Barclays shareholders braced for £2bn hit due to IFRS 9

The IFRS 9 Financial Instruments standard became applicable for accounting periods beginning on or after January 1 2018, and Barclays indicated it expects unsecured products with longer expected lives, such as revolving credit cards, to be most affected.

“This impact assessment has been estimated under an interim control environment with models that continue to undergo validation,” it said.

Stable credit

The bank’s credit position has remained broadly stable over the course of 2017.

For impairment allowances, Barclays has set aside £3bn for credit cards, unsecured and other retail lending and £467m has been earmarked for home loans. Overall across the group, loan impairment charges in 2017 were one percent lower than 2016.

Across the whole group credit risk loans – that is to say, loans at risk of not being paid back – decreased to £6.0bn from £6.5bn in December 2016 and the credit risk loan coverage ratio increased to 78 percent, up from 71 percent the year before.

The bank’s forbearance position grew slightly over the course of 2017, rising from £2.9bn for the whole group to just shy of £3bn at 31 December 2017. Around £632m was removed from forbearance as a result of credit improvement, £1.2bn was either fully or partially repaid while around £2.1bn was added. £197m was written off or moved to the recovery book.

By the end of 2017, £94m of UK home loans and £84m on UK cards were payments in concession.

For UK cards, £96m of debt is in repayment plan schemes, significantly down from £218m in 2016.

Barclays said the reduction in the repayment plan book was explained by a one-off accelerated charge-off of legacy accounts, in addition to “reduced inflow as a result of tighter entry criteria”. The reduction was partially offset by the inclusion of “new segments” following a “review of the forbearance population”.

Legal legacy

Barclays chief executive Jes Staley is being investigated by the Financial Conduct Authority over his handling of a whistleblower who raised concerns in relation to the recruitment of a senior executive.

The bank said in its report that provisions expected to be recovered or settled within no more than 12 months after 31 December 2017 were £2.4bn across the group, of which £211m was earmarked for customer redress.

Overall performance

More generally, the bank attributed a £127m cost to the collapse of outsourcing giant Carillion. In his submission to the annual report, Staley said the Barclays of today is “almost unrecognisable, compared with just a few years ago”.

“In Barclays UK profitability held up, with good progress in mortgages, deposit growth, and mobile banking,” he said.

After a “large-scale restructuring” which saw branch closures across the UK, costs fell five percent and the bank said it expects to return to a “more traditional business pattern”.

On digital, Barclays said it had seen a seven percent year-on-year increase in the number of UK customers using its digital services, breaching 10 million users for the first time. About 5.5 million of those used the bank’s app.