ALLOWANCE FOR IMPAIRMENT LOSSES

12 Months Ended

Dec. 31, 2019

Disclosure of allowance for credit losses [text block] [Abstract]

Disclosure of allowance for credit losses [text block]

NOTE 20: ALLOWANCE FOR IMPAIRMENT LOSSES

ANALYSIS OF MOVEMENT IN THE ALLOWANCE FOR IMPAIRMENT LOSSES BY STAGE

Year ended 31 December 2019	Stage 1 £m			Stage 2 £m			Stage 3 £m			Purchased or originated credit-impaired £m			Total £m
In respect of drawn balances
At 1 January 2019		527			994			1,570			78			3,169
Exchange and other adjustments		11			(9	)		23			283			308
Transfers to Stage 1		229			(222	)		(7	)					–
Transfers to Stage 2		(53	)		92			(39	)					–
Transfers to Stage 3		(15	)		(140	)		155						–
Impact of transfers between stages		(175	)		353			420						598
		(14	)		83			529						598
Other items charged to the income statement		153			(73	)		827			(193	)		714
Charge to the income statement (note 13)		139			10			1,356			(193	)		1,312
Advances written off								(1,829	)		(54	)		(1,883	)
Recoveries of advances written off in previous years								397			28			425
Discount unwind								(53	)		–			(53	)
At 31 December 2019		677			995			1,464			142			3,278
In respect of undrawn balances
At January 2019		123			64			6			–			193
Exchange and other adjustments		–			(1	)		–			–			(1	)
Transfers to Stage 1		19			(19	)		–						–
Transfers to Stage 2		(4	)		4			–						–
Transfers to Stage 3		(1	)		(3	)		4						–
Impact of transfers between stages		(17	)		24			(1	)					6
		(3	)		6			3						6
Other items charged to the income statement		(25	)		8			(4	)		–			(21	)
Charge to the income statement (note 13)		(28	)		14			(1	)		–			(15	)
At 31 December 2019		95			77			5			–			177
Total at 31 December 2019		772			1,072			1,469			142			3,455
In respect of:
Loans and advances to banks		2			–			–			–			2
Loans and advances to customers:
Retail mortgages		23			281			122			142			568
Other		652			714			1,325			–			2,691
		675			995			1,447			142			3,259
Debt securities		–			–			3			–			3
Financial assets at amortised cost		677			995			1,450			142			3,264
Other assets		–			–			14			–			14
Provisions in relation to loan commitments and financial guarantees		95			77			5			–			177
Total		772			1,072			1,469			142			3,455
Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)		–			–			–			–			–

Exchange and other adjustments include certain adjustments, prescribed by IFRS 9, in respect of purchased or originated credit-impaired financial assets.

Movements in the Group’s allowance for impairment losses in respect of Retail mortgages were as follows:

	Stage 1 £m			Stage 2 £m			Stage 3 £m			Purchased or originated credit-impaired £m			Total £m
Balance at 1 January 2019		37			226			118			78			459
Exchange and other adjustments		–			–			–			283			283
Transfers to Stage 1		17			(17	)		–						–
Transfers to Stage 2		(13	)		33			(20	)					–
Transfers to Stage 3		(5	)		(21	)		26						–
Impact of transfers between stages		(15	)		105			39						129
		(16	)		100			45						129
Other items charged to the income statement		3			(45	)		(59	)		(193	)		(294	)
Charge to the income statement		(13	)		55			(14	)		(193	)		(165	)
Advances written off								(35	)		(54	)		(89	)
Recoveries of advances written off in previous years								29			28			57
Discount unwind								24			–			24
At 31 December 2019		24			281			122			142			569

Year ended 31 December 2018	Stage 1 £m			Stage 2 £m			Stage 3 £m			Purchased or originated credit-impaired £m		Total £m
In respect of drawn balances
Balance at 1 January 2018		590			1,147			1,491			32		3,260
Exchange and other adjustments		2			–			133			–		135
Transfers to Stage 1		304			(299	)		(5	)				–
Transfers to Stage 2		(46	)		85			(39	)				–
Transfers to Stage 3		(32	)		(131	)		163					–
Impact of transfers between stages		(233	)		401			325					493
		(7	)		56			444					493
Other items charged to the income statement		(58	)		(107	)		696			–		531
Charge to the income statement (note 13)		(65	)		(51	)		1,140			–		1,024
Advances written off								(1,605	)		–		(1,605	)
Disposal of businesses		–			(102	)		(79	)		–		(181	)
Recoveries of advances written off in previous years								553			27		580
Discount unwind								(63	)		19		(44	)
At 31 December 2018		527			994			1,570			78		3,169
In respect of undrawn balances
Balance at 1 January 2018		147			126			–			–		273
Exchange and other adjustments		(5	)		(14	)		12			–		(7	)
Transfers to Stage 1		28			(28	)		–					–
Transfers to Stage 2		(6	)		6			–					–
Transfers to Stage 3		(2	)		(5	)		7					–
Impact of transfers between stages		(25	)		22			(5	)				(8	)
		(5	)		(5	)		2					(8	)
Other items charged to the income statement		(14	)		(43	)		(8	)		–		(65	)
Charge to the income statement (note 13)		(19	)		(48	)		(6	)		–		(73	)
At 31 December 2018		123			64			6			–		193
Total at 31 December 2018		650			1,058			1,576			78		3,362
In respect of:
Loans and advances to banks		2			–			–			–		2
Loans and advances to customers:
Retail mortgages (see below)		37			226			118			78		459
Other		488			768			1,435			–		2,691
		525			994			1,553			78		3,150
Debt securities		–			–			6			–		6
Financial assets at amortised cost		527			994			1,559			78		3,158
Other assets		–			–			11			–		11
Provisions in relation to loan commitments and financial guarantees		123			64			6			–		193
Total		650			1,058			1,576			78		3,362
Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item):		1			–			–			–		1

Movements in the Group’s allowance for impairment losses in respect of Retail mortgages were as follows:

	Stage 1 £m			Stage 2 £m			Stage 3 £m			Purchased or originated credit-impaired £m		Total £m
Balance at 1 January 2018		30			236			86			32		384
Exchange and other adjustments		–			1			1			–		2
Transfers to Stage 1		72			(71	)		(1	)				–
Transfers to Stage 2		(3	)		15			(12	)				–
Transfers to Stage 3		(3	)		(17	)		20					–
Impact of transfers between stages		(48	)		82			40					74
		18			9			47					74
Other items charged to the income statement		(11	)		(20	)		(5	)		–		(36	)
Charge to the income statement		7			(11	)		42			–		38
Advances written off								(19	)		–		(19	)
Recoveries of advances written off in previous years								3			27		30
Discount unwind								5			19		24
At 31 December 2018		37			226			118			78		459

The Group income statement charge comprises:

	2019 £m		2018 £m
Drawn balances	1,312		1,024
Undrawn balances	(15	)	(73	)
Financial assets at fair value through other comprehensive income	(1	)	(14	)
Total	1,296		937

The movement tables are compiled by comparing the position at 31 December to that at the beginning of the year. Transfers between stages are deemed to have taken place at the start of the reporting period, with all other movements shown in the stage in which the asset is held at 31 December, with the exception of those held within Purchased or originated credit-impaired, which are not transferrable. As assets are transferred between stages, the resulting change in expected credit loss of £598 million (2018: £493 million) for drawn balances, and £6 million (2018: £8 million) for undrawn balances, is presented separately as Impacts of transfers between stages, in the stage in which the expected credit loss is recognised at the end of the reporting period.

Other items charged to the income statement include the movements in the expected credit loss as a result of new loans originated and repayments of outstanding balances throughout the reporting period. Loans which are written off in the period are first transferred to Stage 3 before acquiring a full allowance and subsequent write-off. Consequently, recoveries on assets previously written-off also occur in Stage 3 only.