most material
Group single name exposures.
Credit risk mitigation
The Group employs a range of techniques
and strategies to actively mitigate credit
risks. These can broadly be divided into
three types:
\u2022 netting and set-off
\u2022 collateral
\u2022 risk transfer.
Netting and set-off
Credit risk exposures can be reduced by
applying netting and set-off. For derivative
transactions, the Group\u2019s normal practice
is, on a legal entity basis, 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 derivative transactions
against the 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:
\u2022 home loans: a fixed charge over
residential property in the form of
houses, flats and other dwellings
\u2022 wholesale lending: a fixed charge over
commercial property and other physical
assets, in various forms
\u2022 other retail lending: includes charges
over other physical assets; second lien
charges over residential property; and
finance lease receivables
\u2022 derivatives: the Group also often seeks
to enter into a margin agreement (e.g.
Credit Support Annex) with
counterparties with which the Group has
master netting agreements in place.
These annexes to master agreements
provide a mechanism for further
reducing credit risk, whereby collateral
(margin) is posted on a regular basis
(typically daily) to collateralise the mark
to market exposure of a derivative
portfolio measured on a net basis
\u2022 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
price
\u2022 financial guarantees and similar off-
balance sheet commitments: cash
collateral may be held against these
arrangements.
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 three main ways:
\u2022 if the risk is transferred to a
counterparty which is more
creditworthy than the original
counterparty, then overall credit risk is
reduced
\u2022 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
\u2022 first loss exposures across pools of
credit risk can be hedged via synthetic
securitisation structures, typically via
CLN (credit lending notes) issuance. As
these are fully funded upfront they
provide for a direct reduction in credit
risk exposure on referenced pools.
Detailed policies are in place to appropriately recognise and record credit risk mitigation. For more information, refer to pages 132 to 135 of the Barclays PLC Pillar 3 Report 2024 (unaudited). | |
Governance and oversight of ECLs
under\u00a0IFRS 9
The Group\u2019s organisational structure and
internal governance processes oversee
the estimation of ECL across several
areas, including: i) setting requirements in
policy, including key assumptions and the
application of key judgements; ii) the
design and execution of models; and iii)
review of ECL results.
i) Impairment policy requirements are set
and reviewed regularly, at a minimum
annually, to maintain adherence to
accounting standards. Key judgements
inherent in policy, including the estimated
life of revolving credit facilities and the
quantitative criteria for assessing the
significant increase in credit risk (SICR), are
separately supported by analytical study. In
particular, the quantitative thresholds used
for assessing SICR are subject to a number
of internal validation criteria, particularly in
retail portfolios where thresholds decrease
as the origination Probability of Default
(PD) of each facility increases. Key policy
requirements are also aligned to the
Group\u2019s credit risk management strategy
and practices, for example, wholesale
customers that are risk managed on an
individual basis are assessed for ECL on an
individual basis upon entering Stage 3;
furthermore, key internal risk management
indicators of high risk are used to set SICR