Barclays Bank UK PLC

Annual Financial Report

RNS Number : 4960P
Barclays Bank UK PLC
18 February 2021
 

18 February 2021

 

Barclays Bank UK PLC

 

Annual Report and Accounts 2020

 

UK Listing Authority submission

 

In compliance with Disclosure Guidance & Transparency Rule (DTR) 4.1, Barclays Bank UK PLC announces that its Annual Report 2020 will today be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

 

The document, together with the Pillar 3 Report for 2020, may also be accessed via Barclays PLC's website at home.barclays/annualreport

 

Additional information

 

The following information is extracted from the Barclays Bank UK PLC Annual Report 2020 (page references are to pages in the Annual Report) which can be found at home.barclays/annualreport and constitutes the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service.  This material is not a substitute for reading the Barclays Bank UK PLC Annual Report 2020 in full.

 

Strategic Report

 

Performance review

 

The Strategic Report was approved by the Board of Directors on 17 February 2021 and signed on their behalf by the Chair.

 

Overview

 

Barclays Bank   UK PLC is a wholly-owned subsidiary of Barclays PLC. The consolidation of Barclays Bank UK PLC and its subsidiaries is referred to as Barclays Bank UK Group. The term Barclays refers to Barclays PLC and Barclays Group refers to Barclays PLC, together with its subsidiaries.

 

Barclays Bank UK PLC is the ring-fenced bank within the Barclays Group. The Barclays Bank UK Group contains the majority of the Barclays Group's Barclays UK division, including the Personal Banking, Business Banking and Barclaycard Consumer UK businesses other than the Barclays Partner Finance business.

 

Barclays Bank UK PLC serves retail customers in the UK across the entire spectrum of their banking needs.

 

Barclays Bank UK PLC also supports small and medium-sized businesses, providing the financing, saving and transactional products and services they need to grow.

 

Our structure

 

Barclays is one of the most recognisable brands in the UK. We serve customers across a wide range of retail banking needs, from credit card users, to start-up businesses, to homebuyers getting on the property ladder for the first time.

 

Personal Banking


Offers retail solutions to help customers with their day-to-day banking needs.

 

Business Banking

 

Serves business clients, from high growth start-ups to small and medium-sized enterprises, with specialist advice for their business banking needs.

 

Barclaycard Consumer UK

 

A leading credit card provider, offering flexible borrowing and payment solutions, while delivering a leading customer experience.

 

Barclays Bank UK PLC is supported by the Barclays Group-wide service company, Barclays Execution Services Limited (BX) which provides technology, operations and functional services to businesses across the Barclays Group.

 

Strategic priorities

 

The UK's retail banking environment is rapidly transforming and we remain focused on being at the forefront of that transformation. We want to provide customers with banking services in new and innovative ways, embracing technology as a means of making things simpler, more transparent and more secure. Barclays Bank UK Group will continue to support customers and businesses, acting with empathy and integrity to build a sustainable bank.

 

At the same time, we know banking cannot be something only a narrow section of society is able to use. There must be a sustainable means for everyone - including vulnerable customers who may need additional protection or want to access banking products in a different kind of way.

 

We are focused on the following areas:

 

1.

 

Providing exceptional service and insights to customers: we want to provide simple, relevant and prompt services and propositions for our customers so they have greater choice and access to money management capabilities. Using insights, we want to help customers better manage their finances and make informed financial decisions.

2.

Driving technology and digital innovation: we continue to invest in our digital capabilities, upgrading our systems, moving to cloud technology and implementing rapid automation of manual processes. This allows us to deliver a more personalised digital experience, reduce cost and create additional capacity to support more of our customers.

3.

Continuing to grow our business by pursuing partnership opportunities to build and deliver better propositions and services for our customers. We will fully utilise the Barclays platform to open up new income stream opportunities and provide greater services to more customers.

 

Operating environment

 

We pay close attention to the environment in which we operate, scanning the horizon for risks and opportunities, and adapting our strategy accordingly. We also monitor trends in the behaviour of our customers and clients so we can effectively meet their evolving needs.

 

A rapidly changing world

 

The health and economic impacts of COVID-19 continue to have significant implications for Barclays and our stakeholders. The UK economy has experienced significant fluctuations in activity levels over the last 12 months, and GDP is still below pre-pandemic levels. The implications for wider society, and the way we live and interact, have also been dramatic and will continue to be for some time.

 

Throughout a challenging year, we are proud of the support we have been able to provide to our customers and clients. Now, we are committed to helping them rebuild and, where required, adapt to new trends that may arise in the coming years such as long-term implications for population centres or global supply chains. As the vaccine rollout continues to progress, we are optimistic about the opportunities that will exist for Barclays Bank UK Group and for our customers and clients in a recovery environment.

 

The UK government continues to implement measures to socially distance the population and restrict movement of people. This requires our operating model to adapt, innovate and be nimble, particularly in our capacity to manage disruption risks to our people, processes, infrastructure, and technology services. In March last year, we executed a major workforce transformation, migrating colleagues to remote working in a matter of days. At the same time, we adapted working environments for colleagues and branch staff in the UK.

 

Where possible, and in line with local government guidance, we have instigated gradual returns to office working in certain parts of the business. In time, with the safety and wellbeing of colleagues as our first priority, we envisage more people will return to on-site working over the course of the coming months, more detail on which is set out in the people section of this report.

 

Interest rates and other economic consequences

 

As a direct result of the economic consequences of the pandemic, there have been changes in the financial environment that we have adapted to meet. In particular, we have seen a reduction in interest rates, intensifying an already long-term low-interest rate environment that we expect to endure for some time. This underlines the importance, and opportunity, of transformation of our business to adapt to the structural challenges of the retail banking market.

 

We have also seen significant increases in our impairment provisioning, and have further constrained our risk appetite.

 

Customer and client behaviour

 

The impact of COVID-19 on society has accelerated a number of existing trends in consumer behaviour and preferences. In the last 12 months, for example, we have seen a further shift away from cash usage towards contactless payments as customers adapt to and embrace the low-touch environment necessitated by the pandemic. Contactless payments now account for 78% of total transactions within Barclays Bank UK Group, increasing 8% since March 2020.

 

At the same time, we continue to observe a growing trend towards online transactions and servicing, further reducing customers' use of our branch infrastructure. Downloads of our mobile banking apps continue to increase as more and more customers look for ways to self-serve. As a consequence of lower spending and increasing cash reserves, we also continue to see a reduction in credit card balances and an increase in repayment volumes. Growth of the use of credit alternatives, and growth in precautionary savings has also meant an increase in customer appetite for financial advice.

 

These trends present significant opportunities for Barclays Bank UK Group to transform and continue to improve our services, finding further efficiencies through technology and automation, and creating new business models and partnerships based on digital engagement and customer trust.

 

This emphasis is important because we continue to operate in a highly competitive environment. The rapid growth of ecommerce continues, amplified even further by the pandemic, and a number of payments focused FinTechs have benefited from this trend. This creates an imperative for Barclays Bank UK Group to continue investing in new digital architecture, not only to keep pace with competitors, but at a rate that allows us to develop ahead of them.

 

Political and regulatory change

 

Geopolitical events have implications for our operating environment, and political volatility continues to influence customer and client needs and behaviours. The long-term economic consequences of the pandemic may also have important monetary and fiscal impacts, including changes to tax and government spending in a number of jurisdictions, which is also likely to impact client needs.

 

The UK is also actively pursuing new trading relationships with other parts of the world, which have the potential to lead to an increase in cross-border activity for our customers and clients. Within the UK, there is the possibility of continued political tension over the prospect of a Scottish independence referendum following Scottish parliamentary elections this year.

 

Post the UK's withdrawal from the EU, the UK continues to develop a new framework for financial services regulation. We anticipate a new architecture for rule-making and enforcement and an increase in public policy and legislative activity in the near term, including the potential for regulatory divergence between the UK and EU. We also await the conclusion of the UK Financial Conduct Authority (FCA) reviews into the retail banking market and cost of credit.

 

Barclays Bank UK Group remains subject to ongoing and significant levels of regulatory change. In particular, we continue to pay close attention to the changing landscape of prudential requirements and supervisory expectations and changing approaches to stress testing.

 

Measuring success

 

·

Barclays Bank UK Group complaints excl. PPI: -32% (2019: -6%)

·

Barclays Bank UK Group Net promoter score (NPS): +15 (2019: +18)

 

Year in review

 

2020 was a highly varied and challenging year for Barclays Bank UK Group, which required immediate and balanced actions to support millions of our customers and clients impacted by the pandemic.

 

Barclays Bank UK Group endured severe economic shock, while incurring additional costs, driven by our response to the pandemic. We waived fees and charges and interest payments and we worked with UK regulators and Government to provide ongoing support for our customers and clients.

 

Despite a turbulent year, Barclays Bank UK Group continued to deliver against our strategic priorities.

 

Throughout the COVID-19 pandemic, we played a key role in the facilitation and delivery of the UK Government's business support schemes, designing and executing a digital application system within days, overcoming significant operational challenges. Over the course of the period to 8 January 2021, we lent £10.1bn to British businesses under the Bounce Back Loan Scheme (BBLS) and £1.2bn under the Coronavirus Business Interruption Loan Scheme (CBILS). This is the equivalent of four years of traditional lending volumes, condensed into less than 12 months. This represents a significant number of new customers to Barclays through the Government schemes, providing us with an opportunity to establish long-lasting relationships for the future.

 

Barclays Bank UK Group took significant steps to relieve financial pressure for our customers, acting quickly and effectively at a time of maximum need. Over the course of the year, we waived £100m of fees and interest charges and granted hundreds of thousands of payment holidays. Over 650 of our branches (80% of the total estate) remained open throughout the pandemic and over 250 staff received additional training to answer calls from customers experiencing financial difficulty.

 

Despite facing significant challenges this year and enduring a severe economic shock, we continued to meet more of our customers' needs by simplifying our credit and debit card offerings. We eliminated certain fees and charges to better reflect how our customers interact with us and we made changes to our overdrafts fees and charges to protect our most vulnerable customers. We also continued to deliver digital innovation with 67% of our products provided to customers through digital channels. Currently, 70% of our products are available via a fully digital solution or are self-service enabled.

 

Complaints across Barclays Bank UK Group in 2020 were significantly lower than in 2019, decreasing 32%. This was, in part, a consequence of the pandemic and lower business volumes but also thanks to great strides we have made in reducing complaint volume year on year. In Q1 2020, prior to the outbreak of the pandemic, we saw lower year on year complaint volumes, driven by robust management actions. NPS for Barclays Bank UK Group and Barclaycard has remained relatively stable at +15 and +8 respectively. NPS scores across the market have softened as customers continue to feel the financial pressure of the pandemic and ongoing movement restrictions. While the market remains challenging, Barclays Bank UK Group has continued to deliver support and assistance to customers.

 

Barclays Bank UK Group made significant improvements to our Barclays apps, which have over 9.2m active users. We introduced Dream Accelerator to help customers looking to buy their first home, enabling them to access tools to help them in the home buying preparation process. Our customers can now also view itemised digital receipts directly from the Barclays app when they shop at participating retailers, removing the need to carry paper receipts and helping customers better manage their spending.

 

Barclays Bank UK Group launched Plan & Invest, a new digital investment service that provides customers with the confidence and support to invest for the future. Plan & Invest creates a personalised investment plan, tailored to our customers goals, with dedicated support at every step. Customers can stay updated over the phone and in an online hub, and see how well their investments are tracking against their financial goals.

 

While managing a long-term low interest rate environment, we have driven strong Mortgage application volumes this year, and maintained competitive service levels for our customers. Despite the pandemic, we have continued to support customers with their home buying needs and have seen a strong performance in Mortgage completions, particularly through the second half of the year. We continued to build strategic partnerships, including launching a new collaboration with Nextdoor, a fast growing social network service, to help thousands of local businesses secure new customers by arranging free advertising on the platform.

 

Barclays Bank UK Group accelerated our green agenda by leveraging environmentally friendly material for our debit cards, reducing paper statements sent to our customers, and expanding our plastic reduction programme. We also supported 'green' agricultural lending across SMEs and will continue to explore opportunities to go further.

 

Looking ahead

 

Customer expectations continue to evolve, with more interactions moving to digital or via a virtual channel (call, video or web chat) and more customers seeking expert guidance for their specific financial circumstances. We also continue to see a reduction in the use of our branch infrastructure and a significant shift away from cash usage towards contactless payments. Where appropriate, we will continue reshaping our footprint to better support the customers we serve in ways they want to be serviced.

 

Barclays Bank UK Group is working to build a better bank for customers, a more efficient bank that is safe, intuitive and that will support customers and businesses responsibly and sustainably. Our focus is on customers and clients and putting them at the heart of the decisions we make about running our business and shaping it for the future.

 

We are reinventing our service model for customers to create a more efficient, more resilient and seamless service, which will include the expansion of our Wealth Management proposition. We are building partnerships in the open market and working across the whole of Barclays to deliver additional value for our customers and businesses through our size and scale.

 

We will continue to invest in digital platforms, remove unnecessary processes and costs and make it seamless for customers to self-serve. We will continue to invest in digitalisation and automation to be more efficient, reduce costs and to create additional capacity for colleagues to support customers.

 

In recent years we have invested in cloud technology and begun to build our digital bank capabilities, removing reliance on a heritage core. This investment will continue and will provide a strong digital customer platform that stands out from our competitors.

 

Money Mentors - a free and impartial mentoring service customers can now book a free session with one of our 300 Money Mentors, asking questions playing on their minds without fear of judgment. The service responds to millennial customers who told us they wanted a more open forum to talk through their financial concerns and goals. We had over 2,000 conversations in 2020, with over 80% of customer saying they will do something different with their finances as a result.

 

Our role in society

 

The Barclays Bank UK Group success is judged not only by commercial performance, but also by how we act sustainably and responsibly for each other and the long term. We believe that we can, and should, make a positive difference for society - globally and locally. We do that through the choices we make about how we run our business, and through the commitments we make proactively to support others in our communities to achieve their goals. For detail on our integration of social and environmental issues into our business, please refer to pages 39 to 43 in the Barclays PLC Annual Report 2020.

 

As the global effort to tackle climate change grows, Barclays Group is moving rapidly to take a leading role in contributing to the transition to a low-carbon economy. In March last year, Barclays Group set out our ambition to be a net zero bank by 2050. In November 2020, on the way to achieving that ambition, Barclays Group set out the methodology and targets that begin to align the emissions we finance with the Paris Climate Agreement. More information is set out in the Barclays Group ESG Report, with the Barclays Bank UK Group contributing to the overall Barclays Group climate change agenda. For further information, please see pages 39 to 43 in the Barclays PLC Annual Report.

 

Against the ambition to be a net zero bank by 2050, Barclays Group are already net zero in the context of our own emissions; our focus now is on reducing the client emissions that we finance. That starts with aligning our financing with the Paris Climate Agreement - the international treaty on climate change adopted in 2015.

 

Looking ahead, Barclays Group is optimistic about some of the additional opportunities the transition to a low carbon economy will present for Barclays, including through increased green and infrastructure finance capabilities. Gradual changes to the structure of our economy are likely to be accelerated by advances in sustainable technologies, which will require us to be able to support new industries, and help customers in impacted industries adapt.

 

Barclays Group have also committed to providing £100bn of green financing by 2030, to help accelerate the transition to a low-carbon economy. Green financing supports the transition by providing investment that is specifically focused on green activity, including for renewables, energy efficiency and sustainable transport. This includes specific products such as Green Loans and there is increasing demand for more innovative products, such as Sustainability Linked Loans.

 

In 2020, Barclays Group updated our Sustainable Finance Framework, which sets out our approach to classifying financing as sustainable, and references industry guidelines and principles. Barclays Group welcome and encourage greater global harmonisation in the way this financing is defined, and will be working with other financial institutions and stakeholders towards this goal.

 

Barclays Group also issued the second Barclays Green Bond in October 2020. Funds from the £400m bond are allocated to mortgages on energy efficient residential properties in England and Wales. More than half the funds raised will be allocated to refinance Barclays' Green Home Mortgage products, which are offered to customers at a discount provided their property meets certain energy efficiency thresholds.

 

For an overview of the Barclays Bank UK Group's approach to managing climate change risk, please refer to pages 44 to 45 in the climate change risk management section.

 

Managing risk

 

The Barclays Bank UK Group is exposed to internal and external risks as part of our ongoing activities. These risks are managed as part of our business model.

 

Enterprise Risk Management Framework


Within the Barclays Bank UK Group, risks are identified and overseen through the Enterprise Risk Management Framework (ERMF), which supports the business in its aim to embed effective risk management and a strong risk management culture.

 

The ERMF governs the way in which the Barclays Bank UK Group identifies and manages its risks. The ERMF is approved by the Barclays PLC Board on recommendation of the Barclays Group Chief Risk Officer; it is then adopted by the Barclays Bank UK Group with minor modifications where needed.

 

The management of risk is embedded into each level of the business, with all colleagues being responsible for identifying and controlling risks.

 

Risk appetite


Risk appetite defines the level of risk we are prepared to accept across the different risk types, taking into consideration varying levels of financial and operational stress. Risk appetite is key for our decision making processes, including ongoing business planning and setting of strategy, new product approvals and business change initiatives.

 

The Barclays Bank UK Group may choose to adopt a lower risk appetite than allocated to it by the Barclays Group.

 

Three Lines of Defence


The first line of defence is comprised of the revenue generating and customer facing areas, along with all associated support functions, including Finance, Treasury, Human Resources and Operations and Technology. The first line identifies the risks, sets the controls and escalates risk events to the second line of defence.

 

The second line of defence is made up of Risk and Compliance and oversees the first line by setting the limits, rules and constraints on their operations, consistent with the risk appetite.

 

The third line of defence is comprised of Internal Audit, providing independent assurance over the effectiveness of governance, risk management and control over current, systemic and evolving risks.

 

Although the Legal function does not sit in any of the three lines, it works to support them all and plays a key role in overseeing Legal risk throughout the bank. The Legal function is also subject to oversight from the Risk and Compliance functions (second line) with respect to the management of operational and conduct risks.

 

Monitoring the risk profile


Together with a strong governance process, using Business and Barclays Group-level Risk Committees as well as Board level forums, the Barclays Bank UK PLC Board receives regular information in respect of the risk profile of the Barclays Bank UK Group. Information received includes measures of risk profile against risk appetite as well as identification of new and emerging risks.

 

During 2020, Barclays Group ran a range of scenario analyses to determine potential outcomes of the COVID-19 pandemic which informed management actions. One of the scenarios was a macroeconomic stress test which considered, amongst other factors, a no deal Brexit and a second wave of the COVID-19 pandemic in which scientific progress was limited to the extent that no vaccine was available throughout 2021. In addition, a Group-wide, exploratory stress test was performed against a severe but plausible climate scenario, testing vulnerability to disorderly transition risks and elevated physical risks. The aim of the tests was to identify key vulnerabilities that were most relevant and material to the Barclays Group business model and geographical footprint. We believe that our structure and governance supports us in managing risk in the changing economic, political and market environments.

 

The ERMF defines eight principal risksa

How risks are managed

Financial principal risks

Credit risk

The risk of loss to the Barclays Bank UK Group from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to the Barclays Bank UK Group, including the whole and timely payment of principal, interest, collateral and other receivables.

Credit risk teams identify, evaluate, sanction, limit and monitor various forms of credit exposure, individually and in aggregate.

Treasury and Capital risk

Liquidity risk:

Treasury and capital risk is identified and managed by specialists in Capital Planning, Liquidity, Asset and Liability Management and Market risk. A range of approaches are used appropriate to the risk, such as; limits; plan monitoring; internal and external stress testing.

 

The risk that the Barclays Bank UK Group is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets.

Capital risk:

The risk that the Barclays Bank UK Group has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions (both actual and as defined for internal planning or regulatory testing purposes). This includes the risk from the Barclays Bank UK Group's pension plans.

Interest rate risk in the Banking Book:

The risk that the Barclays Bank UK Group is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities.

Market risk

The risk of loss arising from potential adverse changes in the value of the Barclays Bank UK Group's assets and liabilities from fluctuation in market variables including, but not limited to, interest rates, foreign exchange, equity prices, commodity prices, credit spreads, implied volatilities and asset correlations.

A range of complementary approaches to identify and evaluate market risk are used to capture exposure to Market risk. These are measured, controlled and monitored by Market risk specialists.

Non-Financial principal risks

Operational risk

The risk of loss to the Barclays Bank UK Group from inadequate or failed processes or systems, human factors or due to external events (for example fraud) where the root cause is not due to credit or market risks.

Operational risk comprises the following risks; data management and information, execution risk, financial reporting, fraud, payments processing, people, physical security, premises, prudential regulation, supplier, tax, technology and transaction operations.

It is not always cost effective or possible to attempt to eliminate all Operational risks.

Operational risk is managed across the businesses and functions through an internal control environment with a view to limiting the risk to acceptable residual levels.

Model risk

The risk of the potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports.

Models are independently validated and approved prior to implementation and their performance is monitored on a continual basis.

Conduct risk

The risk of detriment to customers, clients, market integrity, effective competition or the Barclays Bank UK Group from the inappropriate supply of financial services, including instances of willful or negligent misconduct.

The Compliance function sets the minimum standards required, and provides oversight to monitor that these risks are effectively managed and escalated where appropriate.

Reputation risk

The risk that an action, transaction, investment or event, decision or business relationship will reduce trust in the Barclays Bank UK Group's integrity and/or competence.

Reputation risk is managed by embedding our purpose and values and maintaining a controlled culture within the Barclays Bank UK Group, with the objective of acting with integrity, enabling strong and trusted relationships with customers and clients, colleagues and broader society.

Legal risk

The risk of loss or imposition of penalties, damages or fines from the failure of the Barclays Bank UK Group to meet its legal obligations including regulatory or contractual requirements.

The Legal function supports colleagues in identifying and managing Legal risks.

Note

a

The ERMF defines eight principal risks. For further information on the how these principal risks apply specifically to Barclays Bank UK Group, please see pages 46 to 51.

 

Performance measures

 

Financial performance measures

 

The performance of Barclays Bank UK PLC contributes to the Barclays Group, upon which the delivery of strategy is measured.

 

Income Statement






Barclays Bank UK Group results

2020

2019

For the year ended 31 December

£m

£m

Total income

6,424

7,322

Credit impairment charges

(1,427)

(709)

Net operating income

4,997

6,613

Operating costs

(4,603)

(4,358)

Litigation and conduct

(43)

(1,586)

Total operating expenses

(4,646)

(5,944)

Profit on disposal of subsidiaries, associates and joint ventures

16

-

Profit before tax

367

669

Taxation

12

(513)

Profit after tax

379

156




Attributable to:



Equity holders of the parent

199

3

Other equity instrument holders

180

153

Profit after tax

379

156

 

Income statement commentary

 

Profit before tax was £367m (2019: £669m). Barclays Bank UK PLC continued to support customers throughout the challenging operating environment, increasing lending by £14.1bn predominantly through BBLS and CBILS loans to small and medium-sized enterprises (SMEs), as well as delivering strong mortgage growth. Deposit growth of £34.8bn added to a strong liquidity position.

 

Total income decreased 12% to £6,424m, consisting of:

 

·

Personal Banking income decreased 12% to £3,649m, reflecting deposit margin compression from lower interest rates, lower unsecured lending balances, and COVID-19 customer support actions, partially offset by balance growth in deposits and mortgages

·

Barclaycard Consumer UK income decreased 23% to £1,528m as reduced borrowing and spend levels by customers resulted in a lower level of interest earning lending (IEL) balances, as well as lower debt sales

·

Business Banking income decreased 4% to £1,308m due to deposit margin compression from lower interest rates, lower transactional fee volumes as a result of COVID-19, and related customer support actions, partially offset by lending and deposit balance growth from continued support for SMEs through £11.0bn of BBLS and CBILS loans 

·

This was partially offset by an expense of £61m in Head Office due to the impact of hedge accounting

 

Credit impairment charges increased to £1,427m (2019: £709m) due to the deterioration in economic outlook driven by the COVID-19 pandemic. The incremental current year charge includes £847m of non-default provision for expected future customer and client stress. As at 31 December 2020, 30 and 90 day arrears rates in UK cards were 1.7% (Q419: 1.7%) and 0.8% (Q419: 0.8%) respectively.

 

Operating costs increased 6% to £4,603m reflecting investment spend including structural cost actions, higher servicing and financial assistance costs, partially offset by efficiency savings.

 

Balance Sheet Information

 

The following assets and liabilities represent key balance sheet items for Barclays Bank UK Group:

 

As at 31 December

2020

2019


£m

£m

Assets



Loans and advances at amortised cost

211,649

197,569

Financial assets at fair value through other comprehensive income

26,026

19,322

Cash and balances at central banks

35,218

24,305

Liabilities



Deposits at amortised cost

240,535

205,696

 

Balance Sheet commentary

 

Loans and advances at amortised cost increased 7% to £211.6bn, predominantly from continued support for SMEs through £11.0bn of BBLS and CBILS lending, £5.1bn of mortgage growth following a strong flow of new applications as well as strong customer retention, partially offset by £6.6bn lower unsecured lending balances.

 

Deposits at amortised cost increased 17% to £240.5bn reflecting an increase of £20.6bn and £14.3bn in Personal Banking and Business Banking respectively, further strengthening the liquidity position.

 

Cash at central banks increased 45% to £35.2bn and Financial assets at fair value through other comprehensive income increased 35% to £26.0bn, as a result of a larger liquidity pool, predominantly due to increased customer deposits.

 

Other metrics and capitala

 

As at 31 December

2020

2019

Common equity tier 1 (CET1) ratio

15.6%

13.5%

Total risk weighted assets (RWAs)

72.0bn

75.0bn

Average UK leverage ratio

5.6%

5.2%

 

Note

a

Capital, RWAs and leverage are calculated applying the IFRS 9 transitional arrangements of the Capital Requirement Regulation (CRR) as amended by Capital Requirement Regulation II (CRR II).

 

Capital commentary

 

The Barclays Bank UK Group CET1 ratio as at 31 December 2020 was 15.6%, which is above regulatory capital minimum requirements.

 

RWAs decreased to £72.0bn (December 2019: £75.0bn) driven by lower unsecured lending balances, partially offset by growth in mortgages.

 

Non-financial performance measures

 

Barclays Bank UK PLC is part of the Barclays Group which uses a variety of quantitative and qualitative measures to track and assess holistic strategic delivery.

 

Barclays Bank UK PLC has addressed the Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006 through the disclosure contained in Barclays PLC Annual Report 2020 on pages 52 to 53.

 

Our people and culture

 

The strength and success of Barclays is in our people. We want to support their health and wellbeing, enable them to build their career and empower and motivate them to be able to provide excellent service. The following sub-sections are consistent with those detailed in the People Section of the Barclays PLC Annual Report and figures mentioned are for the Barclays Group other than where specifically mentioned. 

 

Adapting to challenge

 

Events over the last 12 months have affected all our lives, and the disruption has been significant. Nevertheless, we have continued to invest in our colleagues in order to strengthen our business and protect our culture. Our people have shown extraordinary adaptability and resilience, and thanks to them, so has Barclays.

 

Throughout the COVID-19 pandemic, colleagues around the world have been working incredibly hard to continue to support our customers and clients. Many were designated as frontline or critical workers in the countries in which they work. At all times, we have worked tirelessly to prioritise each other's safety and wellbeing, as well as taking all necessary steps to slow the spread of the virus.

 

We put in place a set of global principles to ensure we were doing as much as possible to support our people. This included instigation of new working patterns, digital tools and technology. We also helped colleagues cope with some of the personal challenges the COVID-19 pandemic created, including offering paid leave to support self-quarantine, sickness or care for dependents, financial help with childcare and advice made available to help protect physical and mental health. Through our colleague surveys, we have also regularly checked in with our people to better understand the impact that working through the COVID-19 pandemic has had.

 

Barclays continues to believe that people working together in the same physical location reinforces our culture and helps with collaboration and inspiration. Where possible, and in line with local government guidance, we have continued to have critical workers in offices and in our customer branches, and we have instigated gradual returns to the office in certain parts of the business and in certain parts of the world. In time, with the safety and wellbeing of colleagues as our first priority, we envisage more people will return to on-site working. In advance of this, we have already put in place additional measures to ensure we are COVID-secure, including risk assessments at our sites and Return to Office Crews to support social distancing and minimise risks.

 

Over the last 12 months, we have learnt an enormous amount about the benefits and challenges of working more flexibly. Ultimately, we believe this will inform our ambitions for future ways of working.

 

A continuous conversation with colleagues

 

We think colleague engagement should be a two-way exercise, with equal weight placed on listening to our people as it is on keeping them informed. We want to be able to consider our colleagues' perspective when we make decisions, including at the most senior level.

 

Our regular Here to Listen and Your View surveys are a key part of how we track engagement. In 2020, in part in response to the challenge of the COVID pandemic, we improved the effectiveness and regularity of how we do this.

 

We saw a 10 percentage point increase in the response rate to our annual Your View employee engagement survey with 72% of Barclays Bank UK PLC colleagues responding. The results showed an increase in Barclays Bank UK PLC engagement levels, up 5 percentage points to 81%, and an increase of 7 percentage points to 85% of colleagues saying they would recommend Barclays as a good place to work. We were also very pleased to see that our colleagues have continued their focus on customer and client feedback, with 84% of Barclays Bank UK PLC respondents responding favourably to this question. In addition, 96% of Barclays Bank UK PLC respondents said they believe they and their teams do a good job of role modelling the values every day, an increase of 3 percentage points.

 

Overall, we are encouraged by our ability to work remotely in many more roles than we had previously thought possible. Our colleagues told us that they enjoyed having more flexibility in their lives, with 82% of Barclays Bank UK PLC respondents saying they have been able to balance personal and work demands, and 71% saying there is effective collaboration between teams.

 

With that said, we recognise there are also areas where we need to do more. Colleague feedback indicates we have room to make our internal processes more user friendly, with only 62% of Barclays Bank UK PLC colleagues saying work processes make it easy for employees to be productive.

 

We maintain an engagement approach that is in line with the UK's Financial Reporting Council (FRC) governance requirements. This extends to those who work for us indirectly as well, such as contractors, although in a more limited way. As of 2020, our supplier code of conduct requires organisations with more than 250 employees to demonstrate that they have an effective workforce engagement approach of their own.

 

The results from our surveys are an important part of the conversations our Executive Committee and Board have about our culture and how we run Barclays. We also update the Board and its relevant sub-committees throughout the year.

 

We monitor our culture across the organisation, and in individual business areas, through culture dashboards. These combine colleague survey data with other metrics about our business, so wider leadership teams can identify areas of continued strength of our culture and areas of focus for leaders.

 

In addition to these data sources, our leaders engage regularly with colleagues locally to hear what they think. Where possible this year, leaders visited branches to support colleagues during the COVID-19 pandemic. However, the majority of engagement activities moved to virtual forums, with opportunities for face to face engagement being more limited due to social distancing requirements, these included large-scale virtual town halls, training and development activity, mentoring, informal breakfast sessions, committee membership, ex-officio roles, diversity and wellbeing programmes, focus and consultative groups.

 

Direct engagement, a comprehensive reporting approach and dedicated time at board meetings, helps our Board take the issues of interest to our colleagues into account in their decision making. This has enabled them to confirm that our workforce engagement approach is effective.

 

We make sure we are keeping everyone up to date on the strategy, performance and progress of the organisation through a strategic, multichannel approach. This combines leader-led engagement, digital and print communication, blogs, vlogs and podcasts. In response to the COVID-19 pandemic, this year we also provided additional regular updates to colleagues to provide practical advice and support, including via a dedicated COVID-19 pandemic intranet-page.

 

We also engage with our people collectively through a strong and effective partnership with Unite. In 2020 we worked together closely with the specific goal of ensuring the safety and wellbeing of our colleagues throughout the COVID-19 pandemic. Unite strongly supported the transition of many colleagues to homeworking, as well as the introduction of measures to protect colleagues working in our branches and offices. As we progress to return more colleagues to work, our union partners remain centrally involved.

 

We regularly brief our union partners on the strategy and progress of the business, seeking their input on ways in which we can improve the colleague experience of working for Barclays. The collective bargaining coverage of Unite in the UK represents around 84% of the Barclays Group UK workforce and 50% of the global Barclays workforce. We consult in detail with colleague representatives on major change programmes affecting our people. We do this to help us minimise compulsory job losses wherever possible, including through voluntary redundancy and redeployment.

 

Creating an inclusive and supportive culture

 

Creating an inclusive and supportive culture is not only the right thing to do, but also best for our business. It creates a sense of belonging and value and enables colleagues to perform at their best.

 

In 2020, we increased our focus on embedding a culture of inclusion and encouraged colleagues to become allies in the workplace. Through a new toolkit we supported them to take conscious, positive steps to make everyone feel that they belong, and develop empathy towards another group's challenges or issues. In our Your View survey, 80% of Barclays Bank UK PLC colleagues told us they believe we are all in this together.

 

Events last year rightly prompted organisations like ours to appraise what we have been doing to aid the fight against racism, and to ask ourselves whether we can do more. Over recent months, Barclays has worked extensively with its Black colleague forums to produce a Race at Work Action Plan. The plan comprises a thorough set of actions that will open up new opportunities to attract, develop, and add to our great Black talent, using data to measure success. From 2021, we will expand our plan to include all ethnically diverse groups as well as actions to enhance our long-standing support for citizenship programmes dedicated to tackling racial inequalities in communities, as well as support of this agenda for customers and clients.

 

We want to become one of the most accessible and inclusive FTSE companies for all our customers, clients and colleagues. We require managers to give full and fair consideration to those with a disability on the basis of strengths, potential and ability, both when hiring and managing. We also ensure opportunities for training, career development and promotion are available to all. As part of the UK Government Disability Confident scheme, we encourage applications from people with a disability, or a physical or mental health condition.

 

Through our BeWell programme, we continue to provide expert advice and guidance on the practical steps colleagues can take to look after their physical and mental health. In 2020, our Mental Health Awareness e-learning became mandatory, and we regularly check-in with managers to ensure they are supporting colleagues' wellbeing. We were also one of the first businesses to sign up to the Mental Health at Work Commitment. In our Your View survey, 83% of Barclays Bank UK PLC colleagues told us that Barclays supports their efforts to enhance their wellbeing.

 

We encourage our people to benefit from Barclays' performance by enrolling in our share ownership plans, further strengthening their commitment to the organisation.

 

Engaging with our stakeholders

 

Section 172(1) statement

 

Having regard to our stakeholders in Board decision-making

 

The Directors have acted in the way that they considered, in good faith, would be most likely to promote the success of the company for the benefit of its member as a whole and this section forms our Section 172 disclosure, describing how, in doing so, the Directors considered the matters set out in section 172(1)(a) to (f) of the Companies Act 2006. The Directors also took into account the views and interests of a wider set of stakeholders, including regulators, the UK Government and non-governmental organisations.

 

Detail about Barclays Bank UK Group's key stakeholders, how management and/or the Directors engaged with them, the key issues raised and actions taken can be found on pages 16 to 17 of the Barclays PLC Annual Report 2020 which is incorporated by reference into this statement.

 

The Directors recognise that having a good understanding of the views and interests of the Barclays Bank UK Group's key stakeholders will help them to deliver the Barclays Bank UK Group's strategy in line with its purpose and to operate the business in a sustainable way. Consistent with its regulatory responsibilities, the Board also considers carefully the impact its decisions will have on the Barclays Bank UK Group's risk and control environment, and on customer outcomes. Considering a broad range of stakeholders and their relative interests is an important part of the way in which the Board makes decisions, although in having regard to those different perspectives it is not always possible to deliver everyone's desired result or necessarily achieve a positive outcome for all stakeholders.

 

How does the Board engage with stakeholders?


Depending on the decision in question, the relevance of each particular stakeholder group may differ, and equally the Board adopts a variety of methods of engagement with different stakeholder groups. The Board will sometimes engage directly with certain stakeholders on certain issues, but the number and distribution of the Barclays Bank UK Group's stakeholders and the size of the Barclays Bank UK Group overall means that stakeholder engagement often takes place at an operational level.  In addition, to ensure a more efficient and effective approach, certain stakeholder engagement is led at Barclays Group level, in particular where matters are of Group-wide significance or have the potential to impact the reputation of the Barclays Group.

 

In addition to direct engagement with stakeholders by Board members, the Board regularly receives reports and considers and discusses information from across the organisation to help it understand the impact of the Barclays Bank UK Group's operations on, and the interests and views of, the Barclays Bank UK Group's key stakeholders.  As a result of these activities and the information it receives, the Board has an overview of engagement with stakeholders, and other relevant factors, which enables the Directors to comply with their legal duty under section 172 of the Companies Act 2006.

 

For more details on how the Board operates, and the way in which it reaches decisions, including the matters it discussed and debated during the year, please refer to page 17 to 26 of the Governance Report.

 

Engagement in action


The following, in the context of responding to the challenges arising from the COVID-19 pandemic, is an example of how the Directors have had regard to the matters set out in section 172 when discharging their duties, and the effect of those considerations in reaching certain decisions taken by them.

 

COVID-19


Throughout almost the entirety of 2020, as the pandemic unfurled, the primary focus of the company and the Board has been on (i) the operational and financial resilience of the bank to ensure the Barclays Bank UK Group has been able to maximise its support for the economy and society during a time of such challenge; (ii) supporting customers and clients to relieve financial pressure whilst at the same time working with the UK Government to deliver programmes to help businesses; and (iii) protecting the health and well-being of colleagues (the 'COVID-19 Priorities'). The Board and its Committees have demonstrated leadership and oversight during the pandemic, and this continues at the date of this report. This has seen the Board meet, whether in person (when permitted) or by video conference calls, significantly more frequently than in previous years, in order to devote the time needed to address the challenges which have arisen and to provide the necessary support to customers, clients, colleagues and society more broadly.

 

Between formal meetings, the Board has received regular updates on the implementation of the Barclays Bank UK Group's strategy, in particular in relation to the Barclays Bank UK Group's participation in UK Government schemes and its broader support for customers and clients, as well as its ongoing engagement with key stakeholders and the steps being taken to safeguard the health and well-being of customers and colleagues. Given the importance of Barclays Bank UK Group's response to the COVID-19 pandemic and its impact on stakeholders and the economy as a whole, in addition to the increased Board interaction and reporting referenced earlier, the Risk Committee, on behalf of the Board, met initially fortnightly from March until June 2020 and, since July, on approximately a monthly basis. The Committee reviewed and monitored material risk considerations and issues arising during the pandemic as well as acting as a point of escalation for management. Specifically, the Committee focused on the COVID-19 Priorities (referenced above). The Committee escalated to the Board any material risk matters and any business decisions made by management which might impact the reputation of the Barclays Bank UK Group. Close co-ordination between the Chair of the Board and the Barclays PLC Board has also ensured an ongoing dialogue has been maintained across the Barclays Group throughout the COVID-19 pandemic, resulting in a more coordinated response.

 

Set out below is a summary of some of the key decisions and actions the Barclays Bank UK Group has taken in response to the impact of the ongoing pandemic where the Board has had regard to the interests of, and impact on, affected stakeholders, including consideration of stakeholder engagement and feedback received.

 

Customers and clients

Continuing to support customers and clients has been a critical focus of the Board throughout the year.

 

This has been reflected in a range of actions and decisions taken by the Board and management, including in its efforts to ensure a COVID-19 safe environment has been maintained for our customers and clients as well as our colleagues. This has been achieved through the provision of safe access to bank branches, putting in place a programme to achieve effective social distancing and a stringent cleaning routine. Balancing the needs of our customers and clients against their health and safety and that of our colleagues has been crucial and so, whilst such measures included notifying customers and clients of reduced opening times, we also sought to enhance our call centre facilities within the UK, in order to deal with increased call volumes resulting from the impact of the pandemic and the closure of operations in India, leading to a redeployment of technology to enable UK call centre staff to handle enquiries at home, as well as redeployment of some branch staff to bolster capacity. We also took steps to support vulnerable customers who were unable to visit a branch, and ensured that access to cash was maintained throughout the pandemic.

 

In order to help relieve the financial pressure for customers and clients throughout these unprecedented times, the Board supported management in making appropriate adjustments to the Barclays Bank UK Group's strategy and policies. This has included decisions to assist the Barclays Bank UK Group's borrowers such as the implementation of payment holidays, the waiver of interest and fees on overdrafts and forbearance on late payments, as well as facilitating borrowing under the various UK Government loan schemes.

 

The rationale for these changes has been to provide breathing space for customers; to appropriately reflect the impact of the pandemic on customers' income and circumstances in affordability calculations and credit decisions given the unprecedented uncertainty as a result of the pandemic.

 

All of this has been achieved whist maintaining an appropriate risk and control environment. Through regular updates from the Risk Committee, Audit Committee and management, the Board has closely scrutinised the risk and control environment across the Barclays Bank UK Group, and ensured that the ongoing support for customers and clients during the pandemic has been achieved whilst continuing to adopt a robust approach to risk and control so as to maintain a strong capital position for the longer term. The Board has paid particularly keen attention to updates from management on various metrics and tools used to measure customer and client satisfaction and had been pleased to note that feedback on the Barclays Bank UK Group's support during 2020 has been positive.

 

The Board and senior management will continue to monitor customer and client behaviours and preferences - whether arising from ongoing concerns over social distancing or from a change in customer and client banking patterns, or greater use of on-line services rather than branch or call centre facilities - and this information will help inform the Board's decisions on future strategy as it evolves to meet the long-term needs of our customers and clients.

 

Colleagues

The Board regards colleagues' wellbeing as being of paramount importance throughout the pandemic.

 

Together with management, the Board has sought to support colleagues both financially (in terms of preservation of employment by minimising job losses), and by adapting working practices across the Barclays Bank UK Group to minimise the risk of spreading COVID-19, including through reduced branch opening times; deep cleaning of branches, call centres and offices; and the instigation of a widespread regime of remote working where possible.

 

In early April 2020 the Barclays PLC Group Chairman, on behalf of the Barclays PLC Board, announced the launch of the Barclays Group's COVID-19 Community Aid Package totalling £100m and, in addition, colleagues across the Barclays Bank UK Group have also made a considerable contribution towards charitable giving during the year - much of this has been provided by way of personal donations and salary sacrifices. In this way colleagues have been able to support charities of their choice, local to their homes or places of work and which are working to support communities impacted by the COVID-19 pandemic. The Barclays PLC Board approved the Barclays Group making a £50m commitment to match-fund these colleague contributions.

 

Colleague surveys have been conducted on a number of occasions throughout the year in order to maintain ongoing engagement and gather feedback, and reported to the Board. The Board has been pleased to note that the results of these surveys confirmed a high degree of satisfaction among colleagues with the measures being taken to ensure their wellbeing; and a strong sense of engagement through the matched funding for charities local to them and chosen by them as recipients of such funding.

 

In addition to the colleague surveys and regular updates from management, members of the Board have continued to engage with colleagues in a variety of ways throughout the pandemic. These included holding virtual town halls, interactive video call sessions, virtual meetings with representatives of employee resource groups and visits to branches, where possible. Further details on colleague engagement is set out on pages 9 and 10 in the Strategic Report.

 

The Board has also ensured that colleagues have been provided with the necessary tools to enable the shift to remote working, including by the provision of increased technological support, laptops and other home office equipment and human resources support. Recognising the additional pressures and challenges faced by colleagues as a result of the pandemic, the Board has overseen support initiatives including paid leave to support self-quarantine, sickness or care for dependents, financial help with childcare and support services and helplines for colleagues, to help protect physical and mental health and wellbeing. Further information is set out on pages 9 and 10 of the Strategic Report.

 

In assessing the Barclays Bank UK Group's future strategy, the Board will take into account the lessons learnt during the pandemic and, in particular, will monitor changes in customer and client banking patterns and the ability of colleagues to provide services through remote working, in order to assess whether these changes could be adopted in the longer term so as to provide greater flexibility in terms of working practices for colleagues once the pandemic is over.

 

Society

From the outset of the pandemic, the Board has encouraged management to ensure that the Barclays Bank UK Group, as a key bank in the UK, strives to operate responsibly in supporting the wider community in dealing with the current unprecedented medical and economic crisis caused by COVID-19, and in preparing for recovery in its aftermath.

 

In particular, the Board has focused on the need for the economy to be supported; and has taken a particularly keen interest in the regular updates provided by management as to the Barclays Bank UK Group's efforts in this regard.

 

In addition, set out in the 'colleagues' section above and on page 43 of the Barclays PLC Annual Report 2020, are details of the COVID-19 Community Aid package launched by Barclays Group in April 2020. We have and continue to work with some of the UK's leading charities to bring immediate relief to vulnerable people and communities hardest hit by the social and economic hardship caused by the pandemic.

 

We have also continued to engage with local communities throughout the pandemic, to understand their needs and develop alternative solutions to enhance the provision of our services where possible, including by working closely in communities across the UK to help them access and feel confident in using our digital services through our team of Barclays Digital Eagles.

 

The Board is pleased to note that external feedback has been very positive in relation to the Barclays Bank UK Group's support of society both through the maintenance of its financial services and the delivery, as part of the Barclays Group, of the Community Aid Package.

 

The Board is committed to develop its future strategy so as to continue this support and engagement with local communities and society more broadly through the remainder of the pandemic and its aftermath during 2021.

 

Investors

The Board is committed to achieving sustainable returns for our shareholder, Barclays PLC, and in turn its investors over the long-term.

 

Taking into consideration the importance to our shareholder, and its investors more broadly, of the long-term security and soundness of the Barclays Bank UK Group and the preservation of its balance sheet, the Board encouraged management to ensure that lending decisions would continue to be taken prudently throughout the pandemic, notwithstanding the drive to provide increased support to our customers and clients. This has also been reflected in the Risk Committee monitoring closely any changes to relevant risk limits and financial products. In addition, in order to preserve capital for use in servicing Barclays Bank UK Group's customers and clients though the challenges imposed by COVID-19, the Board decided that, despite the short term impact on Barclays PLC, it was right and prudent not to pay an interim dividend to Barclays PLC in 2020. The Board is pleased to end the year with a strong capital position.

 

The Board considers engagement with its shareholder as being critical to its understanding of the Barclays Group's strategy, and the Barclays Bank UK Group's role in it, and ultimately of Barclays PLC's investors' views. Such engagement is achieved in a variety of ways, including the Barclays PLC Group Chairman, Chief Executive and other Barclays Group Executive members attending, by invitation, certain Board meetings, to update on Barclays Group matters, as well as providing Board members with the opportunity to engage and ask questions to better understand the shareholder view and Barclays Group context. In addition, the Barclays Bank UK PLC Chair's position on the Barclays PLC Board ensures the views of the Barclays Bank UK Group are represented. This engagement model will continue in 2021 and beyond.

 

 

Crawford Gillies

Chair - Barclays Bank UK PLC

17 February 2021

 

Directors' responsibility statement

 

The Directors have responsibility for ensuring that the Company and the Barclays Bank UK Group keep accounting records which disclose with reasonable accuracy the financial position of the Company and the Barclays Bank UK Group and which enable them to ensure that the financial statements comply with the Act.

 

The Directors are also responsible for preparing a Strategic Report, Directors' Report and Corporate Governance Statement in accordance with applicable law and regulations.

 

The Directors are responsible for the maintenance and integrity of the Annual Report and financial statements as they appear on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The Directors have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

 

The Directors, whose names and functions are set out on page 17,   confirm to the best of their knowledge that:

 

(a)

The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

(b)

The Strategic Report on pages 1 to 13 which is incorporated in the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

By order of the Board

 

Katie Marshall

 

Company Secretary

 

17 February 2021

 

Registered in England.

 

Company No. 9740322

 

Risk review

 

Material existing and emerging risks

 

Material existing and emerging risks to the Barclays Bank UK Group's future performance

 

The Barclays Bank UK Group has identified a broad range of risks to which its businesses are exposed. Material risks are those to which senior management pay particular attention and which could cause the delivery of the Barclays Bank UK Group's strategy, results of operations, financial condition and/or prospects to differ materially from expectations. Emerging risks are those which have unknown components, the impact of which could crystallise over a longer time period. In addition, certain other factors beyond the Barclays Bank UK Group's control, including escalation of terrorism or global conflicts, natural disasters, pandemics and similar events, although not detailed below, could have a similar impact on the Barclays Bank UK Group.

 

Material existing and emerging risks potentially impacting more than one principal risk

 

i) Risks relating to the impact of COVID-19

 

The COVID-19 pandemic has had, and continues to have, a material impact on businesses around the world and the economic environments in which they operate. There are a number of factors associated with the pandemic and its impact on global economies that could have a material adverse effect on (among other things) the profitability, capital and liquidity of financial institutions such as Barclays Bank UK.

 

The COVID-19 pandemic has caused disruption to the Barclays Bank UK Group's customers, suppliers and staff. In the UK severe restrictions on the movement of people have been implemented by the UK, Scottish, Welsh and Northern Irish governments, with a resultant significant impact on economic activity. It remains unclear how the COVID-19 pandemic will evolve through 2021 (including whether there will be further waves of the COVID-19 pandemic, whether COVID-19 vaccines approved for use by regulatory authorities will be deployed successfully with desired results, whether further new strains of COVID-19 will emerge and whether, and in what manner, additional restrictions will be imposed and/or existing restrictions extended) and the Barclays Bank UK Group continues to monitor the situation closely. However, despite the COVID-19 contingency plans established by the Barclays Bank UK Group, the ability to conduct business may be adversely affected by disruptions to infrastructure, business processes and technology services, resulting from the unavailability of staff due to illness or the failure of third parties to supply services. This may cause significant customer detriment, costs to reimburse losses incurred by the Barclays Bank UK Group's customers, potential litigation costs (including regulatory fines, penalties and other sanctions), and reputational damage.

 

In the UK, schemes have been implemented by the Bank of England, the UK Government and the Financial Conduct Authority to provide financial support to parts of the economy most impacted by the COVID-19 pandemic. These schemes have been designed and implemented at pace, meaning lenders (including Barclays) continue to address operational issues which have arisen in connection with the implementation of the schemes, including resolving the interaction between the schemes and existing law and regulation. In addition, the full extent of how these schemes will impact the Barclays Bank UK Group's customers and therefore the impact on the Barclays Bank UK Group remains uncertain at this stage. However, certain actions (such as the introduction of payment holidays for various consumer lending products or the cancellation or waiver of fees associated with certain products) may negatively impact the effective interest rate earned on the Barclays Bank UK Group portfolios and may reduce fee income being earned on certain products and negatively impact the Barclays Bank UK Group's profitability. Furthermore, the introduction of, and participation in, central-bank supported loan and other financing schemes introduced as a result of the COVID-19 pandemic may negatively impact the Barclays Bank UK Group's risk weighted assets (RWAs), level of impairment and, in turn, capital position (particularly when any transitional relief applied to the calculation of RWAs and impairment expires). This may be exacerbated if the Barclays Bank UK Group is required by the UK Government or the Financial Conduct Authority to offer forbearance or additional financial relief to borrowers or if the Barclays Bank UK Group is unable to rely on guarantees provided by governments in connection with financial support schemes as a result of the Barclays Bank UK Group's failure to comply with scheme requirements or otherwise.

 

As these schemes and other financial support schemes provided by the UK Government (such as job retention and furlough schemes) expire, are withdrawn or are no longer supported, economic growth may be negatively impacted which may impact the Barclays Bank UK Group's results of operations and profitability. In addition, the Barclays Bank UK Group may experience a higher volume of defaults and delinquencies in certain portfolios and may initiate collection and enforcement actions to recover defaulted debts. Where defaulting borrowers are harmed by the Barclays Bank UK Group's conduct, this may give rise to civil legal proceedings, including class actions, regulatory censure, potentially significant fines and other sanctions, and reputational damage. Other legal disputes may also arise between the Barclays Bank UK Group and defaulting borrowers relating to matters such as breaches or enforcement of legal rights or obligations arising under loan and other credit agreements. Adverse findings in any such matters may result in the Barclays Bank UK Group's rights not being enforced as intended. For further details, refer to "vii) Legal risk and legal, competition and regulatory matters" below.

 

The actions taken by the UK Government and the Bank of England, may indicate a view on the potential severity of any economic downturn and post recovery environment, which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period. The COVID-19 pandemic has led to a weakening in gross domestic product (GDP) and an expectation of higher unemployment in the UK. These factors all have a significant impact on the modelling of expected credit losses (ECLs) by the Barclays Bank UK Group.  As a result, the Barclays Bank UK Group experienced higher ECLs in 2020 compared to prior periods and this trend may continue in 2021. The economic environment remains uncertain and future impairment charges may be subject to further volatility (including from changes to macroeconomic variable forecasts) depending on the longevity of the COVID-19 pandemic and related containment measures and the efficacy of any COVID-19 vaccines, as well as the longer term effectiveness of the Bank of England's, UK Government's and other support measures. For further details on macroeconomic variables used in the calculation of ECLs, refer to the credit risk performance section. In addition, ECLs may be adversely impacted by increased levels of default for single name exposures in certain sectors directly impacted by the COVID-19 pandemic (such as the retail and hospitality and leisure sectors).

 

Furthermore, the Barclays Bank UK Group relies on models to support a broad range of business and risk management activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures (including the calculation of impairment), conducting stress testing and assessing capital adequacy. Models are, by their nature, imperfect and incomplete representations of reality because they rely on assumptions and inputs, and so they may be subject to errors affecting the accuracy of their outputs and/or misused. This may be exacerbated when dealing with unprecedented scenarios, such as the COVID-19 pandemic, due to the lack of reliable historical reference points and data. For further details on model risk, refer to "iv) Model risk" below.

 

The disruption to economic activity caused by the COVID-19 pandemic could adversely impact the Barclays Bank UK Group's other assets such as goodwill and intangibles, and the value of Barclays Bank UK PLC's investments in subsidiaries. It could also impact the Barclays Bank UK Group's income due to lower lending and transaction volumes due to volatility or weakness in the capital markets. Other potential risks include credit rating migration which could negatively impact the Barclays Bank UK Group's RWAs and capital position, and potential liquidity stress due to (among other things) increased customer drawdowns, notwithstanding the significant initiatives that the UK Government and the Bank of England have put in place to support funding and liquidity. Furthermore, a significant increase in the utilisation of credit cards by customers could have a negative impact on the Barclays Bank UK Group's RWAs and capital position.

 

The Bank of England and UK Government actions and other support measures taken in response to the COVID-19 pandemic may also create restrictions in relation to capital. Restrictions imposed by the UK Government and/or the Prudential Regulation Authority may further limit management's flexibility in managing the business and taking action in relation to capital distributions and capital allocation.

 

Any and all such events mentioned above could have a material adverse effect on the Barclays Bank UK Group's business, financial condition, results of operations, prospects, liquidity, capital position and credit ratings (including potential credit rating agency changes of outlooks or ratings), as well as on the Barclays Bank UK Group's customers, employees and suppliers.

 

ii) Business conditions, general economy and geopolitical issues

 

The Barclays Bank UK Group's operations are subject to potentially unfavourable global and local economic and market conditions, as well as geopolitical developments, which may have a material effect on the Barclays Bank UK Group's business, results of operations, financial condition

and prospects.

 

A deterioration in global or local economic and market conditions may lead to (among other things): (i) deteriorating business, consumer or investor confidence and lower levels of fixed asset investment and productivity growth, which in turn may lead to lower client activity, including lower demand for borrowing from creditworthy customers; (ii) higher default rates, delinquencies, write-offs and impairment charges as borrowers struggle with the burden of additional debt; (iii) subdued asset prices and payment patterns, including the value of any collateral held by the Barclays Bank UK Group; and (iv) revisions to calculated ECLs leading to increases in impairment allowances. In addition, the Barclays Bank UK Group's ability to borrow from other financial institutions or raise funding from external investors may be affected by deteriorating economic conditions and market disruption.

 

Geopolitical events may lead to further financial instability and affect economic growth. In particular:

 

·

Global GDP growth weakened sharply in the first half of 2020 as a result of the COVID-19 pandemic. Whilst a number of central banks and governments implemented financial stimulus packages to counter the economic impact of the pandemic, recovery has been slower than anticipated and concerns remain as to whether (a) there will be subsequent waves of the COVID-19 pandemic, (b) further financial stimulus will be required and/or (c) governments will be required to significantly increase taxation to fund these commitments. All of these factors could adversely affect economic growth, affect specific industries or affect the Barclays Bank UK Group's employees and business operations. See "i) Risks relating to the impact of COVID-19" above for further details.

·

In the UK, the decision to leave the European Union (EU) may give rise to further economic and political consequences including for investment and market confidence in the UK and the remainder of EU. See "(iii)The UK's withdrawal from the European Union" below for further details.

 

iii) The UK's withdrawal from the European Union

 

The EU-UK Trade and Cooperation Agreement (TCA), which provides a new economic and social partnership between the EU and UK (including zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin) came into force provisionally on 1 January 2021, following expiry of the transition period.

 

The TCA is a new, unprecedented arrangement between the EU and the UK, and there is some uncertainty as to its operation and the manner in which trading arrangements will be enforced by both the EU and the UK.  Furthermore, the EU and/or the UK can invoke trade remedies (such as tariffs and non-tariff barriers) against each other in certain circumstances under the TCA. Resultant trading disruption may have a significant impact on economic activity in the EU and the UK which (in turn) could have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects. Unstable economic conditions could result in (among other things):

 

·

a recession in the UK, with lower growth, higher unemployment and falling property prices, which could lead to increased impairments in relation to a number of the Barclays Bank Group's portfolios (including, but not limited to, its UK mortgage portfolio, UK unsecured lending portfolio (including credit cards) and commercial real estate exposures);

·

increased market and interest rate volatility, which could affect the underlying value of assets in the banking book and securities held by the Barclays Bank UK Group's for liquidity purposes;

·

a credit rating downgrade for Barclays Bank UK PLC (either directly or indirectly as a result of a downgrade in the UK sovereign credit ratings), which could significantly increase Barclays Bank UK PLC's cost of and/or reduce its access to funding, widen credit spreads and materially adversely affect Barclays Bank UK PLC's interest margins and liquidity position; and/or

·

a widening of credit spreads more generally or reduced investor appetite for Barclays Bank UK PLC's debt securities, which could negatively impact Barclays Bank UK PLC's cost of and/or access to funding.

 

iv) The impact of interest rate changes on the Barclays Bank UK Group's profitability

 

Changes to the Bank of England base interest rate are significant for the Barclays Bank UK Group, especially given the uncertainty as to the direction of interest rates and the pace at which they may change.

 

A continued period of low interest rates and flat yield curves, including any further rate cuts and/or negative interest rates, may affect and continue to put pressure on the Barclays Bank UK Group's net interest margins (the difference between its lending income and borrowing costs) and could adversely affect the profitability and prospects of the Barclays Bank UK Group.

 

Interest rate rises could positively impact the Barclays Bank UK Group's profitability as income increases due to margin de-compression. However, further increases in interest rates, if larger or more frequent than expected, could lead to generally weaker than expected growth, reduced business confidence and higher unemployment. This, in turn, could cause stress in the lending portfolio with resultant higher credit losses driving an increased impairment charge which would most notably impact retail unsecured portfolios and could have a material effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

In addition, changes in interest rates could have an adverse impact on the value of the securities held in the Barclays Bank UK Group's liquid asset portfolio. Consequently, this could create more volatility than expected through the Barclays Bank UK Group's Fair Value through Other Comprehensive Income (FVOCI) reserves.

 

v) Competition in the banking and financial services industry

 

The Barclays Bank UK Group operates in a highly competitive environment in which it must evolve and adapt to the significant changes as a result of financial regulatory reform, technological advances, increased public scrutiny and current economic conditions. The Barclays Bank UK Group expects that competition in the financial services industry will continue to be intense and may have a material adverse effect on the Barclays Bank UK Group's future business, results of operations and prospects.

 

New competitors in the financial services industry continue to emerge. For example, technological advances and the growth of e-commerce have made it possible for non-banks to offer products and services that traditionally were banking products. This has allowed financial institutions and other companies to provide electronic and internet-based financial solutions, including electronic securities trading, payments processing and online automated algorithmic-based investment advice. Furthermore, both financial institutions and their non-banking competitors face the risk that payments processing and other services could be significantly disrupted by technologies, such as cryptocurrencies, that require no intermediation. New technologies have required and could require the Barclays Bank UK Group to spend more to modify or adapt its products or make additional capital investments in its businesses to attract and retain clients and customers or to match products and services offered by its competitors, including technology companies.

 

Ongoing or increased competition may put pressure on the pricing for the Barclays Bank UK Group's products and services, which could reduce the Barclays Bank UK Group's revenues and profitability, or may cause the Barclays Bank UK Group to lose market share, particularly with respect to traditional banking products such as deposits, bank accounts and mortgage lending. This competition may be on the basis of quality and variety of products and services offered, transaction execution, innovation, reputation and price. The failure of any of the Barclays Bank UK Group's businesses to meet the expectations of clients and customers, whether due to general market conditions, under-performance, a decision not to offer a particular product or service, changes in client and customer expectations or other factors, could affect the Barclays Bank UK Group's ability to attract or retain clients and customers. Any such impact could, in turn, reduce the Barclays Bank UK Group's revenues.

 

vi) Regulatory change agenda and impact on business model

 

The Barclays Bank UK Group remains subject to ongoing significant levels of regulatory change and scrutiny. As a result, regulatory risk will remain a focus for senior management. Furthermore, a more intensive regulatory approach and enhanced requirements may adversely affect the Barclays Bank UK Group's business, capital and risk management strategies and/or may result in the Barclays Bank UK Group deciding to modify its legal entity, capital and funding structures and business mix, or to exit certain business activities altogether or not to expand in areas despite otherwise attractive potential.

 

There are several significant pieces of legislation and areas of focus which will require significant management attention, cost and resource, including:

 

·

Changes in prudential requirements may impact minimum requirements for own funds and eligible liabilities (MREL) (including requirements for internal MREL), leverage, liquidity or funding requirements, applicable buffers and/or add-ons to such minimum requirements and risk weighted assets calculation methodologies all as may be set by international, EU or national authorities. Such or similar changes to prudential requirements or additional supervisory and prudential expectations, either individually or in aggregate, may result in, among other things, a need for further management actions to meet the changed requirements, such as:


-

increasing capital, MREL or liquidity resources, reducing leverage and risk weighted assets;


-

restricting distributions on capital instruments;


-

modifying the terms of outstanding capital instruments;


-

modifying legal entity structure (including with regard to issuance and deployment of capital, MREL and funding);


-

changing the Barclays Bank UK Group's business mix or exiting other businesses; and/or


-

undertaking other actions to strengthen the Barclays Bank UK Group's position.

·

The Barclays Group is subject to supervisory stress testing of which Barclays Bank UK PLC forms a component part. These exercises currently include the programmes of the Bank of England (BoE) and the European Banking Authority (EBA). Failure to meet the requirements of regulatory stress tests, or the failure by regulators to approve the stress test results and capital plans of the Barclays Group, could result in the Barclays Group or certain of its members including Barclays Bank UK PLC being required to enhance their capital position, limit capital distributions or position additional capital in specific subsidiaries.

 

For further details on the regulatory supervision of, and regulations applicable to, the Barclays Bank UK Group, see the Supervision and regulation section.

 

vii) The impact of climate change on the Barclays Bank UK Group's business

 

The risks associated with climate change are subject to rapidly increasing societal, regulatory and political focus, both in the UK and internationally. Embedding climate risk into the Barclays Bank UK Group's risk framework in line with regulatory expectations, and adapting the Barclays Bank UK Group's operations and business strategy to address the financial risks resulting from both: (i) the physical risk of climate change; and (ii) the risk from the transition to a low carbon economy, could have a significant impact on the Barclays Bank UK Group's business.

 

Physical risks from climate change arise from a number of factors and relate to specific weather events and longer-term shifts in the climate. The nature and timing of extreme weather events are uncertain but they are increasing in frequency and their impact on the economy is predicted to be more acute in the future. The potential impact on the economy includes, but is not limited to, lower GDP growth, higher unemployment and significant changes in asset prices and profitability of industries. Damage to the properties and operations of borrowers could impair asset values and the creditworthiness of customers leading to increased default rates, delinquencies, write-offs and impairment charges in the Barclays Bank UK Group's portfolios. In addition, the Barclays Bank UK Group's premises and resilience may also suffer physical damage due to weather events leading to increased costs for the Barclays Bank UK Group.

 

As the economy transitions to a low-carbon economy, financial institutions such as the Barclays Bank UK Group may face significant and rapid developments in stakeholder expectations, policy, law and regulation which could impact the lending activities the Barclays Bank UK Group undertakes, as well as the risks associated with its lending portfolios and the value of the Barclays Bank UK Group's assets. As sentiment towards climate change shifts and societal preferences change, the Barclays Bank UK Group may face greater scrutiny of the type of business it conducts, adverse media coverage and reputational damage, which may in turn impact customer demand for the Barclays Bank UK Group's products, returns on certain business activities and the value of certain assets resulting in impairment charges.

 

In addition, the impacts of physical and transition climate risks can lead to second order connected risks, which have the potential to affect the Barclays Bank UK Group's retail and wholesale portfolios. The impacts of climate change may increase losses for those sectors sensitive to the effects of physical and transition risks. Any subsequent increase in defaults and rising unemployment could create recessionary pressures, which may lead to wider deterioration in the creditworthiness of the Barclays Bank UK Group's clients, higher ECLs, and increased charge-offs and defaults among retail customers.

 

If the Barclays Bank UK Group does not adequately embed risks associated with climate change into its risk framework to appropriately measure, manage and disclose the various financial and operational risks it faces as a result of climate change, or fails to adapt its strategy and business model to the changing regulatory requirements and market expectations on a timely basis, it may have a material and adverse impact on the Barclays Bank UK Group's level of business growth, competitiveness, profitability, capital requirements, cost of funding, and financial condition.

 

For further details on the Barclays Bank UK Group's approach to climate change, see the climate change risk management section.

 

viii) Impact of benchmark interest rate reforms on the Barclays Bank UK Group

 

For several years, global regulators and central banks have been driving international efforts to reform key benchmark interest rates and indices, such as the London Interbank Offered Rate (LIBOR), which are used to determine the amounts payable under a wide range of transactions and make them more reliable and robust. This has resulted in significant changes to the methodology and operation of certain benchmarks and indices, the adoption of alternative "risk-free" reference rates and the proposed discontinuation of certain reference rates (including LIBOR), with further changes anticipated, including legislative proposals to deal with 'tough legacy' contracts that cannot convert into or cannot add fall-back risk-free reference rates. The consequences of reform are unpredictable and may have an adverse impact on any financial instruments linked to, or referencing, any of these benchmark interest rates.

 

The Barclays Bank UK Group predominantly offers products which reference central bank rates rather than LIBOR and other indices which are likely to be subject to reform. Consequently, the product offering and business model are unlikely to be significantly affected. Nevertheless, there are other ways the Barclays Bank UK Group could be affected.

 

Uncertainty as to the nature of such potential changes, the availability and/or suitability of alternative "risk-free" reference rates and other reforms may adversely affect a broad range of transactions (including any securities, loans and derivatives which use LIBOR to determine the amount of interest payable that are included in the Barclays Bank UK Group's financial assets and liabilities) that use these reference rates and indices and introduce a number of risks for the Barclays Bank UK Group, including, but not limited to:

 

·

Conduct risk: in undertaking actions to transition away from using certain reference rates (such as LIBOR) to new alternative, risk-free rates, the Barclays Bank UK Group faces conduct risks. These may lead to customer complaints, regulatory sanctions or reputational impact if the Barclays Bank UK Group is considered to be (among other things) (i) undertaking market activities that are manipulative or create a false or misleading impression, (ii) misusing sensitive information or not identifying or appropriately managing or mitigating conflicts of interest, (iii) providing customers with inadequate advice, misleading information, unsuitable products or unacceptable service, (iv) not taking a consistent approach to remediation for customers in similar circumstances, (v) unduly delaying the communication and migration activities in relation to client exposure, leaving them insufficient time to prepare or (vi) colluding or inappropriately sharing information with competitors;

·

Financial risks: the valuation of certain of the Barclays Bank UK Group's financial assets and liabilities may change. Moreover, transitioning to alternative "risk-free" reference rates may impact the ability of members of the Barclays Bank UK Group to calculate and model amounts receivable by them on certain financial assets and determine the amounts payable on certain financial liabilities (such as debt securities issued by them) because currently alternative "risk-free" reference rates (such as the Sterling Overnight Index Average (SONIA) and the Secured Overnight Financing Rate (SOFR)) are look-back rates whereas term rates (such as LIBOR) allow borrowers to calculate at the start of any interest period exactly how much is payable at the end of such interest period. This may have an adverse effect on the Barclays Bank UK Group's cash flows;

·

Operational risk: changes to existing reference rates and indices, discontinuation of any reference rate or index and transition to alternative "risk-free" reference rates may require changes to the Barclays Bank UK Group's IT systems, trade reporting infrastructure, operational processes, and controls. In addition, if any reference rate or index (such as LIBOR) is no longer available to calculate amounts payable, the Barclays Bank UK Group may incur additional expenses in amending documentation for new and existing transactions and/or effecting the transition from the original reference rate or index to a new reference rate or index; and

·

Accounting risk: an inability to apply hedge accounting in accordance with IFRS could lead to increased volatility in the Barclays Bank UK Group's financial results and performance.

 

Any of these factors may have an adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

For further details on the impacts of benchmark interest rate reforms on the Barclays Bank UK Group, see Note 35.

 

Material existing and emerging risks impacting individual principal risks

 

i) Credit risk

 

Credit risk is the risk of loss to the Barclays Bank UK Group from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations to members of the Barclays Bank UK Group, including the whole and timely payment of principal, interest, collateral and other receivables.

 

a) Impairment

 

The introduction of the impairment requirements of IFRS 9 Financial Instruments, resulted in impairment loss allowances that are recognised earlier, on a more forward-looking basis and on a broader scope of financial instruments, and may continue to have a material impact on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

Measurement involves complex judgement and impairment charges could be volatile, particularly under stressed conditions. Unsecured products with longer expected lives, such as credit cards, are the most impacted. Taking into account the transitional regime, the capital treatment on the increased reserves has the potential to adversely impact the Barclays Bank UK Group's regulatory capital ratios.

 

In addition, the move from incurred losses to ECLs has the potential to impact the Barclays Bank UK Group's performance under stressed economic conditions or regulatory stress tests. For more information, refer to Note 1.

 

b) Specific sectors and concentrations

 

The Barclays Bank UK Group is subject to risks arising from changes in credit quality and recovery rates of loans and advances due from borrowers and counterparties in any specific portfolio. Any deterioration in credit quality could lead to lower recoverability and higher impairment in a specific sector. The following are areas of uncertainties to the Barclays Bank UK Group's portfolio which could have a material impact on performance:

 

·

Consumer affordability has remained a key area of focus, particularly in unsecured lending. Macroeconomic factors, such as rising unemployment, that impact a customer's ability to service debt payments could lead to increased arrears in both unsecured and secured products.

·

UK real estate market. UK property represents a significant portion of the overall Barclays Bank UK Group retail credit exposure. In 2020, property prices fluctuated significantly. In the first half of 2020, the Barclays Bank Group's retail exposure experienced a suppressed UK real estate market due to the impact of the COVID-19 pandemic, whilst the second half of 2020 saw increased activity as financial support schemes and a temporary stamp duty cut took effect. However, there can be no assurance that the recovery in the UK real estate market will continue in 2021 especially as the longer term macro-economic effects of the COVID-19 pandemic are felt, financial support schemes are withdrawn, stamp duty cuts are reversed and growth across the UK has slowed, particularly in London and the South East where the Barclays Bank UK Group has a high exposure.

 

For further details on the Barclays Bank UK Group's approach to credit risk, see the credit risk management and credit risk performance sections.

 

ii)  Treasury and capital risk

 

There are three primary types of treasury and capital risk faced by the Barclays Bank UK Group:

 

a) Liquidity risk

 

Liquidity risk is the risk that the Barclays Bank UK Group is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets. This could cause the Barclays Bank UK Group to fail to meet regulatory liquidity standards or be unable to support day-to-day banking activities. Key liquidity risks that the Barclays Bank UK Group faces include:

 

·

The stability of the Barclays Bank UK Group's current funding profile: In particular, that part which is based on accounts and deposits payable on demand or at short notice, could be affected by general UK economic conditions and the Barclays Bank UK Group failing to preserve the current level of customer and investor confidence in the financial services sector. The Barclays Bank UK Group benefits from the additional deposit stability generated as a result of the guarantees provided under the Financial Services Compensation Scheme but recognises that there is the potential for outflow of deposits or the reduction of the ability to access retail deposit funding on reasonable terms if the arrangement is altered or removed in future.

·

In the interest of generating greater resilience to liquidity stress events and to benefit from diversified sources of funding, the Barclays Bank UK Group holds distinct relations with various counterparties with the intention of creating issuance capability for debt instruments which is independent of Barclays Group and to support its own funding requirements in addition to funding provided by the Barclays Group. Counterparties are likely however to incorporate an assessment of the health of the Barclays Group in addition to the Barclays Bank UK Group specifically when making investment decisions. As with all financial institutions arranging funding, several factors, including adverse macroeconomic conditions, adverse outcomes in conduct and legal, competition and regulatory matters and loss of confidence by investors, counterparties and/or customers in the Barclays Bank UK Group, can affect the ability of the Barclays Bank UK Group to access money or capital markets and/or the cost and other terms upon which the Barclays Bank UK Group is able to obtain market funding.

·

Credit rating changes and the impact on funding costs : Rating agencies regularly review credit ratings given to Barclays Bank UK PLC. Credit ratings are based on a number of factors, including some which are not within the Barclays Bank UK Group's control (such as political and regulatory developments, changes in rating methodologies, macroeconomic conditions and the UK's sovereign credit rating).

 

Whilst the impact of a credit rating change will depend on a number of factors (including the type of issuance and prevailing market conditions), any reductions in a credit rating (in particular, any downgrade below investment grade) may affect the Barclays Bank UK Group's access to the money or capital markets and/or terms on which the Barclays Bank UK Group is able to obtain market funding, increase costs of funding and credit spreads, reduce the size of the Barclays Bank UK Group's deposit base, trigger additional collateral or other requirements in derivative contracts and other secured funding arrangements or limit the range of counterparties who are willing to enter into transactions with the Barclays Bank UK Group. Any of these factors could have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

b) Capital risk

 

Capital risk is the risk that the Barclays Bank UK Group has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions (both actual and as defined for internal planning or regulatory stress testing purposes). This includes the risk from the Barclays Bank UK Group's pension plans. Key capital risks that the Barclays Bank UK Group faces include:

 

·

Failure to meet prudential capital requirements: This could lead to the Barclays Bank UK Group being unable to support some or all of its business activities, a failure to pass regulatory stress tests, increased cost of funding due to deterioration in investor appetite or credit ratings, restrictions on distributions including the ability to meet dividend targets, and/or the need to take additional measures to strengthen the Barclays Bank UK Group's capital or leverage position.

·

Adverse changes in FX rates impacting capital ratios: The Barclays Bank UK Group share capital is denominated in Sterling. However, some capital resources and MREL are denominated in foreign currencies. Changes in foreign currency exchange rates may adversely impact the Sterling equivalent value of these items. As a result, the Barclays Bank UK Group's regulatory capital ratios are sensitive to foreign currency movements. Failure to appropriately manage the Barclays Bank UK Group's balance sheet to take account of foreign currency movements could result in an adverse impact on its regulatory capital.

 

c) Interest rate risk in the banking book

 

Interest rate risk in the banking book is the risk that the Barclays Bank UK Group is exposed to capital or income volatility because of a mismatch between the interest rate exposures of its (non-traded) assets and liabilities. The Barclays Bank UK Group's hedge programmes for interest rate risk in the banking book rely on behavioural assumptions and, as a result, the success of the hedging strategy cannot be guaranteed. A potential mismatch in the balance or duration of the hedge assumptions could lead to earnings deterioration. A decline in Sterling interest rates may also compress net interest margin on retail portfolios. In addition, the Barclays Bank UK Group's liquid asset portfolio is exposed to potential capital and/or income volatility due to movements in market rates and prices.

 

For further details on the Barclays Bank UK Group's approach to treasury and capital risk, see the treasury and capital risk management and treasury and capital risk performance sections.

 

iii) Operational risk

 

Operational risk is the risk of loss to the Barclays Bank UK Group from inadequate or failed processes or systems, human factors or due to external events where the root cause is not due to credit or market risks. Examples include:

 

a) Operational resilience

 

The Barclays Bank UK Group functions in a highly competitive market, with market participants that expect consistent and smooth business processes. The loss of or disruption to business processing is a material inherent risk within the Barclays Bank UK Group and across the financial services industry, whether arising through impacts on the Barclays Bank UK Group's technology systems, real estate services including its retail branch network, or availability of personnel or services supplied by third parties. Failure to build resilience and recovery capabilities into business processes or into the services of technology, real estate or suppliers on which the Barclays Bank UK Group's business processes depend, may result in significant customer detriment, costs to reimburse losses incurred by the Barclays Bank UK Group's customers, and reputational damage.

 

b) Cyber-attacks

 

Cyber-attacks continue to be a global threat that is inherent across all industries, with a spike in both number and severity of attacks observed recently. The financial sector remains a primary target for cyber criminals, hostile nation states, opportunists and hacktivists. The Barclays Bank UK Group, like other financial institutions, experiences numerous attempts to compromise its cyber security.

 

The Barclays Bank UK Group dedicates significant resources to reducing cyber security risks, but it cannot provide absolute security against cyber-attacks. Malicious actors are increasingly sophisticated in their methods, seeking to steal money, gain unauthorised access to, destroy or manipulate data, and disrupt operations, and some of their attacks may not be recognised until launched, such as zero-day attacks that are launched before patches and defences can be readied. Cyber-attacks can originate from a wide variety of sources and target the Barclays Bank UK Group in numerous ways, including attacks on networks, systems, or devices used by the Barclays Bank UK Group or parties such as service providers and other suppliers, counterparties, employees, contractors, customers or clients, presenting the Barclays Bank UK Group with a vast and complex defence perimeter. Moreover, the Barclays Bank UK Group does not have direct control over the cyber security of the systems of its clients, customers, counterparties and third-party service providers and suppliers, limiting the Barclays Bank UK Group's ability to effectively defend against certain threats.

 

A failure in the Barclays Bank UK Group's adherence to its cyber security policies, procedures or controls, employee malfeasance, and human, governance or technological error could also compromise the Barclays Bank UK Group's ability to successfully defend against cyber-attacks. Furthermore, certain legacy technologies that are at or approaching end-of-life may not be able to be able to maintained to acceptable levels of security. The Barclays Bank UK Group has experienced cyber security incidents and near-misses in the past, and it is inevitable that additional incidents will occur in the future. Cyber security risks will continue to increase, due to factors such as the increasing demand across the industry and customer expectations for continued expansion of services delivered over the Internet; increasing reliance on Internet-based products, applications and data storage; and changes in ways of working by the Barclays Bank UK Group's employees, contractors, and third party service providers and suppliers and their sub-contractors in response to the COVID-19 pandemic. Bad actors have taken advantage of remote working practices and modified customer behaviours during the COVID-19 pandemic, exploiting the situation in novel ways that may elude defences.

 

Common types of cyber-attacks include deployment of malware, including destructive ransomware; denial of service and distributed denial of service (DDoS) attacks; infiltration via business email compromise, including phishing, or via social engineering, including vishing and smishing; automated attacks using botnets; and credential validation or stuffing attacks using login and password pairs from unrelated breaches. A successful cyber-attack of any type has the potential to cause serious harm to the Barclays Bank UK Group or its clients and customers, including exposure to potential contractual liability, litigation, regulatory or other government action, loss of existing or potential customers, damage to the Barclays Bank UK Group's brand and reputation, and other financial loss. The impact of a successful cyber-attack also is likely to include operational consequences (such as unavailability of services, networks, systems, devices or data) remediation of which could come at significant cost.

 

Regulators worldwide continue to recognise cyber security as an increasing systemic risk to the financial sector and have highlighted the need for financial institutions to improve their monitoring and control of, and resilience to cyber-attacks. A successful cyber-attack may, therefore, result in significant regulatory fines on the Barclays Bank UK Group.

 

For further details on the Barclays Bank UK Group's approach to cyber-attacks, see the operational risk performance section.

 

c) New and emergent technology

 

Technology is fundamental to the Barclays Bank UK Group's business and the financial services industry. Technological advancements present opportunities to develop new and innovative ways of doing business across the Barclays Bank UK Group, with new solutions being developed both in-house and in association with third-party companies. For example, payment services are increasingly occurring electronically, both on the Barclays Bank UK Group's own systems and through other alternative systems, and becoming automated. Whilst increased use of electronic payment systems could significantly reduce the Barclays Bank UK Group's cost base, it may, conversely, reduce the commissions, fees and margins made by the Barclays Bank UK Group on these transactions which could have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects. Introducing new forms of technology, however, has the potential to increase inherent risk. Failure to evaluate, actively manage and closely monitor risk exposure during all phases of business development could introduce new vulnerabilities and security flaws and have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

d) External fraud

 

The nature of fraud is wide-ranging and continues to evolve, as criminals continually seek opportunities to target the Barclays Bank UK Group's business activities and exploit changes to customer behaviour and product and channel use (such as the increased use of digital products and enhanced online services) or exploit new products (such as loans provided under the UK Government's Bounce Back Loan Scheme and  the Coronavirus Business Interruption Loan Scheme, which have been designed to support customers and clients during the COVID-19 pandemic).

 

Fraud attacks can be very sophisticated and are often orchestrated by highly organised crime groups who use ever more sophisticated techniques to target customers and clients directly to obtain confidential or personal information that can be used to commit fraud. The UK market has also seen significant growth in "scams" where the Barclays Bank UK Group takes increased levels of liability as part of a voluntary code to provide additional safeguards to customers and clients who are tricked into making payments to fraudsters. The impact from fraud can lead to customer detriment, financial losses (including the reimbursement of losses incurred by customers) loss of business, missed business opportunities and reputational damage, all of which could have a material adverse impact on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

e) Data management and information protection  

 

The Barclays Bank UK Group holds and processes large volumes of data, including personally identifiable information, intellectual property, and financial data and the Barclays Bank UK Group's businesses are subject to complex and evolving laws and regulations governing the privacy and protection of personal information of individuals, including Regulation (EU) 2016/679 (General Data Protection Regulation (GDPR)). The protected parties can include: (i) the Barclays Bank UK Group's clients and customers, and prospective clients and customers; (ii) clients and customers of the Barclays Bank UK Group's clients and customers; (iii) employees and prospective employees; and (iv) employees of the Barclays Bank UK Group's suppliers, counterparties and other external parties.

 

Concerns regarding the effectiveness of the Barclays Bank UK Group's measures to safeguard personal information, or even the perception that those measures are inadequate, could expose the Barclays Bank UK Group to the risk of loss or unavailability of data or data integrity issues and/or cause the Barclays Bank UK Group to lose existing or potential clients and customers, and thereby reduce the Barclays Bank UK Group's revenues.

 

Furthermore, any failure or perceived failure by the Barclays Bank UK Group to comply with applicable privacy or data protection laws and regulations may subject it to potential contractual liability, litigation, regulatory or other government action (including significant regulatory fines) and require changes to certain operations or practices which could also inhibit the Barclays Bank UK Group's development or marketing of certain products or services, or increase the costs of offering them to customers. Any of these events could damage the Barclays Bank UK Group's reputation and otherwise materially adversely affect its business, results of operations, financial condition and prospects.

 

f) Processing error

 

The Barclays Bank UK Group's businesses are highly dependent on its ability to process and monitor, on a daily basis, a very large number of transactions, many of which are complex and occur at high volumes and frequencies. As the Barclays Bank UK Group's customer base expands and the volume, speed, frequency and complexity of transactions increase, developing, maintaining and upgrading operational systems and infrastructure becomes more challenging, and the risk of systems or human error in connection with such transactions increases, as well as the potential consequences of such errors due to the speed and volume of transactions involved and the potential difficulty associated with discovering errors quickly enough to limit the resulting consequences. Furthermore, events that are wholly or partially beyond the Barclays Bank UK Group's control, such as a spike in transaction volume, could adversely affect the Barclays Bank UK Group's ability to process transactions or provide banking and payment services.

 

Processing errors could result in the Barclays Bank UK Group, among other things, (i) failing to provide information, services and liquidity to clients and counterparties in a timely manner; (ii) failing to settle and/or confirm transactions; (iii) causing funds transfers and/or other transactions to be executed erroneously, illegally or with unintended consequences; and (iv) adversely affecting financial markets. Any of these events could materially disadvantage the Barclays Bank UK Group's customers, clients and counterparties (including them suffering financial loss) and/or result in a loss of confidence in the Barclays Bank UK Group which, in turn, could have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

g) Supplier exposure

 

The Barclays Bank UK Group depends on suppliers for the provision of many of its services and the development of technology. Whilst the Barclays Bank UK Group depends on suppliers, it remains fully accountable for any risk arising from the actions of suppliers. The dependency on suppliers and sub-contracting of outsourced services introduce concentration risk where the failure of specific suppliers could have an impact on the Barclays Bank UK Group's ability to continue to provide material services to its customers. Failure to adequately manage supplier risk could have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

h) Estimates and judgements relating to critical accounting policies and capital disclosures

 

The preparation of financial statements requires the application of accounting policies and judgements to be made in accordance with IFRS. Regulatory returns and capital disclosures are prepared in accordance with the relevant capital reporting requirements and also require assumptions and estimates to be made. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the consolidated and individual financial statements, include credit impairment charges, fair value of financial instruments, goodwill and intangible assets and provisions including conduct and legal, competition and regulatory matters (see the notes to the audited financial statements for further details). There is a risk that if the judgement exercised, or the estimates or assumptions used, subsequently turn out to be incorrect, this could result in material losses to the Barclays Bank UK Group, beyond what was anticipated or provided for. Further development of accounting standards and capital interpretations could also materially impact the Barclays Bank UK Group's results of operations, financial condition and prospects.

 

i) Tax risk

 

The Barclays Bank UK Group is required to comply with the tax laws and practice of all countries in which it has business operations. There is a risk that the Barclays Bank UK Group could suffer losses due to additional tax charges, other financial costs or reputational damage as a result of failing to comply with such laws and practice, or by failing to manage its tax affairs in an appropriate manner. In addition, increasing customer tax reporting requirements for UK and international customers and the digitisation of the administration of tax has potential to increase the Barclays Bank UK Group's tax compliance obligations further.

 

j) Ability to hire and retain appropriately qualified employees

 

As a regulated financial institution, the Barclays Bank UK Group requires diversified and specialist skilled colleagues. The Barclays Bank UK Group's ability to attract, develop and retain a diverse mix of talent is key to the delivery of its core business activity and strategy. This is impacted by a range of external and internal factors, such as the UK's decision to leave the EU and the enhanced individual accountability applicable to the banking industry. Failure to attract or prevent the departure of appropriately qualified and skilled employees could have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects. Additionally, this may result in disruption to service which could in turn lead to disenfranchising certain customer groups, customer detriment and reputational damage.

 

For further details on the Barclays Bank UK Group's approach to operational risk, see the operational risk management and operational risk performance sections.

 

iv)  Model risk

 

Model risk is the risk of potential adverse consequences from financial assessments or decisions based on incorrect or misused model outputs and reports. The Barclays Bank UK Group relies on models to support a broad range of business and risk management activities, including informing business decisions and strategies, measuring and limiting risk, valuing exposures (including the calculation of impairment), conducting stress testing, assessing capital adequacy, supporting new business acceptance and risk and reward evaluation, managing client assets, and meeting reporting requirements. Models are, by their nature, imperfect and incomplete representations of reality because they rely on assumptions and inputs, and so they may be subject to errors affecting the accuracy of their outputs and/or misused. This may be exacerbated when dealing with unprecedented scenarios, such as the COVID-19 pandemic, due to the lack of reliable historical reference points and data. For instance, the quality of the data used in models across the Barclays Bank UK Group has a material impact on the accuracy and completeness of its risk and financial metrics. Model errors or misuse may result in (among other things) the Barclays Bank UK Group making inappropriate business decisions and/or inaccuracies or errors being identified in the Barclays Bank UK Group's risk management and regulatory reporting processes. This could result in significant financial loss, imposition of additional capital requirements, enhanced regulatory supervision and reputational damage, all of which could have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

For further details on the Barclays Bank UK Group's approach to model risk, see the model risk management and model risk performance sections.

 

v)  Conduct risk

 

Conduct risk is the risk of detriment to customers, clients, market integrity, effective competition or the Barclays Bank UK Group from the inappropriate supply of financial services, including instances of wilful or negligent misconduct. This risk could manifest itself in a variety of ways:

 

a) Employee misconduct

 

The Barclays Bank UK Group's businesses are exposed to risk from potential non-compliance with its policies and standards and instances of wilful and negligent misconduct by employees, all of which could result in potential customer and client detriment, enforcement action (including regulatory fines and/or sanctions), increased operation and compliance costs, redress or remediation or reputational damage which in turn could have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects. Examples of employee misconduct which could have a material adverse effect on the Barclays Bank UK Group's business include (i) employees improperly selling or marketing the Barclays Bank UK Group's products and services; (ii) employees engaging in insider trading, market manipulation or unauthorised trading; or (iii) employees misappropriating confidential or proprietary information belonging to the Barclays Bank UK Group, its customers or third parties.  These risks may be exacerbated in circumstances where the Barclays Bank UK Group is unable to rely on physical oversight and supervision of employees (such as during the COVID-19 pandemic where employees have worked remotely).

 

b) Customer engagement

 

The Barclays Bank UK Group must ensure that its customers, particularly those that are vulnerable, are able to make well-informed decisions on how best to use the Barclays Bank UK Group's financial services and understand that they are appropriately protected if something goes wrong. Poor customer outcomes can result from the failure to: (i) communicate fairly and clearly with customers; (ii) provide services in a timely and fair manner; and (iii) undertake appropriate activity to address customer detriment, including the adherence to regulatory and legal requirements on complaint handling. The Barclays Bank UK Group is at risk of financial loss and reputational damage as a result.

 

c) Product design and review risk

 

Products and services must meet the needs of clients, customers, markets and the Barclays Bank UK Group throughout their lifecycle, However, there is a risk that the design and review of the Barclays Bank UK Group's products and services fail to reasonably consider and address potential or actual negative outcomes, which may result in customer detriment, enforcement action (including regulatory fines and/or sanctions), redress and remediation and reputational damage. Both the design and review of products and services are a key area of focus for regulators and the Barclays Bank UK Group, and this focus is set to continue in 2021.

 

d) Financial crime

 

The Barclays Bank UK Group may be adversely affected if it fails to effectively mitigate the risk that third parties or its employees facilitate, or that its products and services are used to facilitate, financial crime (money laundering, terrorist financing, breaches of economic and financial sanctions, bribery and corruption, and the facilitation of tax evasion). UK and US regulations covering financial institutions continue to focus on combating financial crime. Failure to comply may lead to enforcement action by the Barclays Bank UK Group's regulators, including severe penalties, which may have a material adverse effect on the Barclays Bank UK Group's business, financial condition and prospects.

 

e) Regulatory focus on culture and accountability

 

Regulators around the world continue to emphasise the importance of culture and personal accountability and enforce the adoption of adequate internal reporting and whistleblowing procedures to help to promote appropriate conduct and drive positive outcomes for customers, colleagues, clients and markets. The requirements and expectations of the UK Senior Managers Regime, Certification Regime and Conduct Rules have reinforced additional accountabilities for individuals across the Barclays Bank UK Group with an increased focus on governance and rigour. Failure to meet these requirements and expectations may lead to regulatory sanctions, both for the individuals and the Barclays Bank UK Group.

 

For further details on the Barclays Bank UK Group's approach to conduct risk, see the conduct risk management and conduct risk performance sections.

 

vi)  Reputation risk

 

Reputation risk is the risk that an action, transaction, investment, event, decision or business relationship will reduce trust in the Barclays Bank UK Group's integrity and/or competence.

 

Any material lapse in standards of integrity, compliance, customer service or operating efficiency may represent a potential reputation risk. Stakeholder expectations constantly evolve, and so reputation risk is dynamic and varies between geographical regions, groups and individuals. A risk arising in one business area can have an adverse effect upon the Barclays Bank UK Group's overall reputation and any one transaction, investment or event (in the perception of key stakeholders) can reduce trust in the Barclays Bank UK Group's integrity and competence. The Barclays Bank UK Group's association with sensitive topics and sectors has been, and in some instances continues to be, an area of concern for stakeholders, including (i) the financing of, and investments in, businesses which operate in sectors that are sensitive because of their relative carbon intensity or local environmental impact; (ii) potential association with human rights violations (including combating modern slavery) in the Barclays Bank UK Group's operations or supply chain and by clients and customers; and (iii) the financing of businesses which manufacture and export military and riot control goods and services.

 

Reputation risk could also arise from negative public opinion about the actual, or perceived, manner in which the Barclays Bank UK Group conducts its business activities, or the Barclays Bank UK Group's financial performance, as well as actual or perceived practices in banking and the financial services industry generally. Modern technologies, in particular online social media channels and other broadcast tools that facilitate communication with large audiences in short time frames and with minimal costs, may significantly enhance and accelerate the distribution and effect of damaging information and allegations. Negative public opinion may adversely affect the Barclays Bank UK Group's ability to retain and attract customers, in particular, corporate and retail depositors, and to retain and motivate staff, and could have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

In addition to the above, reputation risk has the potential to arise from operational issues or conduct matters which cause detriment to customers, clients, market integrity, effective competition or the Barclays Bank UK Group (see "iii) Operational risk" above).

 

For further details on the Barclays Bank UK Group's approach to reputation risk, see reputation risk management and reputation risk performance sections.

 

vii)  Legal risk and legal, competition and regulatory matters

 

The Barclays Bank UK Group conducts activities in a highly regulated market which exposes it and its employees to legal risk arising from (i) the multitude of laws and regulations that apply to the businesses it operates, which are highly dynamic, may vary between jurisdictions, and are often unclear in their application to particular circumstances especially in new and emerging areas; and (ii) the diversified and evolving nature of the Barclays Bank UK Group's businesses and business practices. In each case, this exposes the Barclays Bank UK Group and its employees to the risk of loss or the imposition of penalties, damages or fines from the failure of members of the Barclays Bank UK Group to meet their respective legal obligations, including legal or contractual requirements. Legal risk may arise in relation to any number of the material existing and emerging risks identified above.

 

A breach of applicable legislation and/or regulations by the Barclays Bank UK Group or its employees could result in criminal prosecution, regulatory censure, potentially significant fines and other sanctions. Where clients, customers or other third parties are harmed by the Barclays Bank UK Group's conduct, this may also give rise to civil legal proceedings, including class actions. Other legal disputes may also arise between the Barclays Bank UK Group and third parties relating to matters such as breaches or enforcement of legal rights or obligations arising under contracts, statutes or common law. Adverse findings in any such matters may result in the Barclays Bank UK Group being liable to third parties or may result in the Barclays Bank UK Group's rights not being enforced as intended.

 

Details of legal, competition and regulatory matters to which the Barclays Bank UK Group is currently exposed are set out in Note 24. In addition to matters specifically described in Note 24, the Barclays Bank UK Group is engaged in various other legal proceedings which arise in the ordinary course of business. The Barclays Bank UK Group is also subject to requests for information, investigations and other reviews by regulators, governmental and other public bodies in connection with business activities in which the Barclays Bank UK Group is, or has been, engaged.

 

The outcome of legal, competition and regulatory matters, both those to which the Barclays Bank UK Group is currently exposed and any others which may arise in the future, is difficult to predict. In connection with such matters, the Barclays Bank UK Group may incur significant expense, regardless of the ultimate outcome, and any such matters could expose the Barclays Bank UK Group to any of the following outcomes: substantial monetary damages, settlements and/or fines; remediation of affected customers and clients; other penalties and injunctive relief; additional litigation; criminal prosecution; the loss of any existing agreed protection from prosecution; regulatory restrictions on the Barclays Bank UK Group's business operations including the withdrawal of authorisations; increased regulatory compliance requirements or changes to laws or regulations; suspension of operations; public reprimands; loss of significant assets or business; a negative effect on the Barclays Bank UK Group's reputation; loss of confidence by investors, counterparties, clients and/or customers; risk of credit rating agency downgrades; potential negative impact on the availability and/or cost of funding and liquidity; and/or dismissal or resignation of key individuals. In light of the uncertainties involved in legal, competition and regulatory matters, there can be no assurance that the outcome of a particular matter or matters (including formerly active matters or those arising after the date of this Annual Report) will not have a material adverse effect on the Barclays Bank UK Group's business, results of operations, financial condition and prospects.

 

Consolidated financial statements

 

Consolidated income statement

 



2020

2019

For the year ended 31 December

Notes

£m

£m

Interest and similar income

3

6,201

7,218

Interest and similar expense

3

(1,021)

(1,413)

Net interest income


5,180

5,805

Fee and commission income

4

1,375

1,674

Fee and commission expense

4

(310)

(368)

Net fee and commission income


1,065

1,306

Net trading income

5

53

33

Net investment income

6

106

172

Other income


20

6

Total income


6,424

7,322

Credit impairment charges

7

(1,427)

(709)

Net operating income


4,997

6,613

Staff costs

28

(1,311)

(1,252)

Infrastructure costs

8

(444)

(382)

Administration and general expenses

8

(2,848)

(2,724)

Provisions for litigation and conduct

22

(43)

(1,586)

Operating expenses


(4,646)

(5,944)

Profit on disposal of subsidiaries, associates and joint ventures


16

-





Profit before tax


367

669

Taxation

9

12

(513)

Profit after tax


379

156





Attributable to:




Equity holders of the parent


199

3

Other equity instrument holders


180

153

Profit after tax


379

156

 

Note

a

As permitted by section 408(3) of the Companies Act 2006 an income statement for the parent company has not been presented.

 

Consolidated statement of comprehensive income

 


 

2020

 

2019

For the year ended 31 December

£m

£m

Profit after tax

379

156

Other comprehensive income/(loss) that may be recycled to profit or loss:



Fair value through other comprehensive income reserve movement relating to debt securities



Net gains from changes in fair value

499

438

Net (losses) due to fair value hedging

(361)

(391)

Net (gains) transferred to net profit on disposal

(43)

(48)

Net losses transferred to net profit due to impairment

2

-

Tax

(25)

5

Cash flow hedging reserve



Net gains from changes in fair value

414

143

Net (gains) transferred to net profit

(111)

(6)

Tax

(85)

(34)

Other

1

-

Other comprehensive income that may be recycled to profit or loss

291

107

Other comprehensive income not/(loss) recycled to profit or loss:

-

-

Other comprehensive income for the year

291

107

Total comprehensive (loss)/income for the year, net of tax from discontinued operation



Total comprehensive income for the year

670

263

 

Consolidated balance sheet

 



2020

2019

As at 31 December

Notes

£m

£m

Assets




Cash and balances at central banks


35,218

24,305

Cash collateral and settlement balances


4,345

4,331

Loans and advances at amortised cost

17

211,649

197,569

Reverse repurchase agreements and other similar secured lending


133

1,761

Trading portfolio assets

11

298

860

Financial assets at fair value through the income statement

12

3,432

3,571

Derivative financial instruments

13

550

192

Financial assets at fair value through other comprehensive income

14

26,026

19,322

Goodwill and intangible assets

20

3,527

3,530

Property, plant and equipment

18

737

893

Current tax assets


75

-

Deferred tax assets

9

780

810

Other assets


728

1,254

Total assets


287,498

258,398

Liabilities




Deposits at amortised cost

17

240,535

205,696

Cash collateral and settlement balances


455

214

Repurchase agreements and other similar secured borrowing


7,178

13,420

Debt securities in issue


7,503

8,271

Subordinated liabilities

25

9,869

7,688

Trading portfolio liabilities

11

1,265

1,704

Derivative financial instruments

13

880

740

Current tax liabilities


-

458

Other liabilities

21

1,906

2,034

Provisions

22

880

1,660

Total liabilities


270,471

241,885

Equity




Called up share capital and share premium

26

5

5

Other equity instruments

26

2,560

2,560

Other reserves

27

473

183

Retained earnings


13,989

13,765

Total equity


17,027

16,513

Total liabilities and equity


287,498

258,398

 

The Board of Directors approved the financial statements on pages 124 to 182 on 17 February 2021.

 

Crawford Gillies

Chair

 

Matt Hammerstein

Chief Executive

 

James Mack

Chief Financial Officer

 

Consolidated statement of changes in equity

 


Called up

share

capital

and share

premiuma

 

Other

equity

instrumentsa

Other

reservesb

Retained

earnings

Total equity


£m

£m

£m

£m

£m

Balance as at 1 January 2020

5

2,560

183

13,765

16,513

Profit after tax

180

199

379

Financial assets at fair value through other comprehensive income

72

72

Cash flow hedges

218

218

Other

1

1

Total comprehensive income for the year

180

290

200

670

Equity settled share schemes

31

31

Other equity instruments coupons paid

(180)

(180)

Vesting of employee share schemes

(12)

(12)

Dividends paid

(220)

(220)

Capital contribution from Barclays PLC

220

220

Other reserve movements

5

5

Balance as at 31 December 2020

5

2,560

473

13,989

17,027







Balance as at 1 January 2019

5

2,070

76

14,792

16,943

Profit after tax

153

3

156

Financial assets at fair value through other comprehensive income

4

4

Cash flow hedges

103

103

Total comprehensive income for the year

153

107

3

263

Issue and exchange of other equity instruments

490

490

Equity settled share schemes

32

32

Other equity instruments coupons paid

(153)

(153)

Vesting of employee share schemes

(12)

(12)

Dividends paid

(1,050)

(1,050)

Balance as at 31 December 2019

5

2,560

183

13,765

16,513

 

Notes

For further details, refer to Note 26.

For further details, refer to Note 27.

 

Consolidated cash flow statement

 



2020

2019a

For the year ended 31 December


£m

£m

Reconciliation of profit before tax to net cash flows from operating activities:




Profit before tax


367

669

Adjustment for non-cash items:




Credit impairment charges


1,427

709

Depreciation, amortisation and impairment of property, plant, equipment and intangibles


175

150

Other provisions


427

1,665

Other non-cash movements


(1,217)

110

Changes in operating assets and liabilities




Cash collateral and settlement balances


227

(654)

Loans and advances at amortised cost


(15,513)

(10,117)

Repurchase and reverse repurchase agreements


(4,614)

1,440

Deposits at amortised cost


34,839

8,211

Debt securities in issue


(768)

(2,901)

Derivative financial instruments


(218)

370

Trading assets and liabilities


123

(274)

Financial assets and liabilities at fair value


139

309

Other assets and liabilities


(821)

(1,835)

Corporate income tax paid


(597)

(1,086)

Net cash from operating activities


13,976

(3,234)

Purchase of financial assets at fair value through other comprehensive income


(5,557)

(11,846)

Purchase of property, plant and equipment and intangibles


(17)

(30)

Net cash from investing activities


(5,574)

(11,876)

Dividends paid and coupon payments on other equity instruments


(400)

(1,203)

Capital contribution from Barclays PLC


220

Net issue of shares and other equity instruments


490

Issuance of subordinated debt


3,694

157

Redemption of subordinated debt


(1,425)

Vesting of employee share schemes


(12)

(12)

Net cash from financing activities


2,077

(568)

Effect of exchange rates on cash and cash equivalents


428

(737)

Net increase in cash and cash equivalents


10,907

(16,415)

Cash and cash equivalents at beginning of year


27,510

43,925

Cash and cash equivalents at end of year


38,417

27,510

Cash and cash equivalents comprise:




Cash and balances at central banks


35,218

24,305

Loans and advances to banks with original maturity less than three months


81

87

Cash collateral at central banks b


3,118

3,118



38,417

27,510

 

Notes

a

2019 comparative figures have been restated to make the cash flow statement more relevant following a review of the disclosure and the accounting policies applied. Amendments have been made to the classification of cash collateral reported within cash and cash equivalents. Footnote b below quantifies the impact of the change in the prior period and provides further detail.

b

Cash collateral at central banks' was previously labelled 'Cash collateral and settlement balances with banks with original maturity less than three months'. This line item has been restated to include only balances that the Barclays Bank UK Group holds at central banks related to payment schemes. Previously, cash collateral and settlement balances with non-central bank counterparties were also classified as cash equivalents and included within this balance. Comparatives have been restated. The effect of this change decreased cash and cash equivalents by £532m as at 31 December 2019 and £409m as at 31 December 2018. As a result, net cash from operating activities decreased by £123m in 2019 representing the movement in cash collateral and settlement balances line item in that period.

 

Interest received by Barclays Bank UK Group was £6,201m (2019: £7,218m) and interest paid by Barclays Bank UK Group was £1,021m (2019: £1,413m).

 

As at 31 December 2020, the Barclays Bank UK Group was required to maintain balances with central banks in respect of interbank payment schemes of £458m (2019: £388m).

 

For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits and cash equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value with original maturities of three months or less. Repurchase and reverse repurchase agreements are not considered to be part of cash equivalents.

 

Financial statements of Barclays Bank UK PLC

 

Parent company accounts

Balance sheet





2020

2019

As at 31 December

Notes

£m

£m

Assets




Cash and balances at central banks


35,218

24,305

Cash collateral and settlement balances


4,345

4,331

Loans and advances at amortised cost

17

212,033

197,960

Reverse repurchase agreements and other similar secured lending


133

1,761

Trading portfolio assets

11

298

860

Financial assets at fair value through the income statement

12

3,432

3,571

Derivative financial instruments

13

550

193

Financial assets at fair value through other comprehensive income

14

26,026

19,322

Investment in subsidiaries

36

441

454

Goodwill and intangible assets

20

3,379

3,382

Property, plant and equipment

18

737

893

Current tax assets


77

-

Deferred tax assets

9

780

810

Other assets


522

1,079

Total assets


287,971

258,921

Liabilities




Deposits at amortised cost

17

241,091

206,764

Cash collateral and settlement balances


455

214

Repurchase agreements and other similar secured borrowing


7,178

13,420

Debt securities in issue


7,503

7,778

Subordinated liabilities

25

9,869

7,688

Trading portfolio liabilities

11

1,265

1,704

Derivative financial instruments

13

880

740

Current tax liabilities


-

451

Other liabilities

21

1,700

1,903

Provisions

22

857

1,613

Total liabilities


270,798

242,275

Equity




Called up share capital and share premium

26

5

5

Other equity instruments

26

2,560

2,560

Other reserves

27

575

285

Retained earningsa


14,033

13,796

Total equity


17,173

16,646

Total liabilities and equity


287,971

258,921

 

Note

a

As permitted by section 408(3) of the Companies Act 2006 an income statement for the parent company has not been presented. Included in shareholders' equity for the Bank is a profit after tax for the year ended 31 December 2020 of £393m (2019: £208m).

 

The Board of Directors approved the financial statements on pages 129 to 131 on 17 February 2021.

 

Crawford Gillies

Chair

 

Matthew Hammerstein

Chief Executive

 

James Mack

Chief Financial Officer

 

Statement of changes in equity







Called up share capital and share premiuma

Other equity instrumentsa

Other reservesb

Retained

earningsc

Total equity


£m

£m

£m

£m

£m

Balance as at 1 January 2020

5

2,560

285

13,796

16,646

Profit after tax

-

180

-

213

393

Financial assets at fair value through other comprehensive income

-

-

72

-

72

Cash flow hedges

-

-

218

-

218

Other

-

-

-

1

1

Total comprehensive income for the year

-

180

290

214

684

Equity settled share schemes

-

-

-

31

31

Other equity instruments coupons paid

-

(180)

-

-

(180)

Vesting of employee share schemes

-

-

-

(12)

(12)

Capital contribution from Barclays PLC

-

-

-

220

220

Dividends paid

-

-

-

(220)

(220)

Other movements

-

-

-

4

4

Balance as at 31 December 2020

5

2,560

575

14,033

17,173







Balance as at 1 January 2019

5

2,070

178

14,771

17,024

Profit after tax

-

153

-

55

208

Financial assets at fair value through other comprehensive income

-

-

4

-

4

Cash flow hedges

-

-

103

-

103

Total comprehensive income for the year

-

153

107

55

315

Issue and exchange of other equity instruments

-

490

-

-

490

Equity settled share schemes

-

-

-

32

32

Other equity instruments coupons paid

-

(153)

-

-

(153)

Vesting of employee share schemes

-

-

-

(12)

(12)

Dividends paid

-

-

-

(1,050)

(1,050)

Balance as at 31 December 2019

5

2,560

285

13,796

16,646

 

Notes

a

For further details, refer to Note 26.

b

For further details, refer to Note 27.

 

Cash flow statement



2020

2019a

For the year ended 31 December

£m

£m

Reconciliation of profit before tax to net cash flows from operating activities:



Profit before tax

381

703

Adjustment for non-cash items:



Credit impairment charges

1,421

710

Depreciation, amortisation and impairment of property, plant, equipment and intangibles

175

150

Other provisions

406

1,611

Other non-cash movements

(1,202)

113

Changes in operating assets and liabilities



Cash collateral and settlement balances

227

(639)

Loans and advances at amortised cost

(15,510)

(9,797)

Reverse repurchase agreements and other similar lending

(4,614)

1,440

Deposits at amortised cost

34,327

7,733

Debt securities in issue

(275)

(2,134)

Derivative financial instruments

(217)

352

Trading assets and liabilities

123

(274)

Financial assets and liabilities at fair value

139

309

Other assets and liabilities

(819)

(1,753)

Corporate income tax paid

(592)

(1,083)

Net cash from operating activities

13,970

(2,559)

Purchase of financial assets at fair value through other comprehensive income

(5,557)

(11,846)

Purchase of property, plant and equipment and intangibles

(21)

(28)

Net cash from investing activities

(5,578)

(11,874)

Dividends paid and other coupon payments on equity instruments

(400)

(1,203)

Capital contribution from Barclays PLC

220

Net issue of shares and other equity instruments

490

Issuance of subordinated debt

3,694

157

Redemption of subordinated debt

(1,425)

Vesting of employee share schemes

(12)

(12)

Net cash from financing activities

2,077

(568)

Effect of exchange rates on cash and cash equivalents

428

(737)

Net increase in cash and cash equivalents

10,897

(15,738)

Cash and cash equivalents at beginning of year

27,837

43,575

Cash and cash equivalents at end of year

38,734

27,837

Cash and cash equivalents comprise:



Cash and balances at central banks

35,218

24,305

Loans and advances to banks with original maturity less than three months

398

414

Cash collateral at central banksb

3,118

3,118


38,734

27,837

 

Note

a

2019 comparative figures have been restated to make the cash flow statement more relevant following a review of the disclosure and the accounting policies applied. Amendments have been made to the classification of cash collateral reported within cash and cash equivalents. Footnote b below quantifies the impact of the change in the prior period and provides further detail.

b

Cash collateral at central banks' was previously labelled 'Cash collateral and settlement balances with banks with original maturity less than three months'. This line item has been restated to include only balances that Barclays Bank UK holds at central banks related to payment schemes. Previously, cash collateral and settlement balances with non-central bank counterparties were also classified as cash equivalents and included within this balance. Comparatives have been restated. The effect of this change decreased cash and cash equivalents by £532m as at 31 December 2019 and £409m as at 31 December 2018. As a result, net cash from operating activities decreased by £123m in 2019 representing the movement in cash collateral and settlement balances line item in that period.

 

Interest received by Barclays Bank UK PLC was £6,006m (2019: £7,026m) and interest paid by Barclays Bank UK PLC was £830m (2019: £1,233m).

 

As at 31 December 2020, Barclays Bank UK PLC was required to maintain balances with central banks in respect of interbank payment schemes of £458m (2019: £388m).

 

For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits and cash equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value with original maturities of three months or less. Repurchase and reverse repurchase agreements are not considered to be part of cash equivalents.

 

Notes to the financial statements

 

For the year ended 31 December 2020

 

This section describes Barclays Bank UK Group's significant policies and critical accounting estimates that relate to the financial statements and notes as a whole. If an accounting policy or a critical accounting estimate relates to a particular note, the accounting policy and/or critical accounting estimate is contained with the relevant note.

 

1 Significant accounting policies

 

1. Reporting entity

 

Barclays Bank UK PLC is a public limited company, registered in England under company number 9740322.

 

These financial statements are prepared for Barclays Bank UK PLC and its subsidiaries (the Barclays Bank UK Group) under Section 399 of the Companies Act 2006. The Barclays Bank UK Group is a major UK financial services provider engaged in retail banking, credit cards, wholesale banking, wealth management and investment management services. In addition, separate financial statements have been presented for the parent company.

 

2. Compliance with International Financial Reporting Standards

 

The consolidated financial statements of the Barclays Bank UK Group, and the separate financial statements of Barclays Bank UK PLC, have been prepared in accordance with international accounting standards in conformity with the requirements of the Company Act 2006 and in accordance with International Financial Reporting Standards (IFRS) and interpretations (IFRICs) as issued by the IASB and adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. These standards have also been endorsed by the UK. The principal accounting policies applied in the preparation of the consolidated and separate financial statements are set out below, and in the relevant notes to the financial statements. These policies have been consistently applied with the exception of the early adoption of Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) which was applied from 1 January 2020.

 

3. Basis of preparation

 

The consolidated and separate financial statements have been prepared under the historical cost convention modified to include the fair valuation of particular financial instruments, to the extent required or permitted under IFRS as set out in the relevant accounting policies. They are stated in millions of pounds Sterling (£m), the functional currency of Barclays Bank UK PLC.

 

The financial statements have been prepared on a going concern basis, in accordance with the Companies Act 2006 as applicable to companies using IFRS. The financial statements are prepared on a going concern basis, as the Board is satisfied that the Barclays Bank UK Group and parent company have the resources to continue in business for a period of at least 12 months from approval of the financial statements. In making this assessment, the Board has considered a wide range of information relating to present and future conditions.

 

This involved a review of a working capital report (WCR) for the Group. The WCR is used by the Barclays Bank UK Group and the Board to assess the future performance of the business and that it has the resources in place that are required to meet its ongoing regulatory requirements. The assessment is based upon business plans which contain future forecasts of profitability taken from the Barclays Bank UK Group's three year medium term plan as well as projections of future regulatory capital requirements and business funding needs. The WCR also includes details of the impact of internally generated stress testing scenarios on the liquidity and capital requirement forecasts. The stress tests used were based an assessment of reasonably possible downside economic scenarios that the Barclays Bank UK Group could experience.

 

The WCR showed that the Barclays Bank UK Group had sufficient capital in place to support its future business requirements and remained above its regulatory minimum requirements in the stress scenarios. It also showed that the Barclays Bank UK Group has an expectation that it can continue to meet its funding requirements during the scenarios. Accordingly, the Board concluded that there was a reasonable expectation that the Barclays Bank UK Group has adequate resources to continue as a going concern for a period of at least 12 months from the date of approval of the financial statements.

 

4. Accounting policies

 

The Barclays Bank UK Group prepares financial statements in accordance with IFRS. The Barclays Bank UK Group 's significant accounting policies relating to specific financial statement items, together with a description of the accounting estimates and judgements that were critical to preparing them, are set out under the relevant notes. Accounting policies that affect the financial statements as a whole are set out below.

 

(i) Consolidation

 

The Barclays Bank UK Group applies IFRS 10 Consolidated financial statements.

 

The consolidated financial statements combine the financial statements of Barclays Bank UK PLC and all its subsidiaries. Subsidiaries are entities over which Barclays Bank UK PLC has control. The Barclays Bank UK Group has control over another entity when the Barclays Bank UK Group has all of the following:

 

1) power over the relevant activities of the investee, for example through voting or other rights

2) exposure to, or rights to, variable returns from its involvement with the investee and

3) the ability to affect those returns through its power over the investee.

 

The assessment of control is based on the consideration of all facts and circumstances. The Barclays Bank UK Group reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

 

Intra-group transactions and balances are eliminated on consolidation. Consistent accounting policies are used throughout the Barclays Bank UK Group for the purposes of the consolidation.

 

Changes in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has already been obtained and they do not result in loss of control.

 

None of the Barclays Bank UK Group's subsidiaries are significant in the context of the Barclays Bank UK Group's business, results or financial position. A complete list of all subsidiaries is presented in Note 36.

 

In the individual financial statements of Barclays Bank UK PLC, investments in subsidiaries are stated at cost less impairment.

 

(ii) Foreign currency translation

 

The Barclays Bank UK Group   applies IAS 21 The Effects of Changes in Foreign Exchange Rates. Transactions in foreign currencies are translated into Sterling at the rate ruling on the date of the transaction. Foreign currency monetary balances are translated into Sterling at the period end exchange rates. Exchange gains and losses on such balances are taken to the income statement. Non-monetary foreign currency balances in relation to items measured in terms of historical cost are carried at historical transaction date exchange rates. Non-monetary foreign currency balances in relation to items measured at fair value are translated using the exchange rate at the date when the fair value was measured.

 

(iii) Financial assets and liabilities

 

The Barclays Bank UK Group applies IFRS 9 Financial Instruments to the recognition, classification and measurement, and derecognition of financial assets and financial liabilities and the impairment of financial assets. The Barclays Bank UK Group applies the requirements of IAS 39 Financial Instruments: Recognition and Measurement for hedge accounting purposes.

 

Recognition

 

The Barclays Bank UK Group recognises financial assets and liabilities when it becomes a party to the terms of the contract. Trade date or settlement date accounting is applied depending on the classification of the financial asset.

 

Classification and measurement

 

Financial assets are classified on the basis of two criteria:

i) the business model within which financial assets are managed; and

ii) their contractual cash flow characteristics (whether the cash flows represent 'solely payments of principal and interest' (SPPI)).

 

The Barclays Bank UK Group assesses the business model criteria at a portfolio level. Information that is considered in determining the applicable business model includes (i) policies and objectives for the relevant portfolio, (ii) how the performance and risks of the portfolio are managed, evaluated and reported to management, and (iii) the frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for such sales. 

 

The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent SPPI. In assessing whether contractual cash flows are SPPI compliant, interest is defined as consideration primarily for the time value of money and the credit risk of the principal outstanding. The time value of money is defined as the element of interest that provides consideration only for the passage of time and not consideration for other risks or costs associated with holding the financial asset. Terms that could change the contractual cash flows so that it would not meet the condition for SPPI are considered, including: (i) contingent and leverage features, (ii) non-recourse arrangements and (iii) features that could modify the time value of money.

 

Financial assets are measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent SPPI.

 

Financial assets are measured at fair value through other comprehensive income if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows represent SPPI.

 

Other financial assets are measured at fair value through profit and loss. There is an option to make an irrevocable election on initial recognition for non traded equity investments to be measured at fair value through other comprehensive income, in which case dividends are recognised in profit or loss, but gains or losses are not reclassified to profit or loss upon derecognition, and the impairment requirements of IFRS 9 do not apply.

 

The accounting policy for each type of financial asset or liability is included within the relevant note for the item. The Barclays Bank UK Group's policies for determining the fair values of the assets and liabilities are set out in Note 15.

 

Derecognition

 

The Barclays Bank UK Group derecognises a financial asset, or a portion of a financial asset, from its balance sheet where the contractual rights to cash flows from the asset have expired, or have been transferred, usually by sale, and with them either substantially all the risks and rewards of the asset or significant risks and rewards, along with the unconditional ability to sell or pledge the asset.

 

Financial liabilities are de-recognised when the liability has been settled, has expired or has been extinguished. An exchange of an existing financial liability for a new liability with the same lender on substantially different terms - generally a difference of 10% or more in the present value of the cash flows or a substantive qualitative amendment - is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.

 

Transactions in which the Barclays Bank UK Group transfers assets and liabilities, portions of them, or financial risks associated with them can be complex and it may not be obvious whether substantially all of the risks and rewards have been transferred. It is often necessary to perform a quantitative analysis. Such an analysis compares the Barclays Bank UK Group's exposure to variability in asset cash flows before the transfer with its retained exposure after the transfer.

 

A cash flow analysis of this nature may require judgement. In particular, it is necessary to estimate the asset's expected future cash flows as well as potential variability around this expectation. The method of estimating expected future cash flows depends on the nature of the asset, with market and market-implied data used to the greatest extent possible. The potential variability around this expectation is typically determined by stressing underlying parameters to create reasonable alternative upside and downside scenarios. Probabilities are then assigned to each scenario. Stressed parameters may include default rates, loss severity, or prepayment rates.

 

Accounting for reverse repurchase and repurchase agreements including other similar lending and borrowing

 

Reverse repurchase agreements (and stock borrowing or similar transaction) are a form of secured lending whereby the Barclays Bank UK Group provides a loan or cash collateral in exchange for the transfer of collateral, generally in the form of marketable securities subject to an agreement to transfer the securities back at a fixed price in the future. Repurchase agreements are where the Barclays Bank UK Group obtains such loans or cash collateral, in exchange for the transfer of collateral.

 

The Barclays Bank UK Group purchases (a reverse repurchase agreement) or borrows securities subject to a commitment to resell or return them. The securities are not included in the balance sheet as the Barclays Bank UK Group does not acquire the risks and rewards of ownership. Consideration paid (or cash collateral provided) is accounted for as a loan asset at amortised cost, unless it is designated or mandatorily at fair value through profit and loss.

 

The Barclays Bank UK Group may also sell (a repurchase agreement) or lend securities subject to a commitment to repurchase or redeem them. The securities are retained on the balance sheet as the Barclays Bank UK Group retains substantially all the risks and rewards of ownership. Consideration received (or cash collateral provided) is accounted for as a financial liability at amortised cost, unless it is designated at fair value through profit and loss.

 

(iv) Issued debt and equity instruments

 

The Barclays Bank UK Group applies IAS 32, Financial Instruments: Presentation, to determine whether funding is either a financial liability (debt) or equity.

 

Issued financial instruments or their components are classified as liabilities if the contractual arrangement results in the Barclays Bank UK Group having an obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder of the instrument. If this is not the case, the instrument is generally an equity instrument and the proceeds included in equity, net of transaction costs. Dividends and other returns to equity holders are recognised when paid or declared by the members at the AGM and treated as a deduction from equity.

 

Where issued financial instruments contain both liability and equity components, these are accounted for separately. The fair value of the debt is

estimated first and the balance of the proceeds is included within equity.

 

5. New and amended standards and interpretations

 

The accounting policies adopted are consistent with those of the previous financial year, with the exception of the early adoption of Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) which was applied from 1 January 2020.

 

IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Amendments relating to Interest Rate Benchmark Reform (Phase 2 amendments)

 

IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 were amended in August 2020, which are effective for periods beginning on or after 1 January 2021 with earlier adoption permitted. The Barclays Bank UK Group elected to early adopt the amendments with effect from 1 January 2020. The amendments have been endorsed by the EU and by the UK.

 

IFRS 9 allows companies when they first apply IFRS 9, to make an accounting policy choice to continue to apply the hedge accounting requirements of IAS 39. The Barclays Bank UK Group made the election to continue to apply the IAS 39 hedge accounting requirements, and consequently, the amendments to IAS 39 in respect of hedge accounting have been adopted by the Barclays Bank UK Group .

 

The objective of the amendments is to provide certain reliefs to companies when changes are made to the contractual cash flows or hedging relationships resulting from interest rate benchmark reform. The reliefs adopted by the Barclays Bank UK Group have been described below.

 

Changes in the basis for determining contractual cash flows

 

A change in the basis of determining the contractual cash flows of a financial instrument that are required by the reform is accounted for by updating the effective interest rate, without the recognition of an immediate gain or loss. This practical expedient is only applied where (1) the change to the contractual cash flows is necessary as a direct consequence of the reform and (2) the new basis for determining the contractual cash flows is economically equivalent to the previous basis. For changes made in addition to those required by the reform, the practical expedient is applied first, after which the normal IFRS 9 requirements for modifications of financial instruments is applied.

 

Hedge accounting

 

The IAS 39 requirements in respect of hedge accounting have been amended in two phases. The Phase 1 amendments, which were adopted by the Barclays Bank UK Group in 2019, provide relief to the hedge accounting requirements prior to changing a hedge relationship due to the interest rate benchmark reform (refer Note 15). The Phase 2 amendments provide relief when changes are made to hedge relationships as a result of the interest rate benchmark reform. The Phase 2 amendments adopted by the Barclays Bank UK Group are described below.

 

·

Under a temporary exception, changes to the hedge designation and hedge documentation due to the interest rate benchmark reform would not constitute the discontinuation of the hedge relationship nor the designation of a new hedging relationship.

·

In respect of the retrospective hedge effectiveness assessment, the Barclays Bank UK Group may elect on a hedge-by-hedge basis to reset the cumulative fair value changes to zero when the exception to the retrospective assessment ends (Phase 1 relief). Any hedge ineffectiveness will continue to be measured and recognised in full in profit or loss.

·

Amounts accumulated in the cash flow hedge reserve would be deemed to be based on the alternative benchmark rate (on which the hedge future cash flows are determined) when there is a change in basis for determining the contractual cash flows.

·

For hedges of groups of items (such as those forming part of a macro cash flow hedging strategy), the amendments provide relief for items within a designated group of items that are amended for changes directly required by the reform.

·

In respect of whether a risk component of a hedged item is separately identifiable, the amendments provide temporary relief to entities to meet this requirement when an alternative risk free rate (RFR) financial instrument is designated as a risk component. These amendments allow entities upon designation of the hedge to assume that the separately identifiable requirement is met if the entity reasonably expects the RFR risk will become separately identifiable within the next 24 months. This relief applies to each RFR on a rate-by-rate basis and starts when the entity first designates the RFR as a non-contractually specified risk component.

 

The amendments to IFRS 7 require certain disclosures to be made to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity's financial instruments and risk management strategy. Refer Note 35 where these disclosures have been included.

 

Future accounting developments

 

The following accounting standards have been issued by the IASB but are not yet effective.

 

IFRS 17 - Insurance contracts

 

In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts that was issued in 2005.

 

IFRS 17 applies to all types of insurance contracts (i.e. life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply.

 

In June 2020, the IASB published amendments to IFRS 17. The amendments that are relevant to the Barclays Bank UK Group are the scope exclusion for credit card contracts and similar contracts that provide insurance coverage, the optional scope exclusion for loan contracts that transfer significant insurance risk, and the clarification that only financial guarantees issued are in scope of IFRS 9.

 

The amendments also defer the effective date of IFRS 17, including the above amendments, to annual reporting periods beginning on or after 1 January 2023.

 

IFRS 17, including the amendments to IFRS 17, has not yet been endorsed by the EU as of the date that the financial statements are authorised for issue.

 

Following the UK's withdrawal from the EU on 31 December 2020, the UK-adopted international accounting standards will be applicable. IFRS 17, including the amendments to IFRS 17, has not yet been endorsed by the UK. The Barclays Bank UK Group is currently assessing the expected impact of adopting this standard.

 

6. Critical accounting estimates and judgements

 

The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise judgement in applying the accounting policies. The key areas involving a higher degree of judgement or complexity or areas where assumptions are significant to the consolidated and individual financial statements are highlighted under the relevant note. Critical accounting estimates and judgements are disclosed in:

 

·

Credit impairment charges on page 139

·

Fair value of financial instruments on page 153

·

Goodwill and intangible assets on page 163

·

Provisions including conduct and legal, competition and regulatory matters on page 166.

 

7. Other disclosures

 

To improve transparency and ease of reference, by concentrating related information in one place, certain disclosures required under IFRS have been included within the Risk review section as follows:

 

·

Credit risk on page 46 and the tables on pages 53 to 91

·

Market risk on page 48 and the tables on page 104

·

Treasury and capital risk - capital on page 100 and the tables on pages 100 to 103

·

Treasury and capital risk - liquidity on page 93 and the tables on pages 93 to 99 .

 

These disclosures are covered by the Audit opinion (included on pages 115 to 123 ) where referenced as audited.

 

Financial performance/return

 

The notes included in this section focus on the results and performance of the Barclays Bank UK Group. Information on the income generated, expenditure incurred, segmental performance, tax and dividends are included here.

 

2 Segmental reporting

 

Presentation of segmental reporting

 

The Barclays Bank UK Group's segmental reporting is in accordance with IFRS 8 Operating Segments . Operating segments are reported in a manner consistent with the internal reporting provided to the Executive Committee, which is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the chief operating decision maker. All transactions between business segments are conducted on an arm's-length basis, with intra-segment revenue and costs being eliminated in Head Office. Income and expenses directly associated with each segment are included in determining business segment performance.

 

For segmental reporting purposes, the Barclays Bank UK Group divisions are defined as:

 

·

Personal Banking which comprises Personal and Premier banking, Mortgages, Savings, Investments and Wealth management.

·

Barclaycard Consumer UK which comprises the Barclaycard UK consumer credit cards business.

·

Business Banking which offers products, services and specialist advice to clients ranging from start-ups to medium-sized businesses and is where the ESHLA loan portfolio is held.

 

The below table also includes Head Office which includes central support functions.

 

Analysis of results by business





Personal

Banking

Barclaycard Consumer UK

Business

Banking

Head

 Office

Barclays Bank

UK Group


£m

£m

£m

£m

£m

For the year ended 31 December 2020






Total income

3,649

1,528

1,308

(61)

6,424

Credit impairment (charges)

(340)

(881)

(206)

-

(1,427)

Net operating income/(expenses)

3,309

647

1,102

(61)

4,997

Operating costs

(3,262)

(530)

(766)

(45)

(4,603)

Litigation and conduct

(62)

38

(7)

(12)

(43)

Total operating expenses

(3,324)

(492)

(773)

(57)

(4,646)

Other net income

16

-

-

-

16

Profit/(loss) before tax

1

155

329

(118)

367

Total assets

£201.0bn

£10.6bn

£75.8bn

£0.1bn

£287.5bn

Number of employees (full time equivalent)a

18,500

100

2,700

200

21,500

Average number of employees (full time equivalent)





21,800







For the year ended 31 December 2019






Total income

4,112

1,997

1,361

(148)

7,322

Credit impairment (charges)/releases

(196)

(472)

(45)

4

(709)

Net operating income/(expenses)

3,916

1,525

1,316

(144)

6,613

Operating costs

(3,036)

(585)

(717)

(20)

(4,358)

Litigation and conduct

(705)

(876)

(2)

(3)

(1,586)

Total operating expenses

(3,741)

(1,461)

(719)

(23)

(5,944)

Profit/(loss) before tax

175

64

597

(167)

669

Total assets (£bn)

£187.3bn

£16.1bn

£55.0bn

-

£258.4bn

Number of employees (full time equivalent)a

17,800

500

3,100

200

21,600

Average number of employees (full time equivalent)





22,000

 

Note

a

Barclays Bank UK Group has transformed its business this year and consolidated several teams into centres of excellence in our Personal Banking segment, to better service our customers and create efficiencies. Costs are recharged to the other segments, while full time equivalent (FTE) are reported within Personal Banking. As a result, fewer FTE are reported in Barclaycard Consumer UK and Business Banking.

 

Income by geographic region

 

The Barclays Bank UK Group generates income from business activities in the United Kingdom.

 

4 Net fee and commission income

 

Accounting for net fee and commission income

 

The Barclays Bank UK Group applies IFRS 15 Revenue from Contracts with Customers. IFRS 15 establishes a five-step model governing revenue recognition. The five-step model requires the Barclays Bank UK Group to (i) identify the contract with the customer, (ii) identify each of the performance obligations included in the contract, (iii) determine the amount of consideration in the contract, (iv) allocate the consideration to each of the identified performance obligations and (v) recognise revenue as each performance obligation is satisfied.

 

The Barclays Bank UK Group recognises fee and commission income charged for services provided by the Barclays Bank UK Group as the services are provided, for example, on completion of the underlying transaction. Where the contractual arrangements also result in the Barclays Bank UK Group recognising financial instruments in scope of IFRS 9, such financial instruments are initially recognised at fair value in accordance with IFRS 9 before applying the provisions of IFRS 15.

 


2020


Personal Banking

Barclaycard Consumer UK

Business Banking

Head Office

Total


£m

£m

£m

£m

£m

Fee type






Transactional

586

97

127

-

810

Advisory

159

-

-

-

159

Other

258

8

140

-

406

Total revenue from contracts with customers

1,003

105

267

-

1,375

Other non-contract fee income

-

-

-

-

-

Fee and commission income

1,003

105

267

-

1,375

Fee and commission expense

(276)

(23)

(11)

-

(310)

Net fee and commission income

727

82

256

-

1,065


2019


Personal Banking

Barclaycard Consumer UK

Business Banking

Head Office

Total


£m

£m

£m

£m

£m

Fee type






Transactional

706

208

160

-

1,074

Advisory

177

-

-

-

177

Other

260

5

158

-

423

Total revenue from contracts with customers

1,143

213

318

-

1,674

Other non-contract fee income

-

-

-

-

-

Fee and commission income

1,143

213

318

-

1,674

Fee and commission expense

(322)

(31)

(15)

-

(368)

Net fee and commission income

821

182

303

-

1,306

 

Fee types

 

Transactional

 

Transactional fees are service charges on deposit accounts, cash management services and transactional processing fees. These include interchange and merchant fee income generated from credit and bank card usage. Transaction and processing fees are recognised at the point in time the transaction occurs or service is performed. Interchange and merchant fees are recognised upon settlement of the card transaction payment.

 

The Barclays Bank UK Group incurs certain card related costs including those related to cardholder reward programmes. Cardholder reward programmes costs related to customers that settle their outstanding balance each period (transactors) are expensed when incurred and presented in fee and commission expense, while costs related to customer that continuously carry an outstanding balance (revolvers) are included in the effective interest rate of the receivable (refer to Note 3).

 

Advisory

 

Advisory fees are generated from wealth management services. Wealth management advisory are earned over the period the services are provided and are generally recognised quarterly when the market value of client assets is determined.

 

Contract assets and contract liabilities

 

The Barclays Bank UK Group had no material contract assets or contract liabilities as at 31 December 2020 (2019: nil).

 

Impairment of fee receivables and contract assets

 

During 2020, there have been no material impairments recognised in relation to fees receivable and contract assets (2019: nil). Fees in relation to transactional business can be added to outstanding customer balances. These amounts may be subsequently impaired as part of the overall loans and advances balance.

 

Remaining performance obligations

 

The Barclays Bank UK Group applies the practical expedient of IFRS 15 and does not disclose information about remaining performance obligations that have original expected durations of one year or less or because the Barclays Bank UK Group has a right to consideration that corresponds directly with the value of the service provided to the client or customer.

 

Costs incurred in obtaining or fulfilling a contract

 

The Barclays Bank UK Group expects that incremental costs of obtaining a contract such as success fee and commission fees paid are recoverable and therefore capitalised such contract costs in the amount of £6m at 31 December 2020 (2019: £6m).

 

Capitalised contract costs are amortised based on the transfer of services to which the asset relates which typically ranges over the expected life of the relationship. In 2020, the amount of amortisation was £1m (2019: £1m) and there was no impairment loss recognised in connection with the capitalised contract costs (2019: nil).

 

10 Dividends on ordinary shares

 

The 2020 financial statements include £220m (2019: £1,050m) of dividend paid. This is the final dividend declared in relation to the prior year of £220m (2019: £700m) and half year dividends of £nil (2019: £350m).  This results in a total dividend for the year of 44p (2019: 208p) per ordinary share. A dividend of £220m was paid on 25 March 2020 by Barclays Bank UK PLC to its parent Barclays PLC. This was prior to the announcement made by the PRA on 31 March 2020 that capital be preserved for use in serving Barclays customers and clients through the extraordinary challenges presented by the Covid-19 pandemic. As part of a response to this announcement, Barclays PLC took steps to provide additional capital of £220m to Barclays Bank UK PLC in the form of a capital contribution. No full year 2020 dividend is to be paid to Barclays PLC.

 

Dividends paid on other equity instruments amounted to £180m (2019: £153m). For further detail on other equity instruments, please refer to Note 26.

 

Assets and liabilities held at fair value

 

15 Fair value of financial instruments

 

Accounting for financial assets and liabilities - fair values

 

Financial instruments that are held for trading are recognised at fair value through profit or loss. In addition, financial assets are held at fair value through profit or loss if they do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if the financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business model that is achieved by both collecting contractual cash flows and selling. Subsequent changes in fair value for these instruments are recognised in the income statement in net investment income, except if reporting it in trading income reduces an accounting mismatch.  

 

All financial instruments are initially recognised at fair value on the date of initial recognition (including transaction costs, other than financial instruments held at fair value through profit or loss) and depending on the subsequent classification of the financial asset or liability, may continue to be held at fair value either through profit or loss or other comprehensive income. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

Wherever possible, fair value is determined by reference to a quoted market price for that instrument. For many of the Barclays Bank UK Group's financial assets and liabilities for which quoted prices are not available, valuation models are used to estimate fair value. The models calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. These models use as their basis independently sourced market inputs including, for example, interest rate yield curves and currency rates.

 

On initial recognition, it is presumed that the transaction price is the fair value unless there is observable information available in an active market to the contrary. The best evidence of an instrument's fair value on initial recognition is typically the transaction price. However, if fair value can be evidenced by comparison with other observable current market transactions in the same instrument, or is based on a valuation technique whose inputs include only data from observable markets, then the instrument should be recognised at the fair value derived from such observable market data.

 

For valuations that have made use of unobservable inputs, the difference between the model valuation and the initial transaction price (Day One profit) is recognised in profit or loss either: on a straight-line basis over the term of the transaction; or over the period until all model inputs will become observable where appropriate; or released in full when previously unobservable inputs become observable.

 

Various factors influence the availability of observable inputs and these may vary from product to product and change over time. Factors include the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in the marketplace, the maturity of market modelling and the nature of the transaction (bespoke or generic). To the extent that valuation is based on models or inputs that are not observable in the market, the determination of fair value can be more subjective, dependent on the significance of the unobservable input to the overall valuation. Unobservable inputs are determined based on the best information available, for example by reference to similar assets, similar maturities or other analytical techniques.

 

The sensitivity of valuations used in the financial statements to possible changes in significant unobservable inputs is shown on page 156.

 

Critical accounting estimates and judgements

 

The valuation of financial instruments often involves a significant degree of judgement and complexity, in particular where valuation models make use of unobservable inputs ('Level 3' assets and liabilities). This note provides information on these instruments, including the related unrealised gains and losses recognised in the period, a description of significant valuation techniques and unobservable inputs, and a sensitivity analysis.

 

The following table shows Barclays Bank UK Group's assets and liabilities that are held at fair value disaggregated by valuation technique (fair value hierarchy) and balance sheet classification:

 

Assets and liabilities held at fair value




2020

2019


Valuation technique using

Valuation technique using

Barclays Bank UK Group

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

As at 31 December

£m

£m

£m

£m

£m

£m

£m

£m

Trading portfolio assets

52

246

-

298

384

476

-

860

Financial assets at fair value through the income statement

-

130

3,302

3,432

-

38

3,533

3,571

Derivative financial assets

-

550

-

550

-

192

-

192

Financial assets at fair value through other comprehensive income

6,887

19,139

-

26,026

6,162

13,160

-

19,322

Total assets

6,939

20,065

3,302

30,306

6,546

13,866

3,533

23,945










Trading portfolio liabilities

(1,060)

(205)

-

(1,265)

(1,331)

(373)

-

(1,704)

Derivative financial liabilities

-

(880)

-

(880)

-

(740)

-

(740)

Total liabilities

(1,060)

(1,085)

-

(2,145)

(1,331)

(1,113)

-

(2,444)

 

The following table shows Barclays Bank UK PLC's assets and liabilities that are held at fair value disaggregated by valuation technique (fair value hierarchy) and balance sheet classification:

 

Assets and liabilities held at fair value




2020

2019


Valuation technique using

Valuation technique using

Barclays Bank UK PLC

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

As at 31 December

£m

£m

£m

£m

£m

£m

£m

£m

Trading portfolio assets

52

246

-

298

384

476

-

860

Financial assets at fair value through the income statement

-

130

3,302

3,432

-

38

3,533

3,571

Derivative financial assets

-

550

-

550

-

193

-

193

Financial assets at fair value through other comprehensive income

6,887

19,139

-

26,026

6,162

13,160

-

19,322

Total assets

6,939

20,065

3,302

30,306

6,546

13,867

3,533

23,946










Trading portfolio liabilities

(1,060)

(205)

-

(1,265)

(1,331)

(373)

-

(1,704)

Derivative financial liabilities

-

(880)

-

(880)

-

(740)

-

(740)

Total liabilities

(1,060)

(1,085)

-

(2,145)

(1,331)

(1,113)

-

(2,444)

 

Level 3 movement analysis

 

The following table summarises the movements in the Level 3 balances during the period. Transfers have been reflected as if they had taken place at the beginning of the year.

 

Asset transfer between Level 3 and Level 2 is due to an increase in observable market activity related to an input.

 

Analysis of movements in Level 3 assets and liabilities









As at 1 January 2020





Total gains and losses in the period recognised in the income statement

Total gains or losses recognised in OCI

Transfers

As at 31 December 2020


Purchases

Sales

Issues

Settlements

Trading incomea

Other income

In

Out

Barclays Bank UK Group and PLC

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Non-asset backed loans

3,530

 - 

 - 

 - 

(413)

284

 - 

 - 

 - 

(100)

3,301

Other

3

4

 - 

 - 

(6)

 - 

 - 

 - 

 - 

 - 

1

Financial assets at fair value through the income statement

3,533

4

 - 

 - 

(419)

284

 - 

 - 

 - 

(100)

3,302


As at 1 January 2019










As at 31 December 2019












£m










£m

Non-asset backed loans

3,852

 - 

 - 

 - 

(551)

244

 - 

 - 

 - 

(15)

3,530

Other

 - 

3

 - 

 - 

 - 

 - 

 - 

 - 

 - 

3

Financial assets at fair value through the income statement

3,852

3

 - 

 - 

(551)

244

 - 

 - 

(15)

3,533

 

Note

a

Trading income represents gains on Level 3 financial assets which is offset by losses on derivative hedge disclosed within Level 2.

 

Non-asset backed loans

 

Description:   Largely made up of fixed rate loans, extended to counterparties in the Education, Social Housing and Local Authority sectors.

 

Valuation:   Fixed rate loans are valued using models that discount expected future cash flows based on interest rates and loan spreads.

 

Observability:   Within this loan population, the loan spread is generally unobservable. Unobservable loan spreads are determined by incorporating funding costs, the level of comparable assets such as gilts, issuer credit quality and other factors.

 

Level 3 sensitivity: The sensitivity of fixed rate loans is calculated by applying a shift to loan spreads, aligned to the prudent valuation framework for calculating market data uncertainty around an unobservable valuation input. The prudent valuation framework additionally requires Barclays Bank UK plc to be capitalised to 33% (temporarily reduced from 50% until year-end 2020) of the impact of such valuation uncertainty being realised in the income statement. On a portfolio level, the sensitivity is equivalent to an averages stress to the input loan spread of 52bp.

 

Unrealised gains and losses on Level 3 financial assets and liabilities

 

The following tables disclose the unrealised gains and losses recognised in the year arising on Level 3 financial assets and liabilities held at year end.

 

Unrealised gains and losses recognised during the period on Level 3 assets and liabilities held at year end

Barclays Bank UK Group and PLC

2020

2019


Income statement

Other compre-

hensive

income


Income statement

Other

compre-

hensive income



Trading income

Other income

Total

Trading income

Other income

Total

As at 31 December

£m

£m

£m

£m

£m

£m

£m

£m

Financial assets at fair value through the income statement

284

-

-

284

244

-

-

244

Total

284

-

-

284

244

-

-

244

 


Valuation technique(s)

Significant unobservable inputs

2020

Range

2019

Range



Min

Max

Min

Max

Unitsa

Non-asset backed loans

Discounted cash flows

Loan spread

31

1,518

31

1,884

bps

 

Note

a

The units used to disclose ranges for significant unobservable inputs are percentages, points and basis points. Points are a percentage of par; for example, 100 points equals 100%  of par. A basis point equals 1/100th of 1%; for example, 150 basis points equals 1.5%.

 

 

The following section describes the significant unobservable inputs identified in the table above, and the sensitivity of fair value measurement of the instruments categorised as Level 3 assets or liabilities to increases in significant unobservable inputs. Where sensitivities are described, the inverse relationship will also generally apply.

 

Where reliable interrelationships can be identified between significant unobservable inputs used in fair value measurement, a description of those interrelationships is included below.

 

Loan spread

 

Loan spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Loan spreads typically reflect credit quality, the level of comparable assets such as gilts and other factors, and form part of the yield used in a discounted cash flow calculation.

 

The ESHLA portfolio primarily consists of long-dated fixed rate loans extended to counterparties in the UK Education, Social Housing and Local Authority sectors. The loans are categorised as Level 3 in the fair value hierarchy due to their illiquid nature and the significance of unobservable loan spreads to the valuation. Valuation uncertainty arises from the long-dated nature of the portfolio, the lack of secondary market in the loans and the lack of observable loan spreads. The majority of ESHLA loans are to borrowers in heavily regulated sectors that are considered low credit risk, and have a history of near zero defaults since inception and where Barclays is often afforded a position as a secured creditor. While the overall loan spread range is from 31bps to 1,518bps (2019: 31bps to 1,844bps), the vast majority of spreads are concentrated towards the bottom end of this range, with 96% of the loan notional being valued with spreads less than 200bps consistently for both years.

 

In general, a significant increase in loan spreads in isolation will result in a fair value decrease for a loan.

 

Sensitivity analysis of valuations using unobservable inputs




2020

2019


Favourable changes

Unfavourable changes

Favourable changes

Unfavourable changes


£m

£m

£m

£m

Non asset backed loans

86

(220)

89

(264)

Total

86

(220)

89

(264)

 

The effect of stressing unobservable inputs to a 90th percentile confidence interval of a potential range of values, alongside considering the impact of using alternative models, would be to increase fair values by up to £86m (2019: £89m) or to decrease fair values by up to £220m (2019: £264m). All the potential effect would impact profit and loss. The asymmetry in the favourable and unfavourable changes in the sensitivity analysis is attributable to Investing and Funding costs with the prudential valuation framework contributing to the unfavourable side only.

 

Portfolio exemptions

 

The Barclays Bank UK Group uses the portfolio exemption in IFRS 13 Fair Value Measurement to measure the fair value of groups of financial assets and liabilities. Instruments are measured using the price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure or to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between market participants at the balance sheet date under current market conditions. Accordingly, the Barclays Bank UK Group measures the fair value of the group of financial assets and liabilities consistently with how market participants would price the net risk exposure at the measurement date.

 

Unrecognised gains as a result of the use of valuation models using unobservable inputs

 

The amount that has yet to be recognised in income that relates to the difference between the transaction price (the fair value at initial recognition) and the amount that would have arisen had valuation models using unobservable inputs been used on initial recognition, less amounts subsequently recognised, is £13m (2019: £13m) for financial instruments measured at fair value and £217m (2019: £224m) for financial instruments carried at amortised cost. The decrease in financial investments measured at fair value of £nil (2019: £1m) was driven by amortisation and releases of £2m (2019: £1m) offset by additions of £2m (2019: £nil).The decrease of £7m (2019: £7m) in financial instruments carried at amortised cost is driven by amortisation and releases of £12m (2019: £12m) offset by additions of £5m (2019: £5m).

 

Comparison of carrying amounts and fair values:

 

The following tables summarise the fair value of financial assets and liabilities measured at amortised cost on Barclays Bank UK Group's and Barclays Bank UK PLC's balance sheet:

 

Barclays Bank UK Group

2020

2019


Carrying amount

Fair value

Level 1

Level 2

Level 3

Carrying amount

Fair value

Level 1

Level 2

Level 3

As at 31 December

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Financial assets











Loans and advances at amortised cost

211,649

209,612

22,816

186,796

197,569

196,342

1,925

6,661

187,756

Reverse repurchase agreements and other similar secured lending

133

133

133

1,761

1,761

1,761












Financial liabilities











Deposits at amortised cost

(240,535)

(240,555)

(230,238)

(8,268)

(2,049)

(205,696)

(205,701)

(191,931)

(3,956)

(9,814)

Repurchase agreements and other similar secured borrowing

(7,178)

(7,178)

(7,178)

(13,420)

(13,420)

(13,420)

Debt securities in issue

(7,503)

(7,897)

(7,897)

(8,271)

(8,644)

(8,151)

(493)

Subordinated liabilities

(9,869)

(10,344)

(10,344)

(7,688)

(8,022)

(8,022)




Barclays Bank UK PLC

2020

2019


Carrying amount

Fair value

Level 1

Level 2

Level 3

Carrying amount

Fair value

Level 1

Level 2

Level 3

As at 31 December

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Financial assets











Loans and advances at amortised cost

212,033

210,000

23,202

186,798

197,960

196,739

1,959

7,548

187,232

Reverse repurchase agreements and other similar secured lending

133

133

133

1,761

1,761

1,761












Financial liabilities











Deposits at amortised cost

(241,091)

(241,119)

(230,245)

(8,825)

(2,049)

(206,764)

(206,768)

(191,931)

(5,023)

(9,814)

Repurchase agreements and other similar secured borrowing

(7,178)

(7,178)

(7,178)

(13,420)

(13,420)

(13,420)

Debt securities in issue

(7,503)

(7,897)

(7,897)

(7,778)

(8,151)

(8,151)

Subordinated liabilities

(9,869)

(10,344)

(10,344)

(7,688)

(8,022)

(8,022)

 

The fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As a wide range of valuation techniques are available, it may not be appropriate to directly compare this fair value information to independent market sources or other financial institutions. Different valuation methodologies and assumptions can have a significant impact on fair values which are based on unobservable inputs.

 

Financial assets

 

The carrying value of financial assets held at amortised cost (including loans and advances to banks and customers, and other lending such as reverse repurchase agreements and cash collateral on securities borrowed) is determined in accordance with the relevant accounting policy in Note 17.

 

Loans and advances at amortised cost

 

The fair value of loans and advances, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that reflects the current market price for lending to issuers of similar credit quality. Where market data or credit information on the underlying borrowers is unavailable, a number of proxy/extrapolation techniques are employed to determine the appropriate discount rates.

 

Reverse repurchase agreements and other similar secured lending

 

The fair value of reverse repurchase agreements approximates carrying amount as these balances are generally short dated and fully collateralised.

 

Financial liabilities

 

The carrying value of financial liabilities held at amortised cost (including customer accounts, other deposits, repurchase agreements and cash collateral on securities lent, debt securities in issue and subordinated liabilities) is determined in accordance with the accounting policy in Note 1.

 

Deposits at amortised cost

 

In many cases, the fair value disclosed approximates carrying value because the instruments are short term in nature or have interest rates that reprice frequently, such as customer accounts and other deposits and short-term debt securities.

 

The fair value for deposits with longer-term maturities, mainly time deposits, are estimated using discounted cash flows applying either market rates or current rates for deposits of similar remaining maturities. Consequently, the fair value discount is minimal.

 

Repurchase agreements and other similar secured borrowing

 

The fair value of repurchase agreements approximates carrying amounts as these balances are generally short dated.

 

Debt securities in issue

 

Fair values of other debt securities in issue are based on quoted prices where available, or where the instruments are short dated, carrying amount approximates fair value.

 

Subordinated liabilities

 

Fair values for dated and undated convertible and non-convertible loan capital are based on quoted market rates for the issuer concerned or issuers with similar terms and conditions.

 

Accruals, provisions, contingent liabilities and legal proceedings

 

25 Subordinated liabilities

 

Accounting for subordinated liabilities

 

Subordinated liabilities are measured at amortised cost using the effective interest method under IFRS 9.

 


Barclays Bank UK Group and PLC


2020

2019


£m

£m

As at 1 January

7,688

7,548

Issuances

3,694

157

Redemption

(1,425)

-

Other

(88)

(17)

As at 31 December

9,869

7,688

 

Issuances of £3,694m comprise £2,412m intra-group loans from Barclays PLC and £1,282m intra-group notes to Barclays PLC.

 

Redemptions of £1,425m comprise £1,124m EUR 2.625% Fixed Rate Subordinated Callable Notes issued to Barclays PLC and a £301m partial redemption of 1.875% Fixed Rate Subordinated Loan from Barclays PLC

 

Other movements predominantly include foreign exchange movements, partially offset by fair value hedge adjustments.

 




Barclays Bank UK Group and PLCa




2020

2019


Initial call date

Maturity date

£m

£m

Barclays Bank UK PLC notes issued intra-group to Barclays PLC





2.625% Fixed Rate Subordinated Callable Notes (EUR 1,250m)

2020

2025

-

1,071

4.375% Fixed Rate Subordinated Notes (USD 1,250m)


2024

999

994

3.75% Fixed Rate Resetting Subordinated Callable Notes (GBP 500m)

2025

2030

503

-

5.20% Fixed Rate Subordinated Notes (USD 683m)


2026

532

516

4.836% Fixed Rate Subordinated Callable Notes (USD 800m)

2027

2028

650

629

5.088% Fixed-to-Floating Rate Subordinated Callable Notes (USD 200m)

2029

2030

161

154

3.564% Fixed Rate Resetting Subordinated Callable Notes (USD 1,000m)

2030

2035

718

-




Barclays Bank UK PLC intra-group loans from Barclays PLC



3.20% Fixed Rate Subordinated Loan (USD 1,350m)


2021

1,006

1,025

3.65% Fixed Rate Subordinated Loan (USD 1,100m)


2025

874

861

Various Fixed and Floating Rate Subordinated Loans



4,429

2,438

Total subordinated liabilities



9,869

7,688

 

Note

a

Instrument values are disclosed to the nearest million.

 

Subordinated liabilities

 

Subordinated liabilities are issued by Barclays Bank UK PLC for the development and expansion of the business and to strengthen the capital base. The principal terms of these liabilities are described below:

 

Currency and Maturity

 

In addition to the individual subordinated liabilities listed in the table, the £4,429m (2019: £2,438m) balance of intra-group loans is made up of various fixed, fixed-to-floating and floating rate loans from Barclays PLC with notional amounts denominated in USD 4,577m, EUR 1,000m and GBP 400m, with maturities ranging from 2021 to 2041. Certain intra-group loans have a call date one year prior to their maturity.

 

Subordination

 

All subordinated liabilities are issued intra-group to Barclays PLC. Both the subordinated notes and the subordinated loans rank behind the claims of depositors and other unsecured unsubordinated creditors but before the claims of the holders of Barclays Bank UK PLC equity. However, the subordinated notes rank behind the subordinated loans.

 

Interest

 

Interest on the floating rate loans is set by reference to market rates at the time of issuance and is fixed periodically in advance, based on the related market rate.

 

Interest on fixed rate notes and loans is set by reference to market rates at the time of issuance and fixed until maturity.

 

Interest on fixed rate callable notes and loans is set by reference to market rates at the time of issuance and fixed until the call date. After the call date, in the event that the notes or loans are not redeemed, the interest rate will be re-set to either a fixed or floating rate until maturity based on market rates.

 

Repayment

 

Those notes and loans with a call date are repayable at the option of the Issuer, on conditions governing the respective liabilities, some in whole or in part, and some only in whole.  The remaining instruments outstanding at 31 December 2020 are redeemable only on maturity, subject in particular cases to provisions allowing an early redemption in the event of certain changes in tax law or to certain changes in legislation or regulations.

 

In certain cases, any repayments prior to maturity may require the prior consent of the PRA or BoE.

 

There are no committed facilities in existence at the balance sheet date which permit the refinancing of debt beyond the date of maturity.

 

26 Ordinary shares, share premium, and other equity

 

Called up share capital, allotted and fully paid







Number of shares

Ordinary share capital

Ordinary share premium

Total share capital and share premium

Other equity instruments


m

£m

£m

£m

£m

As at 1 January 2020

505

5

-

5

2,560

AT1 securities issuance

-

-

-

-

-

AT1 securities redemption

-

-

-

-

-

As at 31 December 2020

505

5

-

5

2,560







As at 1 January 2019

505

5

-

5

2,070

AT1 securities issuance

-

-

-

-

1,188

AT1 securities redemption

-

-

-

-

(698)

As at 31 December 2019

505

5

-

5

2,560

 

Ordinary shares

 

The issued ordinary share capital of Barclays Bank UK PLC, as at 31 December 2020, comprised 505m (2019: 505m) ordinary shares of £0.01 each.

 

Other equity instruments

 

Other equity instruments of £2,560m (2019: £2,560m) include AT1 securities issued to Barclays PLC. Barclays PLC uses funds from its own market issuance of AT1 securities to purchase AT1 securities from Barclays Bank UK Group. The AT1 securities are perpetual securities with no fixed maturity and are structured to qualify as AT1 instruments under prevailing capital rules applicable as at the relevant issue date.

 

In 2020, there were no issuances of AT1 instruments (2019: two issuances, totalling £1,188m) and no redemptions (2019: one redemption, totalling £698m).

 

AT1 equity instruments




2020

2019


Initial call date

£m

£m

AT1 equity instruments - Barclays Bank UK Group




7.25% Perpetual Subordinated Contingent Convertible Securities

2023

750

750

5.875% Perpetual Subordinated Contingent Convertible Securities

2024

622

622

7.125% Perpetual Subordinated Contingent Convertible Securities

2025

693

693

6.375% Perpetual Subordinated Contingent Convertible Securities

2025

495

495

Total AT1 equity instruments


2,560

2,560

 

27 Reserves

 

Fair value through other comprehensive income reserve

 

The fair value through other comprehensive income reserve represents the changes in the fair value of fair value through other comprehensive income investments since initial recognition.

 

Cash flow hedging reserve

 

The cash flow hedging reserve represents the cumulative gains and losses on effective cash flow hedging instruments that will be recycled to the income statement when the hedged transactions affect profit or loss.

 

Other reserves and other shareholders' equity

 

Other reserves and other shareholders' equity relate to the merger reserve for Barclays Bank UK Group and the Group Reconstruction Relief for Barclays Bank UK PLC, in respect of the transfer of the UK banking business in 2018.

 


Barclays Bank UK Group

Barclays Bank UK PLC


2020

2019

2020

2019


£m

£m

£m

£m

Fair value through other comprehensive income reserve

43

(29)

43

(29)

Cash flow hedging reserve

341

123

341

123

Other reserves and other shareholders' equity

89

89

191

191

Total

473

183

575

285

 

Notes

 

The term Barclays Bank UK Group refers to Barclays Bank UK PLC together with its subsidiaries. Unless otherwise stated, the income statement analysis compares the year ended 31 December 2020 to the corresponding twelve months of 2019 and balance sheet analysis as at 31 December 2020 with comparatives relating to 31 December 2019. The abbreviations '£m' and '£bn' represent millions and thousands of millions of Pounds Sterling respectively.

 

There are a number of key judgement areas, for example impairment calculations, which are based on models and which are subject to ongoing adjustment and modifications. Reported numbers reflect best estimates and judgements at the given point in time.

 

Relevant terms that are used in this document but are not defined under applicable regulatory guidance or International Financial Reporting Standards (IFRS) are explained in the results glossary that can be accessed at home.barclays/investor-relations/reports-and-events/latest-financial-results.

 

The information in this announcement, which was approved by the Board of Directors on 00 February 2021, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020, which contain an unmodified audit report under Section 495 of the Companies Act 2006 (which does not make any statements under Section 498 of the Companies Act 2006), will be delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

 

Barclays Bank UK Group is an issuer in the debt capital markets and meets with investors via formal road-shows and other ad hoc meetings. Consistent with its usual practice, Barclays Bank UK Group expects that from time to time over the coming half year it will meet with investors to discuss these results and other matters relating to the Barclays Bank UK Group.

 

Forward-looking statements

 

This document contains certain forward-looking statements with respect to the Barclays Bank UK Group. Barclays Bank UK Group cautions readers that no forward-looking statement is a guarantee of future performance and that actual results or other financial condition or performance measures could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as 'may', 'will', 'seek', 'continue', 'aim', 'anticipate', 'target', 'projected', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', 'achieve' or other words of similar meaning. Forward-looking statements can be made in writing but also may be made verbally by members of the management of the Barclays Bank UK Group (including, without limitation, during management presentations to financial analysts) in connection with this document. Examples of forward-looking statements include, among others, statements or guidance regarding or relating to the Barclays Bank UK Group's future financial position, income growth, assets, impairment charges, provisions, business strategy, capital, leverage and other regulatory ratios, capital distributions (including dividend payout ratios and expected payment strategies), projected levels of growth in the banking and financial markets, projected costs or savings, any commitments and targets, estimates of capital expenditures, plans and objectives for future operations, projected employee numbers, IFRS impacts and other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. The forward-looking statements speak only as at the date on which they are made. Forward-looking statements may be affected by: changes in legislation; the development of standards and interpretations under IFRS, including evolving practices with regard to the interpretation and application of accounting and regulatory standards; the outcome of current and future legal proceedings and regulatory investigations; future levels of conduct provisions; the policies and actions of governmental and regulatory authorities; the Barclays Bank UK Group's ability along with government and other stakeholders to manage and mitigate the impacts of climate change effectively; geopolitical risks; and the impact of competition. In addition, factors including (but not limited to) the following may have an effect: capital, leverage and other regulatory rules applicable to past, current and future periods; macroeconomic and business conditions in the UK and any systemically important economy which impacts the UK; the effects of any volatility in credit markets; market related risks such as changes in interest rates and foreign exchange rates; effects of changes in valuation of credit market exposures; changes in valuation of issued securities; volatility in capital markets; changes in credit ratings of any entity within the Barclays Bank UK Group or any securities issued by such entities; direct and indirect impacts of the coronavirus (COVID-19) pandemic; instability as a result of the UK's exit from the European Union (EU), the effects of the EU-UK Trade and Cooperation Agreement and the disruption that may subsequently result in the UK; the risk of cyber-attacks, information or security breaches or technology failures on the Barclays Bank UK Group's business or operations; and the success of future acquisitions, disposals and other strategic transactions. A number of these influences and factors are beyond the Barclays Bank UK Group's control. As a result, the Barclays Bank UK Group's actual financial position, future results, capital distributions, capital, leverage or other regulatory ratios or other financial and non-financial metrics or performance measures may differ materially from the statements or guidance set forth in the Barclays Bank UK Group's forward-looking statements.

 

Subject to our obligations under the applicable laws and regulations of any relevant jurisdiction, (including, without limitation, the UK), in relation to disclosure and ongoing information, we undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

For further information, please contact:

 

Investor Relations

Media Relations

Chris Manners

Tom Hoskin

+44 (0) 20 7773 2136

+44 (0) 20 7116 4755



 

About Barclays

 

Barclays is a British universal bank.  We are diversified by business, by different types of customer and client, and geography.  Our businesses include consumer banking and payments operations around the world, as well as a top-tier, full service, global corporate and investment bank, all of which are supported by our service company which provides technology, operations and functional services across the Group.

 

For further information about Barclays, please visit our website www.barclays.com  

 

 

 

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