 |
|
|
|
|
Treasury asset and liability management
Treasury asset and liability management involves management
of liquidity, funding, interest risk and exchange rate risk arising
from non-trading positions through use of both on- and off-balance
sheet instruments. The Group policy is to manage the
earnings volatility arising from the effects of movements in
interest rates and exchange rates on the non-trading positions
inherent in the Group balance sheet. The policies for Group
asset and liability management are set by the Group Treasury
Committee, which is chaired by the Group Finance Director.
On a regular basis, the Group Treasury Committee receives
reports on the non-trading interest mismatch positions of the
Group and the maturity transformation of the Group’s assets
and liabilities. These are monitored within defined limits.
Liquidity risk management |
|
The management of liquidity within the Barclays Group has
two principal strands. Firstly, day to day funding is managed
by monitoring future cash flows to ensure that requirements
can be met including the replacement of existing funds as
they mature or are withdrawn to satisfy demand by customers
for additional borrowings. Secondly, to maintain a stock of
highly marketable assets that can easily be liquidated as
protection against any unforeseen interruption to cash flow.
In order to avoid reliance on a particular group of customers
or market sectors the distribution of sources and the maturity
profile of deposits are actively managed. Important factors in
assuring liquidity are competitive rates and the maintenance of
depositors’ confidence. Such confidence is based on reputation,
the strength of earnings and the Group’s financial position.
A substantial portion of Barclays assets in the UK, and in certain
other retail banking areas, are funded with ‘core retail deposits’.
These important sources of liquidity are mainly current
accounts and savings accounts. Although current accounts are
repayable on demand and savings accounts are repayable at
short notice, maintaining a broad base of customers, both
numerically and by type of depositor, helps to protect against
unexpected fluctuations. Such accounts form a stable deposit
base for the Group’s operations and liquidity needs.
Liquidity management includes control over asset maturities
and the volume and quality of liquid assets and short-term
funds. Additionally, in evaluating the Group’s liquidity position,
management takes account of undrawn lending commitments;
the usage of overdraft facilities and the possible impact of
certain contingent liabilities such as standby letters of credit
and guarantees.
The responsibility for the Group’s overall liquidity policy and
control lies with Group Treasury. In order to maximise the
benefits from knowledge gained in overseas domestic markets,
local treasury management in each location manage day-to-day
liquidity within the parameters set by Group Treasury and
subject to regular reports to Group Treasury. Local asset and
liability management committees comprising senior local
executives also review liquidity management depending on
the size and complexity of the treasury operation.
Monitoring and reporting take the form of cash flow
measurement based on principles agreed by the UK Financial
Services Authority. Each operation is required to maintain
sufficient access to funds, in terms of maturing assets and
proven capacity to borrow in the money markets. Special
attention is paid to cash flow projections for the next day, the
next week and the next month as these are key periods for
liquidity management. These positions are scrutinised daily
to prevent problems developing in the future. In addition
emphasis is placed on the need to monitor unmatched
medium-term assets and the level and type of undrawn
commitments.
The Group’s liquidity policy is designed to ensure that access
to appropriate funding is maintained. In accordance with the
policy the Group believes that the liquidity position was
satisfactory at 31st December 2000.
|
|
Interest rate exposure |
|
The interest rate risk attached to the positions arising from
the UK banking operations is managed by Group Treasury,
which is responsible for the overall Group position. In
managing the non-trading positions inherent in the Group’s
balance sheet, consideration is given to the substantial
liabilities represented by interest free deposits, other interest
free or fixed rate liabilities as well as, for these purposes, part
of the Group’s shareholders’ funds. The positions arising from
these balances are managed by the maintenance of a portfolio
of assets with interest rates fixed for several years, including
loans and advances to customers, debt securities and interest
rate swaps and options. Similarly, mismatches of fixed rate
assets and liabilities are managed through the use of interest
rate swaps and other derivatives. Care is taken to ensure that
the management of the portfolio is not inflexible, as market
circumstances and customer requirements can rapidly change
the desirable portfolio structure.
International banking operations also incur interest rate risk.
Policies for managing this risk are agreed between Group
Treasury and Group Risk Analysis and Policy and are applied
through Asset and Liability Management Committees (ALCOs)
as appropriate. Guidance on the scope and constitution
of ALCOs is provided by Group Risk Analysis and Policy,
who maintain regular contact with the businesses on risk
management and control issues. Compliance with the applied
policy is controlled via a comprehensive financial risk
reporting framework including interest rate gap limits or,
where more appropriate, value at risk limits issued by Group
Risk Analysis and Policy. These limits enable positions,
transactions and flows emanating from the banking books to
be managed by local treasury operations in an orderly fashion,
either through Barclays Capital managed trading outlets or,
where necessary, through local markets.
The total Group exposure, excluding Barclays Capital trading
risk, is shown for the purposes of this review in the form of
an interest rate repricing table Consolidated accounts Barclays PLC' section, 'notes to the accounts' '46 Derivatives and other financial instruments'.
This summarises the repricing profile of the Group’s assets,
liabilities and off-balance sheet exposures at 31st December
2000 and also reflects the non-trading hedges referred to
above. This table can be used as the basis for the assessment
of the sensitivity of the Group’s earnings to interest rate
movements, although allowance is also made for other factors
such as asset and liability currency composition and customer
behaviour (e.g. early prepayment of loans). It is estimated
that as at 31st December 2000, the Group’s earnings in 2001
would not be significantly affected either by a hypothetical
immediate and sustained increase of 1% in interest rates or
by a similar decrease in interest rates.
|
|
Foreign exchange exposure |
|
The corporate and retail banking businesses incur foreign
exchange risk in the course of providing services to their
customers. The part of this risk that arises in UK operations
is transferred to and managed by Barclays Capital. In the case
of the international operations, Group Risk Analysis and Policy
allocates modest foreign exchange open position limits to
facilitate the management of customer originated flows.
Exposures are reported daily to Group Risk Analysis and Policy
and Group Treasury. As at 31st December 2000, aggregate
DVAR of these businesses for foreign exchange rate risk was
£0.2m (1999 £0.2m).
|
|
Management of foreign currency investments |
|
Non-trading positions in foreign currencies arise from the
currency investments which the Group makes in its overseas
businesses. The Group’s policy is to manage the currency
balance of the funding, financing these investments so as to
limit the effect of exchange rate movements on the Group’s
risk asset ratios. Management of the funding of investments in
overseas branches and subsidiary and associated undertakings
and joint ventures is carried out by Group Treasury, where the
operation of the funding policy is frequently reviewed. Regular
reports are made to Group Treasury Committee. The principal
structural currency exposures of the Group are set out in Note 46 Derivatives and other financial instruments'.
These positions, together with the currency composition of
tier 2 and tier 3 capital and minority interests in tier 1 capital,
ensure that movements in exchange rates have little impact on
the Group’s risk asset ratios. Such movements have an impact
on reserves (see Consolidated statement of changes in reserves). With the positions in place at 31st December 2000, a
hypothetical increase of 10% in the value of sterling against all
currencies would have led to a fall of some £68m in reserves
(1999 £110m).
|
|
Hedging |
|
Risk management activities employ interest rate swaps, currency
swaps and other derivatives that are designated as hedges.
The following table provides examples of certain activities
undertaken by the Group, together with the related market risks and
the types of derivatives that may be used in managing such risks.
|
|
|
|
|
|
Activity |
Risk |
Type of hedge |
|
 |
|
Fixed rate lending and |
Reduced earnings due to an |
Pay fixed interest rate swaps |
|
fixed rate investment. |
increase in interest rates. |
and buy interest rate caps. |
|
|
|
Fixed rate funding |
Reduced earnings due to a fall |
Receive fixed interest rate |
|
(e.g medium-term note issuance). |
in interest rates. |
swaps and buy interest |
|
|
|
rate floors. |
|
|
|
Firm foreign currency commitments |
Reduced earnings due to changes |
Foreign currency transactions. |
|
(e.g. asset purchases and sales). |
in exchange rates between arranging |
|
|
|
a transaction and completion. |
|
|
|
|
Managing the Group’s risk asset ratios. |
Reduced risk asset ratio due to strengthening |
Currency swaps. |
|
|
of foreign currency against sterling. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sterling denominated contracts |
Non-sterling denominated contracts |
|
|
|
Pay fixed |
Receive fixed |
Pay fixed |
Receive fixed |
|
|
|
|
Nominal |
Average |
Nominal |
Average |
Nominal |
Average |
Nominal |
Average |
|
|
amount |
rate |
amount |
rate |
amount |
rate |
amount |
rate |
|
|
£m |
% |
£m |
% |
£m |
% |
£m |
% |
|
|
|
Maturity date: Not more than |
|
three months |
3,318 |
3.96 |
8,076 |
6.51 |
1,672 |
7.36 |
1,184 |
5.54 |
|
Over three months but not |
|
more than six months |
2,644 |
5.79 |
2,825 |
6.55 |
5,634 |
0.96 |
1,323 |
2.98 |
|
Over six months but not |
|
more than one year |
8,330 |
6.98 |
11,328 |
7.10 |
3,866 |
1.99 |
1,405 |
5.27 |
|
Over one year but not |
|
more than five years |
18,364 |
6.55 |
22,191 |
6.26 |
4,668 |
3.73 |
2,377 |
5.62 |
|
Over five years |
2,736 |
6.76 |
4,019 |
6.64 |
1,738 |
6.34 |
2,624 |
6.73 |
|
|
|
|
35,392 |
6.37 |
48,439 |
6.55 |
17,578 |
3.06 |
8,913 |
5.49 |
|
|
|
The weighted-average receive variable and pay variable rates by reset maturity date and nominal amount at 31st December
2000 were as follows:
|
|
|
Sterling denominated contracts |
Non-sterling denominated contracts |
|
|
|
Receive variable |
Pay variable |
Receive variable |
Pay variable |
|
|
|
|
Nominal |
Average |
Nominal |
Average |
Nominal |
Average |
Nominal |
Average |
|
|
amount |
rate |
amount |
rate |
amount |
rate |
amount |
rate |
|
|
£m |
% |
£m |
% |
£m |
% |
£m |
% |
|
|
|
Reset maturity date: Not more than |
|
three months |
30,331 |
6.07 |
37,830 |
5.87 |
7,314 |
4.91 |
6,939 |
6.04 |
|
Over three months but not |
|
more than six months |
10,181 |
4.95 |
15,729 |
3.81 |
10,905 |
3.85 |
2,615 |
2.22 |
|
|
|
|
40,512 |
5.79 |
53,559 |
5.26 |
18,219 |
4.27 |
9,554 |
4.99 |
|
|
