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Provisions for bad and doubtful debts
It is Barclays policy to establish, through
charges against profit, a provision in
respect of the estimated loss inherent in
the lending book. The provision raised
consists of an element which is specific
to individual counterparties or a
homogeneous portfolio of lendings and
also a general element which, while
determined as reflecting losses already
within the lending book, cannot be
specifically applied.
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Risk managers conduct a continuous review of the quality
of exposures for which they are responsible based on a
knowledge of the counterparty and, where applicable, the
relevant industry and country of operation. A specific charge
is raised when the Bank considers that the credit-worthiness
of a borrower has undergone deterioration such that the
recovery of the whole outstanding advance is in serious doubt.
Typically, this will be done on an individual basis, although
scope exists to raise specific provisions on a portfolio basis
where statistical techniques permit and the portfolio
comprises homogeneous assets. This applies in parts of Retail
Financial Services, Barclaycard and Corporate Banking and is
in keeping with Barclays policy of raising provisions as soon as
impairment is identified.
General provisions are raised to cover losses which are judged
to be present in loans and advances at the balance sheet date,
but which have not been specifically identified as such. These
provisions are adjusted at least half yearly by an appropriate
charge or release of general provision based on a statistical
analysis. The accuracy of this analysis is periodically assessed
against actual losses. Gradings are used to rate the credit
quality of borrowers. Each grade corresponds to an Expected
Default Frequency and is calculated by using manual or
computer driven score-sheets validated by an analysis of the
Group’s own historic data. This grade can be derived from
different sources depending upon the borrower (e.g. internal
model, credit rating agency). The general provision also takes
into account the economic climate in the market in which
the Group operates and the level of security held in relation
to each category of counterparty. Since 1997, the general
provision has included a specifically identified element to
cover country transfer risk calculated on a basis consistent
with the overall general provision calculation.
The aggregate specific and general provisions which are made
during the year, less amounts released and recoveries of bad
debts previously written off, are charged against operating
profit. Impaired lendings are written off in part, or in whole,
when the extent of the loss incurred has been confirmed, the
decision to do so being a matter of banking judgement.
The following tables have been divided between those
provisions which have been raised against the perceived credit
risks and those provisions which have been raised in respect
of country risk (i.e. that related to a country’s difficulty in
servicing its external debt, as evidenced by rescheduling or
arrears of payment of principal or interest):
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Analysis of provisions for bad and doubtful debts
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|
|
|
|
|
|
|
|
|
As at 31st December |
|
|
 |
|
|
|
2000 |
1999 |
1998 |
1997 |
1996 |
|
|
|
£m |
£m |
£m |
£m |
£m |
|
|
|
Specific – credit risk* |
|
UK |
|
1,343 |
1,075 |
928 |
765 |
834 |
|
Other European Union |
|
111 |
126 |
213 |
245 |
353 |
|
United States |
|
20 |
23 |
23 |
27 |
59 |
|
Rest of the World |
|
118 |
74 |
35 |
41 |
48 |
|
|
|
|
|
1,592 |
1,298 |
1,199 |
1,078 |
1,294 |
|
Specific – country risk |
|
1 |
13 |
16 |
44 |
80 |
|
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|
Total specific provisions |
|
1,593 |
1,311 |
1,215 |
1,122 |
1,374 |
|
General provisions – credit risk |
|
703 |
615 |
663 |
683 |
756 |
|
General provisions – country risk |
|
57 |
57 |
65 |
45 |
- |
|
|
|
|
|
2,353 |
1,983 |
1,943 |
1,850 |
2,130 |
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Average loans and advances for the year |
|
|
|
|
|
|
|
(excluding trading business) |
|
122,333 |
106,488 |
101,338 |
96,656 |
95,899 |
|
|
|
(including trading business) |
|
176,938 |
147,139 |
145,749 |
136,581 |
122,503 |
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|
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* The geographic analysis of provisions is based on location of office.
The increased specific provision
balance in the UK reflects the impact of volume growth in UK
unsecured lendings to both personal and small business customers
and strong growth across the Barclaycard businesses, combined with
record levels of customer recruitment over the last two years.
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Ratios |
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As at 31st December |
|
|
|
|
|
|
2000 |
1999 |
1998 |
1997 |
1996 |
|
|
|
% |
% |
% |
% |
% |
|
|
|
Provisions at end of year as a percentage
of loans and advances at end of year
(excluding trading business): |
|
|
|
|
|
|
|
Specific provision for credit risk |
|
1.06 |
1.18 |
1.16 |
1.10 |
1.41 |
|
General provision for credit risk |
|
0.47 |
0.56 |
0.64 |
0.70 |
0.83 |
|
|
|
|
|
1.53 |
1.74 |
1.80 |
1.80 |
2.24 |
|
Specific provision for country risk |
|
- |
0.01 |
0.01 |
0.04 |
0.09 |
|
General provision for country risk |
|
- |
- |
0.02 |
0.05 |
- |
|
|
|
|
|
1.57 |
1.80 |
1.87 |
1.89 |
2.33 |
|
|
|
Provisions as a percentage of average
loans and advances for the year
(including trading business): |
|
|
|
|
|
|
|
Specific provision for credit risk |
|
0.79 |
0.82 |
0.89 |
0.78 |
1.07 |
|
General provision for credit risk |
|
0.35 |
0.39 |
0.49 |
0.49 |
0.63 |
|
|
|
|
|
1.14 |
1.21 |
1.38 |
1.27 |
1.70 |
|
Specific provision for country risk |
|
- |
0.01 |
0.01 |
0.03 |
0.07 |
|
General provision for country risk |
|
0.03 |
0.03 |
0.05 |
0.03 |
- |
|
|
|
|
|
1.17 |
1.25 |
1.44 |
1.33 |
1.77 |
|
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Ratios |
|
|
|
Year ended 31st December |
|
|
|
|
|
|
2000 |
1999 |
1998 |
1997 |
1996 |
|
|
|
% |
% |
% |
% |
% |
|
|
|
Provisions at end of year as a percentage
of loans and advances at end of year
(excluding trading business): |
|
|
|
|
|
|
|
Specific provisions for credit risk |
|
0.64 |
0.60 |
0.50 |
0.28 |
0.35 |
|
General provisions for credit risk |
|
0.03 |
(0.02) |
(0.02) |
(0.07) |
(0.06) |
|
|
|
|
|
0.67 |
0.58 |
0.48 |
0.21 |
0.29 |
|
Specific provisions for country risk |
|
- |
- |
(0.01) |
(0.03) |
(0.06) |
|
General provisions for country risk |
|
- |
- |
0.02 |
0.05 |
- |
|
|
|
|
|
0.67 |
0.58 |
0.49 |
0.23 |
0.23 |
|
|
|
Amounts written off (net of recoveries) |
|
0.47 |
0.52 |
0.40 |
0.47 |
0.71 |
|
|
|
Provisions at end of year as a percentage
of loans and advances at end of year
(including trading business): |
|
|
|
|
|
|
|
Specific provision for credit risk |
|
0.44 |
0.43 |
0.35 |
0.20 |
0.28 |
|
General provision for credit risk |
|
0.02 |
(0.01) |
(0.01) |
(0.05) |
(0.05) |
|
|
|
|
|
0.46 |
0.42 |
0.34 |
0.15 |
0.23 |
|
Specific provision for country risk |
|
– |
– |
(0.01) |
(0.02) |
(0.05) |
|
General provision for country risk |
|
– |
- |
0.01 |
0.03 |
- |
|
|
|
|
|
0.46 |
0.42 |
0.34 |
0.16 |
0.18 |
|
|
|
Amounts written off (net of recoveries) |
|
0.32 |
0.38 |
0.28 |
0.33 |
0.55 |
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Movements in provisions for bad and doubtful debts |
|
Year ended 31st December |
|
|
|
|
|
|
2000 |
1999 |
1998 |
1997 |
1996 |
|
|
|
£m |
£m |
£m |
£m |
£m |
|
|
|
Provisions for credit risk |
|
|
Provision at beginning of year |
|
1,913 |
1,862 |
1,761 |
2,050 |
2,554 |
|
Acquisitions and disposals |
|
119 |
(10) |
– |
(14) |
(24) |
|
Exchange and other adjustments |
|
8 |
(2) |
5 |
(39) |
(100) |
|
Amounts written off: |
|
|
|
|
|
|
|
UK |
|
(592) |
(546) |
(506) |
(441) |
(593) |
|
Other European Union |
|
(45) |
(44) |
(43) |
(93) |
(138) |
|
United States |
|
(26) |
(40) |
(7) |
(23) |
(30) |
|
Rest of the World |
|
(17) |
(21) |
(9) |
(14) |
(61) |
|
|
|
|
|
(680) |
(651) |
(565) |
(571) |
(822) |
|
|
|
Recoveries (analysed below) |
|
113 |
93 |
176 |
126 |
165 |
|
|
|
Sub total |
|
1,473 |
1,292 |
1,377 |
1,552 |
1,773 |
|
Provisions charged against profit |
|
New and increased specific provisions: |
|
UK |
|
843 |
768 |
751 |
536 |
623 |
|
Other European Union |
|
35 |
27 |
31 |
49 |
123 |
|
United States |
|
27 |
45 |
11 |
12 |
21 |
|
Rest of the World |
|
76 |
47 |
23 |
28 |
26 |
|
|
|
|
|
981 |
887 |
816 |
625 |
793 |
|
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Releases of specific provisions: |
|
UK |
|
(50) |
(114) |
(81) |
(143) |
(164) |
|
Other European Union |
|
(17) |
(21) |
(31) |
(34) |
(66) |
|
United States |
|
(6) |
(7) |
(8) |
(33) |
(45) |
|
Rest of the World |
|
(13) |
(15) |
(15) |
(15) |
(16) |
|
|
|
|
|
(86) |
(157) |
(135) |
(225) |
(291) |
|
|
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Recoveries: |
|
|
|
UK |
|
(100) |
(85) |
(156) |
(111) |
(140) |
|
Other European Union |
|
(6) |
(4) |
(4) |
(6) |
(8) |
|
United States |
|
(4) |
(4) |
(13) |
(4) |
(12) |
|
Rest of the World |
|
(3) |
– |
(3) |
(5) |
(5) |
|
|
|
|
|
(113) |
(93) |
(176) |
(126) |
(165) |
|
|
|
Net specific provisions charge |
|
782 |
637 |
505 |
274 |
337 |
|
General provision releases/(charges)* |
|
40 |
(16) |
(20) |
(65) |
(60) |
|
Net credit risk charge to profit |
|
822 |
621 |
485 |
209 |
277 |
|
|
|
Provisions at end of year |
|
2,295 |
1,913 |
1,862 |
1,761 |
2,050 |
|
|
|
Provisions for country risk |
|
Provision at beginning of year |
|
70 |
81 |
89 |
80 |
174 |
|
Exchange and other adjustments |
|
(4) |
(11) |
1 |
1 |
(12) |
|
Amounts written off (net of recoveries) |
|
(3) |
– |
(16) |
(10) |
(20) |
|
Net specific credit: |
|
Provisions charges |
|
- |
- |
3 |
7 |
3 |
|
Releases |
|
(4) |
(2) |
(16) |
(34) |
(63) |
|
Recoveries |
|
(1) |
- |
- |
- |
(2) |
|
|
|
Net specific releases |
|
(5) |
(2) |
(13) |
(27) |
(62) |
|
General provision charge* |
|
- |
2 |
20 |
45 |
- |
|
|
|
Provision at end of year |
|
58 |
70 |
81 |
89 |
80 |
|
|
|
Total provisions for bad and doubtful debts |
|
2,353 |
1,983 |
1,943 |
1,850 |
2,130 |
|
|
|
|
* An analysis of the movement in general provisions is shown in note 18 to the accounts.
The geographic analysis of provisions is based on location of office. The UK charge in 1998 includes £153m raised in respect of
exposure to Russian counterparties.
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Credit risk provisions |
