# Building the ‘Go-To’ bank

Barclays PLC
Pillar 3 Report 2013

***

# Contents

- [Barclays Pillar 3 report](#barclays-pillar-3-report)
- [Executive summary](#executive-summary)
- [About Basel and the Pillar 3 framework](#about-basel-and-the-pillar-3-framework)
- [Location of risk disclosures](#location-of-risk-disclosures)
- [Notes on basis of preparation](#notes-on-basis-of-preparation)
- [Risk and capital position review](#risk-and-capital-position-review)
- [Barclays’ approach to managing risks](#barclays-approach-to-managing-risks)
- [Appendix](#appendix)
- [Index of tables](#index-of-tables)

***

# Barclays Pillar 3 report

Our annual disclosures contain extensive information on risk as well as capital management. The Pillar 3 report provides a detailed breakdown of Barclays’ regulatory capital adequacy and how this relates to Barclays’ risk management.

RWAs reduced £33bn to £355bn during the year, which when combined with retained earnings and capital issuance resulted in a 13.2% Core Tier 1 ratio as at 31 December 2013 (2012: 10.8%):

- The issuance of shares through the rights issue completed in Q4 2013 generated £5.8bn of capital.
- A decrease in sovereign exposure and risk reductions in the trading book contributed to a £14bn RWA decrease; additionally, reduction in Exit Quadrant RWAs (those identified as part of Transform as unable to generate sustainable returns on equity) contributed to a further £13bn RWA decrease.

## Impact of CRD IV
This report primarily contains disclosures on a CRD III basis, applicable as at 2013 year-end. It also includes key CRD IV measures, which came into effect on 1st January 2014. These can be found in pages 25 to 31:

- CRD IV RWAs decreased £32bn in the year to £436bn, driven by a £39bn reduction in Exit Quadrant RWAs and reductions in trading book exposures, offset by methodology changes.
- CRD IV Common Equity Tier 1 (CET1) ratio was 9.3% as at 31 December 2013 (31 December 2012: 8.2%).
- PRA Leverage Ratio, a non risk-adjusted measure of capital adequacy, was 3.0% as at 31 December 2013.

## Developments in risk management in 2013
During the year we have progressed the Transform programme; this comprises significant initiatives related to risk and capital management. These include:

- The introduction of an Enterprise Risk Management Framework (ERMF), and the creation of a new Board Enterprise Wide Risk Committee (BEWRC) to further strengthen the management of all Principal Risks and the risk culture across the organisation.
- Conduct risk and reputation risk were formally recognised as Principal Risks with Executive Committee sponsorship.

These initiatives are among many that will further align our risk management capabilities and culture with our values, and produce sustainable returns.

> ‘We have made significant progress strengthening our capital base, through the rights issue and issuance of Additional Tier 1 securities. Combined with our substantial deleveraging actions in the second half of the year, we are ahead of our schedule to achieve the PRA leverage ratio target in June 2014.’
>
> Robert Le Blanc, Group Chief Risk Officer
> Tushar Morzaria, Group Chief Finance Officer

***

# Executive summary

The principal function of the Pillar 3 report is to provide detailed information on the underlying drivers of risk weighted assets and capital ratios. As at 31st December 2013, Pillar 3 disclosures are primarily prepared on a CRD III basis.

Capital adequacy improved over the year driven by the rights issue and a decrease in risk weighted assets.

## Key metrics

| Measure | 31.12.13 | 31.12.12 |
| --- | --- | --- |
| Core Tier 1 ratio | 13.2% | 10.8% |
| CRD III RWAs | £355bn | £387bn |
| Fully loaded CET1 ratio | 9.3% | 8.2% |
| CRD IV RWAs | £436bn | £468bn |
| Estimated PRA leverage ratio | 3.0% | - |
| Fully loaded CRDIV leverage ratio | 3.1% | - |

### CRD III RWAs decreased 8.4% to £354.8bn during the year (2012: £387.4bn)

| Risk Type | 2013 | 2012 |
| --- | --- | --- |
| 1 Credit risk | £233.3bn | £239.8bn |
| 2 Counterparty credit risk | £27.9bn | £30.1bn |
| 3 Market risk | £39.3bn | £63.3bn |
| 4 Operational risk | £54.3bn | £54.2bn |
| **Total** | **£354.8bn** | **£387.4bn** |

1. **Credit risk** decreased to £233.3bn (2012: £239.8bn), driven by the disposal of Exit Quadrant assets and improvements in risk profile, partly offset by asset growth in retail businesses.
2. **Counterparty credit risk** decreased to £27.9bn (2012: £30.1bn), driven by reduced exposure to derivatives.
3. **Market risk** decreased to £39.3bn (2012: £63.3bn), driven by risk reductions and reduced sovereign exposure in the trading book and Exit Quadrant RWAs.
4. **Operational risk** remained consistent year on year at £54.3bn (2012: £54.2bn).

### The distribution of risk weighted assets reflects the diversity of our business model

| Business Unit | 2013 | 2012 |
| --- | --- | --- |
| 1 UK RBB | £44.1bn | £39.1bn |
| 2 Europe RBB | £15.9bn | £15.8bn |
| 3 Africa RBB | £22.4bn | £24.5bn |
| 4 Barclaycard | £41.1bn | £37.8bn |
| 5 Investment Bank | £142.6bn | £177.9bn |
| 6 Corporate Banking | £68.9bn | £70.9bn |
| 7 Wealth and Investment Management | £16.7bn | £16.1bn |
| 8 Head Office Functions and Other Operations | £3.0bn | £5.3bn |
| **Total** | **£354.8bn** | **£387.4bn** |

The split between regulatory calculation approaches has remained consistent year on year.

| Approach | 2013 | 2012 |
| --- | --- | --- |
| 1 Standardised approaches | £98.4bn | £110.2bn |
| 2 Advanced approaches | £245.4bn | £264.6bn |
| 3 Foundation approach | £11.0bn | £12.6bn |
| **Total** | **£354.8bn** | **£387.4bn** |

***

# Executive summary (continued)

## Key capital management measures

| Measure | 31.12.13 | 31.12.12 | Table |
| --- | --- | --- | --- |
| **CRD III:** | | | |
| Core tier 1 ratio | 13.2% | 10.8% | Table 5 – Page 18 |
| Core tier 1 capital | £46.8bn | £41.7bn | Table 5 – Page 18 |
| Risk weighted assets | £354.8bn | £387.4bn | Table 8 – Page 22 |
| **CRD IV fully loaded** | | | |
| Common equity tier 1 ratio | 9.3% | - | Table 10 – Page 27 |
| Common equity tier 1 capital | £40.4bn | - | Table 10 – Page 27 |
| Risk weighted assets | £435.5bn | - | Table 12 – Page 29 |
| Estimated leverage ratio (fully loaded) | 3.1% | - | Table 13 – Page 31 |
| Estimated PRA leverage ratio (fully loaded) | 3.0% | - | Table 13 – Page 31 |

As at 31 December 2013, Barclays was in a strong capital position and in 2013 significant progress has been made towards achieving our key objectives:

- Core Tier 1 capital increased £5.1bn to £46.8bn over the year. This was driven by a £5.8bn rights issue completed in Q4 2013.
- RWAs reduced £33bn to £355bn during the year, primarily driven by £14bn risk reductions and reduced sovereign exposures in the trading book, as well as a £13bn decrease driven by Exit Quadrant RWAs.

## Barclays is on-track to meet its Transform financial commitments and regulatory expectations under CRD IV.

- Barclays’ current regulatory target is to meet a fully loaded CET1 ratio of 9% by 2019, plus a Pillar 2A add-on.
- Barclays expects to achieve a 10.5% CRD IV CET1 ratio on a fully loaded basis in 2015.
- Barclays estimates reaching a PRA leverage ratio of at least 3.5% by the end of 2015 and a range of 3.5% to 4% beyond 2015.

## Risk culture
To protect the Group’s performance and ensure we remain able to serve the communities in which we operate, a strong risk culture and management capabilities are required. 

In particular, the new Enterprise Risk Management Framework (ERMF) was launched, setting out the approach applicable across the Group and for all risk types:

- We have re-designed our risk management framework; the new Enterprise Risk Management Framework (ERMF) now formally recognises conduct and reputation risk as Principal Risks. A new Board Enterprise Wide Risk Committee (BEWRC) oversees all Principal Risks to further strengthen management and risk culture across the organisation.
- The appraisal process of all employees globally specifically assesses risk and control performance. Positive risk management behaviours are encouraged and rewarded.

***

# Executive summary (continued)

Barclays is committed to transparency and openness. This encompasses engaging and responding to our stakeholders’ feedback, in order to achieve best in class disclosures. Barclays’ disclosures go beyond the minimum standards required by accounting standards and other regulatory requirements. This year we have sought to further improve disclosures. In particular, we have:

- Included a table showing which elements of the balance sheet give rise to credit, counterparty credit and market risk weighted assets on page 14.
- Included a reconciliation between on balance sheet IFRS data and credit risk banking book exposure at default (EAD).
- Expanded the market risk section by providing better linkages between the balance sheet and VaR.
- Expanded the RWA flow table, by including additional classifications and RWA drivers split by risk type.
- Included a reconciliation between IFRS statutory impairment stock and the regulatory impairment allowance.
- Revised the actual loss table format, to enable an easier comparison to expected loss measures.
- Included a split of on and off balance sheet exposures in the securitisation section.
- Provided more information around our updated risk management frameworks, our risk culture and the strategies to embed it into the business.
- Sought to improve the ease with which users can navigate the various disclosures, with more cross-references, and a disclosures map on page 8.
- For the first time, this report has been subject to Barclays Board Audit Committee approval.

***

# About Basel and the Pillar 3 framework

## Overview of Basel 2 and Pillar 3
Barclays has applied the Basel 2 framework since 2008. The framework is made up of three pillars:

- **Pillar 1:** covers the calculation of risk weighted assets for credit risk, counterparty risk, market risk and operational risk.
- **Pillar 2:** covers the consideration of whether additional capital is required over and above the Pillar 1 risk calculations. A firm’s own internal models and assessments support this process.
- **Pillar 3:** covers external communication of risk and capital information by banks as specified in the Basel rules to promote transparency and good risk management.

Distinct regulatory capital approaches are followed for each of the following risk and exposure types:
- Credit risk
- Counterparty credit risk (CCR)
- Market risk
- Securitisations
- Operational risk

### Calculation of capital for credit risk
- **Standardised approach:** assesses capital requirements using standard industry-wide risk weightings.
- **Internal ratings based approach (IRB):** assesses capital requirements using bank specific data and internal models. Sub-divided into:
    - **Advanced IRB (AIRB):** where internal calculations of PD, LGD and credit conversion factors are used.
    - **Foundation IRB (FIRB):** where internal calculations of probability of default (PD) are used, but standardised parameters for LGD and credit conversion factors are used.

### Calculation of capital for counterparty credit risk (CCR)
- **Mark to Market method (MTM):** sum of current market value plus an add-on (potential future exposure).
- **Internal model method (IMM):** use of internal models to calculate expected positive exposure (EPE).

### Calculation of capital for market risk
- **Standardised approach:** prescribed calculation dependent on contract type and net position.
- **Model-based approach:** uses proprietary VaR models to calculate capital requirements. Under Basel 2.5, Stressed VaR, Incremental Risk Charge and All Price Risk models are also used.

### Calculation of capital for securitisation exposures
- **Standardised approach:** uses look-up tables to provide risk weights.
- **Advanced approaches:** include ratings-based approach, "look through" approach, or internal assessment approach.

***

# About Basel and the Pillar 3 framework (continued)

## Calculation of capital for operational risk
To assess capital requirements for operational risk, the following methods apply:

- **Basic indicator approach (BIA):** 15% of net interest and non-interest income averaged over the last three years.
- **Standardised approach:** capital requirement calculated as a percentage of income ranging between 12% and 18% depending on business line, averaged over three years.
- **Advanced management approach (AMA):** calculates capital requirement using the firm's own models, after regulatory approval.

Barclays uses the AMA for the great majority (94%) of its exposures, and the BIA for the remainder.

***

# Location of risk disclosures

| | Pillar 3 Report | Annual Report |
| --- | --- | --- |
| | Analysis | Management | Risk review | Risk management |
| **Risk overview** | - | 102-115 | 133-141 | 378-391 |
| **Credit risk** | 22-64 | 116-132 | 142-189 | 392-404 |
| **Market risk** | 73-83 | 133-146 | 190-198 | 405-414 |
| **Operational risk** | 98-100 | 147-150 | 225-236 | 415-417 |
| **Funding risk (Liquidity)** | - | 208-224 | - | 418-419 |
| **Funding risk (Capital)** | 17-31 | 18-21 | 199-207 | 420-422 |
| **Reputation risk** | - | - | 226-227 | - |
| **Conduct risk** | - | - | 228-229 | - |

***

# Notes on basis of preparation

## Barclays’ approach to risk disclosures in the Pillar 3 report
Barclays intends to provide meaningful disclosures that help investors and other stakeholders understand the financial position and performance.

### Prior year figures
Certain comparatives have been restated to reflect the implementation of IFRS 10 and IAS 19.

### Definition of credit exposures
- **Credit exposure (EAD):** estimate of amount at risk in event of default (before recoveries) or decline in value, taking account of contractual commitments.
- **Balance sheet asset:** drawn balance only.

### Policy, validation and sign-off
Throughout 2013, Barclays has operated a system of risk management and internal control. This report was validated and approved internally by Barclays in line with its Pillar 3 policy.

***

# Risk and capital position review: Scope of application of Basel rules

In this report, Barclays PLC is presented on a consolidated basis for the year ended 31 December 2013. The consolidation basis is the same as that used for regulatory capital adequacy to the UK Prudential Regulation Authority, with specific exceptions for non-financial subsidiaries and associates.

```mermaid
graph TD
    PLC[Barclays PLC]
    PLC --> Bank[Barclays Bank PLC]
    Bank --> Solus[Barclays Bank Solus]
    Bank --> Cap[Barclays Capital Inc]
    Bank --> Absa[Absa Group Ltd]
    Bank --> Sec[Barclays Capital Securities Ltd]
    Bank --> Spain[Barclays Bank SA Spain]
    Bank --> Japan[Barclays Securities Japan Ltd]
    Bank --> Del[Barclays Bank Delaware]
    Bank --> Agg[Aggregate of less significant entities]
    Agg --> Assoc[Consolidation of banking associates/other entities]
    Agg --> Ins[Deconsolidation of insurance/other entities]
```

***

# Risk and capital position review: Scope of application of Basel rules (continued)

Table 1: Barclays PLC balance sheet – statutory versus regulatory view

| As at 31.12.13 | Accounting balance sheet (£m) | Deconsolidation (£m) | Consolidation (£m) | Regulatory Balance (£m) |
| --- | --- | --- | --- | --- |
| **Assets** | | | | |
| Cash and balances at central banks | 45,687 | (9) | 112 | 45,790 |
| Items in course of collection | 1,282 | - | - | 1,282 |
| Trading portfolio assets | 133,069 | (85) | - | 132,984 |
| Financial assets at fair value | 38,968 | (1,632) | - | 37,336 |
| Derivative financial instruments | 324,335 | (5) | - | 324,330 |
| Available for sale investments | 91,756 | (2,235) | - | 89,521 |
| Loans and advances to banks | 37,853 | (257) | 122 | 37,718 |
| Loans and advances to customers | 430,411 | (3,557) | 1,338 | 428,192 |
| Reverse repos | 186,779 | (21) | - | 186,758 |
| Other assets | 22,127 | (1,769) | (168) | 20,190 |
| **Total assets** | **1,312,267** | **(9,570)** | **1,404** | **1,304,101** |

***

# Risk and capital position review: Scope of application of Basel rules (continued)

Table 2: Regulatory calculation drivers split by IFRS account classification

| IFRS classification | Credit risk | Counterparty credit risk | Market risk |
| --- | --- | --- | --- |
| **Assets** | | | |
| Cash and balances at central banks | L | | |
| Items in course of collection | L | | |
| Trading portfolio assets | L | | |
| Financial assets designated at fair value | L | L | L |
| Derivative financial instruments | | L | L |
| Available for sale financial investments | L | | |
| Loans and advances to banks | L | | |
| Loans and advances to customers | L | | |
| Reverse repurchase agreements | L | L | |
| Other assets | L | | |
| **Liabilities** | | | |
| Repurchase agreements | | L | L |
| Trading portfolio liabilities | | | L |
| Financial liabilities designated at fair value | | L | L |
| Derivative financial instruments | | L | L |

***

# Risk and capital position review: Scope of application of Basel rules (continued)

Table 3: The scope of the standardised and IRB approaches (As at 31.12.13)

| Business | Credit risk (RWAs £m) | EAD post-CRM (£m) | Counterparty (RWAs £m) | Internal Ratings based (IRB) | Standardised approach |
| --- | --- | --- | --- | --- | --- |
| UK RBB | 37,404 | 167,641 | - | Most portfolios | Small sub-portfolios |
| Europe RBB | 13,774 | 41,863 | 4 | Portugal, Italy, Spain | Other portfolios |
| Africa RBB | 18,416 | 35,989 | 3 | Retail/Wholesale | Mainly non-South African |
| Barclaycard | 34,549 | 52,668 | - | UK/Germany cards | Non-UK, UK secured |
| Investment Bank | 51,479 | 167,716 | 26,967 | Most portfolios | Small portfolios |
| Corporate Banking | 61,560 | 129,364 | 651 | Business portfolios | Non-UK, asset finance |
| Wealth & Invest. | 13,230 | 33,053 | 230 | Spain mortgages | Most portfolios |
| Head Office | 2,852 | 16,541 | - | All significant | Small portion |
| **Total** | **233,264** | **644,835** | **27,855** | | |

***

# Risk and capital position review: Scope of application of Basel rules (continued)

Table 4: Summary of scope of regulatory methodologies for counterparty, market and operational risk (As at 31.12.13)

| Risk Type | RWAs | Scope |
| --- | --- | --- |
| Counterparty credit risk | £27.9bn | Internal model method (IMM) for most assets. Barclays Capital Inc is an exception. |
| Market risk | £39.3bn | VaR modeling for general market risk. Permission to model specific market risk for certain entities. Standardised approach where model permission is absent. |
| Operational risk | £54.3bn | CRD III advanced measurement approach (AMA). Recently acquired businesses use basic indicator approach (7.3% of RWA). |

***

# Group capital requirements and resources

This section shows Barclays’ capital position on a CRD III basis and details both capital resources and capital requirements.

- The Group’s Core Tier 1 ratio increased to 13.2% (December 2012: 10.8%) reflecting an increase in Core Tier 1 capital of £5.1bn to £46.8bn. This was driven by the £5.8bn rights issue.
- RWAs reduced £33bn to £355bn during the year, primarily driven by £14bn risk reductions and reduced sovereign exposures in the trading book, as well as a £13bn decrease driven by Exit Quadrant RWAs.

## We have improved our Core Tier 1 ratio position

- **Core Tier 1 Ratio:** 13.2%
- **Core Tier 1 Capital:** +£5.1bn (Driven by the rights issue, offset by foreign exchange movements)
- **Total RWAs:** -£32.6bn (Driven by risk reductions and reduced sovereign exposure in the trading book and Exit Quadrant RWA disposals)

***

# Group capital requirements and resources (continued)

Table 5: Capital resources

| CRD III Capital Ratios | 31.12.13 | 31.12.12 |
| --- | --- | --- |
| Core Tier 1 | 13.2% | 10.8% |
| Tier 1 | 15.7% | 13.2% |
| Total capital | 19.9% | 17.0% |

| Capital Resources | 31.12.13 (£m) | 31.12.12 (£m) |
| --- | --- | --- |
| Shareholders’ equity | 55,385 | 50,615 |
| Non-controlling interests | 8,564 | 9,371 |
| Other regulatory adjustments | (17,165) | (18,264) |
| **Core Tier 1 capital** | **46,784** | **41,722** |
| Other Tier 1 capital | 9,489 | 9,513 |
| Regulatory adjustments | (453) | - |
| **Total Tier 1 capital** | **55,820** | **51,235** |
| Tier 2 capital | 15,906 | 16,327 |
| Tier 2 deductions | (1,779) | (2,278) |
| Other regulatory adjustments | (1,056) | (1,689) |
| **Total regulatory capital** | **70,670** | **65,873** |

***

# Group capital requirements and resources (continued)

Table 6: Summary of movements in capital resources

| Movement in Core Tier 1 Capital | 2013 (£m) | 2012 (£m) |
| --- | --- | --- |
| Core Tier 1 capital as at 1 January | 41,722 | 42,093 |
| Retained regulatory capital generated from earnings | (373) | 2,238 |
| Movement in other qualifying reserves | 4,768 | (2,915) |
| Movement in regulatory adjustments and deductions | 667 | 306 |
| **Core Tier 1 capital as at 31 December** | **46,784** | **41,722** |

- Core Tier 1 ratio increased to 13.2% (2012: 10.8%) reflecting an increase in Core Tier 1 capital of £5.1bn to £46.8bn.
- Total Capital Resources increased overall by £4.8bn to £70.7bn.

***

# Group capital requirements and resources (continued)

Table 7: Terms and conditions of capital resources

| Instrument | Initial call date | 2013 (£m) | 2012 (£m) |
| --- | --- | --- | --- |
| **Other Tier 1 Capital** | | | |
| Total Preference Shares | - | 6,131 | 6,203 |
| Total Tier One Notes | 2032 | 500 | 509 |
| Total Reserve Capital Instruments | various | 2,858 | 2,866 |
| **Tier 2 Capital** | | | |
| Total undated subordinated liabilities | various | 1,522 | 1,625 |
| Total Dated subordinated liabilities | various | 13,626 | 14,066 |
| Total non controlling tier 2 capital | - | 478 | 547 |

***

# Group capital requirements and resources (continued)

Table 8: Risk weighted assets by risk type and business (As at 31.12.13)

| Business | Credit risk (STD) | Credit risk (F-IRB) | Credit risk (A-IRB) | Counterparty (IMM) | Counterparty (Non-model) | Market risk (STD) | Market risk (VaR) | Operational risk | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| UK RBB | 2,639 | - | 34,765 | - | - | - | - | 6,680 | 44,084 |
| Europe RBB | 4,206 | - | 9,568 | - | 4 | - | - | 2,128 | 15,906 |
| Africa RBB | 5,196 | 4,820 | 8,400 | - | 3 | - | - | 3,965 | 22,384 |
| Barclaycard | 18,070 | - | 16,479 | - | - | - | - | 6,594 | 41,143 |
| Investment Bank | 7,306 | 3,142 | 41,031 | 20,847 | 6,120 | 16,957 | 14,932 | 24,807 | 142,632 |
| Corporate Banking | 22,582 | 2,846 | 36,132 | 649 | 2 | - | - | 6,717 | 68,928 |
| Wealth & Invest. | 11,209 | 225 | 1,796 | - | 230 | - | - | 3,261 | 16,721 |
| Head Office | 168 | - | 2,684 | - | - | - | - | 159 | 3,011 |
| **Total** | **71,376** | **11,033** | **150,855** | **21,496** | **6,359** | **16,957** | **14,932** | **54,311** | **354,809** |

***

# Group capital requirements and resources (continued)

Table 9: Movements in risk weighted assets (RWAs)

| Risk weighted assets | Credit risk (£bn) | Counterparty (£bn) | Market risk (£bn) | Operational risk (£bn) | Total (£bn) |
| --- | --- | --- | --- | --- | --- |
| **As at 1 January 2013** | **239.8** | **30.1** | **63.3** | **54.2** | **387.4** |
| Book size | 6.0 | (2.1) | (17.9) | 0.1 | (13.9) |
| Acquisitions and disposals | (7.7) | (0.2) | (3.6) | 0.1 | (11.4) |
| Book quality | (4.5) | 0.2 | (0.1) | - | (4.4) |
| Model updates | 2.6 | 0.8 | (0.1) | - | 3.3 |
| Methodology and policy | 1.6 | (0.2) | - | - | 1.4 |
| Foreign exchange movement | (4.6) | (0.3) | (0.2) | (0.1) | (5.2) |
| Other | 0.1 | (0.4) | (2.1) | - | (2.4) |
| **As at 31 December 2013** | **233.3** | **27.9** | **39.3** | **54.3** | **354.8** |

***

# Group capital requirements and resources (continued)

## Basis of preparation for movements in risk weighted assets

- **Book size:** RWA movements driven by changes in the size and composition of underlying positions.
- **Book quality:** RWA movements driven by changes in the underlying credit quality and recoverability of portfolios.
- **Model updates:** RWA movements as a result of internal and external model updates.
- **Methodology and policy:** RWA movements as a result of internal and external methodology, policy and regulatory changes.
- **Acquisitions and disposals:** RWA movements as a result of disposal or acquisition of business operations.
- **Foreign exchange movements:** RWA movements as a result of changes in the exchange rate between the functional currency and our presentational currency.
- **Other:** RWA movements driven by items that cannot be reasonably assigned to other categories.

***

# Impact of CRD IV as implemented by the Prudential Regulation Authority

CRD IV came into effect on 1st January 2014. This section details the Group’s Capital position and leverage ratio on this basis, as at 31 December 2013.

- CRD IV CET1 ratio on a fully loaded basis increased to 9.3% (31 December 2012: 8.2%).
- CRD IV fully loaded CET1 capital increased £2.0bn from 31 December 2012 to £40.4bn.
- CRD IV RWAs reduced £32bn during the year, primarily driven by reductions in Exit Quadrant RWAs of £39bn.
- The estimated PRA leverage ratio increased to just under 3.0% (30 June 2013: 2.2%).
- The estimated CRD IV fully loaded leverage ratio increased to 3.1% (30 June 2013: 2.5%).

Barclays continues to be in excess of minimum CRD IV capital ratios on both a transitional and fully loaded basis. We are on track to meet the PRA Leverage Ratio expectation.

- **CET1 ratio:** 9.3% (Compared to 9% regulatory benchmark)
- **PRA Leverage ratio:** 3.0% (On track to meet the PRA June 2014 expectation)

***

# Impact of CRD IV as implemented by the Prudential Regulation Authority

Table 10: Impact of CRD IV – Capital

| Impact of CRD IV – Capital | CRD IV Fully-loaded 31.12.13 (£bn) |
| --- | --- |
| Core Tier 1 capital (CRD III) | 46.8 |
| RWAs (CRD III) | 354.8 |
| Core Tier 1 ratio (CRD III) | 13.2% |
| CRD IV impact on Core Tier 1 capital | (6.4) |
| **CET1 capital** | **40.4** |
| RWAs (CRD III) | 354.8 |
| CRD IV impact to RWAs | 80.8 |
| **CRD IV RWAs** | **435.6** |
| **CET1 ratio** | **9.3%** |

***

# Impact of CRD IV as implemented by the Prudential Regulation Authority (continued)

Table 11: CRD IV regulatory capital

| Common Equity Tier 1 (CET1) capital: instruments and reserves | 31.12.13 Transitional position (£m) | 31.12.13 Fully loaded position (£m) |
| --- | --- | --- |
| Capital instruments and related share premium | 19,887 | 19,887 |
| Retained earnings | 33,186 | 33,186 |
| Adjustments for foreseeable dividends | (640) | (640) |
| Other reserves | 249 | 249 |
| Minority Interests | 1,238 | 1,238 |
| **Common Equity Tier 1 capital before regulatory adjustments** | **53,920** | **53,920** |
| Total regulatory adjustments to CET1 | (13,713) | (13,533) |
| **Common Equity Tier 1 capital** | **40,207** | **40,387** |

***

# Impact of CRD IV as implemented by the Prudential Regulation Authority (continued)

Table 12: RWA by business and risk type (As at 31.12.13)

| Business | Credit risk (£m) | Counterparty (£m) | Market risk (£m) | Operational risk (£m) | Total CRD IV RWAs (£m) |
| --- | --- | --- | --- | --- | --- |
| UK RBB | 37,456 | - | - | 6,680 | 44,136 |
| Europe RBB | 14,084 | 4 | 2 | 2,128 | 16,218 |
| Africa RBB | 18,838 | 3 | - | 3,965 | 22,806 |
| Barclaycard | 33,859 | - | - | 6,594 | 40,453 |
| Investment Bank | 69,621 | 58,188 | 69,029 | 24,807 | 221,645 |
| Corporate Banking | 63,101 | 651 | - | 6,717 | 70,469 |
| Wealth & Invest. | 13,714 | 231 | 74 | 3,261 | 17,280 |
| Head Office | 2,389 | - | - | 159 | 2,548 |
| **Total** | **253,062** | **59,077** | **69,105** | **54,311** | **435,555** |

***

# Impact of CRD IV as implemented by the Prudential Regulation Authority (continued)

### Leverage ratio requirements
CRD IV introduces a non-risk based leverage ratio that is intended to act as a supplementary back stop to the risk based capital measures. The CRD IV leverage ratio is calculated as CRD IV Tier 1 capital divided by CRD IV leverage exposure.

### CRD IV leverage ratio calculation
In calculating the CRD IV leverage ratio the IFRS balance sheet is taken as a starting point and the following key adjustments to total assets have been applied:
- Derivatives netting adjustment
- Potential Future Exposure (PFE) on derivatives
- Securities Financing Transactions (SFTs) adjustments
- Undrawn Commitments
- Regulatory deductions (goodwill, intangibles, deferred tax, etc.)

***

# Impact of CRD IV as implemented by the Prudential Regulation Authority (continued)

Table 13: Leverage ratio

| Fully loaded Leverage Exposure | IFRS balance sheet 31.12.13 (£bn) | Leverage exposure 31.12.13 (£bn) |
| --- | --- | --- |
| Derivatives | 324 | 320 |
| Securities Financing Transaction (SFTs) | 187 | 92 |
| Other assets and adjustments | 801 | 965 |
| **Total exposure** | **1,312** | **1,377** |
| PRA adjustment to CRD IV leverage exposure | - | (14) |
| **PRA adjusted leverage exposure** | - | **1,363** |

| Leverage Ratio | 31.12.13 (£bn) |
| --- | --- |
| Tier 1 capital | 42.7 |
| PRA deductions to CET1 capital | (2.2) |
| **PRA adjusted Tier 1 capital** | **40.5** |
| **Fully loaded CRD IV leverage ratio** | **3.1%** |
| **PRA leverage ratio** | **3.0%** |

***

# Analysis of credit risk

This section details Barclays’ credit risk profile, focusing on regulatory measures such as exposure at default and risk weighted assets. The risk profile is analysed by business segment, country and industry concentrations, residual maturities, probabilities of default and actual losses.

- Risk weighted assets decreased 2.7% to £233.3bn, driven by a reduction in Exit Quadrant RWAs, foreign exchange movements and improving book quality, offset by book growth in the retail businesses.
- Exposure at default decreased 4.8% to £644.8bn driven by the management of liquidity positions, Exit Quadrant and foreign exchange movements, offset by book growth in the retail businesses.

## Risk weighted assets for credit risk reduced in the year
- **Total RWA reduction: -£6.5bn**
- **-£7.7bn** (Driven by reductions in Exit Quadrant RWAs, offset by the acquisition of Barclays Direct)
- **-£4.6bn** (Due to foreign exchange movements)
- **-£4.5bn** (Owing to improvements in book quality)
- **+£6.0bn** (Increase in book size, driven by balance sheet growth in our retail businesses)
- **+£4.2bn** (Owing to model updates and methodology changes)

***

# Analysis of credit risk (continued)

Table 14: Minimum capital requirements and exposure for credit risk (As at 31.12.13)

| Credit exposure class | EAD pre-CRM (£m) | EAD post-CRM (£m) | RWA (£m) | Capital (£m) |
| --- | --- | --- | --- | --- |
| **Standardised approach** | | | | |
| Central governments | 8,845 | 8,839 | 2,374 | 190 |
| Corporates | 37,183 | 31,535 | 30,865 | 2,469 |
| Retail | 26,914 | 26,193 | 19,626 | 1,570 |
| Other | 35,219 | 34,429 | 18,511 | 1,481 |
| **Total standardised** | **108,161** | **100,996** | **71,376** | **5,710** |
| **Foundation IRB** | | | | |
| Corporates | 14,918 | 14,918 | 10,740 | 859 |
| Other | 838 | 838 | 293 | 24 |
| **Total foundation** | **15,756** | **15,756** | **11,033** | **883** |
| **Advanced IRB** | | | | |
| Central governments | 101,655 | 101,655 | 8,294 | 664 |
| Corporates | 131,327 | 131,327 | 58,928 | 4,714 |
| Retail | 227,319 | 227,319 | 62,047 | 4,964 |
| Other | 67,782 | 67,782 | 21,586 | 1,727 |
| **Total advanced** | **528,083** | **528,083** | **150,855** | **12,069** |
| **Total credit exposure** | **652,000** | **644,835** | **233,264** | **18,662** |

***

# Analysis of credit risk (continued)

Table 14 (Continued) (As at 31.12.12)

| Credit exposure class | EAD pre-CRM (£m) | EAD post-CRM (£m) | RWA (£m) | Capital (£m) |
| --- | --- | --- | --- | --- |
| **Standardised approach** | 113,879 | 109,146 | 76,874 | 6,152 |
| **Foundation IRB approach** | 18,301 | 18,301 | 12,580 | 1,007 |
| **Advanced IRB approach** | 550,232 | 550,232 | 150,311 | 12,024 |
| **Total credit exposure** | **682,412** | **677,679** | **239,765** | **19,183** |

***

# Analysis of credit risk (continued)

Table 15: Banking book reconciliation (As at 31.12.13)

| Asset Category | Accounting balance (£m) | Deconsolidation (£m) | Consolidation (£m) | Balances subject to credit risk (£m) |
| --- | --- | --- | --- | --- |
| Cash/items in collection | 46,969 | (9) | 112 | 47,072 |
| Trading portfolio assets | 133,069 | (85) | - | 132,984 |
| Financial assets at fair value | 38,968 | (1,632) | - | 37,336 |
| Derivative instruments | 324,335 | (5) | - | 324,330 |
| Available for sale | 91,756 | (2,235) | - | 89,521 |
| Loans/advances to banks | 37,853 | (257) | 122 | 37,718 |
| Loans/advances to customers | 430,411 | (3,557) | 1,338 | 428,192 |
| Reverse repos | 186,779 | (21) | - | 186,758 |
| Other assets | 22,127 | (1,769) | (168) | 20,190 |
| **Total assets** | **1,312,267** | **(9,570)** | **1,404** | **1,304,101** |

***

# Analysis of credit risk (continued)

Table 16: Detailed view of exposure at default, post-CRM by business (As at 31.12.13)

| EAD post-CRM | UK RBB (£m) | Europe RBB (£m) | Africa RBB (£m) | Barclaycard (£m) | Invest. Bank (£m) | Corp. Bank (£m) | Wealth (£m) | Head Off (£m) | Total (£m) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Standardised | 6,750 | 6,706 | 9,192 | 23,649 | 9,502 | 25,218 | 19,719 | 260 | 100,996 |
| Foundation | - | - | 5,241 | - | 6,165 | 4,055 | 295 | - | 15,756 |
| Advanced | 160,891 | 35,157 | 21,556 | 29,019 | 152,049 | 100,091 | 13,039 | 16,281 | 528,083 |
| **Total** | **167,641** | **41,863** | **35,989** | **52,668** | **167,716** | **129,364** | **33,053** | **16,541** | **644,835** |

***

# Analysis of credit risk (continued)

Table 16 (Continued) (As at 31.12.12)

| EAD post-CRM | UK RBB (£m) | Europe RBB (£m) | Africa RBB (£m) | Barclaycard (£m) | Invest. Bank (£m) | Corp. Bank (£m) | Wealth (£m) | Head Off (£m) | Total (£m) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Standardised | 2,902 | 9,672 | 9,188 | 23,524 | 14,630 | 30,193 | 19,747 | (710) | 109,146 |
| Foundation | - | - | 6,506 | - | 6,838 | 4,590 | 367 | - | 18,301 |
| Advanced | 143,897 | 34,261 | 26,887 | 27,564 | 210,286 | 68,557 | 1,133 | 37,647 | 550,232 |
| **Total** | **146,799** | **43,933** | **42,581** | **51,088** | **231,754** | **103,340** | **21,247** | **36,937** | **677,679** |

***

# Analysis of credit risk (continued)

Exposure at default post-CRM decreased 4.8% to £644.8bn. The key movements by business were as follows:

- **UK RBB** increased 14.2% to £167.6bn, driven by the reallocation of liquidity pool assets from Head Office, the acquisition of Barclays Direct and mortgage balance growth.
- **Europe RBB** decreased 4.7% to £41.9bn, principally due to balance sheet reduction, primarily Exit Quadrant, offset by the reallocation of liquidity pool assets from Head Office.
- **Africa RBB** decreased 15.5% to £36.0bn, driven by the appreciation of GBP against ZAR, offset partially by balance sheet growth.
- **Barclaycard** increased 3.1% to £52.7bn, driven by balance sheet growth across portfolios.
- **The Investment Bank** decreased 27.6% to £167.7bn, principally due to a decrease in exposures to central governments and central banks as part of the management of liquidity positions and the reallocation of liquidity pool assets to the business.
- **Corporate Banking** increased 25.2% to £129.4bn, driven by the reallocation of liquidity pool assets from Head Office and balance sheet growth in UK portfolios, offset by the refocusing of our Corporate Banking international businesses.
- **Wealth and Investment Management** increased 55.6% to £33.1bn, driven by the reallocation of liquidity pool assets from Head Office.
- **Head Office and Other Operations** decreased 55.2% to £16.5bn primarily driven by reallocation of liquidity pool assets to the businesses.

***

# Analysis of credit risk (continued)

Table 17: Detailed view of credit risk RWAs by business (As at 31.12.13)

| RWAs | UK RBB (£m) | Europe RBB (£m) | Africa RBB (£m) | Barclaycard (£m) | Invest. Bank (£m) | Corp. Bank (£m) | Wealth (£m) | Head Off (£m) | Total (£m) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Standardised | 2,639 | 4,206 | 5,196 | 18,070 | 7,306 | 22,582 | 11,209 | 168 | 71,376 |
| Foundation | - | - | 4,820 | - | 3,142 | 2,846 | 225 | - | 11,033 |
| Advanced | 34,765 | 9,568 | 8,400 | 16,479 | 41,031 | 36,132 | 1,796 | 2,684 | 150,855 |
| **Total** | **37,404** | **13,774** | **18,416** | **34,549** | **51,479** | **61,560** | **13,230** | **2,852** | **233,264** |

***

# Analysis of credit risk (continued)

Table 17 (Continued) (As at 31.12.12)

| RWAs | UK RBB (£m) | Europe RBB (£m) | Africa RBB (£m) | Barclaycard (£m) | Invest. Bank (£m) | Corp. Bank (£m) | Wealth (£m) | Head Off (£m) | Total (£m) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Standardised | 1,163 | 5,051 | 3,801 | 17,326 | 9,386 | 28,295 | 11,647 | 205 | 76,874 |
| Foundation | - | - | 5,778 | - | 3,055 | 3,430 | 317 | - | 12,580 |
| Advanced | 31,401 | 8,786 | 10,602 | 13,957 | 48,000 | 31,897 | 707 | 4,961 | 150,311 |
| **Total** | **32,564** | **13,837** | **20,181** | **31,283** | **60,441** | **63,622** | **12,671** | **5,166** | **239,765** |

***

# Analysis of credit risk (continued)

Table 18: Geographic analysis of credit exposure (As at 31.12.13)

| EAD pre-CRM | UK (£m) | Europe (£m) | Americas (£m) | Africa/Middle East (£m) | Asia (£m) | Total (£m) |
| --- | --- | --- | --- | --- | --- | --- |
| Standardised | 35,985 | 26,196 | 22,963 | 16,535 | 6,482 | 108,161 |
| Foundation | 177 | 220 | 167 | 15,182 | 10 | 15,756 |
| Advanced | 293,247 | 121,242 | 79,734 | 26,865 | 6,995 | 528,083 |
| **Total** | **329,409** | **147,658** | **102,864** | **58,582** | **13,487** | **652,000** |

***

# Analysis of credit risk (continued)

Table 18 (Continued) (As at 31.12.12)

| EAD pre-CRM | UK (£m) | Europe (£m) | Americas (£m) | Africa/Middle East (£m) | Asia (£m) | Total (£m) |
| --- | --- | --- | --- | --- | --- | --- |
| Standardised | 36,310 | 30,113 | 23,318 | 18,847 | 5,291 | 113,879 |
| Foundation | 81 | 201 | 246 | 17,764 | 9 | 18,301 |
| Advanced | 278,256 | 158,308 | 70,824 | 33,111 | 9,733 | 550,232 |
| **Total** | **314,647** | **188,622** | **94,388** | **69,722** | **15,033** | **682,412** |

***

# Analysis of credit risk (continued)

Table 19: Industry analysis of credit exposure (As at 31.12.13)

| Industry Sector | Standardised (£m) | Foundation (£m) | Advanced (£m) | Total (£m) |
| --- | --- | --- | --- | --- |
| Govt and central banks | 8,845 | 247 | 101,655 | 110,747 |
| Banks | 5,395 | 591 | 25,952 | 31,938 |
| Other financial institutions | 8,871 | 1,159 | 39,143 | 49,173 |
| Manufacturing | 5,431 | 2,221 | 17,453 | 25,105 |
| Construction | 872 | 393 | 4,688 | 5,953 |
| Property | 3,600 | 1,470 | 28,087 | 33,157 |
| Energy and water | 2,640 | 601 | 19,121 | 22,362 |
| Wholesale/retail/leisure | 4,382 | 1,890 | 13,623 | 19,895 |
| Business/other services | 15,273 | 4,771 | 33,576 | 53,620 |
| Home loans | 8,547 | - | 171,923 | 180,470 |
| Cards/personal lending | 38,988 | - | 43,152 | 82,140 |
| Other | 5,317 | 2,413 | 29,710 | 37,440 |
| **Total** | **108,161** | **15,756** | **528,083** | **652,000** |

***

# Analysis of credit risk (continued)

Table 19 (Continued) (As at 31.12.12)

| Industry Sector | Standardised (£m) | Foundation (£m) | Advanced (£m) | Total (£m) |
| --- | --- | --- | --- | --- |
| Govt and central banks | 10,775 | - | 126,345 | 137,120 |
| Banks | 4,593 | 1,343 | 23,193 | 29,129 |
| Other financial institutions | 10,772 | 1,662 | 39,617 | 52,051 |
| Manufacturing | 5,468 | 2,142 | 18,481 | 26,091 |
| Construction | 1,269 | 535 | 4,758 | 6,562 |
| Property | 6,994 | 2,152 | 27,994 | 37,140 |
| Energy and water | 2,831 | 713 | 18,396 | 21,940 |
| Wholesale/retail/leisure | 4,721 | 2,198 | 14,824 | 21,743 |
| Business/other services | 14,813 | 4,642 | 37,462 | 56,917 |
| Home loans | 5,221 | - | 168,653 | 173,874 |
| Cards/personal lending | 36,481 | - | 41,826 | 78,307 |
| Other | 9,941 | 2,914 | 28,683 | 41,538 |
| **Total** | **113,879** | **18,301** | **550,232** | **682,412** |

***

# Analysis of credit risk (continued)

Table 20: Residual maturity analysis credit exposures (As at 31.12.13)

| Maturity Band | Standardised (£m) | Foundation (£m) | Advanced (£m) | Total (£m) |
| --- | --- | --- | --- | --- |
| On demand/qualifying revolving | 25,125 | 3,393 | 84,662 | 113,180 |
| Under one year | 29,231 | 10 | 53,965 | 83,206 |
| Over 1 yr but <= 3 yrs | 15,986 | 8,461 | 67,958 | 92,405 |
| Over 3 yrs but <= 5 yrs | 12,910 | 689 | 67,678 | 81,277 |
| Over 5 yrs but <= 10 yrs | 12,697 | 3,188 | 55,400 | 71,285 |
| Over 10 yrs or undated | 12,212 | 15 | 198,420 | 210,647 |
| **Total** | **108,161** | **15,756** | **528,083** | **652,000** |

***

# Analysis of credit risk (continued)

Table 20 (Continued) (As at 31.12.12)

| Maturity Band | Standardised (£m) | Foundation (£m) | Advanced (£m) | Total (£m) |
| --- | --- | --- | --- | --- |
| On demand/qualifying revolving | 25,675 | 3,818 | 81,995 | 111,488 |
| Under one year | 29,927 | 21 | 94,147 | 124,095 |
| Over 1 yr but <= 3 yrs | 16,468 | 9,960 | 57,213 | 83,641 |
| Over 3 yrs but <= 5 yrs | 14,918 | 819 | 65,873 | 81,610 |
| Over 5 yrs but <= 10 yrs | 11,832 | 3,666 | 50,550 | 66,048 |
| Over 10 yrs or undated | 15,059 | 17 | 200,454 | 215,530 |
| **Total** | **113,879** | **18,301** | **550,232** | **682,412** |

***

# Analysis of credit risk (continued)

Table 21: Collateral and guarantees for standardised approach

| Credit exposure class | EAD Pre-CRM (£m) | Financial collateral (£m) | EAD post-CRM (£m) |
| --- | --- | --- | --- |
| **As at 31.12.13** | | | |
| Central governments/central banks | 8,845 | 6 | 8,839 |
| Institutions | 6,043 | 84 | 5,959 |
| Corporates | 37,183 | 5,648 | 31,535 |
| Retail | 26,914 | 721 | 26,193 |
| Secured by mortgages | 19,521 | 661 | 18,860 |
| Other items | 9,655 | 45 | 9,610 |
| **Total** | **108,161** | **7,165** | **100,996** |
| **As at 31.12.12** | | | |
| **Total** | **113,879** | **4,733** | **109,146** |

***

# Analysis of credit risk (continued)

Table 22: Collateral and guarantees for IRB approach

| IRB exposure class | Total exposure – after netting/volatility adjustments covered by eligible financial collateral (£m) | Total exposure – after netting/volatility adjustments covered by other eligible collateral (£m) |
| --- | --- | --- |
| **As at 31.12.13** | | |
| Central governments | 15 | - |
| Corporates | 99 | 323 |
| **Total** | **114** | **323** |
| **As at 31.12.12** | | |
| Central governments | 26 | - |
| Corporates | 137 | 448 |
| **Total** | **163** | **448** |

## Table 23: Credit rating agencies and credit quality steps under the standardised approach

| Credit Quality Step | Standard and Poor’s | Moody’s | Fitch |
| --- | --- | --- | --- |
| Credit Quality Step 1 | AAA to AA- | Aaa to Aa3 | AAA to AA- |
| Credit Quality Step 2 | A+ to A- | A1 to A3 | A+ to A- |
| Credit Quality Step 3 | BBB+ to BBB- | Baa1 to Baa3 | BBB+ to BBB- |
| Credit Quality Step 4 | BB+ to BB- | Ba1 to Ba3 | BB+ to BB- |
| Credit Quality Step 5 | B+ to B- | B1 to B3 | B+ to B- |
| Credit Quality Step 6 | CCC+ and below | Caa1 and below | CCC+ and below |

***

# Analysis of credit risk (continued)

Table 24: Credit quality steps and risk weights under the standardised approach

| Credit quality step | Central govt and central banks | Corporate | Institutions greater than 3 months maturity |
| --- | --- | --- | --- |
| Step 1 | 0% | 20% | 20% |
| Step 2 | 20% | 50% | 50% |
| Step 3 | 50% | 100% | 50% |
| Step 4 | 100% | 100% | 100% |
| Step 5 | 100% | 150% | 100% |
| Step 6 | 150% | 150% | 150% |

Table 25: Credit quality step analysis of pre-CRM exposure and capital deductions under the standardised approach (As at 31.12.13)

| Credit exposure class | Step 1 (£m) | Step 2 (£m) | Step 3 (£m) | Step 4 (£m) | Step 5 (£m) | Step 6 (£m) | Uniform regulatory treatment (£m) | Total (£m) | Deduction from capital (£m) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Central govt/banks | 1,261 | 184 | 436 | - | 1,051 | - | 5,913 | 8,845 | - |
| Corporates | 14 | 1,234 | 473 | 107 | 48 | 70 | 35,237 | 37,183 | - |
| Retail/Mortgages/Past due | - | - | - | - | - | - | 42,752 | 42,752 | - |
| Other | 1,255 | 941 | 593 | 81 | 25 | 181 | 16,305 | 19,381 | 766 |
| **Total** | **2,530** | **2,359** | **1,502** | **188** | **1,124** | **251** | **100,207** | **108,161** | **766** |

***

# Analysis of credit risk (continued)

Table 26: Credit quality step analysis of post-CRM exposure and capital deductions under the standardised approach

| Credit exposure class | Step 1 (£m) | Step 2 (£m) | Step 3 (£m) | Step 4 (£m) | Step 5 (£m) | Step 6 (£m) | Uniform regulatory treatment (£m) | Total (£m) | Deduction from capital (£m) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| **As at 31.12.13** | | | | | | | | | |
| Central govt/banks | 1,261 | 184 | 436 | - | 1,051 | - | 5,907 | 8,839 | - |
| Corporates | 14 | 1,234 | 473 | 107 | 48 | 70 | 29,589 | 31,535 | - |
| Retail/Mortgages/Past due | - | - | - | - | - | - | 48,154 | 48,154 | - |
| Other | 1,255 | 941 | 593 | 81 | 25 | 181 | 9,392 | 12,468 | 766 |
| **Total** | **2,530** | **2,359** | **1,502** | **188** | **1,124** | **251** | **93,042** | **100,996** | **766** |

***

# Analysis of credit risk (continued)

Table 27: Internal default grade probabilities and mapping to external ratings

| DG band | Default probability >=Min | Default probability Mid | Default probability <Max | Financial statements description | S&P | Moody’s |
| --- | --- | --- | --- | --- | --- | --- |
| 1 | 0.00% | 0.01% | 0.02% | Strong | AAA | Aaa |
| 2 | 0.02% | 0.03% | 0.03% | | AA+ | Aa1 |
| 3 | 0.03% | 0.04% | 0.05% | | AA/AA- | Aa2/Aa3 |
| 4 | 0.05% | 0.08% | 0.10% | | A+/A/A- | A1/A2/A3 |
| 5 | 0.10% | 0.13% | 0.15% | | BBB+ | Baa1 |
| 6 | 0.15% | 0.18% | 0.20% | | | |
| 7 | 0.20% | 0.23% | 0.25% | | BBB | Baa2 |
| 8 | 0.25% | 0.28% | 0.30% | | | |
| 9 | 0.30% | 0.35% | 0.40% | | BBB- | Baa3 |
| 10 | 0.40% | 0.45% | 0.50% | | | |
| 11 | 0.50% | 0.55% | 0.60% | | | |
| 12 | 0.60% | 0.90% | 1.20% | Satisfactory | BB+/BB | Ba1/Ba2 |
| 13 | 1.20% | 1.38% | 1.55% | | | |
| 14 | 1.55% | 1.85% | 2.15% | | BB- | Ba3 |
| 15 | 2.15% | 2.60% | 3.05% | | B+ | B1 |
| 16 | 3.05% | 3.75% | 4.45% | | | |
| 17 | 4.45% | 5.40% | 6.35% | | B | B2 |
| 18 | 6.35% | 7.50% | 8.65% | | | |
| 19 | 8.65% | 10.00% | 11.35% | | B- | B3 |
| 20 | 11.35% | 15.00% | 18.65% | Higher risk | CCC+ | Caa1 |
| 21 | 18.65% | 30.00% | 100.00% | | CCC/CCC-/CC | Caa1/Caa3/Ca |

***

# Analysis of credit risk (continued)

Table 28a: Central governments & central banks

| Obligor grade | EAD post-CRM (Adv £m) | LGD (Adv %) | Risk weight (Adv %) | Undrawn (%) | Avg value (£m) | EAD post-CRM (Fnd £m) | Risk weight (Fnd %) |
| --- | --- | --- | --- | --- | --- | --- | --- |
| **As at 31.12.13** | | | | | | | |
| Default Grade 1-3 | 107,510 | 45.0 | 7.6 | 2,187 | 123,220 | 51 | 10.7 |
| Default Grade 4-5 | 2,215 | 45.6 | 48.9 | 6 | 3,724 | - | - |
| Default Grade 6-8 | 1,712 | 31.9 | 22.0 | 4 | 1,283 | 190 | 43.9 |
| Default Grade 9-11 | 638 | 47.2 | 61.6 | 4 | 676 | - | - |
| Default Grade 12-14 | 103 | 48.6 | 97.7 | - | 99 | - | - |
| Default Grade 15-19 | 4 | 71.2 | 249.6 | - | 37 | 8 | 145.0 |
| Default Grade 20-21 | 11 | 74.7 | 405.2 | - | 5 | - | - |
| **Total** | **112,193** | **44.9** | **9.1** | **2,201** | **129,044** | **249** | **40.8** |

***

# Analysis of credit risk (continued)

Table 28b: Institutions

| Obligor grade | EAD post-CRM (Adv £m) | LGD (Adv %) | Risk weight (Adv %) | Undrawn (%) | Avg value (£m) | EAD post-CRM (Fnd £m) | Risk weight (Fnd %) |
| --- | --- | --- | --- | --- | --- | --- | --- |
| **As at 31.12.13** | | | | | | | |
| Default Grade 1-3 | 42,221 | 37.6 | 11.3 | 1,803 | 41,022 | 668 | 13.4 |
| Default Grade 4-5 | 4,163 | 41.6 | 26.5 | 130 | 5,790 | 449 | 32.3 |
| Default Grade 6-8 | 957 | 34.5 | 27.1 | 77 | 1,212 | 279 | 43.0 |
| Default Grade 9-11 | 544 | 44.2 | 66.4 | 49 | 533 | 38 | 72.0 |
| Default Grade 12-14 | 184 | 46.5 | 51.5 | 8 | 258 | 5 | 103.7 |
| Default Grade 15-19 | 47 | 45.8 | 155.6 | 1 | 66 | 7 | 132.0 |
| In default | 51 | 20.9 | 175.1 | - | 89 | - | - |
| **Total** | **48,167** | **38.0** | **14.0** | **2,068** | **48,974** | **1,446** | **27.5** |

***

# Analysis of credit risk (continued)

Table 28c: Corporates

| Obligor grade | EAD post-CRM (Adv £m) | LGD (Adv %) | Risk weight (Adv %) | Undrawn (%) | Avg value (£m) | EAD post-CRM (Fnd £m) | Risk weight (Fnd %) |
| --- | --- | --- | --- | --- | --- | --- | --- |
| **As at 31.12.13** | | | | | | | |
| Default Grade 1-3 | 60,364 | 37.8 | 13.4 | 36,852 | 62,093 | 1,084 | 14.2 |
| Default Grade 4-5 | 39,871 | 35.4 | 26.1 | 30,338 | 43,304 | 1,724 | 25.8 |
| Default Grade 6-8 | 15,780 | 34.2 | 43.9 | 10,135 | 20,272 | 3,985 | 49.7 |
| Default Grade 9-11 | 14,548 | 37.7 | 62.1 | 6,755 | 17,440 | 2,426 | 62.2 |
| Default Grade 12-14 | 17,736 | 34.7 | 75.3 | 7,809 | 24,593 | 3,682 | 133.9 |
| Default Grade 15-19 | 12,609 | 30.9 | 103.9 | 4,135 | 16,525 | 1,754 | 117.1 |
| Default Grade 20-21 | 865 | 29.1 | 138.2 | 155 | 1,519 | 84 | 318.1 |
| In default | 1,437 | 31.6 | 150.3 | 99 | 2,441 | 380 | 283.1 |
| **Total** | **163,210** | **35.9** | **39.4** | **96,278** | **188,187** | **15,119** | **82.1** |

***

# Analysis of credit risk (continued)

Table 28d: Corporate exposures subject to the slotting approach

| Obligor grade | Remaining maturity <2.5 years (EAD £m) | Remaining maturity <2.5 years (RWA £m) | Remaining maturity >2.5 years (EAD £m) | Remaining maturity >2.5 years (RWA £m) |
| --- | --- | --- | --- | --- |
| **As at 31.12.13** | | | | |
| Strong | 2,246 | 1,123 | 3,707 | 1,854 |
| Good | 2,128 | 1,490 | 1,431 | 1,016 |
| Satisfactory | 1,174 | 1,350 | 718 | 826 |
| Weak | 346 | 866 | 463 | 1,158 |
| Default | 708 | - | 147 | - |
| **Total** | **6,602** | **4,829** | **6,466** | **4,854** |

***

# Analysis of credit risk (continued)

Table 29: IRB retail obligor grade disclosure (As at 31.12.13)

| Obligor grade | Retail SME (EAD £m) | Retail mortgages (EAD £m) | Qualifying revolving (EAD £m) | Other retail (EAD £m) |
| --- | --- | --- | --- | --- |
| Default Grade 1-3 | 901 | 7,563 | 7,726 | 41 |
| Default Grade 4-5 | 597 | 17,703 | 5,956 | 154 |
| Default Grade 6-8 | 628 | 11,443 | 4,171 | 141 |
| Default Grade 9-11 | 992 | 54,664 | 3,850 | 741 |
| Default Grade 12-14 | 2,517 | 63,987 | 7,462 | 3,051 |
| Default Grade 15-19 | 2,544 | 9,944 | 5,207 | 3,416 |
| Default Grade 20-21 | 473 | 2,610 | 646 | 573 |
| In default | 584 | 4,443 | 1,671 | 920 |
| **Total** | **9,236** | **172,357** | **36,689** | **9,037** |

***

# Analysis of credit risk (continued)

Table 30: Analysis of impaired and past due exposures and allowance for impairment by exposure type (As at 31.12.13)

| Exposure Type | Neither past due nor impaired (£m) | Past due but not impaired (£m) | Impaired Individually (£m) | Impaired Collectively (£m) | Total (£m) | Allowance for impairment (£m) |
| --- | --- | --- | --- | --- | --- | --- |
| Traded loans | 1,647 | - | - | - | 1,647 | - |
| Financial assets | 18,348 | 347 | - | - | 18,695 | - |
| Loans to banks | 36,914 | 931 | 18 | - | 37,863 | 10 |
| Home loans | 168,505 | 187 | 510 | 11,100 | 180,302 | 788 |
| Credit card rec. | 29,539 | 2 | 239 | 3,342 | 33,122 | 1,529 |
| Other personal | 30,596 | 305 | 1,194 | 2,930 | 35,025 | 2,065 |
| Wholesale/Corp | 173,278 | 4,649 | 3,874 | 1,581 | 183,382 | 2,857 |
| Finance lease | 5,444 | 14 | 115 | 255 | 5,828 | 9 |
| **Total** | **464,271** | **6,435** | **5,950** | **19,208** | **495,864** | **7,258** |

***

# Analysis of credit risk (continued)

Table 31: Geographic analysis of impaired and past due exposures and allowance for impairment (As at 31.12.13)

| Geography | Past due but not impaired (£m) | Impaired Individually (£m) | Impaired Collectively (£m) | Allowance for impairment (£m) |
| --- | --- | --- | --- | --- |
| UK | 2,030 | 1,554 | 12,130 | 2,980 |
| Europe | 1,213 | 2,989 | 3,466 | 2,486 |
| Americas | 2,634 | 227 | 353 | 654 |
| Africa and Middle East | 280 | 1,087 | 3,257 | 1,079 |
| Asia | 278 | 93 | 2 | 59 |
| **Total** | **6,435** | **5,950** | **19,208** | **7,258** |

***

# Analysis of credit risk (continued)

Table 32: Analysis of movement on impairment and amounts taken directly to profit and loss

| Impairment movement | Year ended 31.12.13 (£m) | Year ended 31.12.12 (£m) |
| --- | --- | --- |
| Starting period | 7,799 | 8,896 |
| Acquisitions and disposals | (5) | (80) |
| Exchange and other adjustments | (260) | (206) |
| Unwind of discount | (179) | (211) |
| Amounts written off | (3,343) | (4,119) |
| Recoveries | 201 | 212 |
| Amounts charged against profit | 3,045 | 3,307 |
| **Ending period** | **7,258** | **7,799** |

Table 33: Regulatory adjustments to statutory impairment (As at 31.12.13)

| Item | Amount (£m) |
| --- | --- |
| IFRS allowance for impairment | 7,258 |
| Regulatory adjustments | 1,027 |
| **Regulatory impairment allowance** | **8,285** |

***

# Analysis of credit risk (continued)

Table 34: Analysis of regulatory impairment allowance by regulatory exposure class (As at 31.12.13)

| Exposure Class | Individual impairment (£m) | Collective impairment (£m) | Other value adjustments (£m) | Total 31.12.13 (£m) |
| --- | --- | --- | --- | --- |
| Standardised | 2,371 | 1,874 | 113 | 4,358 |
| Foundation IRB | 145 | 30 | - | 175 |
| Advanced IRB | 526 | 2,798 | 428 | 3,752 |
| **Total credit exposures** | **3,042** | **4,702** | **541** | **8,285** |

***

# Analysis of credit risk (continued)

Table 35: Impairment charges, other value adjustments and individual impairment charges for IRB exposures

| IRB exposure class | As at 31.12.13 Total (£m) | As at 31.12.12 Total (£m) |
| --- | --- | --- |
| Central governments/banks | - | 7 |
| Corporates | 224 | 603 |
| Retail | 60 | 124 |
| **Total** | **284** | **734** |

***

# Analysis of credit risk (continued)

Table 36: Analysis of expected loss versus actual losses for IRB exposures (As at 31.12.13)

| IRB exposure class | EL (£m) | ELBE (£m) | Total expected loss (£m) | Total actual loss (£m) |
| --- | --- | --- | --- | --- |
| Central governments | 8 | - | 8 | - |
| Institutions | 6 | 34 | 40 | - |
| Corporates | 689 | 1,176 | 1,865 | 242 |
| Retail | 1,532 | 2,693 | 4,225 | 1,258 |
| **Total IRB** | **2,235** | **3,903** | **6,138** | **1,500** |

***

# Analysis of credit risk (continued)

Table 37: Risk weighted exposures of equity investments (As at 31.12.13)

| Equity category | 31.12.13 Total (£m) | 31.12.12 Total (£m) |
| --- | --- | --- |
| Exchange traded exposures | - | - |
| Private equity | - | - |
| Other exposures | 307 | 188 |
| **Total risk weighted exposure** | **307** | **188** |

Table 38: Fair value of, and gains and losses on equity investments

| Non trading book equity positions | 31.12.13 (£m) | 31.12.12 (£m) |
| --- | --- | --- |
| Total Fair Value | 1,480 | 1,554 |
| Realised gains/(losses) | 78 | (130) |
| Unrealised gains | 153 | 110 |
| Amount included in Tier 1 or 2 Capital | 153 | 110 |

***

# Analysis of counterparty credit risk

- Risk weighted assets decreased 7.5% to £27.9bn, driven by reduced trading volumes in the FX and commodity derivative businesses.
- Exposure at default decreased 9.7% to £78.6bn driven by reduced trading volumes in the FX and commodity derivative businesses.
- Counterparty credit risk RWAs are primarily generated by the following IFRS account classifications: Derivative financial instruments and reverse repurchase agreements and other similar secured lending.

## Risk weighted assets for counterparty risk reduced in the year
- **Total RWA reduction: -£2.2bn**
- **-£2.1bn** (Driven by reduced trading volumes in the FX and commodity businesses)
- **-£0.3bn** (Due to foreign exchange movements)
- **+£0.6bn** (Owing to model updates and methodology changes)

***

# Analysis of counterparty credit risk (continued)

Table 39: Exposure at default associated with counterparty credit risk by business (As at 31.12.13)

| Business Unit | Standardised approach (£m) | Foundation IRB (£m) | Advanced IRB (£m) | Total (£m) |
| --- | --- | --- | --- | --- |
| Europe RBB | 5 | - | - | 5 |
| Africa RBB | 3 | - | - | 3 |
| Investment Bank | 5,689 | 1,328 | 70,110 | 77,127 |
| Corporate Banking | 1 | - | 1,034 | 1,035 |
| Wealth & Invest. | 460 | - | - | 460 |
| **Total** | **6,158** | **1,328** | **71,144** | **78,630** |

***

# Analysis of counterparty credit risk (continued)

Table 39 (Continued) (As at 31.12.12)

| Business Unit | Standardised approach (£m) | Foundation IRB (£m) | Advanced IRB (£m) | Total (£m) |
| --- | --- | --- | --- | --- |
| Europe RBB | 6 | - | - | 6 |
| Africa RBB | 8 | - | - | 8 |
| Investment Bank | 7,297 | 887 | 77,590 | 85,774 |
| Corporate Banking | - | - | 934 | 934 |
| Wealth & Invest. | 394 | - | - | 394 |
| **Total** | **7,705** | **887** | **78,524** | **87,116** |

***

# Analysis of counterparty credit risk (continued)

Table 40: Risk weighted assets of counterparty credit risk exposures by business units (As at 31.12.13)

| Business Unit | Standardised approach (£m) | Foundation IRB (£m) | Advanced IRB (£m) | Total (£m) |
| --- | --- | --- | --- | --- |
| Europe RBB | 4 | - | - | 4 |
| Africa RBB | 3 | - | - | 3 |
| Investment Bank | 5,468 | 475 | 21,024 | 26,967 |
| Corporate Banking | 2 | - | 649 | 651 |
| Wealth & Invest. | 230 | - | - | 230 |
| **Total** | **5,707** | **475** | **21,673** | **27,855** |

***

# Analysis of counterparty credit risk (continued)

Table 40 (Continued) (As at 31.12.12)

| Business Unit | Standardised approach (£m) | Foundation IRB (£m) | Advanced IRB (£m) | Total (£m) |
| --- | --- | --- | --- | --- |
| Europe RBB | 3 | - | - | 3 |
| Africa RBB | 8 | - | - | 8 |
| Investment Bank | 6,870 | 370 | 22,150 | 29,390 |
| Corporate Banking | - | - | 500 | 500 |
| Wealth & Invest. | 199 | - | - | 199 |
| **Total** | **7,080** | **370** | **22,650** | **30,100** |

***

# Analysis of counterparty credit risk (continued)

Table 41: Counterparty credit exposures analysed by financial contract type

| Financial contract type | EAD post-CRM internal model method (£m) | EAD post-CRM other approaches (£m) | EAD post-CRM mark to market (£m) |
| --- | --- | --- | --- |
| **As at 31.12.13** | | | |
| Interest rate contracts | - | - | 409 |
| Foreign currency contracts | - | - | 363 |
| Equities contracts | - | - | 468 |
| Commodities | - | - | 625 |
| Securities financing transactions | 4,283 | - | - |
| Credit derivatives | - | - | 326 |
| Other | 3,296 | - | 821 |
| **Total** | **68,040** | **7,579** | **3,012** |

***

# Analysis of counterparty credit risk (continued)

Table 42: Counterparty credit exposure by approach

| Approach | Gross positive fair value (£m) | Potential future exposure (£m) | Netting benefits (£m) | Net current credit exposure (£m) | Collateral held (£m) | Net derivatives credit exposure (£m) |
| --- | --- | --- | --- | --- | --- | --- |
| **As at 31.12.13** | | | | | | |
| Mark to market method | 3,858 | 3,088 | (3,629) | 3,317 | 305 | 3,012 |
| Internal model method | - | - | - | - | - | 45,344 |

***

# Analysis of counterparty credit risk (continued)

Table 43: Notional exposure associated with credit derivative contracts (As at 31.12.13)

| Product type | Own credit portfolio (Purchaser £m) | Own credit portfolio (Seller £m) | Intermediation (Purchaser £m) | Intermediation (Seller £m) |
| --- | --- | --- | --- | --- |
| Credit default swaps | 6,132 | 2,575 | 774,248 | 764,599 |
| Total return swaps | - | - | 14,172 | - |
| **Total** | **6,132** | **2,575** | **788,420** | **764,599** |

Table 44: Notional value of credit derivative contracts held for hedging purposes

| Risk methodology | As at 31.12.13 (£m) | As at 31.12.12 (£m) |
| --- | --- | --- |
| Mark to market method | 225 | 376 |
| Internal model method | 1,732 | 2,592 |
| **Total** | **1,957** | **2,968** |

***

# Analysis of market risk

- Risk weighted assets decreased 38% to £39bn, driven by reduced trading volumes, reduced exposure to sovereigns and reductions in Exit Quadrant RWAs.
- Measures of market risk, such as value at risk (VaR), generally decreased in the year due to lower levels of activity and improved market conditions.
- Market risk RWAs are primarily generated by: trading portfolio assets and liabilities; derivative financial instruments; and liabilities.

## Risk weighted assets for market risk reduced in the year
- **Total RWAs reduction: -£24.0bn**
- **-£17.9bn** (Driven by reduced sovereign exposure, reduced levels of syndication, a reduction in securitised products and reduced trading volumes with fixed income business)
- **-£3.6bn** (Driven by reductions in Exit Quadrant RWAs)
- **-£2.1bn** (Owing to changes in measurement for RNIVs)

## Lower income from reduced activity and a reduction in associated risk measures
- **-75%** (Reduction in days with negative trading revenue overall)
- **-24%** (Reduction in average Management VaR)
- **-11%** (Reduction in average daily revenue)

***

# Analysis of market risk (continued)

Market risk is the risk of a reduction to earnings or capital due to volatility of trading book positions or an inability to hedge the banking book balance sheet.

- The Group has seen a significant decrease in market risk, from lower business activities and disposals (notably Exit Quadrant assets).
- Measures of traded market risk, such as value at risk, decreased in the year due to lower levels of client activity and improved market conditions.
- Market risk RWAs fell from 2012 levels as a result of improving market conditions and general reduction in exposures across the main books.
- The section also covers non-traded market risks that mainly occur as a consequence of banking activities other than trading activities.
- Annual Earnings at Risk (AEaR) to interest rate shocks, a key measure of IRRBB, reduced in 2013.

***

# Analysis of market risk (continued)

Table 45: Balance sheet split by trading and banking books (regulatory scope of consolidation)

| As at 31 December 2013 | Banking book (£m) | Trading book (£m) | Total (£m) |
| --- | --- | --- | --- |
| Assets | 556,287 | 747,814 | 1,304,101 |
| Liabilities | 546,233 | 694,045 | 1,240,278 |

## Traded market risk review
The average management VaR reduced in 2013 due to a combination of lower client activity and improved market conditions, notably, tightening of credit spreads.

***

# Analysis of market risk (continued)

Table 46: The daily average, maximum and minimum values of management VaR

| Management VaR (95%) | 2013 Avg (£m) | 2013 High (£m) | 2013 Low (£m) | 2012 Avg (£m) | 2012 High (£m) | 2012 Low (£m) |
| --- | --- | --- | --- | --- | --- | --- |
| Credit risk | 18 | 25 | 12 | 26 | 44 | 18 |
| Interest rate risk | 13 | 24 | 6 | 14 | 23 | 7 |
| Spread risk | 11 | 21 | 5 | 23 | 31 | 17 |
| Basis risk | 11 | 17 | 7 | 11 | 21 | 5 |
| Equity risk | 11 | 21 | 5 | 9 | 19 | 4 |
| Commodity risk | 5 | 8 | 2 | 6 | 9 | 4 |
| Foreign exchange risk | 4 | 7 | 2 | 6 | 10 | 2 |
| Inflation risk | 3 | 8 | 2 | 3 | 7 | 2 |
| Diversification effect | (47) | n/a | n/a | (60) | n/a | n/a |
| **Total management VaR** | **29** | **39** | **21** | **38** | **75** | **27** |

***

# Analysis of market risk (continued)

Table 47: Principal asset and liability balances subject to market risk in the Investment Bank (As at 31.12.13)

| Portfolio | Description | Assets (£m) | Liabilities (£m) | Avg Stnd. VaR (£m) | Principal lines | Market risk exposure |
| --- | --- | --- | --- | --- | --- | --- |
| Fixed Income/Currencies/Comm | Market maker | 518,647 | 505,356 | 19 | Derivative/Repurchase | Credit trading/interest rate/currency/commodity |
| Client Capital Mgmt | Counterparty risk | 3,221 | 4,996 | 15 | Trading/Derivative | Hedging firm's credit |
| Other Credit | Specific credit | 1,237 | 370 | 9 | Trading | Credit markets |
| Equities | Equity market making | 16,265 | 16,954 | 8 | Trading/Derivative | Derivatives/Cash equity |
| Portfolio Asset Book | Non-core ops | 14,754 | 6,036 | 2 | Trading/Derivative | Credit exposures |
| Investment Bank Treasury | Liquidity/funding | 27,780 | 22,128 | 11 | AFS/Debt securities | Execution of liquidity/funding |
| **Total** | - | **863,792** | **794,428** | **29** | - | - |

***

# Analysis of market risk (continued)

Table 48: Analysis of regulatory VaR, SVaR, IRC and APR measures

| As at 31 December | Year-end (£m) | Average (£m) | Max (£m) | Min (£m) |
| --- | --- | --- | --- | --- |
| **2013** | | | | |
| Regulatory VaR | 42 | 46 | 67 | 31 |
| SVaR | 90 | 85 | 112 | 61 |
| IRC | 139 | 238 | 539 | 115 |
| APR | 29 | 141 | 183 | 29 |
| **2012** | | | | |
| Regulatory VaR | 44 | 68 | 133 | 42 |
| SVaR | 68 | 111 | 139 | 68 |
| IRC | 532 | 574 | 931 | 362 |
| APR | 176 | 213 | 275 | 176 |

Table 49: Breakdown of the major regulatory risk measures by portfolio (As at 31.12.13)

| Risk measure | Fixed Income (£m) | Client Capital (£m) | Other Credit (£m) | Equities (£m) | Portfolio Asset Book (£m) | Treasury (£m) |
| --- | --- | --- | --- | --- | --- | --- |
| Regulatory VaR | 24 | 25 | 1 | 21 | 2 | 3 |
| SVaR | 53 | 41 | 5 | 82 | 3 | 14 |
| IRC | 240 | 60 | - | 24 | 79 | 2 |
| APR | 27 | - | - | - | 8 | - |

***

# Analysis of market risk (continued)

Table 50: Minimum capital requirement for market risk (As at 31.12.13)

| Market risk | Capital req. (£m) | RWA (£m) |
| --- | --- | --- |
| VaR model based PRR | 400 | 4,998 |
| SVaR PRR | 795 | 9,934 |
| APR measure requirement | 80 | 996 |
| RNIV | 350 | 4,391 |
| Incremental risk charge requirement | 168 | 2,103 |
| Interest rate PRR | 899 | 11,238 |
| Equity PRR | 338 | 4,224 |
| Option PRR | 21 | 261 |
| Collective investment schemes PRR | 68 | 848 |
| Commodity PRR | 4 | 51 |
| Foreign exchange PRR | 27 | 335 |
| **Total market risk capital requirement** | **3,150** | **39,379** |

***

# Analysis of market risk (continued)

Table 51: Net interest income sensitivity (AEaR) by business unit

| AEaR sensitivity (£m) | UK RBB | Europe RBB | Africa RBB | Barclaycard | Corporate Banking | Wealth & Invest. | Other | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| **2013** | | | | | | | | |
| +200bps | 219 | 9 | 19 | (84) | 101 | 53 | (92) | 225 |
| -200bps | (160) | (1) | (15) | 26 | (170) | (22) | 49 | (293) |
| **2012** | | | | | | | | |
| +200bps | 254 | (3) | 62 | (99) | 83 | 51 | 22 | 370 |
| -200bps | (214) | 2 | (50) | 18 | (147) | (16) | (26) | (433) |

Table 52: Net interest income sensitivity (AEaR) by currency

| Currency | 2013 +100 bps (£m) | 2013 -100 bps (£m) | 2012 +100 bps (£m) | 2012 -100 bps (£m) |
| --- | --- | --- | --- | --- |
| Total | 110 | (243) | 182 | (374) |
| **As % of net interest income** | **0.95%** | **(2.09%)** | **1.56%** | **(3.21%)** |

***

# Analysis of market risk (continued)

Table 53: Economic capital by business unit

| Prepayment/Recruitment/Residual risk (£m) | 2013 Total | 2012 Total |
| --- | --- | --- |
| Prepayment risk | 41 | 53 |
| Recruitment risk | 114 | 29 |
| Residual risk | 65 | 59 |
| **Total Economic Capital** | **220** | **141** |

Table 54: Analysis of equity sensitivity

| Equity sensitivity (£m) | 2013 +100bps | 2013 -100bps | 2012 +100bps | 2012 -100bps |
| --- | --- | --- | --- | --- |
| Effect on profit for the year | 83 | (182) | 131 | (269) |
| Effect on equity | (2,686) | 2,570 | (1,922) | 1,843 |

***

# Analysis of market risk (continued)

Table 55: Functional currency of operations

| Currency | Foreign currency net investments (£m) | Borrowings hedging (£m) | Derivatives hedging (£m) | Structural exposures (£m) | Economic hedges (£m) | Remaining structural exposures (£m) |
| --- | --- | --- | --- | --- | --- | --- |
| **As at 31.12.13** | | | | | | |
| US Dollar | 34,220 | 5,555 | 12,558 | 16,107 | 5,812 | 10,295 |
| Euro | 9,336 | 538 | 5,570 | 3,228 | 2,833 | 395 |
| Rand | 3,835 | - | 114 | 3,721 | - | 3,721 |
| Japanese Yen | 454 | 89 | 352 | 13 | - | 13 |
| Other | 2,850 | - | 1,101 | 1,749 | - | 1,749 |
| **Total** | **50,695** | **6,182** | **19,695** | **24,818** | **8,645** | **16,173** |

***

# Analysis of securitisation exposures

- Banking book securitisation exposure reduced 23.6% to £21.7bn, primarily driven by reductions in Exit Quadrant assets.
- Trading book securitisation exposure reduced 8.3% to £3.3bn, predominantly driven by residential mortgages and commercial mortgages across a number of trading positions in UK and Europe.

## We have reduced exposure to securitisations this year
- **Reduction: 23.6%** (Relating to banking book securitisation exposure)
- **Reduction: 69.0%** (Relating to capital requirements for banking book exposures)

***

# Analysis of securitisation exposures (continued)

Table 59: Securitisation exposures – by exposure class (As at 31.12.13)

| Asset Class | Banking book Orig (£m) | Banking book Spon (£m) | Banking book Inv (£m) | Banking book Total (£m) | Trading book Orig (£m) | Trading book Inv (£m) | Trading book Total (£m) |
| --- | --- | --- | --- | --- | --- | --- | --- |
| On-balance sheet | 5,533 | 4,811 | 5,288 | 15,632 | 65 | 3,128 | 3,193 |
| Off-balance sheet | 685 | 46 | 5,346 | 6,077 | - | 83 | 83 |
| **Total** | **6,218** | **4,857** | **10,634** | **21,709** | **65** | **3,211** | **3,276** |

Table 60: Securitisation exposures – by capital approach (As at 31.12.13)

| Capital approach | Originator (£m) | Sponsor (£m) | Investor (£m) | Total (£m) | Total Capital Req (£m) |
| --- | --- | --- | --- | --- | --- |
| Banking book: IRB | 5,941 | 4,857 | 10,634 | 21,432 | 681 |
| Banking book: Standardised | 277 | - | - | 277 | 8 |
| **Total banking book** | **6,218** | **4,857** | **10,634** | **21,709** | **689** |
| **Total trading book** | **65** | **-** | **3,211** | **3,276** | **692** |

***

# Analysis of securitisation exposures (continued)

Table 61: Re-securitisation exposures - by risk weight band (As at 31.12.13)

| Risk Weight Band | Banking book Exposure (£m) | Banking book Capital Req (£m) | Trading book Exposure (£m) | Trading book Capital Req (£m) |
| --- | --- | --- | --- | --- |
| <= 50% | 2,832 | 57 | 73 | 2 |
| >50% <= 1250% | 38 | 4 | 44 | 12 |
| > 1250% / deducted | 46 | 46 | 172 | 172 |
| **Total** | **2,916** | **107** | **289** | **186** |

Table 62: Total deductions for securitisation positions (As at 31.12.13)

| Deductions | Banking book (£m) | Trading book (£m) |
| --- | --- | --- |
| Residential/Commercial mortgages | 206 | 458 |
| Loans to corporates and SMEs | 63 | 72 |
| Other assets | 135 | 74 |
| **Total** | **404** | **604** |

***

# Analysis of securitisation exposures (continued)

Table 63: Aggregate amount of securitised positions retained or purchased by geography - banking book (As at 31.12.13)

| Exposure type | UK (£m) | Europe (£m) | Americas (£m) | Africa/Middle East (£m) | Asia (£m) | Total (£m) |
| --- | --- | --- | --- | --- | --- | --- |
| Residential mortgages | 3,010 | 64 | 1,847 | 235 | 400 | 5,556 |
| Commercial mortgages | 522 | 91 | - | - | 2 | 615 |
| Credit card receivables | 15 | - | 1,009 | - | - | 1,024 |
| Other securitised assets | 3,302 | 1,912 | 9,191 | 108 | 1 | 14,514 |
| **Total** | **6,849** | **2,067** | **12,047** | **343** | **403** | **21,709** |

***

# Analysis of operational risk

- Barclays’ operational risk profile in 2013 was dominated by further provisions for PPI (£1,350m) and interest rate hedging product redress (£650m).
- Capital requirements remained broadly stable, as the advanced measurement approach (AMA) calculation as at 31 December 2012 already took account of the potential for further losses related to these events.

- **RWA increase:** +£0.1bn
- **Loss amounts:** 90% from clients, products and business practices category.

***

# Analysis of operational risk (continued)

Table 65: Risk weighted assets for operational risk (As at 31.12.13)

| Approach | UK RBB | Europe RBB | Africa RBB | Barclaycard | Invest. Bank | Corp. Bank | Wealth & Invest. | Head Off | Total (£m) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Basic indicator | 398 | 42 | 322 | 1,463 | 1,021 | 44 | 423 | - | 3,713 |
| AMA | 6,282 | 2,086 | 3,764 | 5,010 | 23,787 | 6,673 | 2,839 | 159 | 50,600 |
| **Total** | **6,680** | **2,128** | **4,086** | **6,473** | **24,808** | **6,717** | **3,262** | **159** | **54,313** |

Barclays’ operational risk capital requirement remained stable, at £54.3bn (2012: £54.2bn).

***

# Analysis of operational risk (continued)

- Barclays’ operational risk profile in 2013 was dominated by further charges of £1,350m (2012: £1,600m) for PPI and interest rate hedging product redress of £650m (2012: £850m).
- In 2013 79.2% of the Group’s net reportable operational risk losses had a value of £50,000 or less (2012: 74.7%).
- External Fraud with 63% (2012: 41%) is the category with the highest frequency of events.

***

# Risk management strategy, governance and risk culture

In this section we describe the approaches and strategies for managing risks at Barclays.

- A new Enterprise Risk Management Framework (ERMF) has been established in 2013 to further strengthen our approach to risk management.
- This new framework enables us to reinforce our risk culture, i.e. the set of common practices and principles that we follow when managing risks.
- A governance structure supports the continued application of the ERMF.

***

# Barclays’ approach to managing risks

Barclays has clear risk management objectives and a well established strategy to deliver them, through core risk management processes. The aim of the ‘Go-To’ risk management process is to provide a structured, practical and easily understood set of three steps – **Evaluate, Respond and Monitor**.

- **Evaluate:** Identify and assess potential risks.
- **Respond:** Appropriate risk response (accept, stop, or mitigate).
- **Monitor:** Track progress and functioning of controls.

***

# Risk management strategy, governance and risk culture (continued)

## The ‘Transform Risk’ initiative
During 2013 a new global management structure for risk was unveiled to improve delivery against the Transform commitments and to meet the demands of the regulators.

## Governance Structure
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.

- **Board Oversight committees:**
    - Board Enterprise Wide Risk Committee (BEWRC)
    - Board Remuneration Committee (BRC)
    - Board Conduct, Reputation & Operational Risk Committee (BCRORC)
    - Board Audit Committee (BAC)
    - Board Financial Risk Committee (BFRC)

***

# Risk management strategy, governance and risk culture (continued)

## Reporting and Control

```mermaid
graph TD
    Exec[Chief Executive – Group Executive Committee]
    Committee[Enterprise Wide Risk Committee]
    FRC[Financial Risk Committee]
    Treasury[Treasury Committee]
    Tax[Tax Risk Committee]
    ORCC[Operational Risk & Control Committee]
    CRRC[Conduct & Reputation Risk Committee]
    Exec --> Committee
    Committee --> FRC
    Committee --> Treasury
    Committee --> Tax
    Committee --> ORCC
    Committee --> CRRC
```

***

# Management of credit risk and the internal ratings based approach

This section discusses the organisation specific to the management of credit risks, and provides details of the calculation of risk weights under the internal ratings based approach of the Basel framework.

- Pages 117 to 127 cover the aspects of the Group’s risk management framework specific to credit risk.
- As 66% of our regulatory capital is for credit risk, we devote pages 118 to 127 to detailing how we approach the internal ratings models.

***

# Management of credit risk and the internal ratings based approach (continued)

- **Probability of default (PD):** assesses credit quality and assigns internal risk rating.
- **Loss given default (LGD):** expressed as a percentage of EAD.
- **Exposure at default (EAD):** expected level of usage of the credit facility should default occur.

## Ratings processes and models for wholesale exposures
Barclays uses external models, rating agencies and internally constructed models. A model hierarchy is adopted which requires users to adopt a specific approach to rating each counterparty.

***

# Management of credit risk and the internal ratings based approach (continued)

Table 66: AIRB credit risk models selected features (As at 31.12.13)

| Component | Business Unit | Portfolio | Size (£bn) | Method |
| --- | --- | --- | --- | --- |
| PD | Investment Bank | Publicly traded corporates | 21.6 | Merton-based |
| PD | UK RBB | Home Finance | 16.5 | Regression |
| LGD | Investment Bank | Corporates & Financial Institutions | 54.2 | Regression |
| LGD | UK RBB | Home Finance | 16.5 | Data driven |
| EAD | Investment Bank | Corporates & Financial Inst. | 41.1 | Regression |

***

# Management of credit risk and the internal ratings based approach (continued)

Table 67: Analysis of expected performance versus actual results

| IRB class | PD Estimate (%) | PD Actual (%) | LGD Estimated (%) | LGD Actual (%) | EAD ratio |
| --- | --- | --- | --- | --- | --- |
| **Wholesale (2013)** | | | | | |
| Investment Bank | 0.31 | - | - | - | - |
| Corporate Banking | 2.14 | 2.50 | 40 | 28 | 1.05 |
| **Retail (2013)** | | | | | |
| SME | 7.15 | 5.89 | 79 | 72 | 1.08 |
| Secured UK | 0.61 | 0.49 | 3 | 2 | 1.02 |
| Revolving | 1.58 | 1.68 | 78 | 72 | 1.00 |

***

# Appendix

This appendix provides a further analysis of the parameters driving the risk weighted asset calculations for the credit risk exposures in the banking book, subject to AIRB and FIRB.

Table 69: IRB banking book data for central governments and central banks (As at 31.12.13)

| Grade | EAD (£m) | PD (%) | LGD (%) | RWA (£m) | Risk Weights (%) |
| --- | --- | --- | --- | --- | --- |
| Default Grade 1 | 97,271 | 0.01% | 45% | 7,459 | 8% |
| Default Grade 2 | 254 | 0.03% | 45% | 55 | 22% |
| Default Grade 3 | 2,431 | 0.03% | 45% | 244 | 10% |
| Default Grade 4 | 223 | 0.09% | 45% | 55 | 25% |
| Default Grade 5 | 3 | 0.14% | 48% | 1 | 26% |
| Default Grade 6 | 1,210 | 0.18% | 21% | 224 | 18% |
| Default Grade 7-21 | 110 | - | - | 157 | - |
| **Total** | **101,902** | **0.01%** | **45%** | **8,395** | **8%** |

***

# Appendix

Table 70: IRB banking book data for institutions (As at 31.12.13)

| Grade | EAD (£m) | PD (%) | LGD (%) | RWA (£m) | Risk Weights (%) |
| --- | --- | --- | --- | --- | --- |
| Default Grade 1-2 | 880 | 0.00% | 45% | 54 | 6% |
| Default Grade 3 | 29,571 | 0.03% | 35% | 3,024 | 10% |
| Default Grade 4 | 1,051 | 0.07% | 47% | 219 | 21% |
| Default Grade 5 | 1,191 | 0.12% | 44% | 289 | 24% |
| Default Grade 6-21 | 1,242 | 0.51% | 41% | 586 | 47% |
| **Total** | **33,935** | **0.19%** | **36%** | **4,172** | **12%** |

***

# Appendix

Table 71: IRB banking book data for corporates (As at 31.12.13)

| Grade | EAD (£m) | PD (%) | LGD (%) | RWA (£m) | Risk Weights (%) |
| --- | --- | --- | --- | --- | --- |
| Default Grade 1-3 | 39,363 | 0.03% | 35% | 5,510 | 14% |
| Default Grade 4-6 | 40,086 | 0.11% | 36% | 8,389 | 21% |
| Default Grade 7-9 | 14,077 | 0.28% | 41% | 7,366 | 52% |
| Default Grade 10-12 | 18,728 | 0.74% | 39% | 13,438 | 72% |
| Default Grade 13-15 | 12,378 | 2.11% | 35% | 10,940 | 88% |
| Default Grade 16-18 | 6,682 | 4.60% | 35% | 7,882 | 118% |
| Default Grade 19-21 | 1,229 | 17.51% | 26% | 1,775 | 144% |
| In default | 1,720 | 100.00% | 41% | 2,775 | 161% |
| **Total** | **134,416** | **2.05%** | **36%** | **60,994** | **45%** |

***

# Appendix

Table 72: IRB data for secured retail (As at 31.12.13)

| Grade | EAD (£m) | PD (%) | LGD (%) | RWA (£m) | Risk Weights (%) |
| --- | --- | --- | --- | --- | --- |
| Default Grade 1-2 | - | - | - | - | - |
| Default Grade 3 | 7,563 | 0.03% | 19% | 198 | 3% |
| Default Grade 4-6 | 23,626 | 0.12% | 23% | 2,163 | 9% |
| Default Grade 7-9 | 23,631 | 0.35% | 10% | 1,778 | 8% |
| Default Grade 10-12 | 89,166 | 0.69% | 12% | 11,151 | 13% |
| Default Grade 13-15 | 14,875 | 1.83% | 16% | 4,746 | 32% |
| Default Grade 16-18 | 5,524 | 5.56% | 17% | 3,985 | 72% |
| Default Grade 19-21 | 2,630 | 33.37% | 19% | 2,938 | 112% |
| In default | 4,443 | 100.00% | 19% | 4,712 | 106% |
| **Total** | **172,357** | **3.88%** | **14%** | **31,403** | **18%** |

***

# Appendix

Table 73: IRB data for revolving retail (As at 31.12.13)

| Grade | EAD (£m) | PD (%) | LGD (%) | RWA (£m) | Risk Weights (%) |
| --- | --- | --- | --- | --- | --- |
| Default Grade 1-2 | - | - | - | - | - |
| Default Grade 3 | 7,726 | 0.03% | 77% | 188 | 2% |
| Default Grade 4-6 | 7,750 | 0.11% | 80% | 599 | 8% |
| Default Grade 7-9 | 3,908 | 0.30% | 81% | 602 | 15% |
| Default Grade 10-12 | 8,257 | 0.67% | 81% | 2,296 | 28% |
| Default Grade 13-15 | 5,082 | 1.95% | 85% | 4,033 | 79% |
| Default Grade 16-18 | 2,377 | 5.25% | 89% | 3,747 | 158% |
| Default Grade 19-21 | 691 | 23.36% | 89% | 2,201 | 319% |
| In default | 1,671 | 100.00% | 62% | 1,018 | 61% |
| **Total** | **36,689** | **6.06%** | **80%** | **16,687** | **45%** |

***

# Appendix

Table 74: IRB data for SME exposures (As at 31.12.13)

| Grade | EAD (£m) | PD (%) | LGD (%) | RWA (£m) | Risk Weights (%) |
| --- | --- | --- | --- | --- | --- |
| Default Grade 1-2 | - | - | - | - | - |
| Default Grade 3 | 901 | 0.03% | 31% | 76 | 8% |
| Default Grade 4-6 | 835 | 0.13% | 32% | 119 | 14% |
| Default Grade 7-9 | 909 | 0.32% | 38% | 186 | 20% |
| Default Grade 10-12 | 1,878 | 0.77% | 40% | 745 | 40% |
| Default Grade 13-15 | 2,108 | 2.12% | 43% | 1,206 | 57% |
| Default Grade 16-18 | 1,546 | 6.32% | 44% | 1,017 | 66% |
| Default Grade 19-21 | 1,472 | 23.51% | 46% | 704 | 48% |
| In default | 584 | 100.00% | 23% | 1,783 | 305% |
| **Total** | **9,236** | **9.20%** | **38%** | **5,823** | **63%** |

***

# Appendix

Table 75: IRB data for other unsecured retail exposures (As at 31.12.13)

| Grade | EAD (£m) | PD (%) | LGD (%) | RWA (£m) | Risk Weights (%) |
| --- | --- | --- | --- | --- | --- |
| Default Grade 1-2 | - | - | - | - | - |
| Default Grade 3 | 41 | 0.03% | 62% | 3 | 7% |
| Default Grade 4-6 | 257 | 0.11% | 62% | 45 | 18% |
| Default Grade 7-9 | 373 | 0.32% | 83% | 128 | 34% |
| Default Grade 10-12 | 1,879 | 0.81% | 77% | 1,341 | 71% |
| Default Grade 13-15 | 3,531 | 2.18% | 69% | 2,872 | 81% |
| Default Grade 16-18 | 1,729 | 5.56% | 70% | 2,020 | 117% |
| Default Grade 19-21 | 1,220 | 25.13% | 71% | 1,018 | 83% |
| In default | 920 | 100.00% | 80% | 709 | 77% |
| **Total** | **9,037** | **13.85%** | **70%** | **8,137** | **90%** |

***

# Index of Tables

- [Index of Tables - Part 1](./161)
- [Index of Tables - Part 2](./162)