Edgar Filing: BARCLAYS PLC

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, for the fiscal year ended December 31, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to .


Commission file numbers:		Barclays PLC 0-13790 Barclays Bank PLC 2-71497-01

Barclays PLC Barclays Bank PLC
(Exact name of registrants as specified in their charters)

England
(Jurisdictions of incorporation)

54 Lombard Street, London EC3p 4AH
England
(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

	Title of each class	Name of each exchange on which registered
Barclays PLC	25p ordinary shares	New York Stock Exchange*
	American Depositary Shares, each representing four 25p ordinary shares	New York Stock Exchange
Barclays Bank PLC	Convertible Capital Notes	New York Stock Exchange**
	American Depositary Note Receipts, representing interests in Convertible Capital Notes	New York Stock Exchange

*: Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
**: Not for trading, but only in connection with the registration of American Depositary Note Receipts, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuers' classes of capital or common stock as of the close of the period covered by the annual report:

Barclays PLC	25p ordinary shares	6,575,507,329
	£1 staff shares	875,000
Barclays Bank PLC	£1 ordinary shares	2,292,860,515

Indicate by check mark whether the registrants have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days:

Yes ý No o

Indicate by check mark which financial statement item the registrants have elected to follow:

Item 17 o Item 18 ý

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrants (1) have filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court:

Yes o No o

This document comprises the Annual report on Form 20-F for the year ended December 31, 2002 of Barclays PLC and Barclays Bank PLC (the "2002 Form 20-F"). Reference is made to the Form 20-F cross reference table on page 190 hereof (the "Form 20-F Cross Reference Table"). Only (i) the information in this document that is referenced in the Form 20-F Cross Reference Table, and (ii) the Exhibits, shall be deemed to be filed with the Securities and Exchange Commission for any purpose, including incorporation by reference into the Registration Statements on Form F-3 (File Nos. 333-8054, 333-12384 and 333-85646) and the Registration Statement on Form S-8 (File No. 333-12818), which were filed by Barclays Bank PLC, and any other documents, including any documents filed by Barclays PLC or Barclays Bank PLC pursuant to the Securities Act of 1933, as amended, which purport to incorporate by reference the 2002 Form 20-F. Any information herein which is not referenced in the Form 20-F Cross Reference Table, or the Exhibits themselves, shall not be deemed to be so incorporated by reference.

SECTION 1—IMPACT

Directors and officers of Barclays PLC and Barclays Bank PLC		2
Directors' report		5
Corporate governance report		7
Barclays report on remuneration		10
Accountability and Audit		22
Presentation of information		23
Risk management		24
	Risk management and control—overview	24
	Credit risk management	27
	Analysis of loans and advances	29
	Analysis of loans and advances—further information	31
	Country risk	35
	Potential credit risk lendings	36
	Provisions for bad and doubtful debts	38
	Market risk management	44
	Disclosures about certain trading activities including non-exchange traded contracts	47
	Derivatives	49
	Treasury asset and liability management	51
	Management of other risks	55

Registered No. 48839

This document contains certain forward-looking statements within the meaning of section 21E of the US Securities Exchange Act of 1934, as amended and section 27A of the US Securities Act of 1933, as amended with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition and performance.

The Group may also make forward-looking statements in other written materials, including other documents filed with or furnished to the US Securities and Exchange Commission (the "SEC"). In addition, the Group's senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. In particular, among other statements, certain statements in the Financial Review and Business Description with regard to management objectives, trends in results of operations, margins, costs, return on equity, risk management, and competition are forward looking in nature. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as "anticipate," "target," "expect," "estimate," "intend," "plan," "goal," "believe," or other words of similar meaning.

By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. The Group's actual future results may differ materially from those set out in the Group's forward-looking statements. There are many factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made. Barclays does not undertake to update forward-looking statements to reflect any changes in the Group's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any further disclosures Barclays may make in documents it files with the SEC.

DIRECTORS AND OFFICERS

DIRECTORS AND OFFICERS OF BARCLAYS PLC AND
BARCLAYS BANK PLC

1 Chairman
Sir Peter Middleton GCB

Sir Peter Middleton GCB (age 68) was appointed as Chairman at the 1999 AGM. Sir Peter joined the Board in 1991 as Deputy Chairman and Chairman of BZW. This followed a long career in HM Treasury where he was Permanent Secretary from 1983 to 1991. He became Chairman of Barclays Capital following the reorganisation of BZW in 1997. In 1998, he relinquished his executive responsibilities as Deputy Chairman and Chairman of Barclays Capital but remained a non-executive Director. He resumed executive responsibilities when he was appointed Group Chief Executive and reappointed Group Deputy Chairman in 1998. He stepped down as Group Chief Executive following the appointment of Matthew Barrett in 1999. He is Deputy Chairman of United Utilities PLC, Chancellor of Sheffield University, a Director of the International Monetary Conference and a member of the International Advisory Panel of the Monetary Authority of Singapore. He is Chairman of the Board Nominations and Board Risk Committees.

2 Group Chief Executive
Matthew William Barrett

Matthew William Barrett (age 58) was appointed Group Chief Executive and joined the Board in 1999. He joined Barclays from Bank of Montreal where he was Chairman and Chief Executive Officer. He joined the Bank of Montreal in 1962 and during his career held a variety of senior management positions in different areas within the Bank, including Retail Banking, International Banking and Treasury. He was appointed Chief Operating Officer in 1987, Chief Executive Officer in 1989 and elected Chairman of the Board in 1990. In 1994, he became an Officer of the Order of Canada, the country's highest civilian honour, and in 1995 he was awarded the title of Canada's Outstanding CEO of the Year. He has been a non-executive Director of The Molson Companies Limited since 1992 and is a governor of the London Business School.

3 Group Executive Director
Christopher John Lendrum

Christopher John Lendrum (age 56) joined the Board in 1998. He joined Barclays Bank in 1969 and assumed his current portfolio of responsibilities (including Group Corporate Social Responsibility, Barclays Africa and South American Corporate Banking) in 2003. He had previously been Chief Executive of Corporate Banking since 1998, prior to which he had held a number of senior positions within the Group. These included Deputy Managing Director of Barclays Banking Division. Regional Director, North London and Executive Vice President, Barclays Bank New York.

4 Group Finance Director
John Silvester Varley

John Silvester Varley (age 46) joined the Board in 1998 and was appointed Group Finance Director on 9th November 2000. He joined Barclays Merchant Bank in 1982 and was Chief Executive of Retail Financial Services from April 1998 to October 2000, having previously been Chairman of the Asset Management Division since 1995.

Non-executive Directors

5 Deputy Chairman
Sir Brian Garton Jenkins GBE

Sir Brian Garton Jenkins GBE (age 67) joined the Board in 2000 as a Deputy Chairman on completion of the acquisition of Woolwich plc. He joined the Woolwich's Board as a non-executive Director in 1994 and was appointed Deputy Chairman in 1995. He became Chairman later that year and oversaw the conversion of The Woolwich Building Society to a public limited company in 1997. A former senior partner of Coopers & Lybrand Chartered Accountants, Sir Brian has served as Lord Mayor of London, President of the Institute of Chartered Accountants in England & Wales and the President of the British Computer Society. He is also Chairman of the Charities Aid Foundation. He is a member of the Board Audit, Board Remuneration, Board Nominations and Board Risk Committees.

6 Thomas David Guy Arculus

Thomas David Guy Arculus (age 56) joined the Board in 1997. He is Chairman of Severn Trent plc, the water and waste group and is also Chairman of the UK Government's Better Regulation Task Force. Other roles include Chairman of Earls Court & Olympia Group Limited and a delegate of Oxford University Press. His previous positions include Chairman of IPC Media and Group Managing Director of EMAP plc. He is a member of the Board Remuneration and Board Nominations Committees.

7 Hilary Mary Cropper CBE

Hilary Mary Cropper CBE (age 62) joined the Board in 1998. She is Chairman of Xansa PLC, a leading supplier of business enabling technology services. She is a member of the Financial Reporting Council, an external adviser to the Home Civil Service Senior Appointments Selection Committee and a member of the Government's National Employment Panel. She is a member of the Board Risk Committee.

8 Professor Sandra Dawson

Professor Sandra Dawson (age 56) has been appointed to the Board from 1st March 2003. She is currently KPMG Professor of Management Studies at the University of Cambridge, Director of the Judge Institute of Management and Master of Sidney Sussex College, Cambridge. Professor Dawson has held a range of non-executive posts in other organisations including Rand Europe (UK), the Society for the Advancement of Management Studies, Fleming Claverhouse Investment Trust, and Riverside Mental Health Trust. She was also a member of the Senior Salaries Review Body.

9 Sir Nigel Mobbs

Sir Nigel Mobbs (age 65) joined the Board in 1979. He is Chairman of Slough Estates plc and Bovis Homes Group PLC and a Director of Howard de Walden Estates. He is also Lord-Lieutenant of Buckinghamshire. He is a member of the Board Audit, Board Remuneration and Board Nominations Committees. He will be retiring at the 2003 AGM.

10 Sir Nigel Rudd DL

Sir Nigel Rudd DL (age 56) joined the Board in 1996. He is non-executive Chairman of Kidde PLC, Pilkington PLC and Pendragon PLC and Deputy Chairman of The Boots Company PLC. He is Chairman of the Board Remuneration Committee and a member of the Board Nominations Committee.

11 Stephen George Russell

Stephen George Russell (age 57) joined the Board in October 2000 on completion of the acquisition of Woolwich plc. He joined Woolwich plc's board as a non-executive Director in 1998. He was Managing Director of Boots The Chemists Ltd from 1995 and joint Group Managing Director of The Boots Company PLC from 1997 until he became Chief Executive in 2000. He has succeeded Sir Nigel Mobbs as Chairman of the Board Audit Committee and is a member of the Board Risk Committee.

12 Graham Martyn Wallace

Graham Martyn Wallace (age 54) joined the Board in April 2001. He was appointed Chief Executive of Cable and Wireless plc in February 1999. He joined Cable and Wireless in 1997 as Chief Executive of Cable and Wireless Communications plc and was appointed a Director of Cable and Wireless plc in 1998. Before joining Cable and Wireless, he held a number of Board positions at Granada Group. He is a member of the Board Remuneration and Nominations Committees.

13 Dr Jürgen Zech

Dr Jürgen Zech (age 63) joined the Board on 30th July 2002. Until 2001, Dr Zech was Chief Executive of Gerling-Konzern, the general insurance arm of Gerling. Before joining Gerling he held a number of executive positions in German insurance companies. The last was as Chief Executive of Cologne, Re, the oldest reinsurance company in the world. He now holds a number of non-executive positions, including being a Director of Misys PLC and Partner, Re Limited. He is a member of the Board Audit Committee.

Barclays considers that each of its non-executive Directors are independent within the meaning of the Combined Code as they are independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. See also page 8.

Group Executive Committee members

		Appointed
Matthew Barrett	Group Chief Executive	1999
Roger Davis	Chief Executive, Business Banking	2003
Bob Diamond	Chief Executive, Barclays Capital	1997
Gary Dibb	Chief Administrative Officer	2000
Gary Hoffman	Chief Executive, Barclaycard	2001
Bob Hunter	Chief Executive, Barclays Private Clients (until 31st March 2003)	1999
Naguib Kheraj	Chief Executive, Barclays Private Clients (from 31st March 2003)	2003
Chris Lendrum	Group Executive Director	1996
Robert Nimmo	Group Risk Director	2002
David Roberts	Chief Executive, Personal Financial Services	2001
John Varley	Group Finance Director	1996
David Weymouth	Chief Information Officer	2000

Other officers


Lawrence Dickinson	Group Secretary	2002
Patrick Gonsalves	Joint Secretary, Barclays Bank PLC	2002
Howard Trust	Group General Counsel	1995

DIRECTORS' REPORT

Profit attributable

The profit attributable to shareholders for the year amounted to £2,230m, compared with £2,446m in 2001.

Dividends

The final dividends for the year ended 31st December 2002 of 12p per ordinary share of 25p each and 10p per staff share of £1 each have been approved by the Directors. The final dividends will be paid on 28th April 2003 in respect of the ordinary shares registered at the close of business on 28th February 2003 and in respect of the staff shares so registered on 31st December 2002. With the interim dividend of 6.35p per ordinary share and of 10p per staff share that were paid on 1st October 2002, the total distribution for 2002 is 18.35p (2001: 16.625p) per ordinary share and 20p (2001: 20p) per staff share. The dividends for the year absorb a total of £1,206m (2001: £1,110m).

Dividend Reinvestment Plan

Ordinary shareholders may have their dividends reinvested in Barclays PLC ordinary shares by participating in the Dividend Reinvestment Plan. The Plan is available to all ordinary shareholders provided that they do not live in, or are subject to the jurisdiction of, any country where their participation in the Plan would require Barclays or The Plan Administrator to take action to comply with local government or regulatory procedures or any similar formalities. Any shareholder wishing to obtain details of the Plan and a mandate form should contact The Plan Administrator to Barclays at PO Box 82, The Pavilions, Bridgwater Road, Bristol BS99 7NH. Those wishing to participate for the first time in the Plan should send their completed mandate form to The Plan Administrator so as to be received by 3rd April 2003 for it to be applicable to the payment of the final dividend on 28th April 2003. Existing participants should take no action unless they wish to alter their current mandate instructions, in which case they should contact The Plan Administrator.

Share capital

At the 2002 AGM held on 25th April 2002, a resolution was passed to divide each ordinary share of £1 each (issued and unissued) into four ordinary shares of 25p each.

During the year, Barclays PLC purchased in the market for cancellation 4.6 million of its ordinary shares of £1 each prior to the subdivision and 101.5 million of its ordinary shares of 25p following the subdivision at a total cost of £546m as part of its programme of returning excess capital to shareholders. These transactions represented some 1.8% of the issued ordinary share capital at 31st December 2002. As at 12th February 2003, the Company has an unexpired authority to repurchase further shares up to a maximum of 957.1 million ordinary shares of 25p.

In addition, the ordinary share capital was increased by 28.6 million ordinary shares during the year as a result of the exercise of options under the SAYE and Executive Share Option Schemes. At 31st December 2002 the issued ordinary share capital totalled 6,576 million shares.

Substantial shareholdings

As at 12th February 2003, the Company has not been notified of any major interests in its shares as required by sections 198 to 208 of the Companies Act 1985.

Board membership

The membership of the Boards of Directors of Barclays PLC and Barclays Bank PLC is identical, and is set out on pages 2 and 3. Dr Jürgen Zech was appointed as a non-executive Director on 30th July 2002 and Professor Sandra Dawson has been appointed as a non-executive Director from 1st March 2003. Sir Andrew Large resigned from the Board on 3rd September 2002 and John Stewart has resigned from the Board with effect from 27th February 2003.

Group Secretary

Howard Trust stepped down as Group Secretary on 19th September 2002. He was succeeded by Lawrence Dickinson.

Retirement and re-election of Directors

In accordance with its articles of association, one-third (or the nearest whole number below one-third) of the Directors of Barclays PLC are required to retire by rotation at each AGM, together with Directors appointed by the Board since the previous AGM. The retiring Directors may stand for re-election. The Directors retiring by rotation at the 2003 AGM and offering themselves for re-election are Matthew Barrett and Sir Nigel Rudd. Sir Nigel Mobbs will be retiring as a Director at the 2003 AGM. In addition, Dr Jürgen Zech and Professor Sandra Dawson, who were appointed as Directors since the last AGM, will be offering themselves for re-election at the 2003 AGM.

Directors' interests

Directors' interests in the shares of the Group on 31st December 2002, according to the register maintained under the Companies Act 1985, are shown on page 21. The register is available for inspection during business hours at the Group's Head office and will be available for inspection at the 2003 AGM.

Directors' emoluments and options

Information on emoluments and share options of Directors of Barclays PLC, in accordance with the Companies Act 1985 and the Listing Rules of the United Kingdom Listing Authority, is given in the corporate governance report by the Board on pages 14 to 21 and in notes 57 and 58 to the accounts.

For US disclosure purposes, the aggregate emoluments of all Directors and officers of Barclays PLC who held office during the year (2002: 25 persons, 2001: 24 persons) for the year ended 31st December 2002 amounted to £30,409,000 (2001: £34,459,000). In addition, the aggregate amount set aside for the year ended 31st December 2002, to provide pension benefits for the Directors and officers amounted to £1,356,000 (2001: £702,000). The aggregate emoluments of all Directors and officers of Barclays Bank PLC who held office during the year (2002: 27 persons, 2001: 25 persons) for the year ended 31st December 2002 amounted to £30,475,000 (2001: £34,562,000). In addition, the aggregate amount set aside by the Bank and its subsidiary undertakings, for the year ended 31st December 2002, to provide pension benefits for the Directors and officers amounted to £1,357,000 (2001: £796,000).

Activities

Barclays PLC Group is an international financial services group engaged primarily in banking, investment banking and asset management. The Group operates through branches, offices and subsidiaries in the UK and overseas. The activities of the Group are described on pages 60 to 65 and developments in the Group's business during the year and an indication of likely future developments are analysed in the Risk management section on pages 24 to 55 and the Financial review on pages 66 to 92.

Community involvement

Community support totalled £32.3m (2001: £31.1m).

Barclays gave £30.0m in support of the community in the UK (2001: £23.9m) and £2.3m was given in international support (2001: £2.2m). UK community support includes £11.1m of charitable donations (2001: £9.6m).

Barclays is a member of the Percent Club—a group of companies that undertook to ensure that donations to the community in 2002 amounted to at least 1% of their UK pre-tax profit.

In line with the Group's policy, the Group made no political donations, as defined by the Companies Act 1985, in the UK during 2002.

Employee involvement

Barclays is committed to ensuring that employees share in the success of the company and have the opportunity to share their views and provide feedback on issues which are important to them.

Equality and diversity

Barclays is committed to giving full and fair consideration to applications for employment from people with disabilities and to continuing the employment of staff who become disabled and arranging any appropriate training to achieve this. More information can be found in the Corporate Social Responsibility section of the Annual Report.

Creditors' payment policy

Barclays policy follows the DTI's Better Payment Practice Code, copies of which can be obtained from the Better Payment Practice Group's website at www.payontime.co.uk. The Code states that a company should have a clear, consistent policy, adhered to by the finance and purchasing departments, that payment terms are agreed at the outset and payment procedures explained to suppliers, that bills are settled in accordance with payment terms agreed with suppliers, that complaints are dealt with quickly and that suppliers are advised of disputes. Barclays values its suppliers and acknowledges the importance of paying invoices, especially those of small businesses, promptly. Normal policy is to pay all small business purchases within 30 days.

Creditor payment days are carefully monitored in the Group, using the systems which record the actual purchases and payments. Barclays estimates that for all UK supplies to Barclays Bank PLC, average creditor payment days in 2002 were 31 days. Paragraph 12(3) of Schedule 7 to the Companies Act 1985 requires disclosure of trade creditor payment days. Disclosure is required by the Company, rather than the Group. The Group's principal trading subsidiary in the UK is Barclays Bank PLC, the accounts for which are prepared under Schedule 9 of the Companies Act 1985. The components for the trade creditor calculation are not easily identified in Schedule 9. However, by identifying as closely as possible the components required by the Schedule, the trade creditor payment days for Barclays Bank PLC for 2002 were 28 days (2001: 31 days). This is an arithmetical calculation which includes property rentals and payments, and does not necessarily reflect our practice, which is described above, nor the experience of any individual creditor.

The auditors

Following the conversion of PricewaterhouseCoopers to a Limited Liability Partnership (LLP), effective from 1st January 2003, PricewaterhouseCoopers resigned as auditors and the Board appointed PricewaterhouseCoopers LLP to fill the casual vacancy created by the resignation. PricewaterhouseCoopers LLP have signified their willingness to continue in office and an ordinary resolution, with special notice, re-appointing them as auditors and authorising the Directors to determine their remuneration will be proposed at the 2003 AGM. The Board Audit Committee approves and reviews the appointment of the external auditors, as well as their relationship with the Group, including monitoring the balance of audit and non-audit fees paid to the auditors.

The annual general meeting

The AGM will be held at The Queen Elizabeth II Conference Centre on 24th April 2003. The Notice of Annual General Meeting is included in the Annual Review and Summary Financial Statement 2002 sent to shareholders at the same time as this report.

By order of the Board

Lawrence Dickinson
Group Secretary
12th February 2003

CORPORATE GOVERNANCE

Corporate governance report

Chairman's statement

Corporate governance is the system by which companies are managed and controlled. At Barclays, we place a great deal of importance on robust corporate governance practices and we are committed to applying the highest standards of business integrity and professionalism in all of our activities.

It has been a year in which corporate governance has been very much in the public eye as a result of the failures of a number of high profile US companies. The reaction to this by the US Government has been swift and far-reaching with the implementation of the Sarbanes-Oxley Act 2002, which affects all companies registered with the US Securities and Exchange Commission, including Barclays.

During 2002 there has also been a number of reviews conducted in the UK, such as the recently published Higgs report on the role and effectiveness of non-executive Directors, Sir Robert Smith's report on Audit committees and the White Paper on the reform of UK Company Law. We have, as ever, played an active role in contributing to the growing debate in this important area and we strongly believe that the key to effective systems of corporate governance lies in the continued development of codes of best practice, such as the Combined Code, and disclosure, rather than through legislation. The European Commission commented in 2002 that best practice, as reflected in the corporate governance codes of EU member states, should be allowed to develop over time by the business and investment communities, under the influence of market forces. This is a position we support.

The development of codes of best practice in recent years has improved corporate governance standards in corporate UK. In addition, we continually strive to ensure our own standards are maintained. To assist with that, we have established a formal process for the Board to assess its own effectiveness. As a part of the assessment we conducted in 2002, the Board defined its core role as being accountable to shareholders for the creation and delivery of sustainable shareholder value.

Under the leadership of the Group Chief Executive, executive management is responsible to the Board for the implementation of the objectives and policies approved by the Board. Meetings of the Board are structured to allow open discussion and to enable non-executive Directors to challenge proposals put forward by the executive. Improvements in the content and format of reports to the Board have also been made to ensure the Board spends its time as effectively as possible.

Another development during 2002 is a change to the way we reward our non-executive Directors. Since the entire Board is accountable for creating shareholder value, we believe it is important that their reward contains a significant share based element. Consequently, 40% of the basic fee paid to non-executive Directors is now in the form of Barclays shares. Full details of these arrangements can be found on page 13.

In conclusion, I can assure you that your Board is focused on maintaining the highest standards of corporate governance to protect the interests of our shareholders. We will continue to play an active role in the debate on how to improve governance practices, although our stance continues to be that shareholders' and other stakeholders' best interests are served by greater openness and transparency rather than prescriptive regulation.

We have this year included a report from the Chairman of the Board Audit Committee on the work done by this committee. Details of the work of the Board Remuneration Committee are given in the report on remuneration on page 10.

Sir Peter Middleton
Chairman

Board structure

As at 1st March 2003, the Board will consist of the Chairman, who has no executive responsibilities, nine non-executive Directors and three executive Directors, including the Group Chief Executive. Their details appear on pages 2 and 3. The roles of our Chairman and Group Chief Executive are separate with a clear division of responsibilities between them. Responsibility for the evaluation of the Group Chief Executive lies with the Chairman, in consultation with the other members of the Board. Responsibility for the evaluation of the Chairman lies with the Board Remuneration Committee.

Executive Directors under the leadership of the Group Chief Executive generally have responsibility for making and implementing operational decisions and running the Group's businesses. The non-executive Directors support the skills and experience of the executive Directors, by challenging and testing the strategy and policy put forward by the executive based on their wide knowledge and experience.

The Board meets regularly and has a formal schedule of matters reserved to it. All Directors have access to the advice of the Group Secretary and independent professional advice is also available to Directors at the Group's expense.

Following the appointment of new Directors to the Board, a comprehensive induction programme is arranged, including visits to the Group's businesses and meetings with senior management as appropriate, to help them quickly build up an understanding of the working of the Group. Additional training and updates on particular issues are arranged by the Group Secretary as appropriate. For example, during 2002, a seminar was arranged for non-executive Directors covering such matters as market risk, credit risk, non-financial risk and compliance.

At each AGM, one-third of the Directors retire and offer themselves for re-election. In practice, this means that every Director stands for re-election at least once every three years. Any Directors appointed by the Board since the last AGM must also stand for re-election.

Our Directors diligently support the work of the Board and its committees. During the year 13 Board meetings were held which included a full day's meeting on the Group's strategy.

Combined Code statement of compliance

As a company listed on the London Stock Exchange, Barclays follows the United Kingdom Listing Authority's Combined Code—Principles of Good Governance and Code of Best Practice.

For the year ended 31st December 2002, Barclays complied with the Combined Code save for the formal appointment of a senior independent director. As there is a clear division of responsibilities at the head of the Group between the Chairman and Group Chief Executive and as the Board also has a Deputy Chairman, Sir Brian Jenkins, who is an independent Director, the Board feels that such an appointment is, at present, unnecessary. However, this will be reviewed in light of the recommendations of the Higgs Report.

The Board has determined that all the non-executive Directors are independent in terms of the UK Combined Code as they are independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. There is a strategic alliance between Barclaycard and Xansa, of which Hilary Cropper is Chairman. As a result, Hilary Cropper has not, and will not, participate in discussions of this alliance at the Board. Having considered the matter carefully, the Board has concluded that Hilary Cropper remains independent for Combined Code purposes.

The Board annually reviews the independence of its non-executive Directors, taking into account developing best practice and regulation as and when it becomes effective.

Board committees

Specific responsibilities have been delegated to the Board committees. The four principal Board committees are:

Board Audit Committee

Statement from the Chairman of the Board Audit Committee

The Board Audit Committee plays an important role in reviewing the Group's controls and financial reporting systems. While the Committee's role is becoming increasingly complex following the impact of the US Sarbanes-Oxley Act and other best practice developments during the year, Barclays is fully committed to ensuring the Committee fulfils its duties and responsibilities.

The Committee is made up entirely of non-executive Directors, all of whom are considered by the Board to be independent. Current members of the Committee are:

Board Audit Committee

Stephen Russell, Chairman
Sir Nigel Mobbs, Chairman during 2002
Sir Brian Jenkins
Dr Jürgen Zech

During 2002, the Committee met four times, with the Group's senior management, the internal audit team and the external auditors, PricewaterhouseCoopers LLP. I maintained close contact with each of the aforementioned parties to ensured that the meetings of the Committee were as effective as possible. The Committee also met privately with the external auditors after each Committee meeting and at other times, where appropriate. For example, in December, the external auditors briefed the Committee on recent corporate governance developments, including the requirements of the US Sarbanes-Oxley Act and the nature of their reporting to the Committee going forward.

The Committee is responsible for approving and reviewing the appointment and retirement of the external auditors, as well as overseeing their relationship with the Group. This includes an annual review of the independence of the external auditors and the recommendation to the Board of the level of fees to be paid to the external auditors. The Committee is also responsible for the approval, monitoring and review of the Group's policy in relation to the use of the external auditors for carrying out non-audit work.

The responsibility for ensuring that management maintain an effective system of internal control and for reviewing its effectiveness rests with the Board. The Group Chief Executive and the Group Executive Committee are responsible for the management of risk and the Group Governance and Control Committee is responsible for monitoring the Group's assurance process and the risk governance framework to ensure that it is complete and effective. The Board Audit Committee reviews the effectiveness of risk management standards and reviews reports on control issues of Group level significance.

The Committee has a pivotal role in reviewing the Group's annual and interim financial statements, including the effectiveness of the Group's disclosure controls and procedures and system of internal control. The remit of the Committee also extends to reviewing the work undertaken by the internal audit team and reports produced by senior management on control issues, reporting its findings to the Board as appropriate.

The Committee reviews arrangements established by management for compliance with the requirements of relevant regulatory and supervisory bodies. In particular it reviews reports carried out under Section 166 of the Financial Services and Market Act 2000 together with any other matters of significance that arise out of management's meetings with supervisors such as the Financial Services Authority.

The Committee strives to ensure that it keeps abreast of all material developments in regulation and best practice affecting the work within its remit. The Committee has in place procedures to ensure that it receives regular briefings on such issues as well as training, where appropriate.

I shall be retiring from the Board at the 2003 AGM and have been succeeded by Stephen Russell as Chairman of the Committee, whose appointment I fully endorse.

Sir Nigel Mobbs
Board Audit Committee Chairman during 2002

Board Remuneration Committee

Sir Nigel Rudd, Chairman
David Arculus
Sir Brian Jenkins
Sir Nigel Mobbs
Graham Wallace

The Board Remuneration Committee meets at least four times a year to consider matters relating to executive remuneration including remuneration policy for executive Directors, employee benefits and long-term incentive schemes. During the year the Committee has also taken time to consider the new Regulations in respect of the disclosure of Directors' emoluments. The Committee is also responsible for the evaluation of the Chairman of the Board.

Board Nominations Committee

Sir Peter Middleton, Chairman
David Arculus
Sir Brian Jenkins
Sir Nigel Mobbs
Sir Nigel Rudd
Graham Wallace

The Board Nominations Committee is chaired by the Chairman of the Board, except when the Committee is considering the succession of the Chairman of the Board, in which case the Chairman of the Board Remuneration Committee, Sir Nigel Rudd, also chairs the Board Nominations Committee. The Committee's other members are all non-executive Directors. The Committee considers and makes recommendations to the Board on the composition of the Board, potential new Board appointments and other top executive appointments.

Board Risk Committee

Sir Peter Middleton, Chairman
Hilary Cropper
Sir Brian Jenkins
Stephen Russell
John Varley

The Board Risk Committee meets at least twice a year to review and recommend to the Board policies and standards for the risk governance and risk management of the Group. An overview of the Group's risk management and control framework can be found on page 24.

Copies of the terms of reference of the Board committees are available from the Group Secretary.

Relations with shareholders

Barclays has just over 900,000 institutional and private shareholders (including Barclays Sharestore members) and has adopted a proactive approach to its relationship with them. In the UK, senior executives hold meetings with our key institutional shareholders to discuss strategy, financial performance and investment activities. Throughout Europe and in the US, we arrange road shows about the Group for key investors. In addition, the Chairman meets regularly with investor bodies and investors to discuss corporate governance issues.

The Group aims to provide a first-class service to its private shareholders. For example, we have introduced Barclays e-view, a service which enables shareholders to receive shareholder documents electronically as soon as they are published and to appoint someone, if they wish, to vote for them at shareholder meetings. It also gives shareholders immediate access to information relating to their personal shareholding and dividend history and provides the necessary forms to change the details held on the share register.

Our policy is also to make constructive use of the AGM. The chairmen of the Board Audit and Board Remuneration Committees are, whenever possible, present at the AGM and are available to answer shareholders' questions. Normally, all resolutions are voted on by a poll to ensure that the views of all shareholders are reflected.

BARCLAYS REPORT ON REMUNERATION

Statement from the Chairman of the Board Remuneration Committee (the Committee)

The primary purpose of the Committee is to determine the Group's policy on the remuneration of executive Directors and the specific remuneration packages for each of the executive Directors. The Committee is made up exclusively of non-executive Directors, and executive Directors play no part in determining their own remuneration.

This Report describes the current components of the Group's remuneration policy and details the remuneration during 2002 of each of the Directors. This will be the first year that the Report will be put to shareholders for approval at the AGM.

The Committee has continued to apply the three fundamental principles of accountability, transparency and linkage with performance in its deliberations throughout the year and in preparing this Report.

Barclays emphasis on reward for performance, and alignment with shareholders' interests, is illustrated by the following points:

•: Executive Directors' annual cash bonuses for 2002 are significantly lower than in 2001. This recognises that Barclays economic profit⁽¹⁾ performance for 2002, while higher than for 2001, was at the lower end of the target range.

(1)

Economic profit is defined as profit after tax and minority interests plus certain gains (and losses) reported within the statement of total recognised gains and losses where they arise from the Group's business activities and are in respect of transactions with third parties, less a charge for the cost of average shareholders' funds (which includes purchased goodwill).

•: As shown in the table on page 16, the executive Directors have a very substantial personal interest in Barclays shares, through shares they own, and shares and options held in employee share plans on their behalf. As the table illustrates, movements in the Barclays share price have had a major effect on the value of these holdings.
•: The performance conditions set for the Incentive Share Option Plan, as described in the Remuneration Report, are cumulative economic profit performance1, and total shareholder return relative to 11 competitor companies. These are both good measures of the value created for shareholders. The options are granted at market price, and they will only deliver value to the executive Directors if Barclays achieves sustained share price growth.

The Committee unanimously recommend that you vote in favour of this Report at the AGM.

Sir Nigel Rudd
Board Remuneration Committee Chairman

Board Remuneration Committee members

The Committee comprises the following non-executive Directors:

Sir Nigel Rudd, Chairman
David Arculus
Sir Brian Jenkins
Sir Nigel Mobbs
Graham Wallace

Sir Nigel Mobbs is due to retire from the Board at the 2003 AGM.

The Committee members are independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement.

The constitution and operation of the Committee comply with the Best Practice Provisions on Directors' Remuneration in the Combined Code of the UK Listing Authority.

Advisers to the Committee

The Committee has access to executive remuneration consultants to ensure that it receives the best independent advice. The selection of advisers is at the discretion of the Committee Chairman. Advisers are appointed by the Committee for specific pieces of work, as necessary, and are required to disclose any potential conflict of interest to the Committee.

During 2002, Towers Perrin⁽²⁾ advised the Committee on the latest market developments in executive compensation. Towers Perrin has also advised the Company on other human resource related issues including advice in the area of employee reward, pensions and employee communication.

(2): Towers Perrin have given and not withdrawn their written consent to the issue of this document with the inclusion of references to their name in the form and context in which it appears.

The Chairman of the Board, Group Chief Executive and Group Human Resources Director also advise the Committee, but are not permitted to participate in discussions or decisions relating to their own remuneration. The Human Resources Director is responsible for personnel matters within Barclays, is not a Board Director, and is not appointed by the Committee.

Our remuneration policy

We are committed to using reward to support a strong performance oriented culture in which excellence is expected at every level in the organisation. Employees can expect outstanding reward for outstanding performance.

The remuneration policy is:

•: To align the interests of employees with those of the shareholders to create value;
•: To recognise excellent performance of the Group, business and individual;
•: To encourage the right behaviours to achieve excellent performance;
•: That reward is to be commercially competitive; and
•: That reward is to be transparent, well communicated and easily understood.

Barclays reward programmes are designed to support and facilitate generation of total shareholder return. The graph below shows the total shareholder return for the FTSE 100 Index and Barclays since 31st December 1997. The FTSE 100 is the 100 largest UK quoted companies by market capitalisation. It has been chosen because it is a widely recognised performance comparison for large UK companies. It shows the value, by the end of 2002, of £100 invested in Barclays on 31st December 1997 compared with the value of £100 invested in the FTSE 100 Index. This shows that Barclays out-performed the FTSE 100 for this period.

The reward package for executive Directors

The reward package for the executive Directors and other senior executives comprises:

•: Base salary;
•: Annual bonus including the Executive Share Award Scheme (ESAS);
•: The Incentive Share Option Plan (ISOP); and
•: Pension and other benefits.

The Committee reviews the elements of the reward package relative to the practice of other comparable organisations.

The sections that follow explain how each of the elements of remuneration listed above is structured. Each part of the package is important and has a specific role in achieving the aims of the remuneration policy. The combined potential earnings from bonus and ISOP outweigh the other elements. Annual bonus and ISOP are subject to performance conditions, thereby placing more reward at risk. The component parts for each Director are detailed in tables accompanying this Report.

Base Salary

This is a fixed cash sum, payable monthly. The Remuneration Committee reviews salaries each year as part of the total reward package, recognising market practice and individual contribution.

Annual bonus including Executive Share Award Scheme (ESAS)

The annual bonus for executive Directors is linked to Group economic profit performance and individual performance. Bonuses (including ESAS) for 2002 were 67% of base salary at 31st December 2002 for the Group Chief Executive and between 50% and 62% of base salary for other executive Directors. This represents a total reduction in executive Directors' bonuses of 39% since the previous year. In addition, the former Deputy Group Chief Executive, John Stewart, received a bonus for his work on Woolwich integration as detailed in the tables accompanying this Report.

Up to 75% of any bonus award is normally paid as cash and the balance as a mandatory award of shares under ESAS. (See page 17 for details.)

Incentive Share Option Plan (ISOP)

The ISOP is designed to provide the opportunity for individuals to receive rewards for creating sustained shareholder value growth. Under the ISOP, participants are granted options over Barclays PLC ordinary shares which are exercisable at the market price at the time of grant. The number of shares over which options can be exercised depends upon Barclays performance against specific targets. In establishing the performance targets, the Committee has sought to encourage excellent business performance. The two measures of performance used are economic profit (EP) growth and total shareholder return (TSR). These were chosen because they are both good measures of the value created for shareholders. EP is an audited measure which is used as a key internal value creation metric.

The Committee agrees a target ISOP award for each executive Director taking account of market practice for comparable positions and ranges for other positions. A proportion of the target award for executive Directors is subject to the EP measure and a proportion to the TSR measure.

1 Growth in Economic Profit

All participants have some options related to cumulative EP, measured over three years. This measure encourages both profitable growth and the efficient use of capital.

Where cumulative EP is above the target range at the end of the three-year performance period, options over double the number of target award shares will become exercisable. Where cumulative EP is below the target range at the end of the three-year performance period, options over half of the target award shares will become exercisable. Where EP is below the three-year cumulative EP for the previous three years, the options lapse. This is described, for the 2002 awards, in the following table.

EP Ranges for 2002 Grant of ISOP for Performance Period 2002 to 2004

Performance achieved		Number of shares under option that become exercisable
Above the "Target" range, (i.e. the 3-year cumulative EP for the performance period is above £5,100m)		2 x Target Award
In the "Target" range (i.e. the 3-year cumulative EP for the performance period is between £4,000m and £5,100m)		1 x Target Award
Below the "Target" range (i.e. the 3-year cumulative EP for the performance period is below £4,000m)		0.5 x Target Award
EP growth is not positive (i.e. the 3-year cumulative EP for the performance period is not more than the cumulative EP for the previous 3-year period)		Zero

2 Total Shareholder Return (TSR)

For the most senior participants, a proportion of the shares under option are subject to a tougher performance condition based on TSR measured against a financial services peer group approved by the Committee. This peer group comprises 11 UK and internationally based financial institutions which have been chosen to reflect Barclays business mix. For the performance period 2002–2004 the initial peer group is ABN Amro, Abbey National, BBVA, BNP Paribas, Citigroup, Deutsche Bank, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland and Standard Chartered.

If the Company is ranked first, second or third in the peer group, then the options will become exercisable over quadruple, triple or double the target award shares, respectively. If the Company is ranked fourth, fifth or sixth in the peer group, the options will become exercisable over the target award shares. However, if the Company is ranked below sixth after three years, there will be a retest on the fourth anniversary, over the full four-year period. If the Company is not ranked sixth or higher after four years, the options will lapse.

The method for measuring relative performance is shown in the table that follows, together with the multiple of target award.

Performance achieved in the TSR ranking scale out of 12 financial institutions including Barclays		Number of shares under option that become exercisable
1st place		4 × Target Award
2nd place		3 × Target Award
3rd place		2 × Target Award
4th–6th place		1 × Target Award
7th–12th place		Zero

Note: Under the TSR condition, the ability to exercise is also subject to the condition that EP for the three-year performance period is greater than the previous performance period.

Options must normally be held for three years before they can be exercised and lapse ten years after grant if not exercised.

Sharesave

All eligible employees including executive Directors have the opportunity to participate in Barclays Sharesave Scheme. Sharesave is an Inland Revenue approved all-employee share plan the terms of which do not permit performance conditions to be attached to the exercise of options. Under the plan, participants are granted options over Barclays PLC ordinary shares. Each participant may save up to £250 per month to purchase Barclays shares at a discount. For the 2002 grant, the discount was 20% of the market value at the time the option was granted.

Share Incentive Plan

The Share Incentive Plan was introduced in January 2002. It is an Inland Revenue approved all-employee share plan. The plan is open to all eligible UK employees including executive Directors. Under the plan, participants are able to purchase up to £125 worth of Barclays PLC ordinary shares each month, which if kept in trust for five years can be withdrawn from the plan tax-free. Any shares in the plan will earn dividends in the form of additional shares, which must normally be held by the trustee for three years before being eligible for release.

Pensions

A pension is payable on retirement at contractual retirement date (normally 60), and is calculated either by reference to an executive Director's length of service and pensionable salary or to a money purchase arrangement, depending upon date of hire. Matthew Barrett is not a member of the Group's main pension schemes. A notional fund was accrued on his behalf outside the pension scheme (see page 15 for further details).

Service Contracts

The Group has service contracts with its Chairman, executive Directors and senior executives. Non-executive Directors do not have service contracts. The service contracts do not have a fixed term but provide for a notice period from the Group of one year and normally for retirement at age 60⁽¹⁾. The Committee's policy is that executive Directors' contracts should allow for termination with reasonable notice from the Company, except in circumstances of summary dismissal when notice is not given.

(1): Effective dates of employment contracts: Sir Peter Middleton 1st May 1999; Matthew Barrett 1st January 2002; Chris Lendrum 15th June 1992; John Varley 1st April 1998.

The service contract with Matthew Barrett, who will be standing for re-election at the 2003 AGM, provides for a notice period of one year in line with the other executive Directors. If Mr Barrett's contract is terminated following a change of control of Barclays, pre-determined compensation is payable equivalent to twice annual basic salary, pension contribution, bonus and other benefits. Exceptionally, the Committee decided to retain this provision in Mr Barrett's contract at the time of renewal of his first contract with the Group in March 2002 in order to retain the services of an executive with a global reputation in a competitive market for talent. None of the other executive Directors has a similar clause in their service contracts.

The Committee has considered what arrangements should apply in the event of termination of the contract. The Committee's approach when considering payments in the event of termination is to examine individual circumstances including the reason for termination, contractual notice period and share scheme rules relating to contract termination and take a decision based on this information.

Forward looking statement

The Committee will keep the existing remuneration arrangements, as detailed in this Report, under review during 2003 and ensure that Barclays reward programmes remain competitive and provide appropriate incentive for performance. No significant changes to reward arrangements for executive Directors are expected. However, as usual, there will be individual reviews of base salary, annual bonus (including ESAS) and ISOP awards. The performance targets for incentive plans will also be reviewed to ensure alignment with Group strategy.

Non-executive Directors

The Board determines the fees of non-executive Directors. The Board's policy is that fees should reflect individual responsibilities and membership of Board Committees. The Board, during 2002, has increased the basic fee for our non-executive Directors to £50,000 per annum, to take account of the ever-growing importance, responsibility and time that the role demands.

Barclays encourages its non-executive Directors to build up a holding in the Company's shares. £20,000 of their basic Director's fee is used to buy shares in the Company for each non-executive Director. These shares, together with reinvested dividends, are retained on behalf of the non-executive Directors until they retire from the Board. They are included in the table of Directors' interests in ordinary shares of Barclays PLC on page 21. Non-executive Directors do not participate in share schemes for employees.

Sir Nigel Mobbs will be retiring at the 2003 AGM. Sir Nigel Rudd, Dr Jürgen Zech and Professor Sandra Dawson will be standing for re-election at the 2003 AGM.

2002 Annual Remuneration (a)

							Executive Share Award Scheme ESAS (c)
	Salary & fees	Benefits (b)	Annual cash bonus	Integration Bonus	2002 Total	2001 Total	2002	2001
	(£ thousands)
Chairman
Sir Peter Middleton (d)	513	15	—	—	528	409	—	—

Executive
MW Barrett	1,100	81	516	—	1,697	1,862	223	331
CJ Lendrum	400	10	150	—	560	664	65	117
JM Stewart (e)	460	12	230	900	1,602	779	—	135
JS Varley	460	9	199	—	668	797	86	149

Non-executive (f)
TDG Arculus	52	—	—	—	52	43	—	—
HM Cropper	52	—	—	—	52	42	—	—
Sir Brian Jenkins	100	—	—	—	100	100	—	—
Sir Nigel Mobbs	79	—	—	—	79	70	—	—
Sir Nigel Rudd	57	—	—	—	57	49	—	—
SG Russell	58	—	—	—	58	44	—	—
GM Wallace	52	—	—	—	52	26	—	—
Dr Jürgen Zech (g)	21	—	—	—	21	—	—	—

Former Director
Sir Andrew Large (h)	169	—	—	—	169	175	—	—

Notes

(a): Emoluments include amounts, if any, payable by subsidiary undertakings and by other companies where services are undertaken at the Group's request.
(b): The Chairman and executive Directors receive benefits in kind, which may include life cover, the use of a company owned vehicle, or cash equivalent, and medical health insurance on similar terms to other senior executives.
(c): The amounts shown for ESAS 2002 represent payments which are expected to be made by the trustee to fund the provisional allocation of shares in 2003, including a maximum potential 30% bonus share element. Refer to page 17 for further details about ESAS.
(d): Sir Peter Middleton receives pension payments through the Barclays Bank Retirement Plan. Details of the payments are not included since this is a pension in payment relating to his Barclays service prior to becoming Chairman.
(e): John Stewart led the second phase of the Woolwich integration process for the period from July 2001 to the end of 2002. The Board considered that it was important to the success of the integration process to reward and retain Mr Stewart in this period to maximise shareholder value through further synergies. On 11th July 2001, Mr Stewart was therefore granted a special bonus opportunity of up to a maximum value of £900,000 payable on or before 31st March 2003 based upon the level of his achievement by 31st December 2002 of three performance metrics which include cost savings and business development. The Committee has assessed Mr Stewart's performance and awarded the maximum bonus of £900,000. Mr Stewart has resigned as a Director with effect from 27th February 2003.
(f): Fees to non-executive Directors include an amount of not less than £20,000 which, after tax, is used to buy Barclays PLC ordinary shares for each non-executive Director. Further details are provided on page 13.
(g): Fees for Dr Jürgen Zech are in respect of service since his appointment as non-executive Director on 30th July 2002.
(h): Sir Andrew Large resigned from the Board with effect from 3rd September 2002.

Executive Directors' annual pension accrued assuming retirement at contractual age (a)(e)(f)

	Age at 31st December 2002	Years of service	Accrued pension at 31st December 2001	Pension accrued during 2002 (including increase for inflation)	Accrued pension at 31st December 2002	Transfer value of accrued pension at 31st December 2001	Transfer value of accrued pension at 31st December 2002	Increase in transfer value during the year	Other contributions made in 2002
			(£ thousands)
Executive
MW Barrett (b)	58	3	—	—	—	—	—	—	990
CJ Lendrum (c)	55	33	224	14	238	3,146	3,415	269	—
JM Stewart (d)	53	25	235	10	245	3,058	3,218	160	—
JS Varley (c)	46	20	151	16	167	1,502	1,693	191	—

Notes

(a): Pension accrued during 2002 represents the increase in accrued pension which occurred during the entire year. All pensions are reviewed annually, with a guaranteed increase in line with retail price inflation, up to a maximum of 5%.
(b): Matthew Barrett is not a member of the Group's main pension schemes. A notional fund was accrued on his behalf outside the pension scheme. In the event of Mr Barrett's death before retirement, a capital sum of up to four times salary would be payable.
(c): The Group has a closed non-contributory pension scheme, Barclays Bank UK Retirement Fund—1964 Pension Scheme ("1964 Scheme") which provides that, in the case of death before retirement, a capital sum of up to four times salary is payable, together with a spouse's pension of approximately 50% of the member's prospective pension at retirement. For death in retirement, a spouse's pension of approximately 50% of the member's pre-commutation pension is payable. If a member, granted a deferred pension, dies before their pension becomes payable, their widow/widower will immediately be paid a pension of 50% of their deferred pension. In all circumstances, children's allowances are payable, usually up to the age of 18. Enhanced benefits are payable if a member is unable to work as the result of serious ill health. Chris Lendrum and John Varley are members of the "1964 Scheme" and are entitled to enhanced benefits that will give them two-thirds of their pensionable salary at age 60.
(d): John Stewart is entitled to a pension of up to two-thirds of pensionable salary at age 60. For service to 30th June 2001, Mr Stewart accrued pension rights in The Woolwich Pension Fund. The Woolwich Pension Fund is similar to the "1964 Scheme" except that employees contribute at the rate of 3% of pensionable salary. From 1st July 2001, Mr Stewart became a member of the Group's "1964 Scheme" for future pension accrual. Mr Stewart has resigned as a Director with effect from 27th February 2003.
(e): The accrued pension amounts at the end of the year are the value if the Director left service on that date.
(f): The transfer values have been calculated in a manner consistent with "Retirement Benefit Schemes—Transfer Values (GN11)" published by the Institute of Actuaries and the Faculty of Actuaries.

Executive Directors: Illustration of change in value of shares owned beneficially, or held under option or award under employee share plans during the year (a)(g)

	Number at 31st December 2002							Notional value based on share price of £3.85 (f)
	Number at 31st December 2002						Notional value based on share price of £5.6875 (e)
	Shares owned beneficially (b)	Executive Share Award Scheme	Executive Share Option Scheme	Incentive Share Option Plan (d)	Sharesave	Total	Notional value based on share price of £5.6875 (e)		Change in notional value
							(£ thousands)
Executive
MW Barrett	263,384	185,724	766,628	2,596,000	3,064	3,814,800	5,077	1,731	(3,346	)
CJ Lendrum	202,860	91,164	—	348,000	6,626	648,650	1,986	1,140	(846	)
JM Stewart (c)(h)	4,050	25,940	396,516	240,000	5,588	672,094	1,095	201	(894	)
JS Varley	247,448	195,704	—	360,000	4,096	807,248	2,842	1,706	(1,136	)

Notes

(a): The register of Directors' interests which shows full details of Directors' current share awards and options, is available for public inspection at the Group's Head office in London.
(b): The number shown includes shares held under the Profit Sharing Scheme and the Share Incentive Plan.
(c): The number shown under the Executive Share Option Scheme (ESOS) column includes the Barclays shares under option under The Woolwich Executive Share Option Plan (The Woolwich ESOP).
(d): The number of shares shown represent the target award shares under option.
(e): The value is based on the share price as at 1st January 2002. The notional value of shares under option under the Incentive Share Option Plan (ISOP), ESOS, Woolwich ESOP and Sharesave have been set at zero where the market price at 1st January 2002 is lower than the exercise price per share.
(f): The value is based on the share price as at 31st December 2002. The notional value of shares under option under ISOP, ESOS, Woolwich ESOP and Sharesave have been set at zero where the market price at 31st December 2002 is lower than the exercise price per share.
(g): All the numbers in the table have been restated for the 4 for 1 share split approved by shareholders at the AGM on 25th April 2002.
(h): John Stewart resigned as a Director with effect from 27th February 2003.

The closing market price at 31st December 2002 was 385p, during the year the highest and lowest prices were 624p and 355p respectively.

Under ESAS, ISOP, ESOS and The Woolwich ESOP, nothing was paid by a participant on the grant of options.

Executive Directors: shares provisionally allocated and shares under option under Executive Share Award Scheme (ESAS) (a)(e)

		During 2002
		During 2002								Awarded in 2003 in respect of the results for 2002 (d)
	Number at 1st January 2002	Awarded in respect of the results for 2001	Released (b)		Market price at release date £	Number at 31st December 2002	Nil cost option granted at 3rd anniversary (c)	Date from which exercisable	Latest expiry date	Awarded in 2003 in respect of the results for 2002 (d)
Chairman
Sir Peter Middleton	9,564	—	(9,564	)	5.27	—	—	—	—	—

Executive
MW Barrett	121,816	63,908	—		—	185,724	—	—	—	60,225
CJ Lendrum	73,988	22,560	(5,384	)	5.27	91,164	24,896	23/03/01	25/02/04	17,520
JM Stewart (f)	—	25,940	—		—	25,940	—	—	—	—
JS Varley	213,268	28,828	(46,392	)	5.27	195,704	107,740	23/03/01	25/02/04	23,214

Notes

(a): The size of any award under ESAS is subject to the same Group and individual performance criteria as the annual bonus. Awards under ESAS are granted in the form of provisional allocations over Barclays PLC ordinary shares, which do not give rise to any entitlement to these shares. Normally, the trustees will permit the executive to call for the shares from the end of the third year from grant of an award by granting a right to acquire shares (a nil cost option) exercisable for two years. As this nil cost option is part of the structure of an ESAS award described above, which is a deferred share award scheme, it would not be appropriate to attach a performance condition to the exercise of options. If the right is not exercised, the trustees may at the end of the fifth year release all of the shares, including bonus shares equal to 30% of the basic award. If the right is exercised, an executive may lose the opportunity of receiving one-third of the bonus shares. The number of shares shown in the table includes the bonus shares.
(b): The trustees may release additional shares to participants which represent accumulated net dividends in respect of shares under award. During 2002, the trustees released the following accumulated dividend shares—2,720 to Sir Peter Middleton, 1,544 to Chris Lendrum and 11,972 to John Varley. These are not awarded as part of the original award and consequently are not included in the Released column.
(c): The shares under option shown in this column are already included in the numbers shown at 1st January 2002 and relate to provisional allocations made in 1998 and 1999 except that the figures do not include accumulated dividend shares under option as follows: 1,776 shares for Chris Lendrum and 7,792 shares for John Varley. Under ESAS, a participant pays £1 to exercise an option, irrespective of the number of shares involved. No options were either exercised or lapsed during the year.
(d): The awards in respect of 2002 were made in February 2003. The shares awarded represent shares purchased by the trustees after 18th February 2003 at £3.71 in respect of a recommendation by the Company for an award, including a maximum potential 30% bonus shares, of £223,438 to Matthew Barrett, £65,000 to Chris Lendrum and £86,125 to John Varley.
(e): All the numbers in the table have been restated for the 4 for 1 share split approved by shareholders at the AGM on 25th April 2002.
(f): John Stewart resigned as a Director with effect from 27th February 2003.

Executive Directors: shares under option under Incentive Share Option Plan (ISOP) (a)(b)(e)

			During the year (c)
	Number held as at 1st January 2002		Granted		Number held as at 31st December 2002
	Target Award Shares	Maximum number over which potentially exercisable	Target Award Shares	Maximum number over which potentially exercisable	Target Award Shares	Maximum number over which potentially exercisable	Shares due to vest in 2003 (d)	Exercise price per share £	Date from which exercisable	Expiry Date
	(£ thousands)
MW Barrett
2002
EP	—	—	40	80	40	80	—	5.20	20/03/05	19/03/12
TSR	—	—	1,960	7,840	1,960	7,840	—	5.20	20/03/05	19/03/12
2001
EP	40	80	—	—	40	80	—	5.34	12/03/04	11/03/11
TSR	300	1,200	—	—	300	1,200	—	5.34	12/03/04	11/03/11
2000
EP	40	80	—	—	40	80	80	3.90	18/05/03	17/05/10
TSR	216	864	—	—	216	864	432	3.90	18/05/03	17/05/10

CJ Lendrum
2002
EP	—	—	40	80	40	80	—	5.20	20/03/05	19/03/12
TSR	—	—	80	320	80	320	—	5.20	20/03/05	19/03/12
2001
EP	40	80	—	—	40	80	—	5.34	12/03/04	11/03/11
TSR	80	320	—	—	80	320	—	5.34	12/03/04	11/03/11
2000
EP	40	80	—	—	40	80	80	3.90	18/05/03	17/05/10
TSR	68	272	—	—	68	272	136	3.90	18/05/03	17/05/10

JM Stewart (f)
2002
EP	—	—	40	80	40	80	—	5.20	20/03/05	19/03/12
TSR	—	—	80	320	80	320	—	5.20	20/03/05	19/03/12
2001
EP	40	80	—	—	40	80	—	5.34	12/03/04	11/03/11
TSR	80	320	—	—	80	320	—	5.34	12/03/04	11/03/11

JS Varley
2002
EP	—	—	40	80	40	80	—	5.20	20/03/05	19/03/12
TSR	—	—	80	320	80	320	—	5.20	20/03/05	19/03/12
2001
EP	40	80	—	—	40	80	—	5.34	12/03/04	11/03/11
TSR	80	320	—	—	80	320	—	5.34	12/03/04	11/03/11
2000
EP	40	80	—	—	40	80	80	3.90	18/05/03	17/05/10
TSR	80	320	—	—	80	320	160	3.90	18/05/03	17/05/10

Notes

(a): The Register of Directors' interests which shows full details of Directors' current share awards and options, is available for inspection at the Group's head office in London.
(b): For details of the performance targets which must be satisfied for options to become exercisable and the extent to which options will become exercisable see pages 11 and 12.
(c): No options either lapsed or were exercised during the year and therefore are not shown in the table. As there were no options exercised during the year, the table does not show the market price on the exercise date.
(d): The 2000 grant is due to vest on 18th May 2003. The number of shares due to vest represents the number over which an option may be exercised after the third anniversary from grant, as determined by the Committee in respect of the performance conditions attached to the options originally set at the time of the grant of the option. The shares under option that are not due to vest will lapse. The result of the economic profit performance against the target has resulted in two times the Target Award vesting. The result of the relative TSR performance target against the comparator group of companies placed Barclays in 3rd position with a vesting multiplier of two times the Target Award.
(e): All the numbers in the table have been restated for the 4 for 1 share split approved by shareholders at the AGM on 25th April 2002.
(f): John Stewart resigned as a Director with effect from 27th February 2003.

Executive Directors: shares under option under Sharesave (a)(b)(d)

			Information as at 31st December 2002
	During 2002				Weighted average exercise price £
	During 2002			Exercise price per share £
	Number held at 1st January 2002	Granted	Number at 31st December 2002	Exercise price per share £		Date from which exercisable	Latest expiry date
MW Barrett	3,064	—	3,064	—	3.16	01/11/03	30/04/04
CJ Lendrum	3,912	2,714	6,626	—	2.61	01/11/03	30/04/06
JM Stewart (c)	5,588	—	5,588	—	3.08	01/07/03	31/12/03
JS Varley	4,096	—	4,096	—	4.11	01/11/06	30/04/07

Notes

(a): The Register of Directors' Interests which shows full details of Directors' current share awards and options is available for inspection at the Group's Head office in London.
(b): Please see page 12 for details of the Sharesave scheme. No options were either exercised or lapsed during the year.
(c): John Stewart was previously awarded an option over Woolwich plc shares. This option was rolled over into an option over Barclays PLC shares in accordance with the scheme of arrangement for the acquisition of Woolwich plc. These figures represent option held under the Woolwich plc Sharesave Scheme. Mr Stewart resigned as a Director with effect from 27th February 2003.
(d): All the numbers in the table have been restated for the 4 for 1 share split approved by shareholders at the AGM on 25th April 2002.

Directors: Closed Group incentive schemes (Performance Share Plan (PSP), Executive Share Option Scheme (ESOS) and Woolwich Executive Share Option Plan (ESOP))

In addition, executive Directors continue to have interests under the PSP, ESOS and Woolwich plc 1998 ESOP schemes (as indicated in the table below). No further awards will be made under these schemes. Under PSP, executives were awarded a right to acquire shares, the number of which is determined by the Company's relative TSR performance against a FTSE 100 index comparator group of companies. If ranked in the top 25 positions, awards would vest in full. If ranked below 60th position, none would vest. If between 26th and 60th, vesting would be pro-rata. Under the ESOS, options granted (at market value) to executives were exercisable only if the growth in earnings per share of the Company over a three year period was, at least, equal to the percentage increase in the UK Retail Prices Index plus 6%, over the same period. The performance targets for the 1997, 1998 and 1999 ESOS grants were met.

Under the ESOP, options originally granted over Woolwich plc shares at market value were exercised in 2001 or exchanged, in accordance with the proposals made under the Offer to acquire the Woolwich, for options over Barclays PLC shares. Under the rules of ESOP, the performance conditions attached to the exercise of options were disapplied on acquisition of Woolwich plc by Barclays.

Directors: awards under closed Group incentive schemes (a)(e)

		During the year						Market Price on exercise date £
		During the year				Number at 31st December 2002	Exercise price per share £		Weighted average exercise price
	Number at 1st January 2002	Granted	Exercised		Lapsed	Number at 31st December 2002	Exercise price per share £		Weighted average exercise price	Date from which exercisable	Latest expiry date
MW Barrett (b)
ESOS	766,628	—	—		—	766,628	—	—	4.43	04/10/02	03/10/09
PSP	191,656	—	(191,656	)	—	—	n/a	3.88	—	—	—
CJ Lendrum
ESOS	60,000	—	(60,000	)	—	—	1.76	6.06	—	—	—
PSP (c)	55,928	—	(55,928	)	—	—	n/a	4.39	—	—	—
JM Stewart (f)
Woolwich	536,052	—	(69,420	)	—	396,516	3.85	5.59	3.65	14/12/02	16/02/10
ESOP (d)			(70,116	)			4.22	5.94
JS Varley
PSP (c)	55,928	—	(55,928	)	—	—	n/a	4.39	—	—	—

Notes

(a): The register of Directors' interests which shows full details of Directors' current share awards and options, is available for public inspection at the Group's head office in London.
(b): The independent trustee of the Barclays Group (PSP and ESOS) employees' benefit trust granted Matthew Barrett a share award in 1999 comprising (i) an option on similar terms to options granted under ESOS and (ii) an award on similar terms to awards granted under PSP except that no exercise price was payable as the award was granted as a provisional allocation. For convenience these are described as granted under ESOS and PSP in the above table.
(c): Under PSP, a participant pays £1 to exercise an award, irrespective of the number of shares involved.
(d): Under The Woolwich ESOP, John Stewart held an option over Woolwich plc shares. This was rolled over into a new option over Barclays PLC shares under the terms of The Woolwich ESOP in accordance with proposals offered to all Woolwich employees participating in The Woolwich ESOP following the acquisition of Woolwich plc.
(e): All the numbers in the table have been restated for the 4 for 1 share split approved by shareholders at the AGM on 25th April 2002.
(f): John Stewart resigned as a Director with effect from 27th February 2003.

Directors: interests in ordinary shares of Barclays PLC (a)(e)

	At 1st January 2002(b)(e)		At 31st December 2002
	Beneficial	Non-beneficial	Beneficial	Non-beneficial
Chairman
Sir Peter Middleton	154,376	6,000	163,748	6,000

Executive
MW Barrett	104,356	—	263,384	—
CJ Lendrum (f)	169,044	—	202,860	—
JM Stewart (c)	4,024	—	4,050	—
JS Varley (f)	178,616	—	247,448	—

Non-executive
TDG Arculus	9,764	—	11,391	—
HM Cropper	7,972	—	9,703	—
Sir Brian Jenkins	2,540	105,200	3,576	105,200
Sir Nigel Mobbs	44,492	20,000	46,327	20,000
Sir Nigel Rudd	6,928	—	8,604	—
SG Russell	5,084	—	7,125	—
GMWallace	2,124	—	3,704	—
Dr Jürgen Zech (d)	—	—	2,500	—

Notes

(a): Beneficial interests in the table above represent shares held by Directors, either directly or through a nominee, their spouse and children under 18. They include any interests held through the 1991 UK Profit Sharing Schemes (PSS) and the Share Incentive Plan, but do not include any awards under ESAS, ISOP, PSP, ESOS, Sharesave schemes or under the Woolwich Sharesave or the Woolwich plc 2000 Sharesave Scheme (together The Woolwich Sharesave scheme), or the ESOP. At 31st December 2002, Sir Peter Middleton and the executive Directors together with other senior executives were potential beneficiaries in respect of a total of 70,656,045 Barclays PLC ordinary shares (1st January 2002: 41,920,308) held by the trustees of the Barclays Group Employees' Benefit Trusts. At 12th February 2003, a total of 70,651,234 shares were held by the trustees.
(b): Or date appointed to the Board if later.
(c): At 31st December 2002 John Stewart together with other senior executives from Woolwich plc, was a potential beneficiary in respect of a total of 1,883,196 Barclays PLC ordinary shares held by the trustee of the Woolwich Qualifying Employee Share Ownership Trust. At 12th February 2003 a total of 1,833,196 shares were held by the trustees.
(d): Appointed with effect from 30th July 2002.
(e): Restated for the 4 for 1 share split approved by shareholders at the AGM on 25th April 2002.
(f): Between 31st December 2002 and 12th February 2003, John Varley and Chris Lendrum each purchased 68 ordinary shares through the Share Incentive Plan.

Accountability and Audit

Going concern

The Directors confirm they are satisfied that the Group has adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the "going concern" basis for preparing the accounts.

Internal control

The Directors have responsibility for ensuring that management maintain an effective system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. Throughout the year ended 31st December 2002, and to date, the Group has operated a system of internal control which provides reasonable assurance of effective and efficient operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the significant risks facing the Group in accordance with the guidance "Internal Control: Guidance for Directors on the Combined Code" issued by the Institute of Chartered Accountants in England and Wales. The Board regularly reviews these processes through the Board committees.

The Directors review the effectiveness of the system of internal control annually. An internal control compliance certification process is conducted throughout the Group in support of this review. The effectiveness of controls is periodically reviewed within the business areas. Quarterly risk reports are made to the Board covering all risks of Group significance including credit risk, market risk, operational risk, and legal and compliance risk. Regular reports are made to the Board Audit Committee by management, Group Internal Audit and the compliance and legal functions covering particularly financial controls, compliance and operational controls. Reports covering risk measurement standards and risk appetite are made to the Board Risk Committee.

The key document for the Group's internal control processes is the record of Group Governance practices which describes the Group's governance and control framework and details Group policies and processes. The record of Group Governance practices is reviewed and approved on behalf of the Group Chief Executive by the Group Governance and Control Committee. Further details of risk management procedures are given in the Risk management section on pages 24 to 55.

The system of internal financial and operational controls is also subject to regulatory oversight in the United Kingdom and overseas. Further information on supervision by the financial services regulators is provided under Supervision and regulation on pages 93 to 94.

Statement of Directors' responsibilities for accounts

The following statement, which should be read in conjunction with the Auditors' report set out on page 96, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditors in relation to the accounts.

The Directors are required by the Companies Act 1985 to prepare accounts for each financial year which give a true and fair view of the state of affairs of the Company and Group as at the end of the financial year and of the profit or loss for the financial year.

The Directors consider that, in preparing the accounts on pages 97 to 189 and 193 to 202, and the additional information contained on pages 10 to 21, the Group has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all accounting standards which they consider to be applicable have been followed.

The Directors have responsibility for ensuring that the Company and the Group keep accounting records which disclose with reasonable accuracy the financial position of the Company and the Group and which enable them to ensure that the accounts comply with the Companies Act 1985.

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

Signed on behalf of the Board

Sir Peter Middleton
12th February 2003

Disclosure controls and procedures

Within the 90-day period prior to the filing of this report with the US Securities and Exchange Commission, an evaluation was carried out under the supervision and with the participation of the Group's management, including the Group Chief Executive and the Group Finance Director, of the effectiveness of the design and operation of the Group's disclosure controls and procedures, which are defined as those controls and procedures designed to ensure that information required to be disclosed in reports filed under the US Securities Exchange Act of 1934 is recorded, summarised and reported within specified time periods. As of the date of the evaluation, the Group Chief Executive and Group Finance Director concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to their evaluation.

PRESENTATION OF INFORMATION

Barclays PLC is a public limited company registered in England and Wales under company number 48839. The Company, originally named Barclay & Company Limited, was incorporated in England and Wales on 20th July 1896 under the Companies Acts 1862 to 1890 as a company limited by shares. The company name was changed to Barclays Bank Limited on 17th February 1917 and it was re-registered in 1982 as a public limited company under Companies Acts 1948 to 1980. On 1st January 1985, the company changed its name to Barclays PLC.

Barclays Bank PLC is a public limited company registered in England and Wales under number 1026167. The Bank was incorporated on 7th August 1925 under the Colonial Bank Act 1925 and on 4th October 1971 was registered as a company limited by shares under the Companies Acts 1948 to 1967. Pursuant to The Barclays Bank Act 1984, on 1st January 1985 the Bank was re-registered as a public limited company and its name was changed from Barclays Bank International Limited to Barclays Bank PLC.

All of the issued ordinary share capital of Barclays Bank PLC is owned by Barclays PLC. The Annual report for Barclays PLC also contains the consolidated accounts of and other information relating to Barclays Bank PLC. The Annual report includes information required on Form 20-F. Form 20-F will contain certificates pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by the Group Chief Executive and Group Finance Director, with respect to both Barclays PLC and Barclays Bank PLC. Except where otherwise indicated, the information given is identical with respect to both Barclays PLC and Barclays Bank PLC.

The accounts of Barclays Bank PLC included in this document do not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. The statutory accounts of Barclays Bank PLC, which contain an unqualified audit report and do not contain any statement under Section 237(2) or (3) of that Act, will be delivered to the Registrar of Companies in accordance with Section 242 of that Act and are published as a separate document.

The term "Barclays PLC Group" means Barclays PLC together with its subsidiary undertakings and the term "Barclays Bank PLC Group" means Barclays Bank PLC together with its subsidiary undertakings. "Barclays" and "Group" are terms which are used to refer to either of the preceding groups when the subject matter is identical. The term "Company" refers to Barclays PLC and the term "Bank" refers to Barclays Bank PLC. "Woolwich plc" is used, as the context requires, to refer to Woolwich plc and its subsidiary undertakings. In this report, the abbreviations "£m" and "£bn" represent millions and thousands of millions of pounds sterling respectively; the abbreviations "$m" and "$bn" represent millions and thousands of millions of US dollars respectively and "€m" and "€bn" represent millions and thousands of millions of euros respectively. References to operating results "before the impact of the Finance Act" exclude the impact of taxation changes arising from Finance Act 1998.

Statutory accounts

The consolidated accounts of Barclays PLC and its subsidiary undertakings are set out on pages 105 to 110 along with the accounts of Barclays PLC itself on page 111. The consolidated accounts of Barclays Bank PLC and its subsidiary undertakings are set out on pages 193 to 198. The accounting policies on pages 97 to 103 and the notes commencing on page 112 apply equally to both sets of accounts unless otherwise stated.

The financial statements contained in this document, which include the results of Woolwich plc from its acquisition on 25th October 2000, also reflect changes in the Group's management structure which took place in 2002, as explained on pages 60 and 64. The comparative data has been restated, where appropriate.

RISK MANAGEMENT

Risk management and control—overview

Barclays aims to employ superior risk practices to optimise financial performance and value.

Risk governance

Barclays manages a variety of risks through various control mechanisms consistent with the requirements of the "Internal control: Guidance for Directors on the Combined Code" issued by the Institute of Chartered Accountants in England and Wales.

Barclays approach to risk management and control continues to evolve to reflect best practice, informed by new developments derived from risk management research. Barclays seeks to take risks that are commensurate with the returns and within its overall risk appetite. Risk management's objective is to ensure that the variability of the results is within the range anticipated in the business strategy.

Barclays governance framework has been further developed during 2002. The framework is based on the following four principles:

Shareholder value based:

•: Internal controls should focus on risks that could prevent the Group achieving its business objectives and the desired shareholder value-added.
•: Responsibility for internal controls must be clearly defined and documented.

Embedded in the culture:

•: The culture of the Group should reflect the risk appetite approved by the Board at all levels in the organisation.
•: Training should be given to staff to ensure that risks can be regularly monitored and that corrective action can be taken in a timely manner.

Assurance:

•: Risk management systems should be able to provide management with assurance that risks are being managed appropriately and the system of internal controls over risk systems is adequate.

Board review:

•: The Board should undertake an annual review of the effectiveness of the risk management processes and systems of internal control.
•: The Group's risk profile should be reviewed on a regular basis.

During 2002, the Board established requirements (Board Governance Standards—"Standards") for the management of Barclays most significant areas of risk. From 2003, adherence to these Standards is monitored by the Board through reports that include key risk indicators.

Responsibilities for risk management and control

The responsibilities for risk management and control within the overall governance framework rest with:

•: The Board, which ensures that management maintain an effective system of internal control and reviews its effectiveness;
•: The Group Risk Director, under delegation from the Group Chief Executive, who has responsibility for the adequacy of risk management and control;
•: Business leaders, who are responsible for the identification of the risks in their businesses and for the management of them;
•: Business Risk Directors and their teams in the businesses, who are responsible for assisting business leaders in the identification and management of their business risk profile;
•: Group Risk Type Heads and their teams in the Group Centre, who are responsible for the risk control oversight of credit risk, operational risk, regulatory compliance risk and market risk; and
•: Other Function Heads in the Group centre, who are responsible for the risk control oversight of other risk types.

The leaders who execute these responsibilities are guided and monitored by:

•: The Group's management committees. The main committees and their principal risk management and control responsibilities are shown in the risk governance structure chart on page 26. The committees' roles have been reviewed and updated during 2002.
•: Business and regional governance and control committees. These committees report to the Group Governance and Control Committee. Together, they are responsible for ensuring that business risk governance and control frameworks have been established in each business, consistent with the Group's risk governance and control framework. They also review and assess the completeness and effectiveness of, and compliance with, internal controls within each business.

Risk management in the businesses is the responsibility of business management, who are assisted by Business Risk Directors, with a functional reporting line to the Group Risk Director. The key role of Business Risk Directors and their teams is to assist the businesses to maximise value by:

•: performing high quality risk analysis;
•: ensuring that risks are properly controlled;
•: evaluating economic trade-offs between risk and return;
•: designing cost-effective ways of mitigating and transferring risks;
•: generating alternative risk strategies; and
•: ensuring that Group level policies are properly implemented in their business line.

Specialist risk teams led by Group Risk Type Heads and other risk specialists report to the Group Risk Director. Their role is to:

•: measure aggregate risk by type;
•: set high level policies and controls within the overall risk governance framework;
•: perform research, development and quality assurance;
•: provide analytical support to businesses;
•: provide comprehensive reports to all levels of management and the Board to enable them to make effective risk management decisions; and
•: run risk limit setting systems.

Risk management and measurement

The following are the principal risks managed by Barclays:

•: Credit risk;
•: Market risk;
•: Asset and liability, liquidity and pricing mismatch risks; and
•: Other risks (including Operational, Legal and Tax risks, and the risk of non-compliance with the many regulatory regimes applicable to Barclays around the world).

Barclays uses a common metric to ensure that the returns throughout the Group are commensurate with the associated risks. Under this methodology, it allocates economic capital to each business based on its risks. The businesses are expected to optimise the return on the economic capital allocated to them.

The following charts show the relative amounts of capital allocated to the various risks and businesses. The major risks are discussed in subsequent sections of this report.

Credit risk management

Credit risk arises because the Group's customers, clients or counterparties may not be able or willing to fulfil their contractual obligations.

Credit risk control

Credit is the Group's most significant risk and its approach to managing credit risk varies according to the nature of the business.

In consumer businesses, such as Barclaycard where there are large numbers of accounts, a systems driven environment prevails. Credit decisions are made with the aid of statistically based scoring systems and account management is likewise automated.

Mid-range credits are approved and reviewed according to a hierarchy of discretions, whereby discretionary limits are set according to the skills, experience and seniority of the sanctioning teams, in addition to the quality of the borrower as measured by the credit grading structure.

Large value wholesale loans are referred to the Group Credit Committee or are sanctioned within business risk management departments. Besides loans, these include significant credit exposures arising from money market, foreign exchange, derivatives, securities dealing and other similar products.

The Group Credit Risk Director provides central credit risk review and oversight.

Functional areas assist the Group Credit Risk team and line businesses in setting policy and standards, defining the Group's risk appetite and providing the capability for effective risk management, including the regular review and challenge of business credit risk positions. These central risk functions add value by undertaking reporting, analysis, strategy and portfolio activities that support corporate governance, overall portfolio management, capital allocation for risk, Basel II implementation and credit decisions within business areas.

Credit risk measurement

As part of its credit risk measurement system, the Group uses a model-based methodology to assess the quality of credit across different customer categories. The approach is termed Risk Tendency and applies to all credit exposures in both wholesale and retail sectors, and it provides a statistical estimate of the average losses looking one year ahead based on the current performing loan portfolio. It estimates the average in the range of possible losses from the current performing loan portfolio and as such the actual outcome in any one year is likely to be different. Thus it is not a prediction of specific provisions but it gives management a clear view of the evolution of the quality of the credit portfolio.

Risk Tendency reflects the results of a set of model based calculations, the models having been created using historical data. The models are designed to estimate the loss over the forthcoming 12 months for the current performing loan portfolio, given the current composition and current risk characteristics of the portfolio. Significant variation around this value can occur, due to changes in the economic environment or the business conditions in specific sectors or countries during the year. This applies especially in wholesale portfolios where the default of a small number of large exposures can have a significant impact on the outcome. However, for retail portfolios consisting of a very large number of small exposures, the variation from Risk Tendency is usually much smaller.

In addition to enhancing the understanding of the average credit quality of the portfolio, Risk Tendency is one of the measures used by the Group to inform a wider range of decisions, such as:

•: Setting exposure limits to any single counterparty or borrower;
•: Establishing the desired aggregate exposure levels to individual sectors;
•: Determining pricing policy; and
•: Setting the level of the general provision for loan losses.

	Probability of Default (PD)
Barclays Internal Rating	Probability of Default (PD)						S&P Equivalent Rating	Moody's Equivalent Rating
Barclays Internal Rating	Minimum		Maximum		Mid Point		S&P Equivalent Rating	Moody's Equivalent Rating
1.2	0.02	%	0.04	%	0.025	%	AAA/AA+/AA	Aaa/Aa/A1
1.5	0.05	%	0.09	%	0.075	%	AA-/A+	A2
1.8	0.10	%	0.14	%	0.125	%	A/A-	A3
2.1	0.15	%	0.19	%	0.175	%	BBB+	Baa1
2.5	0.20	%	0.24	%	0.225	%	BBB+	Baa1
2.8	0.25	%	0.29	%	0.275	%	BBB	Baa2
3	0.30	%	0.59	%	0.450	%	BBB/BBB-	Baa2/Baa3
4	0.60	%	1.19	%	0.900	%	BB+/BB/BB-	Ba1/Ba2
5	1.20	%	2.49	%	1.850	%	B+/B	Ba3
6	2.50	%	4.99	%	3.750	%	B-	B1
7	5.00	%	9.99	%	7.500	%	CCC-	B2/B3
8	10.00	%+	—		15.000	%	CC/C	Caa/Ca/C

The models assess the probability of customer default, severity, and exposure in the event of default. These terms are explained below. A consistent approach is used across the organisation. Decision support model outputs are a way of assessing what might happen in the future based on past experience. An increase in the size of the portfolio and/or a decrease in the credit quality will be highlighted to management by an increase in Risk Tendency.

A number of different models are used in the Risk Tendency calculation reflecting the diversity of the portfolio. They are being improved constantly as the Group collects more data and deploys more sophisticated techniques. The Group believes that each change will have a minor impact on the total result but should lead to better estimates over time.

Since Risk Tendency is a point in time calculation looking one year ahead, it does not make any allowance for growth or change in the composition of the loan book after the reporting date nor take account of write-backs and recoveries from specific provisions taken in previous years. In contrast, the provisions process is dynamic where provisions are assessed and allocated throughout the year.

Risk Tendency is used when allocating general provisions for the existing portfolio of fully performing credits as at the calculation date. Excluded from this portfolio is the subset of credit exposures relating to non-performing loans against which specific provisions are held.

Internal ratings

Internal ratings are used to assess the credit quality of borrowers. Each internal rating corresponds to a probability of default (PD), which is the statistical probability of a customer defaulting within a 12-month period. This internal rating is derived from different sources depending upon the borrower, e.g. internal model or credit rating agency. The table on page 27 shows Barclays internal rating and the associated expected probability of default, together with comparisons with credit rating agency ratings. The rating agency comparisons shown are indicative only and, in practice, will vary over time depending on the position within an economic cycle.

Where internal models are used they are based upon up-to-date account, market and financial information. The models are reviewed regularly to monitor their robustness relative to actual performance and revised as necessary to optimise their effectiveness.

Severity

Severity is the estimated amount of loss expected if a loan defaults, calculated as a percentage of the exposure at the date of default. It recognises that the loss is usually substantially less than the exposure. The value depends on the collateral, if any, seniority or subordination of the exposure, work-out expenses relative to the loan value and other considerations. The outcome is heavily dependent on economic conditions that determine prices that can be realised for assets or whether businesses can be refinanced.

Exposure

Exposure in the event of default represents the expected level of usage of the credit facility when default occurs. For example, the customer may not have drawn the loan up to the approved limit or may already have repaid some of it.

For derivative instruments, exposure in the event of default is the estimated cost of replacing contracts with a positive value if counterparties fail to perform their obligations. This cost is monitored on an ongoing basis.

As shown in the table below, based upon the composition of the lending portfolio as at 31st December 2002, Risk Tendency is £1,375m (31st December 2001: £1,245m). The increase is primarily in Barclays Capital (total increase £65m), a reflection of the grade migration of a small number of larger corporate clients, principally in the US, partially offset by some managed exposure reduction in the loan book; and a £35m increase in Barclaycard (total increase £55m) attributable to the acquisition of the UK Providian credit card business. Risk Tendency in Personal Financial Services has fallen by £10m to £370m during 2002 as a result of actions taken to improve the asset quality within the book and an improved collection process.

Risk mitigation

Barclays uses mechanisms such as credit derivatives and securitisations to reduce the uncertainty of returns from the credit portfolio. The cost of these transactions is treated as a deduction from the related category of income. The benefits are reflected in reduced credit risk provisions, reduced volatility of earnings and consequently an improved return on economic capital.

Risk Tendency by Business Cluster

	2002	2001	2000
	(£ millions)
Personal Financial Services	370	380	335
Barclays Private Clients	45	45	45
Barclaycard	435	380	300
Business Banking	280	260	215
Barclays Africa	30	30	20
Barclays Capital	210	145	115
South American Corporate Banking	5	5	—

Total	1,375	1,245	1,030

Analysis of loans and advances

Loans and advances grew strongly during 2002. The following section analyses Barclays outstanding credit exposures at the year end. We review the main points, then present more detailed information in a separate section, beginning on page 31.

Loans and advances overview

As indicated in the table below, loans and advances grew over the year increasing by £32.5bn (14%) to £264bn at 31st December 2002.

		2002	2001
		(£ millions)
Retail businesses
	Customers	90,625	80,557
	Banks	1,748	2,588
Total retail businesses		92,373	83,145
Wholesale businesses
	Customers	114,767	102,675
	Banks	56,508	45,353
Total wholesale businesses		171,275	148,028

Total		263,648	231,173

The analysis above is based on the business unit in which the loans are booked. Those businesses that deal primarily with personal customers, such as Personal Financial Services and Barclaycard, are included under retail businesses, even though they have some business customers. Similarly, businesses that deal primarily with corporate, institutional and sovereign clients are included in wholesale businesses, even though they may have some small business customers.

	2002	2001
	(£ millions)
Banking book	175,667	161,240
Trading book	87,981	69,933

Total	263,648	231,173

The amounts shown in the tables above are before deduction of provisions and interest in suspense.

Loans and advances to customers

Geographical analysis

The geographical analysis is based on the location of the office recording the transaction.

The chart below shows that about two thirds of loans and advances to customers have been booked in the UK on the banking book.

Industry analysis

Barclays tracks its global exposure by industry, paying particular attention to industries that might be volatile or pose higher risk. Over recent years it has been apparent that industries are often synchronised globally. For example, when oil prices rise or fall, customers sensitive to such changes will be affected regardless of their location.

A critical element of risk management is to ensure adequate diversification of credit exposures. As the following chart shows, (for banking book only) Barclays largest sectoral exposures are to home loans, other personal loans and business and other services. These categories overwhelmingly comprise small loans, have lower volatility of credit risk outcomes, and are intrinsically highly diversified.

Loans and advances to the energy and utility sector were of special interest in 2002 due to financial stress experienced by several companies on both sides of the Atlantic. The majority of Barclays exposure in this sector is to companies that the Group believes remain financially strong, with three-quarters having an investment grade rating at year end.

The communications sector continued to experience stress in 2002. In addition to the lendings categorised as communications, exposure to this sector is also included in the category of overseas customers.

Industry classifications have been prepared at the level of the borrowing entity. This means that a loan to the subsidiary of a major corporation is classified by the industry in which the subsidiary operates, even though the parent's predominant business may be in a different industry.

Loans to customers domiciled outside the country where the office recording the transaction is located are shown in the chart below under "Overseas customers" and not by industry.

More detail on loans and advances to customers appears on pages 31 to 33.

(1): Industry classifications are defined on page 29.

Loans and advances to banks

Credit exposures to banks for the most part arise in the course of providing services to customers or capital markets trading for profit and may be reciprocal in nature.

The majority of loans and advances to banks are placings, amounting to £48,093m at 31st December 2002 (2001: £39,528m) and includes reverse repo transactions. Also included are loans to banks and building societies, balances with central banks (excluding those balances that can be withdrawn on demand), inter-bank settlement accounts and federal funds sold. Total loans and advances to banks increased £10bn to £58bn at 31st December 2002.

Loans and advances to banks

		At 31st December
		2002	2001
		(£ millions)
Banking business:
	UK	11,510	7,116
	Other European Union	2,154	2,278
	United States	256	930
	Rest of the World	1,531	1,924

Total banking business		15,451	12,248
Total trading business		42,805	35,693

		58,256	47,941

The amounts shown in the table above are before deductions of provisions and interest in suspense.

More detail on loans and advances to banks appears on page 34.

Analysis of loans and advances—further information

This section presents more detailed information on loans and advances and includes disclosures that Barclays is required to make. For an overview of loans and advances, see the preceding section.

Loans advances to customers—further information

Maturity analysis

The analysis by maturity, shown in the accompanying tables and chart, show that approximately 40% of lendings to customers have a maturity of more than five years, the majority of which are mortgages.

Maturity analysis of loans and advances to customers

		On demand (a)	Not more than three months	Over three months but not more than one year	Over one year but not more than five years	Over five years	Total
		(£ millions)
At 31st December 2002
Banking business:
	UK
	Corporate lending (b)	8,340	7,047	5,604	14,251	10,519	45,761
	Other lending from UK offices	2,416	6,693	6,135	10,919	63,976	90,139

Total UK		10,756	13,740	11,739	25,170	74,495	135,900
Other European Union		856	1,976	2,187	2,945	4,615	12,579
United States		—	768	1,227	2,451	1,692	6,138
Rest of the World		439	2,859	1,370	605	326	5,599

Total banking business		12,051	19,343	16,523	31,171	81,128	160,216
Total trading business		2,409	41,247	1,392	91	37	45,176

		14,460	60,590	17,915	31,262	81,165	205,392

At 31st December 2001
Banking business:
	UK
	Corporate lending (b)	8,335	6,344	7,165	11,522	9,588	42,954
	Other lending from UK offices	2,533	6,447	6,559	10,155	55,606	81,300

Total UK		10,868	12,791	13,724	21,677	65,194	124,254
Other European Union		1,251	2,475	1,550	2,277	3,155	10,708
United States		—	1,237	1,541	2,348	1,488	6,614
Rest of the World		1,089	1,820	2,670	823	1,014	7,416

Total banking business		13,208	18,323	19,485	27,125	70,851	148,992
Total trading business		1,977	29,733	2,398	132	—	34,240

		15,185	48,056	21,883	27,257	70,851	183,232

Notes

(a): Overdrafts are included in the "on demand" category.
(b): In the UK, finance lease receivables are included in Other Lending although some leases are to corporate customers.

Interest rate sensitivity of loans and advances to customers

		At 31st December 2002
		Fixed rate	Variable rate	Total
		(£ millions)
Banking business:
	UK	41,332	94,568	135,900
	Other European Union	2,876	9,703	12,579
	United States	314	5,824	6,138
	Rest of the World	4,351	1,248	5,599

Total banking business		48,873	111,343	160,216
Total trading business		20,204	24,972	45,176

		69,077	136,315	205,392

Geographic and industry analysis

In the analyses below, overseas customers are customers resident outside the country in which the lending business is based.

Loans and advances to customers in offices in the UK—banking business

	At 31st December
	2002	2001	2000	1999	1998
	(£ millions)
Financial institutions	6,158	5,616	4,215	4,118	1,839
Agriculture, forestry and fishing	1,747	1,626	1,689	1,693	1,612
Manufacturing	6,435	6,766	7,573	6,954	6,840
Construction	1,825	1,779	1,666	1,331	1,227
Property	5,695	5,600	5,130	3,689	3,205
Energy and water	1,290	1,153	1,120	613	668
Wholesale and retail distribution and leisure	7,858	7,571	7,531	6,455	6,778
Transport	2,366	1,894	1,353	1,270	1,164
Communications	694	368	180	345	261
Business and other services	11,693	10,581	9,894	8,415	7,549
Home loans	58,436	50,945	47,235	18,316	16,580
Other personal	21,357	19,678	18,200	15,673	14,376
Overseas customers	6,201	6,472	5,024	4,711	3,056

	131,755	120,049	110,810	73,583	65,155
Finance lease receivables	4,145	4,205	4,504	5,094	5,279

	135,900	124,254	115,314	78,677	70,434

The majority of the growth in the UK occurred in home loans, where balances increased 15% to £58.4bn. Other personal loans in the UK increased in part due to the acquisition of the UK card business of Providian (£470m).

Loans and advances to customers in offices in other European Union countries—banking business

	At 31st December
	2002	2001	2000	1999	1998
	(£ millions)
Financial institutions	371	500	436	178	220
Agriculture, forestry and fishing	165	240	303	223	109
Manufacturing	1,422	1,317	1,420	1,322	975
Construction	314	298	261	193	148
Property	137	241	182	144	182
Energy and water	367	282	372	145	114
Wholesale and retail distribution and leisure	215	283	140	207	323
Transport	252	318	172	119	133
Communications	173	185	83	37	9
Business and other services	1,648	1,679	1,284	918	1,433
Home loans	6,243	3,871	4,436	1,029	932
Other personal	721	661	582	505	500
Overseas customers	384	685	381	462	358

	12,412	10,560	10,052	5,482	5,436
Finance lease receivables	167	148	151	494	503

	12,579	10,708	10,203	5,976	5,939

Loans and advances to customers in offices in the United States—banking business

	At 31st December
	2002	2001	2000	1999	1998
	(£ millions)
Financial institutions	1,036	1,053	616	320	527
Agriculture, forestry and fishing	3	—	—	1	1
Manufacturing	842	1,553	1,123	727	592
Construction	31	24	—	—	12
Property	15	21	30	69	80
Energy and water	2,229	1,567	1,440	1,168	645
Wholesale and retail distribution and leisure	141	160	214	138	323
Transport	1,248	931	580	356	53
Communications	46	66	88	166	383
Business and other services	441	901	2,174	1,000	1,471
Home loans	—	—	1	1	1
Other personal	—	267	6	58	7
Overseas customers	62	23	56	—	27

	6,094	6,566	6,328	4,004	4,122
Finance lease receivables	44	48	48	44	42

	6,138	6,614	6,376	4,048	4,164

Loans and advances to customers in offices in the Rest of the World—banking business

	At 31st December
	2002	2001	2000	1999	1998
	(£ millions)
Loans and advances	5,566	7,384	8,920	8,316	2,883
Finance lease receivables	33	32	30	28	28

	5,599	7,416	8,950	8,344	2,911

£1.4bn of the reduction in the Rest of the World balance arose from the reorganisation of the Group's Caribbean business.

Total loans and advances to customers

	At 31st December
	2002	2001	2000	1999	1998
	(£ millions)
Banking business	160,216	148,992	140,843	97,045	83,448
Trading business	45,176	34,240	23,198	21,562	13,611

	205,392	183,232	164,041	118,607	97,059

Of the total loans and advances to customers, reverse repos were £42.5bn (31st December 2001: £29.7bn).

Loans and advances to banks—further information

Maturity analysis of loans and advances to banks

		At 31st December 2002
		On demand	Not more than three months	Over three months but not more than one year	Over one year but not more than five years	Over five years	Total
		(£ millions)
Banking business:
	UK	423	2,742	648	7,518	179	11,510
	Other European Union	222	1,689	84	31	128	2,154
	United States	14	110	118	14	—	256
	Rest of the World	262	890	376	3	—	1,531

Total banking business		921	5,431	1,226	7,566	307	15,451
Total trading business		1,052	38,693	3,060	—	—	42,805

		1,973	44,124	4,286	7,566	307	58,256

		At 31st December 2001
		On demand	Not more than three months	Over three months but not more than one year	Over one year but not more than five years	Over five years	Total
		(£ millions)
Banking business:
	UK	723	1,244	1,302	3,766	81	7,116
	Other European Union	535	1,397	59	49	238	2,278
	United States	12	342	489	87	—	930
	Rest of the World	490	1,202	230	2	—	1,924

Total banking business		1,760	4,185	2,080	3,904	319	12,248
Total trading business		2,357	31,808	1,517	11	—	35,693

		4,117	35,993	3,597	3,915	319	47,941

Interest rate sensitivity of loans and advances to banks

		At 31st December 2002
		Fixed rate	Variable rate	Total
		(£ millions)
Banking business:
	UK	6,493	5,017	11,510
	Other European Union	1,830	324	2,154
	United States	30	226	256
	Rest of the World	1,212	319	1,531

Total banking business		9,565	5,886	15,451
Total trading business		24,929	17,876	42,805

		34,494	23,762	58,256

Country risk

Exposure to countries subject to International Monetary Fund liquidity support programmes

The table below provides data on total country exposure, which includes both cross-border and local currency obligations. Exposure includes amounts outstanding plus commitments, and is net of provisions. The sample of countries is based on those that make significant use of IMF liquidity support programmes, i.e. those drawing more than Special Drawing Rights 2bn.

	At 31st December
	2002	2001	2000
	(£ billions)
Europe
Turkey	0.1	0.2	*

Asia
Indonesia	0.1	0.1	0.1
South Korea	*	*	0.2
Thailand	*	*	0.1

	0.1	0.1	0.4
Latin America
Argentina	0.1	0.3	0.9
Brazil**	0.2	0.7	*

	0.3	1.0	0.9

Total	0.5	1.3	1.3

Comprising of:
Banks	0.2	0.7	0.8
Governments/sovereigns	0.1	0.1	0.1
Corporates and project financings	0.2	0.5	0.4

	0.5	1.3	1.3

*: Did not make significant use of IMF Liquidity support programmes at the end of the period.
**: £0.1 billion of this total relates to local currency exposure.

Loans and advances to borrowers in currencies other than the local currency of the borrower

The world-wide operations of the Group involve significant exposures in non-local currencies. These cross-border exposures are controlled through a well-developed system of country limits, which are frequently reviewed to avoid concentrations of transfer, economic or political risks.

The US SEC requires that Barclays report those exposures denominated in currencies other than the borrower's local currency. These outstandings exclude finance provided within the Group, and are based on the country of domicile of the borrower or guarantor of ultimate risk. They comprise loans and advances to customers and banks (including placings), finance lease receivables, interest bearing investments, acceptances, other monetary assets and on-balance sheet amounts arising from off-balance sheet financial instruments.

At 31st December 2002, the countries where these outstandings exceeded 1% of total Group assets were United States, Germany and France. Exposures to these countries amounted to £32,105m at 31st December 2002 (2001: £20,715m). Further detail is provided in the table below.

Loans and advances to borrowers in currencies other than the local currency of the borrower for countries where this exceeds 1% of total Group assets

At 31st December 2002	As % of assets	Total	Banks and other financial institutions	Governments and official institutions	Commercial industrial and other private sector
	%	(£ millions)
United States	4.2	17,140	9,672	1	7,467
Germany	2.5	10,094	9,841	7	246
France	1.2	4,871	4,484	24	363
At 31st December 2001
United States	2.3	8,294	4,878	—	3,416
Germany	2.3	8,218	8,031	1	186
France	1.2	4,203	3,088	22	1,093
At 31st December 2000
Germany	2.4	7,505	6,829	554	122
United States	1.9	6,104	3,125	5	2,974
Japan	1.1	3,493	2,721	96	676

Loans and advances to borrowers in currencies other than the local currency of the borrower for countries where this is between 0.75% and 1% of total Group assets.

At 31st December 2002, Netherlands and Ireland had cross-currency outstanding of between 0.75% and 1% of total Group assets, amounting to £7,552m. At 31st December 2001, Japan and Netherlands had cross-currency outstandings of between 0.75% and 1% of total Group assets, amounting to £5,774m. At 31st December 2000, Netherlands and France had cross-currency outstandings of between 0.75% and 1% of total Group assets, amounting to £5,745m.

Potential credit risk lendings

Potential credit risk lendings (PCRL's) comprise non-performing loans (NPL's) and potential problem loans (PPL's). NPL's are loans where the customers have failed to meet their commitments, either in part or in whole. PPL's are loans which are current as to payment of principal and interest, but where there exists serious doubt as to the ability of the borrowers to comply with repayment terms in the near future.

The tables and charts that follow present an analysis of potential credit risk lendings consistent in total with UK guidelines and practice, although more detail is provided to meet SEC guidelines. Further disclosure is made to record loans where interest is accrued but is being suspended or where specific provisions have been raised. Normal US banking practice would be to place such loans on non-accrual status. The amounts are stated before deduction of the value of security held, the specific provisions carried or interest suspended, all of which might reduce the impact of an eventual default, should it occur. The geographical presentation is based on the location of the office recording the transaction.

Non-performing loans

	2002	2001 restated	2000 restated	1999	1998
	(£ millions)
Non-accrual lendings:
UK	1,557	1,292	1,223	1,007	985
Other European Union	108	90	96	122	208
United States	744	306	119	47	38
Rest of the World	133	235	101	75	36

Accruing lendings where interest is being suspended:
UK	472	386	351	326	266
Other European Union	44	30	36	19	26
United States	—	—	—	—	—
Rest of the World	95	145	109	91	92

Other accruing lendings against which provisions have been made:
UK	606	660	474	423	457
Other European Union	27	20	71	42	74
United States	—	11	2	38	10
Rest of the World	44	43	76	50	50

Subtotals:
UK	2,635	2,338	2,048	1,756	1,708
Other European Union	179	140	203	183	308
United States	744	317	121	85	48
Rest of the World	272	423	286	216	178

Accruing lendings 90 days overdue, against which no provisions have been made:
UK	687	621	695	343	309
Other European Union	3	—	1	—	2
United States	—	—	—	—	—
Rest of the World	—	27	17	18	17

Reduced rate lendings:
UK	4	4	6	6	7
Other European Union	—	—	—	—	—
United States	—	—	—	—	—
Rest of the World	2	1	—	2	—

Total non-performing loans:
UK	3,326	2,963	2,749	2,105	2,024
Other European Union	182	140	204	183	310
United States	744	317	121	85	48
Rest of the World	274	451	303	236	195

Total	4,526	3,871	3,377	2,609	2,577

Potential problem loans

	2002	2001	2000	1999	1998
	(£ millions)
UK	993	968	728	648	590
Other European Union	2	2	2	23	24
United States	241	369	313	5	4
Rest of the World	68	63	64	35	68

Total	1,304	1,402	1,107	711	686

UK non-performing loans increased by £363m to £3,326m primarily reflecting increases in the large corporate sector. These included loans to foreign borrowers made in the UK and were spread across a number of sectors, with telecommunications and energy being prominent. There were also additions from UK middle market business customers.

US non-performing loans increased by £427m to £744m reflecting the continued difficult economic conditions faced by the telecommunications and energy sectors. US potential problem loans fell by £128m to £241m primarily due to the reclassification of balances into the non-performing categories.

Other European Union non-performing loans increased from £140m to £182m. In the Rest of the World they fell to £274m, a decrease of £177m, primarily reflecting the reorganisation of the Group's Caribbean business in October 2002.

Interest forgone on non-performing loans

The total interest income that would have been recognised under the original contractual terms of the non-performing loans in 2002 was £275m (2001: £279m) of which £209m (2001: £210m) related to domestic lending and £66m (2001: £69m) related to foreign loans.

Interest income of approximately £22m (2001: £50m) from such loans was included in profit, of which £21m (2001: £33m) related to domestic lending and the remainder to foreign lending.

Ratios of provisions to non-performing loans and PCRL's appear in the next section, following the discussion of provisions.

Provisions for bad and doubtful debts

Barclays policy is to provide for credit losses when it considers that recovery is doubtful. The provision is made up of two components, a specific provision and a general provision. Risk managers continuously review the quality of the exposures based on their knowledge of the customer or counterparty, and developments in the industry and country of operation.

During 2002, credit conditions were less favourable than for several years and some sectors experienced difficulties. These circumstances are reflected in the bad debt charge for the year as set out in the table below. The net charge rose by 29% to £1,484m, an increase of £335m. New and increased specific provisions were 19% higher at £1,719m. Releases and recoveries together decreased by 15% at £233m.

The greater part of this increase occurred in Barclays Capital (£231m) and in the South American Corporate Banking (£96m) portfolios. The increase in provisions at Barclays Capital reflected difficult economic conditions, mainly in the telecommunications and energy sectors, particularly in the US. The deterioration in the second half of 2002 was largely in existing non-performing loans. The increase in South American Corporate Banking mainly related to Argentina.

Business Banking sustained an 8% increase in its bad debt provision charge, broadly in line with expectations. The charge for Barclaycard was £402m, 7% higher reflecting the acquisition of Providian UK and organic growth in average extended credit balances of 9%. Within Personal Financial Services, the provision charge fell by 13%, reflecting in part improvements in risk management.

Analysis of provision charges for bad and doubtful debts

	As at 31st December
	2002		2001		2000	1999		1998
	(£ millions)
Net specific provision charge/(release)*
UK	1,041		964		688	568		501
Other European Union	14		20		12	1		(4	)
United States**	385		136		17	34		(10	)
Rest of the World	46		45		60	32		5

Total net specific provision charge	1,486		1,165		777	635		492
General provision charge/(release)	(2	)	(16	)	40	(14	)	—

	1,484		1,149		817	621		492

*: The geographical analysis of provisions is based on the location of the office recording the transaction.
**: The US charge includes provisions raised against Argentinean exposures booked in the US.

Analysis of provision balances for bad and doubtful debts

	As at 31st December
	2002	2001	2000	1999	1998
	(£ millions)
Specific provision*
UK	1,790	1,605	1,343	1,083	937
Other European Union	84	89	112	131	220
United States**	257	89	20	23	23
Rest of the World	130	188	118	74	35

Total specific provision	2,261	1,971	1,593	1,311	1,215
General provision	737	745	760	672	728

	2,998	2,716	2,353	1,983	1,943

Average loans and advances for the year (excluding trading business)	174,764	157,904	122,333	106,488	101,338
(including trading business)	256,789	223,221	176,938	147,139	145,749

*: The geographical analysis of provisions is based on the location of the office recording the transaction.
**: The US balance includes provisions held against Argentinean exposures booked in the US.

Provisioning approach

General provisions reflect losses that, although not specifically identified, are known from experience to be present in the lending portfolio at the balance sheet date.

These provisions are adjusted at least half yearly by an appropriate charge or release of general provisions based on statistical estimates. The general provisions take Risk Tendency (statistically expected losses) into account, based on models that are systematically updated to reflect evolving loss experience.

See Credit risk management on pages 27 to 28 for a fuller description of Risk Tendency.

Specific provisions are raised for:

•: Individual counterparties when the Group considers that the creditworthiness of a borrower or counterparty has undergone deterioration such that the recovery of the whole or part of an outstanding advance is in serious doubt.
•: Homogeneous portfolios comprised of large numbers of individually small lendings, where the characteristics of the portfolio permit statistical models to be used in estimating specific provisions. These statistical models are consistent with the Group's policy of raising provision when recovery is doubtful. These provisions are raised in parts of Personal Financial Services, Woolwich, Barclays Private Clients, Barclaycard and Business Banking.

Write-off occurs immediately to the extent that the whole or part of the debt is considered unrecoverable.

Treatment of interest on debts that have specific provisions

If the collection of interest is doubtful, it is credited to a suspense account and excluded from interest income in the profit and loss account. Although interest continues to be charged to the customer's account, the amount suspended is netted against the relevant loan. Loans on which interest is suspended are not reclassified as accruing interest until interest and principal payments are up-to-date and future payments are reasonably assured. If the collection of interest is considered remote, interest is no longer applied.

Treatment of collateral assets acquired in exchange for advances

Assets acquired in exchange for advances in order to achieve an orderly realisation continue to be reported as advances. The assets acquired are recorded at the carrying value of the original advance as at the date of the exchange. Any impairment is accounted for as a specific provision.

Bad debt provisions charge ratios

	Year ended 31st December
	2002	2001		2000	1999		1998
	(£ millions)
Provisions charge as a percentage of average loans and advances for the year (excluding trading business):
Specific provisions	0.85	0.74		0.64	0.60		0.49
General provisions	—	(0.01	)	0.03	(0.02	)	—

	0.85	0.73		0.67	0.58		0.49

Amounts written off (net of recoveries)	0.64	0.53		0.47	0.52		0.40

Provisions charge as a percentage of average loans and advances for the year (including trading business):
Specific provisions	0.58	0.52		0.44	0.43		0.34
General provisions	—	—		0.02	(0.01	)	—

	0.58	0.52		0.46	0.42		0.34

Amounts written off (net of recoveries)	0.43	0.37		0.32	0.38		0.28

Provisions balance ratios

	As at 31st December
	2002	2001	2000	1999	1998
	(%)
Provisions balance at end of year as a percentage of loans and advances at end of year (excluding trading business):
Specific provision	1.29	1.22	1.06	1.19	1.17
General provision	0.42	0.46	0.51	0.61	0.70

	1.71	1.68	1.57	1.80	1.87

Provisions balance at end of year as a percentage of loans and advances at end of year (including trading business):
Specific provision	0.86	0.85	0.79	0.83	0.90
General provision	0.28	0.32	0.38	0.42	0.54

	1.14	1.17	1.17	1.25	1.44

Movements in provisions for bad and doubtful debts

		Year ended 31st December
		2002		2001		2000		1999		1998
		(£ millions)
Provisions balance at beginning of year		2,716		2,353		1,983		1,943		1,850
Acquisitions and disposals		(11	)	46		119		(10	)	—
Exchange and other adjustments		(77	)	(1	)	4		(13	)	6
Amounts written off:
	UK	(950	)	(814	)	(595	)	(546	)	(520	)
	Other European Union	(31	)	(36	)	(45	)	(44	)	(45	)
	United States	(215	)	(94	)	(26	)	(40	)	(7	)
	Rest of the World	(24	)	(29	)	(17	)	(21	)	(9	)

		(1,220	)	(973	)	(683	)	(651	)	(581	)

Recoveries (analysed below)		106		142		113		93		176

Subtotal		1,514		1,567		1,536		1,362		1,451
Provisions charged against profit
New and increased specific provisions:
	UK	1,210		1,157		843		768		753
	Other European Union	33		35		35		27		32
	United States	404		173		27		45		11
	Rest of the World	72		75		76		47		23

		1,719		1,440		981		887		819

Releases of specific provisions:
	UK	(81	)	(87	)	(55	)	(115	)	(96	)
	Other European Union	(12	)	(10	)	(17	)	(22	)	(32	)
	United States	(10	)	(10	)	(6	)	(7	)	(8	)
	Rest of the World	(24	)	(26	)	(13	)	(15	)	(15	)

		(127	)	(133	)	(91	)	(159	)	(151	)

Recoveries:
	UK	(88	)	(106	)	(100	)	(85	)	(156	)
	Other European Union	(7	)	(5	)	(6	)	(4	)	(4	)
	United States	(9	)	(27	)	(4	)	(4	)	(13	)
	Rest of the World	(2	)	(4	)	(3	)	—		(3	)

		(106	)	(142	)	(113	)	(93	)	(176	)

Net specific provisions charge		1,486		1,165		777		635		492
General provision charge/(release)*		(2	)	(16	)	40		(14	)	—

Net charge to profit		1,484		1,149		817		621		492

Provisions balance at end of year		2,998		2,716		2,353		1,983		1,943

*: An analysis of the movement in general provisions is shown in note 17 to the accounts.

Provisions charge for bad and doubtful debts by industry

	Net specific provision for the year									Specific provisions at 31st December
	2002		2001		2000	1999		1998		2002	2001	2000	1999	1998
	(£ millions)
UK:
Banks and other financial institutions	1		(2	)	7	10		11		1	5	7	9	14
Agriculture, forestry and fishing	(1	)	6		6	4		(5	)	7	13	11	7	4
Manufacturing	80		62		8	4		15		98	49	43	48	41
Construction	41		12		7	4		(7	)	35	6	8	7	10
Property	8		3		1	(5	)	(20	)	9	8	8	8	12
Energy and water	22		1		8	—		—		28	10	8	2	2
Wholesale and retail distribution and leisure	37		44		21	34		(10	)	54	60	42	42	18
Transport	7		6		2	4		(1	)	7	6	4	4	2
Communications	16		1		—	—		1		15	1	1	1	1
Business and other services	62		75		27	14		(7	)	92	77	40	34	43
Home loans	4		8		10	5		(4	)	53	60	61	39	35
Other personal	748		782		577	504		376		1,343	1,252	1,041	830	664
Overseas customers (a)	13		(34	)	6	(22	)	152		39	52	58	41	88
Finance lease receivables	3		—		8	12		—		9	6	11	11	3

	1,041		964		688	568		501		1,790	1,605	1,343	1,083	937
Foreign	445		201		89	67		(9	)	471	366	250	228	278

	1,486		1,165		777	635		492		2,261	1,971	1,593	1,311	1,215

Analysis of amounts written off and recovered by industry

	Amounts written off for the year					Recoveries of amounts previously written off
	2002	2001	2000	1999	1998	2002	2001	2000	1999	1998
	(£ millions)
UK:
Banks and other financial institutions	2	3	13	14	16	—	3	4	2	12
Agriculture, forestry and fishing	4	7	6	6	2	2	2	2	3	7
Manufacturing	72	65	30	20	28	22	11	16	12	12
Construction	15	16	8	12	12	3	2	2	3	5
Property	10	5	5	9	17	2	1	3	7	22
Energy and water	4	1	2	—	—	1	—	—	—	—
Wholesale and retail distribution and leisure	53	35	34	35	25	11	9	12	17	45
Transport	7	4	3	4	2	1	—	1	1	1
Communications	2	—	—	1	—	—	—	—	—	—
Business and other services	65	57	33	43	36	13	9	11	12	27
Home loans	11	14	15	3	8	1	4	3	2	4
Other personal	692	599	435	363	254	31	29	28	24	21
Overseas customers (a)	9	2	7	31	120	—	35	17	1	—
Finance lease receivables	4	6	4	5	—	1	1	1	1	—

	950	814	595	546	520	88	106	100	85	156
Foreign	270	159	88	105	61	18	36	13	8	20

	1,220	973	683	651	581	106	142	113	93	176

Note

(a): includes amounts in 1998 in respect of Russian counterparties recorded in the UK.

Total provision coverage of total non-performing loans

	2002	2001	2000	1999	1998
	(%)
UK	73.5	74.9	72.9	81.1	78.4
Other European Union	71.4	78.6	72.1	94.5	95.2
United States	43.7	61.8	81.0	74.1	104.2
Rest of the World	65.0	59.2	64.7	50.4	45.1

Total	68.0	72.1	72.4	79.1	78.4

Total provision coverage of total potential credit risk lendings (NPL's and PPL's)

	2002	2001	2000	1999	1998
	(%)
UK	56.6	56.4	57.7	62.0	60.7
Other European Union	70.7	77.5	71.4	84.0	88.3
United States	33.0	28.6	22.6	70.0	96.2
Rest of the World	52.0	51.9	53.4	43.9	33.5

Total	52.8	52.9	54.5	62.1	61.9

Geographically, the specific provision is allocated according to the location of the office recording the transaction. Similarly, the general provision is allocated according to the characteristics of the loans in each geographic area.

Another useful way of assessing provision balances is to recognise that specific provisions are created to cover non-performing loans, whereas general provisions relate to as yet unidentified losses on performing lendings. The following table provides an analysis of provision balances on this basis.

Ratios of general and specific provision balances

	2002	2001	2000	1999	1998
	(%)
Specific provisions coverage of non-performing loans
Specific provisions/Non-performing loans	50.0	50.9	47.2	50.2	47.1
General provisions coverage of performing loans
General provisions/Performing loans	0.28	0.33	0.38	0.43	0.55

The ratio of general provisions to performing loans declined in 2001 with the acquisition of Woolwich plc, a portfolio consisting predominantly of secured residential mortgage loans needing comparatively low general provisions. These ratios include both trading and banking books. Performing loans comprise gross loans and advances to banks and customers (banking and trading) less non-performing loans.

Market risk management

Market risk is the risk that the Group's earnings or capital, or its ability to meet business objectives, will be adversely affected by changes in the level or volatility of market rates or prices such as interest rates including credit spreads, foreign exchange rates, equity prices and commodity prices.

Market risk management and control responsibilities

The market risk management policies of the Group are determined by the Group Risk Oversight Committee, which also recommends overall market risk appetite to the Board Risk Committee. The Group's policy is that exposure to market risk arising from trading activities is concentrated in Barclays Capital and that residual market risk in other parts of the bank is tightly controlled and significantly limited.

The Group Market Risk Director is responsible for the effectiveness and efficiency of the Group's market risk control framework, and is assisted by risk management departments in the Group's businesses and a central market risk management team.

The Group Risk Oversight Committee allocates a total Daily Value at Risk (DVaR) limit for the Group and delegates the day to day control and monitoring of market risk to the Group Market Risk Director, who sets limits for each business area. To assist this process, a market risk report is produced daily which summarises the Group's market risk exposures against agreed limits. Data for this report is supplied by the business areas. This daily report is sent to the Group Risk Director, the Group Market Risk Director, the Group Finance Director and the appropriate Business Risk Directors.

A more detailed market risk report is presented each month by the Group Market Risk Director to the Group Risk Oversight Committee. This report brings to the attention of all Committee members current Group market risk exposures and issues along with relevant background information.

Each business area of the Group is accountable for identifying, measuring and managing all market risks associated with its activities. In managing market risk, businesses must consider asset liquidity risk and funding liquidity risk where these issues are relevant.

Market risk measurement

Barclays uses the DVaR measure as the primary mechanism for controlling market risk. DVaR is an estimate, with a confidence level of 98%, of the potential loss which might arise if the current positions were to be held unchanged for one business day. Daily losses exceeding the DVaR figure are likely to occur, on average, only twice in every one hundred business days.

Where DVaR does not adequately measure the risk, alternative methods are used such as Annual Earnings at Risk. Annual Earnings at Risk measures the sensitivity of annual earnings to shocks in market rates at the 99th percentile for change over a one year period. This rate shock is consistent with the standardised rate shock recommended by the Basel II framework for assessing banking book interest rate risk.

To facilitate the identification, measurement, control and reporting of market risk, Barclays has categorised market risk into three broad categories as described below:

(i) Trading market risk

Trading includes transactions where Barclays Capital acts as principal with clients or with the market. A detailed analysis of this risk is provided below.

(ii) Asset and liability management

The Group encounters risks in managing its assets and liabilities. A detailed analysis of these risks is covered in the Treasury asset and liability Management section on pages 51 to 54.

(iii) Other market risks

In some instances, the Group incurs market risks that do not fit into the above categories. The principal risks of this type are Asset Management Structural Market Risk and Defined Benefit Pension Scheme Risk. These are covered below.

Trading market risk

As mentioned earlier, the Group's policy is to concentrate trading activities in Barclays Capital. Trading includes transactions where Barclays Capital acts as principal with clients or with the market. For maximum efficiency, Barclays manages client and market activities together. In Barclays Capital, trading risk occurs in both the Trading book and the Banking book as defined for regulatory purposes.

In anticipation of future customer demand, the Group maintains access to market liquidity by quoting bid and offer prices with other market makers and carries an inventory of capital market and treasury instruments, including a broad range of cash, securities and derivatives. Trading positions and any offsetting hedges are established as appropriate to accommodate customer or Group requirements. Barclays Capital takes principal positions in the interest rate including credit spread, foreign exchange, equity and commodity markets based on expectations of customer demand or a change in market conditions.

Derivatives entered into for trading purposes include swaps, forward rate agreements, futures, credit derivatives, options and combinations of these instruments. For a description of the nature of derivative instruments, see pages 49 to 50.

Risk control

In Barclays Capital, the formal process for the management of risk is through the Barclays Capital Risk Management Committee. Day to day responsibility for managing exposure to market risk lies with the senior management of Barclays Capital, supported by the Global Market Risk Management Unit that operates independently of the trading areas. Daily DVaR utilisation reports are produced across the main business areas and the five main risk factor categories, namely interest rate, credit spread, foreign exchange, equity and commodity risk.

Any DVaR excess at the business level, risk factor level or total level, along with the relevant background information and proposed way forward, is reported to the senior management of Barclays Capital and the Group Market Risk Director. The Group Market Risk Director will present these DVaR excesses to the Group Risk Oversight Committee.

As DVaR does not provide a direct indication of the potential size of losses that could arise in extreme conditions, Barclays Capital uses a number of complementary techniques for controlling market risk. These include revenue loss triggers and stress tests. The latter are based on both historical and hypothetical extreme movements of market prices and are reviewed as part of the detailed market risk presentation at the fortnightly Traded Products Risk Review meeting. The attendees at this meeting include the senior management of Barclays Capital, the Group Risk Director, the Group Market Risk Director and the Group Treasurer. The meeting is chaired by the Chief Executive of Barclays Capital.

If the potential loss indicated by a stress test exceeds an agreed trigger level, then the positions captured by the stress test are reviewed and discussed by Barclays Capital Market Risk and the respective Business Head(s). The minutes of the discussion, including the merits of the position and the appropriate course of action, are then sent to the Group Market Risk Director.

Risk measurement

Barclays Capital calculates DVaR using the historical simulation method with an historical sample of two years. As stated above, the calculation assumes a one-day holding period and is performed to the 98% level of confidence.

The interest rate DVaR methodology maps interest rate exposures into government and non-governments (six credit grades and interest rate swaps). This allows the measurement process to discriminate between the market risk of holding bonds with different credit qualities, for example AAA securities as against non-investment grade securities. In particular, it shows the effectiveness of hedging strategies such as shorting government bonds or swaps against non-government bond portfolios.

For a non-government interest rate instrument, the total interest rate is separated into the government interest rate for the equivalent maturity and the credit spread. The credit spread is the premium for holding non-government paper, and is the difference between the total interest rate and the appropriate government interest rate. This approach allows the interest rate risk (due to changes in the government interest rates) to be measured separately from credit spread risk (due to changes in credit spreads).

The DVaR numbers shown in the table below are all based on the above methodology.

Analysis of market risk exposures

Barclays Capital's market risk exposure increased in 2002 compared to 2001, due mainly to interest rate opportunities taken in the second half of 2002. The year-end DVaR for 2002 was £25.8m (2001: £21.3m).

Barclays Capital DVaR: Summary table for 2002 and 2001

	Twelve months to 31st December 2002				Twelve months to 31st December 2001
	Average		High (b)	Low (b)	Average restated		High (b) restated	Low (b) restated
	(£ millions)
Interest rate risk	21.7		34.5	10.0	14.9		24.1	7.6
Credit spread risk	9.4		12.5	6.0	8.8		14.7	4.6
Foreign exchange risk	2.9		4.4	1.9	2.3		6.2	0.6
Equities risk	3.6		5.4	2.1	3.3		6.4	2.1
Commodities risk	1.8		3.3	0.8	1.7		4.3	0.6
Diversification effect	(16.2	)			(12.5	)

Total DVaR	23.2		35.7	13.4	18.5		25.4	11.3

Notes

(a): Restatements of interest rate DVaRs, total DVaRs and diversification effect reflect the move to a methodology that identifies credit spread risk separately.
(b): The high (and low) DVaR figures reported for each category did not necessarily occur on the same day as the high (and low) DVaR reported as a whole. A corresponding diversification effect cannot be calculated and is therefore omitted from the above table.

Trading revenue and back-testing

The histogram below shows the distribution of market risk daily trading revenue for Barclays Capital in 2002. Market risk daily trading revenue includes all primary (net fees and commissions) and secondary (net interest income and dealing profits) income. The average daily revenue was £8.7m. There were 238 positive revenue days out of 252.

Barclays recognises the importance of assessing the effectiveness of DVaR. The main approach employed is the technique known as back-testing, which counts the number of days when trading related losses are bigger than the estimated DVaR figure. The regulatory standard for back-testing is to measure DVaR assuming a one day holding period with a 99% level of confidence. For Barclays Capital's regulatory trading book, there were two instances in 2002 of a daily trading revenue loss exceeding the corresponding back-testing DVaR. This is the same result as recorded for 2001.

Other market risks

Asset management structural market risk

Asset management structural market risk is the risk that fee and commission income is affected by a change in equity market levels. It affects Barclays Private Clients' assets under management, Barclays Life, Woolwich Life and Barclays Global Investors. This risk is measured using Annual Earnings at Risk (AEaR) where the potential reduction in income is measured over a year. For more detail on AEaR, see market risk measurement on page 44. As at end 2002, the AEaR relating to UK indices was £120m, while the AEaR relating to non-UK indices was £60m. In both cases, a 25% reduction in stock market prices was assumed. These AEaR numbers were broadly unchanged from the end 2001 AEaR numbers.

Defined benefit pension scheme risk

Defined benefit pension scheme risk arises if the Group has to increase its level of funding for the final salary schemes. This would occur if the value of the assets was insufficient over time to cover the projected liabilities. Information on the current position is given in notes 5 and 62.

Disclosures about certain trading activities including non-exchange traded contracts

The US Securities and Exchange Commission requires disclosures to be provided in relation to certain trading activities, particularly energy trading and commodity trading which covers non-exchange traded contracts.

The Group delivers a fully integrated service to clients for base metals, precious metals, energy products (covering gas, oil and oil-related products) and UK Power through Barclays Capital. The base and precious metals business enters into outright metal purchase and sales transactions as well as the associated "over the counter' (OTC) and exchange traded derivatives. The energy business deals in commodity derivative contracts but does not maintain any physical exposures. Structured products are also developed and offered in respect of energy, base and precious metal commodities. In August 2002, the UK Power team commenced trading in power physical forward contracts.

The Group's commodity business has continued to expand as market conditions allow, both through the addition of new products in the UK Power market, and the continuing growth in the existing metals and energy trading volumes. In 2002, the total commodities business (including exchange trading) contributed £89m to dealing profits (2001: £38m) and resulted in assets of £844m in respect of physical commodity positions as at 31st December 2002 (2001: £1,257m) and net assets of £40m (2001: net liabilities of £45m) relating to the fair value of derivative contracts.

The Group's principal commodity related derivative contracts are swaps, options, forwards and futures, which are similar in nature to such non-commodity related contracts. Commodity derivatives contracts are specified in terms of commodity specification and delivery location as well as forward date and notional values.

The fair values of commodity physical and derivative positions are determined through a combination of recognised market observable prices, exchange prices and established inter commodity relationships. In common with all derivatives, the fair value of OTC commodity derivative contracts is either determined using a quoted market price or by using valuation models. Where a valuation model is used, the fair value is determined based on the expected cash flows under the terms of each specific contract, discounted back to present value. The expected cash flows for each contract are either determined using market parameters such as commodity price curves, commodity volatilities, interest rate yield curves and foreign exchange rates, or derived from historical or other market prices.

Fair values generated by models are independently validated with reference to market price quotes, or price sharing with other institutions. However, where no observable market parameter is available then instrument fair value will include a provision for the uncertainty in that parameter based on sale price or subsequent traded levels.

Discounting of expected cash flows back to present value is achieved by constructing discount curves from the market price of observable interest rate products, such as deposits, interest rate futures and swaps. In addition, the Group maintains fair value adjustments reflecting the cost of credit risk (where this is not embedded in the fair value), future administration costs associated with ongoing operational support of products, the cost of exiting illiquid or significant positions, as well as the cost of trading out of a position (all positions are marked to mid-market and hence the bid/offer cost would be incurred).

The tables on page 48 analyse the fair value of the commodity derivative contracts at 31st December 2002 by movement over time, source of fair value and investment grade of counterparty.

Movement in fair value of commodity positions

	Total
	(£ millions)
Fair value of contracts outstanding at 31st December 2001	(45	)
Contracts realised or otherwise settled during the period	25
Fair value of new contracts entered into during the period	50
Other changes in fair value	10

Fair values of contracts outstanding at 31st December 2002	40

Source of fair value—commodities

	Fair Value of Contracts at 31st December 2002
	Maturity less than one year		Maturity one to three years	Maturity four to five years	Maturity over five years		Total fair value
	(£ millions)
Prices actively quoted	(17	)	13	15	(1	)	10
Prices provided by other external sources	—		1	—	—		1
Prices based on models and other valuation methods	8		—	—	—		8
Prices based on other valuation methods	—		—	—	21		21

Total	(9	)	14	15	20		40

Analysis of fair value by counterparty investment grade—commodities

	Total value 2002
	(£ millions)
A– to AAA	(9	)
BBB to BBB+	68
Below investment grade	(19	)

Total	40

Derivatives

The use of derivatives and their sale to customers as risk management products is an integral part of the Group's trading activities. These instruments are also used to manage the Group's own exposure to fluctuations in interest and exchange rates as part of its asset and liability management activities.

Barclays Capital manages the trading derivatives book as part of the market risk book. This includes foreign exchange, interest rate, equity, commodity and credit derivatives. The policies regarding market risk management are outlined in the Market risk management section on pages 44 to 46.

The policies for derivatives that are used to manage the Group's own exposure to interest and exchange rate fluctuations are outlined in the Treasury asset and liability management section on pages 51 to 54.

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices defined in the contract. They include swaps, forward rate agreements, futures, options and combinations of these instruments and primarily affect the Group's net interest income, dealing profits, commissions received and other assets and liabilities. Notional amounts of the contracts are not recorded on the balance sheet.

The Group participates both in exchange traded and OTC derivatives markets.

Exchange traded derivatives

The Group buys and sells financial instruments that are traded or cleared on an exchange, including interest rate swaps, futures and options on futures. Holders of exchange traded instruments provide margin daily with cash or other security at the exchange, to which the holders look for ultimate settlement.

OTC traded derivatives

The Group buys and sells financial instruments that are traded over the counter, rather than on a recognised exchange. These instruments range from commoditised transactions in derivative markets, to trades where the specific terms are tailored to the requirements of the Group's customers. In many cases, industry standard documentation is used, most commonly in the form of a master agreement, with individual transaction confirmations. The existence of a signed master agreement is intended to give the Group protection in situations where a counterparty is in default, including the ability to net outstanding balances where the rules of offset are legally enforceable. For further explanation of the Group's policies on netting, see Accounting policies on pages 97 to 103.

Foreign exchange derivatives

The Group's principal exchange rate related contracts are forward foreign exchange contracts, currency swaps and currency options. Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreign currency, usually on a specified future date at an agreed rate. A currency swap generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment to exchange interest periodically until the principal amounts are re-exchanged on a future date.

Currency options provide the buyer with the right, but not the obligation, either to purchase or sell a fixed amount of a currency at a specified exchange rate on or before a future date. As compensation for assuming the option risk, the option writer generally receives a premium at the start of the option period.

Interest rate derivatives

The Group's principal interest rate related contracts are interest rate swaps, forward rate agreements, basis swaps, caps, floors and swaptions. Included in this product category are transactions that include combinations of these features.

An interest rate swap is an agreement between two parties to exchange fixed rate and floating rate interest by means of periodic payments based upon a notional principal amount and the interest rates defined in the contract. Certain agreements combine interest rate and foreign currency swap transactions, which may or may not include the exchange of principal amounts. A basis swap is a form of interest rate swap, in which both parties exchange interest payments based on floating rates, where the floating rates are based upon different underlying reference indices. In a forward rate agreement, two parties agree a future settlement of the difference between an agreed rate and a future interest rate, applied to a notional principal amount. The settlement, which generally occurs at the start of the contract period, is the discounted present value of the payment that would otherwise be made at the end of that period.

Equity derivatives

The Group's principal equity related contracts are equity and stock index swaps and options (including warrants, which are options listed on an exchange).

An equity swap is an agreement between two parties to exchange periodic payments, based upon a notional principal amount, with one side paying fixed or floating interest and the other side paying based on the actual return of the stock or stock index. No principal amounts are exchanged.

An equity option provides the buyer with the right, but not the obligation, either to purchase or sell a specified stock or stock index at a specified price or level on or before a specified date.

Credit derivatives

The Group's principal credit derivative related contracts include credit default swaps and total return swaps. A credit derivative is an arrangement whereby the credit risk of an asset (the reference asset) is transferred from the buyer to the seller of protection.

A credit default swap is a contract where the protection seller receives premium or interest related payments in return for contracting to make payments to the protection buyer upon a defined credit event. Credit events normally include bankruptcy, payment default on a reference asset and downgrades by a rating agency.

A total return swap is an instrument whereby the seller of protection receives the full return of the asset, including both the income and change in the capital value of the asset. The buyer in return receives a predetermined amount.

A description of how credit derivatives are used within the Group is provided on page 92.

Commodity derivatives

The Group's principal commodity related derivative contracts are swaps, options, forwards and futures. The main commodities transacted are oil, base metals, precious metals, US and UK natural gas, and UK electricity.

A description of commodity derivatives is provided on page 47.

Treasury asset and liability management

The financial risks relating to the Group's assets and liabilities, comprising liquidity, funding and concentration risks, interest rate risks and exchange rate risks, are actively managed by Group Treasury.

Group policies are set by the Group Treasury Committee, chaired by the Group Finance Director, which also provides governance and oversight of Group Treasury. Group policy is to centralise asset and liability management within Group Treasury to minimise earnings volatility and meet Group control standards. The Group Treasury Committee sanctions Liquidity and Structural Interest Rate risk limits across the Group and ensures compliance via a limit and control monitoring structure in collaboration with the local asset and liability committees.

Liquidity risk management

Liquidity risk is the risk that the Group is unable to meet its payment obligations when they fall due and to replace funds when they are withdrawn; in particular, its failure to meet obligations to repay depositors and fulfil commitments to lend.

The Group's overall liquidity policy and control is the responsibility of Group Treasury and is managed to ensure that the Group can meet its current and future re-financing needs at all times and at acceptable costs. The Group's liquidity position was strong at 31st December 2002.

Barclays is currently unaware of any terms, conditions or circumstances that could significantly impair the Group's ability to raise short or long-term funding. Where investors have the right to put, or Barclays has the right of call, on debt securities in issue at certain dates, the maturity date is taken to be the first date. Investors do not have the ability to initiate the redemption of undated or dated loan capital or other capital instruments, except where stated in note 35.

Liquidity management within the Group has two main strands. The first is day to day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of existing funds as they mature or are withdrawn to satisfy demands for additional borrowings by customers. The second is maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow.

In order to avoid reliance on a particular group of customers or market sectors, the distribution of sources and maturity profile of deposits are also carefully managed. Important factors in assuring liquidity are competitive rates and the maintenance of depositors' confidence. Such confidence is based on a number of factors including the Group's reputation, the strength of earnings and the Group's financial position.

An important source of liquidity is our core UK retail deposits, mainly current accounts and savings accounts. Although current accounts are repayable on demand and savings accounts are repayable at short notice, maintaining a broad base of customers, both numerically and by depositor type, helps to protect against unexpected fluctuations. Such accounts form a stable deposit base for the Group's operations and liquidity needs.

Sources of liquidity are regularly reviewed to maintain a wide diversification by currency, geography, provider and product. There have been a number of significant market events over recent years including corporate scandals in the United States and the turmoil of the dotcom bubble, all resulting in a short-term flight to quality in financial markets. The Group's liquidity has benefited in all cases. The ability to raise funds is in part dependent on maintaining the bank's credit rating, although, except at extremes, a credit downgrade is likely to affect only the price at which funding is available rather than the volume that can be raised.

Many factors contribute to the credit rating process including assessment of management capability, and the quality of the corporate governance and risk management processes. The Group considers one of the most important factors in preserving its strong credit rating, which is a core ambition, is maintaining a strong capital base and strong regulatory ratios.

Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month as these are key periods for liquidity management. This is based on principles agreed by the UK Financial Services Authority. Each operation is required to maintain sufficient access to funds, in terms of maturing assets and proven capacity to borrow in the money markets.

Additionally, in evaluating the Group's liquidity position, Group Treasury monitors unmatched medium-term assets and the level and type of undrawn lending commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees.

In overseas markets, day to day liquidity is the responsibility of local treasury management in each territory within the parameters set by Group Treasury and subject to regular reports to Group Treasury in order to maximise the benefits of knowledge gained. Local asset and liability management committees comprising senior local executives and Group Treasury representatives also review liquidity management depending on the size and complexity of the treasury operation.

For further details see contractual cash obligations and commercial commitments of the Group on page 54.

Interest rate risk management

Interest rate risk is the risk of loss arising from adverse movements in the level or volatility of market interest rates. The interest rate risk arising from the UK banking operations is aggregated and managed by Group Treasury, which is also responsible for the overall Group position.

Overall mismatches of fixed rate assets and liabilities are managed in the aggregate by Group Treasury through the use of interest rate swaps and other derivatives. Care is taken to ensure that the management of the portfolio is flexible, as market circumstances and customer requirements can rapidly change the desired portfolio structure. Group Treasury can exercise some discretion within limits prescribed by Group Market Risk with respect to the risk management of these positions and flows.

The exposure is then passed to the market mainly via independently managed dealing units within Barclays Capital who treat these transactions as part of their normal trading activities, and also via third parties. Risks arising in the Group's other banking operations are managed in a similar way.

Retail market risk is the risk to earnings from retail products (generally in personal and corporate banking), which can be adversely affected by movements in the level or volatility of market rates and prices and/or customer behaviour. The retail market risk embedded within retail contracts is measured using behavioural models and then converted into wholesale swap and option exposure which is transferred to Group Treasury at an appropriate market rate transfer price. This leaves residual risk within the business to the extent that the wholesale contract does not replicate the customer product behaviour. This risk is controlled by limits set by Group Market Risk.

Management of the non-trading positions inherent in the Group's balance sheet include the structural interest rate risk associated with interest free deposits, other interest free or fixed rate liabilities as well as the Group's shareholders' funds. The positions arising from these balances are managed by the maintenance of assets with fixed interest rates over several years, including loans and advances to customers and debt securities, and also variable rate assets.

International banking operations also incur market interest rate risk. Policies for managing this risk are agreed between Group Treasury and Group Market Risk and are applied through Asset and Liability Management Committees (ALCOs). Guidance on the scope and constitution of ALCOs is provided by Group Treasury, who maintain regular contact with the businesses on treasury issues. Compliance with the policy is controlled via a comprehensive financial risk reporting framework including interest rate gap limits or value at risk limits issued by Group Market Risk. These limits allow banking books to be managed by local treasury operations in an orderly fashion, either through Barclays Capital or, where necessary, through local markets.

The total Group exposure is shown in the form of an interest rate repricing table. This summarises the repricing profile of the Group's assets, liabilities and off-balance sheet exposures at 31st December 2002. It includes non-trading hedges. However, Barclays Capital interest rate risk is disclosed within Trading Market Risk and is therefore excluded.

This table provides the basis for assessment of the sensitivity of the Group's earnings to interest rate movements. Based on the Group balance sheet as at 31st December 2002, the Group's expected earnings in 2003 would not be significantly affected either by a hypothetical immediate and sustained 1% increase or decrease in interest rates.

Group risk management activities employing interest rate swaps, currency swaps, basis swaps and other derivatives that are designated as hedges are summarised below. The disclosure relates to derivative components of the Group's hedging programme transferred to the market via internal or external counterparties.

Activity	Risk	Type of hedge
Fixed rate lending and fixed rate investment.	Reduced earnings due to an increase in interest rates.	Pay fixed interest rate swaps and buy interest rate caps.
Fixed rate funding (e.g medium-term note issuance).	Reduced earnings due to a fall in interest rates.	Receive fixed interest rate swaps and buy interest rate floors.
Variable rate assets.	Reduced earnings due to a fall in interest rates.	Receive fixed interest rate swaps and buy interest rate options.
Firm foreign currency commitments (e.g. asset purchases and sales).	Reduced earnings due to changes in exchange rates between arranging a transaction and completion.	Foreign currency transactions.
Managing the Group's risk asset ratios.	Reduced risk asset ratio due to strengthening of foreign currency against sterling.	Currency swaps.

Interest rate swaps and cross currency interest rate swaps that are used in the management of the non-trading exposures (excepting those within Barclays Capital, where the risk is managed by DVaR) are shown in the table below. These figures are the weighted average pay fixed rates and receive fixed rates by maturity date and nominal amount at 31st December 2002. The nominal amounts below include £2,994m and £317m, in respect of sterling and non-sterling basis swaps respectively. Basis swaps are swaps where both payable and receivable legs are variable. In managing the non-trading exposures relating to capital balances and demand deposits, both on-balance sheet and derivative positions are held.

The reported figures do not take account of underlying balance sheet items being hedged, the net interest income thereon or their mark to market values.

The weighted-average receive fixed and pay fixed rates by reset maturity date and nominal amount at 31st December 2002 were as follows:

		Sterling denominated contracts				Non-sterling denominated contracts
		Pay fixed		Receive fixed		Pay fixed		Receive fixed
		Nominal amount	Average rate	Nominal amount	Average rate	Nominal amount	Average rate	Nominal amount	Average rate
		(£m)	(%)	(£m)	(%)	(£m)	(%)	(£m)	(%)
Maturity date:
	Not more than three months	2,383	6.42	3,945	5.15	1,238	3.79	779	3.81
	Over three months but not more than six months	3,344	5.99	1,300	6.19	175	5.86	607	5.50
	Over six months but not more than one year	3,543	6.20	2,251	5.71	1,020	3.73	355	4.59
	Over one year but not more than five years	8,645	5.68	18,504	5.86	2,464	6.22	2,327	4.56
	Over five years	2,259	6.02	6,177	6.11	1,105	5.07	4,385	6.84

		20,174	5.95	32,177	5.82	6,002	5.07	8,453	5.74

The weighted-average receive variable and pay variable rates by reset maturity date and nominal amount at 31st December 2002 were as follows:

		Sterling denominated contracts				Non-sterling denominated contracts
		Receive variable		Pay variable		Receive variable		Pay variable
		Nominal amount	Average rate	Nominal amount	Average rate	Nominal amount	Average rate	Nominal amount	Average rate
		(£m)	(%)	(£m)	(%)	(£m)	(%)	(£m)	(%)
Reset maturity date:
	Not more than three months	15,020	3.90	25,075	4.12	5,065	2.99	8,104	2.91
	Over three months but not more than six months	8,148	4.00	10,096	4.13	1,254	3.30	666	2.56

		23,168	3.94	35,171	4.12	6,319	3.05	8,770	2.89

The net effect of the derivative positions, in isolation, on net interest income was a credit of £246m (2001: credit of £122m). This included credits of £242m (2001: £93m) and £4m (2001: £29m) for interest rate and exchange rate derivatives respectively.

Foreign exchange risk management

Corporate and retail banking businesses incur foreign exchange risk in the course of providing services to their customers. The part of this risk that arises in UK operations is transferred directly to and managed by Barclays Capital. In the case of the international operations, Group Market Risk allocates modest foreign exchange open position limits to facilitate the management of customer originated flows. Exposures are reported daily to Group Market Risk. As at 31st December 2002, aggregate DVaR of these businesses for foreign exchange rate risk was immaterial.

Management of foreign currency investments

Non-trading positions in foreign currencies arise from the currency investments that the Group makes in its overseas businesses. The Group's policy is to manage the currency balance of the funding, financing these investments so as to limit the effect of exchange rate movements on the Group's risk asset ratios. The management of funding investments in overseas branches, subsidiaries, associated undertakings and joint ventures is carried out and reviewed by Group Treasury. The principal structural currency exposures of the Group are set out on page 144.

These positions, together with the currency composition of tiers 2 and 3 capital and minority interests in tier 1 and tier 2 capital, ensure that movements in exchange rates have little impact on the Group's risk asset ratios. However, exchange rate movements do have an impact on reserves (see Consolidated statement of changes in reserves on page 109). With the positions in place at 31st December 2002, a hypothetical increase of 10% in the value of sterling against all currencies would have led to a fall of some £36m in reserves (2001: £146m).

Additional information on liquidity management

The tables below give details of the contractual obligations and commercial commitments of the Group as at 31st December 2002.

Contractual cash obligations

	Payments due by period
	Less than one year	One to three years	Four to five years	After five years	Total
	(£ millions)
Long-term debt	206	—	—	4,653	4,859
Capital lease obligations	18	20	47	55	140
Operating leases	176	361	318	2,014	2,869
Unconditional obligations to purchase goods and services obligations	176	312	76	61	625

Total contractual cash obligations	576	693	441	6,783	8,493

The table above excludes deposits and other liabilities taken in the normal course of banking business and short-term and undated liabilities. The maturity of deposits by banks is given in note 27, customer accounts in note 28, and debt securities in issue in note 29.

Other commercial commitments

	Amount of commitment expiration per period
	Less than one year	One to three years	Four to five years	After five years	Total amounts committed
	(£ millions)
Acceptances and endorsements	2,375	90	124	—	2,589
Guarantees and assets pledged as collateral security	12,081	2,245	1,135	582	16,043
Other contingent liabilities	5,884	983	668	379	7,914

Documentary credits and other short-term trade related transactions	311	27	1	1	340
Forward asset purchases and forward forward deposits placed	20	—	—	—	20
Undrawn note issuance and revolving underwriting facilities	—	—	—	—	—
Undrawn formal standby facilities, credit lines and other commitments to lend	79,518	12,454	7,358	1,688	101,018

Total	100,189	15,799	9,286	2,650	127,924

Further information on guarantees is provided in note 63 on page 185.

Management of other risks

In addition to credit, market and treasury risk, Barclays faces a number of other risks. These risks are managed within the overall risk management framework.

Non-financial risk management

Non-financial risk, which is inherent in all business activities, is the direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. It can occur in any of the Group's businesses and includes errors, omissions, natural disasters and deliberate acts such as fraud. This risk is commonly called operational risk, but Barclays uses the term "Non-financial risk" to emphasise the breadth of issues encompassed by this risk category.

The Group has established a comprehensive non-financial risk framework to manage the risks included in this broad category. The framework and policies implement the Non-Financial Risk Governance Standards approved by the Board Risk Committee.

Responsibility for managing non-financial risk is divided between the businesses and the corporate centre. The main responsibility rests with the business units and functional service areas where the risks exist. Business Risk Directors are accountable for the implementation of and compliance with Group standards and policies.

In the corporate centre, the Group Non-Financial Risk unit, which incorporates Group IT Security, Group Operational Risk, Group Business Continuity Management, Group Insurance and Group Security, have the responsibility through the delegated authority of the Non-Financial Risk Director to establish, maintain and exercise governance over the policies and processes that are encompassed in the framework.

Measures of performance (key risk indicators) have been established that give the Group Non-Financial Risk unit the ability to monitor the risks against agreed thresholds and challenge business performance where appropriate. This is enhanced by comprehensive reporting from businesses to the corporate centre of both periodic and event-driven data. Specific quarterly reports are prepared and submitted to the Group Risk Oversight Committee and Board Risk Committee.

The information also feeds into a risk scorecard for each business. During 2003, this will form the basis of an allocation of Economic Capital for non-financial risk, giving each business an incentive to improve its risk control.

Coupled with the non-financial risk framework, this approach forms the basis of the Group's response to the requirements of the Basel II Capital Accord. In this respect, as in others, Barclays aims to qualify for the Advanced Measurement Approach and the lower level of regulatory capital that this implies.

It is recognised that non-financial risk cannot be eliminated and that thresholds can be reached where the cost of minimising these risks outweighs the potential benefits. The Group will continue to assess the risks and invest in appropriate management and mitigation systems.

Assessment of the management of non-financial risk is undertaken by the Group Internal Audit function. This provides executive management and the Board with a view of the adequacy and effectiveness of non-financial risk management, through an avenue outside the hierarchical organisation structure.

Compliance risk management

Compliance or regulatory risk arises from a failure or inability to comply with the laws, regulations or codes applicable specifically to the financial services industry. Non-compliance can lead to fines, public reprimands, enforced suspension of operations or, in extreme cases, withdrawal of authorisation to operate.

The Group is subject to extensive supervisory and regulatory regimes in the UK, Europe, the USA, the Asia-Pacific region and in the other countries around the world in which it operates. In these many jurisdictions, specific resources and expertise are needed to assist the Group Chief Executive, the Business Heads and others in management to comply with financial services regulation. This is the responsibility of the Group Compliance Director, the Compliance Directors in each of the businesses and the Group Compliance function.

Legal risk management

The purpose of the legal function is to identify and, in conjunction with business management, manage the legal risks of Barclays. In this context, "Legal risk" includes any of the following types of risk:

•: The risk that Barclays businesses will not be conducted in accordance with applicable laws and regulations;
•: The risk that contractual arrangements will either not be enforceable as intended or will be enforced against Barclays in an unexpected and adverse way;
•: The risk that the tangible and intangible property of Barclays (such as its trade names and copyrights) will not be adequately protected from infringement; and
•: The risk that Barclays will be liable for damages to third parties harmed by the conduct of its business.

The Group identifies and manages legal risk through the effective use of its internal and external legal advisers. The Group General Counsel has responsibility for providing the support necessary to identify, manage and control legal risk across the Group.

Tax risk management

This is the risk of loss or increased charges associated with changes in, or errors in the interpretation of, taxation rates or law. Responsibility for control of this lies with the Group Taxation Director, reporting to the Group Finance Director, and systems are in place to identify and manage this risk. This includes taking external advice as necessary. The businesses are advised of their obligations to comply with these requirements and also of their tax reporting obligations. Whilst managed centrally, taxation staff are co-located with business areas, in the UK and overseas, where this adds to the effectiveness of risk management.

SECTION 2—RESULTS

Financial data Barclays PLC		57
Business description		60
Financial review		66
	Introduction	68
	Analysis of results by business	69
	Results by nature of income and expense	75
	Total assets and liabilities	81
	Average balance sheet	82
	Capital resources	86
	Deposits	88
	Short-term borrowings	88
	Securities	89
	Critical accounting estimates	90
	Special purpose entities	91
Other information		93
	Economic and monetary union	93
	Supervision and regulation	93
	Risk factors	94
Auditors' report		96
Consolidated accounts Barclays PLC		97
	Accounting policies	97
	Accounting presentation	103
	Consolidated profit and loss account	105
	Statement of total recognised gains and losses	106
	Consolidated balance sheet	107
	Consolidated statement of changes in reserves	109
	Consolidated cash flow statement	110
	Parent company accounts	111
	Notes to the accounts	112
SEC Form 20-F cross reference and other information		190
	Glossary	192
Barclays Bank PLC data		193
US GAAP financial data		203
Shareholder information		204
	Dividends on the ordinary shares of Barclays PLC	204
	Trading market for ordinary shares of Barclays PLC	205
	Shareholdings at 31st December 2002	206
	Memorandum and Articles of Association	207
	Taxation	208
	Exchange controls and other limitations affecting security holders	209
	Sub-division of ordinary shares	209
	Documents on display	210
	Shareholder enquiries	210
Group senior management and principal offices		211

FINANCIAL DATA BARCLAYS PLC

Consolidated profit and loss account summary (a)

	2002		2001 restated		2000 restated		1999 restated		1998 restated
	(£ millions)
Interest receivable	12,044		13,458		11,788		9,320		9,952
Interest payable	5,839		7,492		6,682		4,696		5,644
Profit on redemption/repurchase of loan capital	—		—		2		3		3

Net interest income	6,205		5,966		5,108		4,627		4,311
Fees and commissions receivable	4,454		4,202		3,676		3,201		2,995
Less: fees and commissions payable	(529	)	(465	)	(320	)	(275	)	(229	)
Dealing profits	833		1,011		677		556		(42	)
Other operating income	364		428		353		287		339

Operating income	11,327		11,142		9,494		8,396		7,374

Administration expenses—staff costs	3,755		3,714		3,219		3,057		2,811
Administration expenses—other	2,312		2,303		1,967		1,807		1,829
Depreciation and amortisation	557		537		306		280		275

Operating expenses	6,624		6,554		5,492		5,144		4,915

Operating profit before provisions	4,703		4,588		4,002		3,252		2,459

Provisions for bad and doubtful debts	1,484		1,149		817		621		492
Provisions for contingent liabilities and commitments	1		1		(1	)	1		76

Provisions	1,485		1,150		816		622		568

Operating profit	3,218		3,438		3,186		2,630		1,891
Loss from joint ventures	(5	)	(1	)	(1	)	(1	)	—
(Loss)/income from associated undertakings	(5	)	(8	)	(7	)	(13	)	22
Loss on sale or restructuring of BZW	—		—		—		(30	)	(3	)
(Loss)/profit on disposal of other Group undertakings	(3	)	(4	)	214		(108	)	4
Write-down of fixed asset investments	—		—		—		—		(4	)

Profit on ordinary activities before tax	3,205		3,425		3,392		2,478		1,910
Tax on profit on ordinary activities	(955	)	(943	)	(901	)	(655	)	(521	)

Profit on ordinary activities after tax	2,250		2,482		2,491		1,823		1,389
Profit attributable to minority and other non-equity interests	(20	)	(36	)	(46	)	(52	)	(45	)

Profit for the financial year attributable to the members of Barclays PLC	2,230		2,446		2,445		1,771		1,344
Dividends	(1,206	)	(1,110	)	(927	)	(746	)	(646	)

Profit retained for the financial year	1,024		1,336		1,518		1,025		698

Selected financial statistics

		2002		2001 restated		2000 restated		1999 restated		1998 restated
Earnings per ordinary share		33.7p		36.8p		40.4p		29.6p		22.3p
Dividends per ordinary share		18.35p		16.625p		14.50p		12.50p		10.75p
Dividend cover (times)		1.8		2.2		2.6		2.4		2.1
Attributable profit before tax as a percentage of:
	average shareholders' funds	21.0	%	23.9	%	33.8	%	29.2	%	23.8	%
Attributable profit after tax as a percentage of:
	average shareholders' funds	14.7	%	17.4	%	24.8	%	21.5	%	17.3	%
	average total assets (note (b))	0.5	%	0.6	%	0.8	%	0.7	%	0.6	%
Average US dollar exchange rate used in preparing the accounts		1.50		1.44		1.52		1.62		1.66
Average euro exchange rate used in preparing the accounts		1.59		1.61		1.64		1.52		—

See notes on page 59.

Consolidated balance sheet summary (a)

	2002	2001 restated	2000 restated	1999 restated	1998 restated
	(£ millions)
Assets
Loans and advances to banks and customers	260,572	228,382	198,536	156,194	132,722
Other assets	129,195	113,923	102,489	88,507	77,422

	389,767	342,305	301,025	244,701	210,144
Infrastructure	6,015	6,137	6,450	2,089	2,285

	395,782	348,442	307,475	246,790	212,429
Retail life-fund assets attributable to policyholders	7,284	8,170	8,711	8,040	7,085

Total assets	403,066	356,612	316,186	254,830	219,514

Liabilities
Deposits by banks, customer accounts and debt securities in issue	304,817	273,073	240,607	191,781	161,049
Other liabilities	64,067	50,763	45,715	41,567	39,478

	368,884	323,836	286,322	233,348	200,527

Capital resources
Undated loan capital	6,678	5,054	4,022	1,749	1,742
Dated loan capital	4,859	4,933	3,698	2,848	1,992
Other subordinated liabilities	—	—	—	—	—
Minority and other interests	156	134	250	352	314
Shareholders' funds	15,205	14,485	13,183	8,493	7,854

	26,898	24,606	21,153	13,442	11,902

	395,782	348,442	307,475	246,790	212,429
Retail life-fund liabilities attributable to policyholders	7,284	8,170	8,711	8,040	7,085

Total liabilities and shareholders' funds	403,066	356,612	316,186	254,830	219,514

Weighted risk assets and capital ratios

Weighted risk assets	172,748	158,873	147,040	115,878	109,800
Tier 1 ratio	8.2%	7.8%	7.2%	7.5%	7.3%
Risk asset ratio	12.8%	12.5%	11.0%	11.3%	10.6%

Selected financial statistics

Average shareholders' funds as a percentage of
average total assets (note (b))	3.5%	3.7%	3.2%	3.4%	3.2%
Net asset value per ordinary share	231p	217p	198p	142p	130p
Year-end US dollar exchange rate used in preparing the accounts	1.61	1.45	1.49	1.62	1.66
Year-end euro exchange rate used in preparing the accounts	1.54	1.64	1.60	1.61	—

Notes

(a): The financial information on pages 58 and 59 is extracted from the published accounts for the last five years, restated where appropriate to accord with the current accounting policies of the Group (see page 97). This information should be read together with, and is qualified by reference to, the accounts and notes included in this report.
(b): For the purposes of this summary, the retail life-fund assets attributable to policyholders have been excluded from average total assets.

Note 63 to the accounts provides a reconciliation of net profit and shareholders' funds between the amounts calculated under UK GAAP and US GAAP.

BUSINESS DESCRIPTION

Introduction

Barclays is an international financial services group engaged primarily in banking, investment banking and asset management. In terms of assets employed, Barclays is one of the largest financial services groups in the UK. The Group also operates in many other countries around the world and is a leading provider of co-ordinated global services to multinational corporations and financial institutions in the world's main financial centres. Worldwide, the Barclays Group has 2,579 branches.

The Group is organised in Strategic Business Units (SBUs), which are supported by shared services. Each SBU has been tasked with identifying and implementing value maximising strategies, and achieving these by creating advantage for customers through superior products and services.

For reporting purposes, the SBUs have been organised into the following business groups or clusters:

•: Personal Financial Services (including Woolwich)
•: Barclays Private Clients
•: Barclaycard
•: Business Banking
•: Barclays Africa
•: Barclays Capital
•: Barclays Global Investors

Results are also provided for Other operations and Head office functions. The results for Personal Financial Services and Business Banking are reported after allocating the costs of shared support functions, the UK branch network and other common infrastructure.

Personal Financial Services

Personal Financial Services provides a wide range of products and services to 14 million personal customers throughout the United Kingdom, including current accounts, savings, mortgages, consumer loans, general insurance and the provision of independent financial advice. These are available to all customers through integrated channels comprising the branch network, telephone banking and online banking.

On 1st January 2002, the Woolwich operations became part of Personal Financial Services in line with integration plans, providing a platform for transformation within the enlarged retail business. Separate brands have been retained to maintain distinctive customer propositions.

Personal Financial Services works closely with other businesses in the Group, in particular Barclays Private Clients, Barclaycard and Business Banking, to provide better customer servicing and to develop cross-selling opportunities.

Key business developments in 2002:

•: Openplan, which was successfully developed by Woolwich, was launched fully in the Barclays network in April 2002 and now has nearly 2 million customers relative to our target for 2002 of 1.5 million. Balances within Openplan from Barclays grew to £13.2bn, £10.3bn from savings and £2.9bn from mortgages. 55% of customers choosing Openplan from Woolwich are new.
•: Personal Financial Services has continued to be a net recruiter of current accounts, increasing to 10.5 million (2001: 10.1 million), and the number of value-added accounts (Additions and Platinum) has grown to 1.75 million from 1.38 million.
•: Online customers increased to 3.9 million, with 20% of all transactions now being undertaken online (2001: 14%).
•: Total mortgage balances have increased 13% to £58.7bn. Net new mortgage lending grew 60% to £6.9bn with growth being focused in the first half of the year. Market share of net new lending in mortgages has increased to 8.7% from 7.8% in 2001. The latest loan to value ratios within the residential mortgage book averaged 45%.
•: Total average retail savings balances increased 7% to £28.8 billion, with Barclays branded savings balances increasing 22%.
•: Margin pressure, particularly within mortgages, has been actively managed with increased balances mitigating some of the compression primarily due to the lower average interest rates in 2002 versus 2001.

Refer to page 69 for further information.

Barclays Private Clients

Barclays Private Clients serves affluent and high net worth clients, primarily in the UK and continental Europe, providing banking and asset management services.

There has been continued progress in the development of an integrated business model during 2002. The focus remained on improving operational efficiency and on the provision of a distinctive customer service and a diverse banking and investment product capability.

Barclays Private Clients works closely with other Group businesses, particularly Personal Financial Services and in areas such as offshore banking and UK mass affluent customers.

Barclays Private Clients completed the acquisition of Charles Schwab Europe, an award-winning execution-only retail stockbroker, on 31st January 2003.

Key business developments in 2002:

•: Customer numbers in Spain have increased by 36,000 with 40% of those new to Barclays being attracted by Openplan.
•: In Spain, the average products per customer was 3.2 increasing to 4.5 for Openplan customers.
•: Globally affluent and high net worth client numbers increased 3% to 970,000, excluding the impact of the Caribbean transaction (see below).
•: The combination of the Caribbean operations of Barclays and CIBC was completed on 11th October 2002.
•: Operating income from the closed long-term assurance funds moved from a positive contribution in 2001 of £127m to a negative contribution in 2002 of £51m, a year on year swing of £178m. This was primarily attributable to the fall in stock markets in 2002.

Refer to page 70 for further information.

Barclaycard

Barclaycard is one of the leading credit card businesses in Europe. In addition to its operations in the United Kingdom, it is active in Germany, Spain, Greece, France and Italy. It also operates in Africa. Barclaycard offers a full range of credit card services to individual customers, together with card payment facilities to retailers and other businesses.

Barclaycard acquired the credit card business of Providian UK in April 2002. The acquisition was consistent with Barclaycard's strategy of defending and growing its core UK credit card business.

Key business developments in 2002:

•: Barclaycard has 10.4 million customers, primarily in the UK and Europe. In the UK alone, one in every five credit cards is a Barclaycard. Barclaycard increased market share of extended credit balances during the year.
•: Average extended credit balances amounted to more than 75% of total card outstandings. Period end extended credit balances in the UK grew 19% year on year.
•: UK customer recruitment increased 60% to 1.2 million. In the UK, Barclaycard now has over 400 pricing points with a wide range of annual percentage rates.
•: In September a new loyalty scheme, called Nectar, was launched in conjunction with Sainsburys, Debenhams and BP and has 11 million active customers. Nectar is the biggest loyalty programme in the UK.
•: Barclaycard International has 1.28 million cards in issue across continental Europe.
•: During the year, Barclaycard worked with Banca Woolwich to launch a full range of credit cards in Italy, one of Europe's largest credit card markets.

Refer to page 71 for further information.

Business Banking

Business Banking provides relationship banking to the Group's small, medium and large business customers in the United Kingdom.

Customers are served by a network of relationship and industry sector specialist managers who provide local access to an extensive range of products and services, as well as offering information and support.

Customers are also offered access to business centres in continental Europe and the United States and to the product suite and expertise of other businesses of the Group including Barclays Capital.

The way that Business Banking does business with its customers continued to evolve. The Value Aligned Performance Measurement (VAPM) system provides the sales teams with customer level risk adjusted profitability data. This enables business targets and rewards to be aligned with the creation of shareholder value. Improving operational efficiency is also an important point of focus in Business Banking.

Key business developments in 2002:

•: Business Banking has a relationship with 530,000 customers. Customers rate us first in the market for service and price. Over 4,000 customer facing staff are now using VAPM technology.
•: Business Banking implemented its response to the Competition Commission Report at the end of the year, creating segment specific offerings, giving customers a real choice—reflecting customers' overwhelming preference for cheaper money transmission over interest bearing business current accounts.
•: Medium Business launched a Law Society accredited proposition for solicitors firms.
•: Clearlybusiness became 100% owned by Barclays. During 2002 over 10,000 copies of a new product, Clearlybookkeeping, were sold.
•: Average lending balances increased 4% to £42.6 billion and average deposit balances increased 3% to £43.9 billion. Lending growth was concentrated towards large business customers whilst lending to the small business sector continued to be affected by weak economic conditions.

Refer to page 72 for further information.

Barclays Africa

Barclays Africa provides banking services to personal and corporate customers in North Africa, sub-Saharan Africa and islands in the Indian Ocean. The portfolio comprises banking operations in Botswana, Egypt, Ghana, Kenya, Mauritius, Seychelles, South Africa, Tanzania, Uganda, Zambia and Zimbabwe.

During the year, significant restructuring initiatives were undertaken to reposition the businesses in the light of challenges posed by the deteriorating economic situation in certain African countries.

Key business developments in 2002:

•: In November 2002, Barclays acquired the business of BNPI Mauritius.
•: The Retail business continued an active refurbishment programme of branches across the continent and expanded Prestige centres to bring the number of Prestige centres opened to 53.
•: The Retail business launched telephone banking in many of its businesses and has since recruited 27,000 customers.
•: The Corporate segment of Barclays Africa continued to develop its merchant banking activities during the year, winning and executing mandates. Asset Finance was successfully launched in Kenya and Zambia in 2002.
•: Operating profit decreased £25m. This decrease was mainly attributable to the situation in Zimbabwe where there was a decline in operating profit of £14m.

Refer to page 73 for further information.

Barclays Capital

Barclays Capital conducts the Group's investment banking business. As the Group's principal point of access to the wholesale markets, it provides corporate, institutional and government clients with solutions to their financing and risk management needs.

The Barclays Capital business model is distinctive. It focuses on a broad span of financing and risk management services in the interest rate, foreign exchange, commodities and credit markets combined with certain capabilities in equities. Activities are split between two areas: Rates, which includes fixed income, foreign exchange, derivatives, commodities and money markets sales, trading and research, prime brokerage and equities; and, Credit, which includes origination, sales, trading and research relating to loans, debt capital markets and structured capital markets, and private equity.

Barclays Capital works increasingly with other Group businesses, including Business Banking and Barclays Global Investors, to provide a more integrated customer service and to develop business opportunities across the Group.

Key business developments in 2002:

•: Barclays Capital remained in first position for issuing sterling denominated debt (Euromoney sterling bonds league table) with a 20% market share; and continued to be the top arranger of European syndicated loans. (Euromoney syndicated loans (Europe, Middle East, Africa) league table).
•: Barclays Capital improved its market share in both international bonds and syndicated loans amid lower volumes in both these markets compared to 2001.
•: Barclays Capital moved into the top 10 in private placements for the first time—4th position for 2002, with deals in nine countries and significant partnerships with Business Banking.
•: Barclays Capital was the only firm in the top 10 of the Euromoney Global All Debt table to increase debt issuance volumes in 2002 versus 2001.
•: Barclays Capital led 24 dollar denominated deals for US issuers in 2002 versus one prior to 2001. For most of those companies Barclays Capital had led deals in sterling or euros prior to being mandated for the dollar deal. Barclays Capital is leveraging the relationships built in Europe to gain market share in the US.

Refer to page 73 for further information.

Barclays Global Investors

Barclays Global Investors is a leading global provider of investment management products and services, offering structured investment strategies including indexing, asset allocation, and risk-controlled active strategies.

BGI's investment philosophy focuses on managing all dimensions of performance: return, risk and cost. Asset management is complemented by a range of related financial services including cash management, securities lending and portfolio transition management.

Key business developments in 2002:

•: BGI has over 2,300 institutional clients in 44 countries. £56bn net new assets were attracted in 2002. More than half of the net new assets were from new clients. Assets under management are £462bn, a fall of 13% on 2001.
•: Investment performance in our active strategies continued to be excellent.
•: The active business accounted for 58% of management fees in 2002.
•: Growth in Global iShares (Exchange Traded Funds) continued to be strong. Global iShares assets grew to £22bn, up 47% (2001: £15bn).
•: The launch of the first Fixed Income iShares in the US in the third quarter of the year demonstrated the ongoing commitment to market leading innovation.

Refer to page 74 for further information.

Other operations

Property costs include Barclays Group Property Services, which is responsible for the management of the Group's operational premises, property related services and the central administration of certain operational properties.

Central services includes certain activities which support the operating business and provide central information technology services.

South American Corporate Banking comprises non-core relationships which are now being managed separately with the objective of maximising the recovery from the assets concerned.

Within Management of Group capital there are certain central items including residual balances arising from centrally managed transition businesses. Earnings on centrally held Group capital are allocated to business groups on the basis of economic capital.

Head office functions

Head office functions comprise all the Group's central costs, including Group Executive, Group Finance, Corporate Communications, Human Resources, Group Strategy and Planning, Internal Audit, Marketing, Legal, Corporate Secretariat, Tax, Compliance and Risk. Costs incurred wholly on behalf of the business units are recharged to them.

Competition and outlook

The UK financial services market remains highly competitive and innovative. Competition comes both from incumbent players and a steady stream of new market entrants. Barclays remains at the forefront of market innovation to introduce new propositions to the market.

The landscape is expected to remain highly competitive in all our businesses. We are confident that the integrated business model employed by the Group, combined with rigorous application of managing for value principles, will stand the Group in good stead to meet the challenges ahead.

The Group believes that the UK domestic economy is likely to perform well relative to the rest of Europe, but that the international economy in the aggregate, is unlikely to be significantly more expansionary than in 2002.

Financial markets were volatile and in decline in 2002; they remain so in 2003. This is partly the result of over-excited sentiments stirred up primarily by the dotcom boom. Partly it reflects uncertainty about how the national economic imbalances will unfold, especially with the threat of war in Iraq. Partly it reflects the very competitive and difficult conditions in some sectors.

Group structure

The figures in the business group analyses have been restated to take account of the following changes relative to 2001.

The various constituents of the Woolwich business group have been transferred into other Barclays business groups. Woolwich Plan Managers and Unit Trusts have been transferred into Barclays Global Investors, Woolwich Guernsey and Woolwich Life to Barclays Private Clients and the Woolwich credit card business to Barclaycard. The remainder of the Woolwich business is reported within Personal Financial Services.

Following a Group review of its South American corporate banking activities, a number of non-strategic relationships have been identified within Barclays Capital and Business Banking which did not fit their strategic business models. As a result, a number of non-performing lendings, that are not expected to be of long-term interest to the Group and which are being managed separately with the objective of maximising the recovery from the assets concerned, are now reported within Other operations.

Changes in accounting presentation

Following the issue of UITF Abstract 33, "Obligations in capital instruments", Reserve Capital Instruments (RCIs) are now treated as forming part of the undated loan capital of the Bank, rather than as Minority interests—non-equity. The coupon on the RCIs is now reported in Interest payable, rather than as Minority non-equity interests. Comparatives have been restated accordingly. Profit after tax for the year to 31st December 2001 has been reduced by £97m with no impact on retained profit. Liabilities have been increased and Minority interests have been reduced at 31st December 2001 by £1,872m.

The prior period presentation has, where appropriate, been restated to conform with current year classification.

Accounting developments in UK GAAP are described on page 103, those under US GAAP are described on page 171.

Other information

The Competition Commission published its report into the provision of banking services to small and medium sized enterprises (SMEs) on 14th March 2002. Barclays Bank PLC and certain other banks have given undertakings to the Secretary of State for Trade and Industry and the Chancellor of the Exchequer regarding the implementation of the transitional pricing remedy contained in the Report. As a result, from 1st January 2003 Barclays now offers each of its SME customers either interest on current accounts or free money transmission services or a choice between the two in accordance with the terms of such undertakings. Also, in October 2002, Barclays agreed certain behavioural remedies with the Secretary of State and the Chancellor and is taking the necessary measures forward.

Recent developments

On 31st January 2003, Barclays PLC announced the acquisition of Charles Schwab Europe, an execution only retail stockbroker.

FINANCIAL REVIEW

Profit/(loss) before tax and total assets and weighted risk assets

Profit/(loss) before tax

	2002		2001 restated		2000 restated
	(£ millions)
Personal Financial Services	867		803		557
Barclays Private Clients	281		553		553
Barclaycard	615		504		429
Business Banking	1,219		1,050		1,006
Barclays Africa	89		123		93
Barclays Capital	581		655		517
Barclays Global Investors	110		78		59
Other operations (1)	(179	)	(28	)	79
Head office functions	(121	)	(80	)	(64	)
Goodwill amortisation	(254	)	(229	)	(51	)
Exceptional items	(3	)	(4	)	214

Profit before tax	3,205		3,425		3,392

(1): Other operations now include South American Corporate Banking activities previously included in Barclays Capital and Business Banking, prior periods have been restated accordingly.

Total assets and weighted risk assets

	Total assets			Weighted risk assets
	2002	2001 restated	2000 restated	2002	2001 restated	2000 restated
	(£ millions)
Personal Financial Services	71,871	64,314	60,993	41,100	36,154	34,156
Barclays Private Clients	14,016	13,886	14,098	11,713	9,197	8,390
Barclaycard	10,669	9,404	9,867	10,647	9,467	9,685
Business Banking	47,315	44,132	41,344	50,449	46,272	43,636
Barclays Africa	2,632	2,756	2,291	1,892	1,943	1,661
Barclays Capital	236,472	201,301	167,197	53,496	51,943	45,380
Barclays Global Investors	494	308	259	666	563	653
Other operations and head office functions	8,379	8,250	7,157	2,785	3,334	3,479
Goodwill	3,934	4,091	4,269	—	—	—
Retail life-fund assets	7,284	8,170	8,711	—	—	—

	403,066	356,612	316,186	172,748	158,873	147,040

Summary statutory profit and loss account

	2002		2001 restated		2000 restated
	(£ millions)
Operating income	11,327		11,142		9,494
Operating expenses	(6,624	)	(6,554	)	(5,492	)

Operating profit before provisions	4,703		4,588		4,002
Provisions for bad and doubtful debts	(1,484	)	(1,149	)	(817	)
Provisions for contingent liabilities and commitments	(1	)	(1	)	1

Operating profit	3,218		3,438		3,186
Loss from joint ventures	(5	)	(1	)	(1	)
Loss from associated undertakings	(5	)	(8	)	(7	)
(Loss)/profit on disposal/termination of Group undertakings	(3	)	(4	)	214

Profit on ordinary activities before tax	3,205		3,425		3,392

Introduction

The Group's profit before tax reduced by 6% to £3,205m (2001: £3,425m). This reduction reflected an adverse movement of £178m attributable to the impact of the 24% decline in the FTSE 100 Index on income from the life assurance funds and a 29% increase in credit risk provisions to £1,484m (2001: £1,149m). Statutory earnings per share reduced by 8% to 33.7p.

To facilitate a better understanding of profit trends the business analysis of operating profit below excludes the impact of the restructuring charge, costs directly associated with the integration of Woolwich plc, Woolwich fair value adjustments and goodwill amortisation.

Personal Financial Services increased operating profit by 8% to £1,027m (2001: £949m). Income was up 1% at £2,968m (2001: £2,952m). Costs which totalled £1,606m fell 1% (2001: £1,624m) while provisions were down 13% at £334m (2001: £382m).

Barclays Private Clients operating profit decreased by 44% to £333m (2001: £596m) largely reflecting the impact of the sharp reduction in income from the closed long-term assurance funds. Costs increased to £944m (2001: £915m) although were lower than last year when excluding the £72m (2001: £31m) of costs attributable to the change in treatment of the regulated sales force.

Barclaycard increased operating profit by 21% to £628m (2001: £520m) driven by strong income growth of 14% to £1,582m (2001: £1,386m). Excluding the acquisition of Providian UK, income grew 10% and costs 6%. Provisions increased by 7% to £402m (2001: £374m).

Business Banking increased operating profit by 15% to £1,262m (2001: £1,100m) reflecting volume growth and the benefits of tight cost management. Income grew by 5% to £2,508m (2001: £2,382m) and costs fell by 4% to £1,018m (2001: £1,061m). Provisions increased to £226m (2001: £210m).

Barclays Africa operating profit decreased 19% to £105m (2001: £130m) with the fall in profit being mainly attributable to Zimbabwe. All businesses, including Zimbabwe, remained profitable in local currencies.

Barclays Capital operating profit fell by 10% to £593m (2001: £662m). Income was up 7% to £2,239m (2001: £2,087m), benefiting from increased market share through a broadening business mix and further progress in building the client franchise. Costs fell 1% to £1,312m (2001: £1,322m). Provisions rose to £334m (2001: £103m) reflecting continued difficult economic conditions (particularly in the US)primarily in the telecommunications and energy sectors.

Barclays Global Investors operating profit increased 41% to £110m (2001: £78m). Income increased by 5% to £550m (2001: £523m) and costs were down 1% at £439m (2001: £444m).

Total Group provisions of £1,484m comprised £132m (2001: £36m) in respect of South American Corporate Banking and £1,352m (2001: £1,113m) of other provisions.

Non-performing lendings increased by £655m to £4,526m. Potential problem loans decreased by £98m to £1,304m. Coverage of non-performing lendings reduced from 72.1% to 68.0% while the coverage of total potential credit risk was broadly unchanged at 52.8% (2001: 52.9%).

Shareholders' funds increased by £720m primarily due to profit retentions. Weighted risk assets increased by £13.9bn (9%) to £173bn. The tier 1 ratio increased from 7.8% to 8.2% while the total risk asset ratio increased from 12.5% to 12.8%. Total assets increased by £46bn to £403bn, including a £35bn increase within Barclays Capital.

Analysis of results by business

The following section analyses the Group's performance within the businesses. Inter-business activities are included within these figures. The total income and expenditure for the businesses therefore does not necessarily equate to the amounts reported in the Group's results.

Operating profit, where applicable, excludes Woolwich fair value adjustments, costs associated with the integration of Woolwich plc and the restructuring charge relating to staff displacement and related costs. Goodwill amortisation is not reflected in the business analysis.

The following results incorporate, where applicable, those of the Woolwich plc business from its acquisition on 25th October 2000. The primary impact is reflected in Personal Financial Services.

Comparative figures have been restated as a result of the changes in accounting policy and accounting presentation as set out on pages 102 and 103.

Personal Financial Services

Financial performance

	2002		2001		2000
	(£ millions)
Net interest income	1,892		1,954		1,396
Net fees and commissions	794		806		559
Other operating income	282		192		143

Operating income	2,968		2,952		2,098
Operating costs	(1,606	)	(1,624	)	(1,176	)
Provisions for bad and doubtful debts	(334	)	(382	)	(277	)
(Loss)/profit from joint ventures and associated undertakings	(1	)	3		—

Operating profit	1,027		949		645
Restructuring costs	(39	)	(37	)	(76	)
Integration costs	(70	)	(76	)	(6	)
Fair value adjustment	(51	)	(33	)	(6	)

Profit before tax and exceptional items	867		803		557

Personal Financial Services operating profit increased 8% (£78m) to £1,027m (2001: £949m).

There was a strong focus on managing the risk profile of the business and tight control of costs. There was also significant progress in the change programme that involved major restructuring, investment in infrastructure and improvements to the customer offering. Woolwich integration synergies were realised ahead of plan, providing support to this investment and helping the business absorb the impact of a lower interest rate environment.

Operating income was up 1% at £2,968m (2001: £2,952m).

Net interest income decreased by 3% (£62m) to £1,892m (2001: £1,954m). Margin pressures, particularly within mortgages, have been actively managed with increased balances mitigating some of the compression. Growth of Openplan, a proposition in which customer retention and product penetration are high, also resulted in some self induced margin pressure.

Total UK mortgage balances increased 13%, in line with market growth, to £58.7bn (2001: £51.9bn). Openplan from Barclays attracted a total of £2.9bn of mortgage balances, of which over 80% were new to Barclays. Net new lending of £6.9bn (2001: £4.3bn) represented an increase of 60% and a market share of 8.7% (2001: 7.8%). Significant volume growth was achieved in the first half of the year. Growth slowed in the second half reflecting a tightening of risk policies in uncertain economic conditions and as a response to more aggressive pricing evident in the market. The sharp increase in volume, primarily generated through the Barclays branches and intermediary channels, resulted in a short term drag on profit of £53m caused mainly by incentives combined with additional mortgage origination and servicing costs. Despite slower growth in the second half of the year, pipeline mortgage balances at the 31st December 2002 stood at £3.1bn (31st December 2001: £3.5bn).

Average retail savings balances increased 7% to £28.8bn (2001: £27.0bn). Barclays branded savings balances increased 22%, a leading market position in new business generation. Openplan from Barclays attracted a total of £10.3bn of savings balances of which 44% were new to Barclays.

Average retail consumer lending balances increased 8% to £6.4bn (2001: £5.9bn). The volume of lending continued to be managed actively and resulted in growth lower than the market. Ongoing improvements in risk management and lending quality has improved net revenues. Consumer lending margins have increased on the core portfolio during the year.

Net fees and commissions decreased 1% (£12m) to £794m (2001: £806m). In difficult market conditions, income from independent financial advice was £15m lower.

The number of current accounts increased 4% to 10.5 million (2001: 10.1 million), with Additions and Platinum accounts rising 27% to 1.75 million (2001: 1.38 million). Higher fees have been generated through these value-added current accounts.

Other operating income increased 47% (£90m) to £282m (2001: £192m). The contribution from payment protection income increased strongly (18%) to £171m (2001: £145m) reflecting consumer lending activities. An increase of £59m resulted from a revision of the estimated amounts expected to be repaid on banking liabilities in the light of experience since the Woolwich acquisition in 2000 and to align Woolwich with Barclays practice.

Operating costs were down 1% (£18m), to £1,606m (2001: £1,624m), despite significant continued investment in infrastructure and the higher costs associated with increased business volumes. Improved productivity and the implementation of a new organisation design underpinning the business transformation resulted in a reduction in non-customer facing staff of 1,100. The cost income ratio improved to 54% (2001: 55%).

Provisions decreased by 13% (£48m) to £334m (2001: £382m) despite growth in lending balances. This primarily reflected the implementation of specific initiatives to improve the overall risk profile of our lending portfolio, particularly in relation to consumer loans and current accounts. Credit quality remained strong with a reduction in potential problem loans. Coverage ratios improved during the second half of the year for both the secured and unsecured portfolios, despite the reduction in provisions.

Latest loan to value ratios within the mortgage book averaged 45%. Buy to let balances represented less than 5% of the total mortgage book and the latest loan to value ratios for these loans averaged 57%. Lending criteria for buy to let mortgages were tightened in the second half of the year.

The Openplan proposition continued to be highly successful in attracting new customers and retaining existing customers. Fully launched in April 2002, Openplan from Barclays attracted 778,000 customers across the UK (2001: 10,000). Product penetration was 4.3, well above the average of 2.5 outside Openplan. Openplan from The Woolwich customer numbers rose to 1,206,000 (2001: 960,000) and product penetration increased to 3.25 (2001: 3.08). There is evidence that Openplan facilitates the development of a deeper and more enduring customer relationship through higher product penetration and lower attrition rates.

Personal Financial Services operating profit in 2001 was £949m (2000: £645m). The year on year comparison is impacted by the inclusion of a significant element of the Woolwich plc business which was acquired on 25th October 2000.

Net interest income in 2001 was £1,954m (2000: £1,396m) primarily reflecting the inclusion of Woolwich where the contribution from mortgage and other lending activities compensated for margin pressure on deposit income. In other parts of the business, increased net interest income was driven by strong growth in deposit balances and by continued growth in consumer lending balances.

Net fees and commissions in 2001 were £806m (2000: £559m) primarily reflecting the inclusion of Woolwich where there was a good performance from IFA operations and fees from mortgage related activities. Additional current account and overdraft lending activity, and higher income from the fee-based Additions current account also contributed to the increase.

Other operating income in 2001 was £192m (2000: £143m).In addition to the impact of the inclusion of Woolwich the increase reflects higher levels of payment protection insurance and underwriting which benefited from improved volumes relating to customer lending and credit card borrowing.

Operating costs in 2001 were £1,624m (2000: £1,176m). Apart from the inclusion of Woolwich, where the level of costs was impacted by increased business, costs were maintained not withstanding the growth in business volumes.

Provisions in 2001 were £382m (2000: £277m). In addition to the inclusion of Woolwich, provisions also rose in other consumer lending portfolios albeit at a rate below the growth in consumer lending balances.

Barclays Private Clients

Financial performance

	2002		2001		2000
	(£ millions)
Net interest income	766		829		788
Net fees and commissions	594		567		579
Income from the long-term assurance business	(51	)	127		114
Other operating income	14		24		36

Operating income	1,323		1,547		1,517
Operating costs	(944	)	(915	)	(895	)
Provisions for bad and doubtful debts	(37	)	(36	)	(23	)
Loss from joint ventures and associated undertakings	(9	)	—		—

Operating profit	333		596		599
Restructuring costs	(44	)	(34	)	(46	)
Integration costs	(8	)	(9	)	—

Profit before tax and exceptional items	281		553		553

Barclays Private Clients operating profit fell 44% (£263m) to £333m (2001: £596m), with a large part of the decrease attributable to the impact of falling equity markets affecting the income of the closed long-term assurance funds.

On 11th October 2002, the Caribbean businesses of Barclays and Canadian Imperial Bank of Commerce were combined to form FirstCaribbean International Bank Ltd, generating a one-off economic profit contribution of £206m. The gain is recognised in the statement of total recognised gains and losses and in the economic profit for the year of Barclays Private Clients. From 11th October 2002, the interest in FirstCaribbean was accounted for as an associated undertaking.

Excluding the impact of the closed long-term assurance funds and adjusting for the change to the Caribbean business, the operating profit decline was 10%.

Operating income decreased 14% (£224m) to £1,323m (2001: £1,547m) mainly reflecting the impact of the fall in income from the closed long-term assurance funds. Income from long-term assurance business was also impacted by the cost of customer redress for endowment policies. Income was resilient in a difficult market environment.

Net interest income decreased 8% (£63m), to £766m (2001: £829m). The increased income generated from higher average customer deposits, up 2%, and average loans, up 3%, was offset by margin compression and the effects of lower interest rates.

Net fees and commissions increased 5% (£27m), to £594m (2001: £567m). On a comparative basis, this included £72m (2001: £31m) of commission income associated with the regulated sales force and previously offset against costs and borne within the life assurance fund. Excluding this and the Caribbean income, net fees and commissions decreased by 2% reflecting the impact of market conditions on the appetite for investment products. Average daily deal volumes in UK retail stockbroking were slightly down on 2001, at 6,300 (2001: 6,400). The stockbroking business continued to maintain its leading UK position with a 12% (2001: 11%) market share of retail stockbroking, as measured by retail client orders.

Operating costs were up 3% (£29m), to £944m (2001: £915m). Costs were tightly managed and were lower than 2001 when excluding the £72m (2001: £31m) of costs attributable to the change in treatment of the regulated sales force as detailed above. Headcount was tightly managed with a net reduction of 600 in the year, excluding the impact of the Caribbean transaction. Strategic investment spend at £87m, almost 10% of operating costs, was maintained at a level similar to 2001, despite the challenging market environment.

Total customer funds, comprising customer deposits and assets under management (including assets now managed by Legal & General under the strategic alliance), fell by £8bn to £85bn (31st December 2001: £93bn). This included a reduction of £4bn as a result of the Caribbean transaction and the sale of the US based Americas private banking business to the Royal Bank of Canada in June 2002.

Despite the volatile markets, 2002 witnessed a net increase in customer numbers of 1% and higher volumes of business with existing customers. In the UK, regulated product sales volumes increased 43%. Openplan was launched for UK affluent customers, building on the successful launch in Spain in September 2001. In the UK, 95,000 affluent customers joined Openplan, which attracted £3.7bn of savings and £1.6bn of mortgage balances. In Spain, 36,000 new customers were attracted to the bank in 2002 with 40% of the new customer flow choosing Openplan. In Spain, our market share of net new mortgage business increased to 5.0% in 2002 from 0.5% at the point of launch of Openplan in September 2001.

Sales of Legal & General life and pension products were maintained at levels broadly similar to 2001, but sales of funds and bonds were impacted by poor market sentiment for investment products. With the success of the Legal & General strategic alliance in the UK, similar arrangements in France with Axa and Fidelity were established during 2002.

Operating profit in 2001 of £596m was at a similar level to that in 2000 (£599m). Operating income in 2001 increased by 2% compared to 2000 benefiting from the diversity of the product, geography and client mix, despite difficult market conditions.

Net interest income in 2001 increased by 5% to £829m (2000: £788m). Increased lending volumes and average deposits were partially offset by margin compression in deposits, due to reduced interest rates.

Net fees and commissions in 2001 decreased by 2% to £567m (2000: £579m), primarily due to lower fund management and brokerage fees. This was partially offset by commission income of £35m from the sale of Legal & General products.

Income from long-term assurance in 2001 increased by 11% to £127m (2000: £114m).

Operating costs in 2001 increased by 2% to £915m (2000: £895m). This increase includes the £31m relating to the regulated sales force and field sales managers following the Legal & General strategic alliance where costs were previously borne within the long-term assurance fund.

Barclaycard

Financial performance

	2002		2001		2000
	(£ millions)
Net interest income	886		807		681
Net fees and commissions	696		579		518

Operating income	1,582		1,386		1,199
Operating costs	(552	)	(489	)	(454	)
Provisions for bad and doubtful debts	(402	)	(374	)	(304	)
Loss from joint ventures	—		(3	)	(2	)

Operating profit	628		520		439
Restructuring costs	(12	)	(13	)	(9	)
Integration costs	(1	)	(3	)	(1	)

Profit before tax and exceptional items	615		504		429

Barclaycard's operating profit increased 21% (£108m) to £628m (2001: £520m).

Operating income increased 14%. Excluding the impact of the acquisition of Providian UK, the increase was 10%.

Net interest income increased 10% (£79m) to £886m (2001: £807m). This was mainly due to good growth in average UK extended credit balances, up 9% to £6.5bn (2001: £6.0bn), and to continued cardholder rate management coupled with falling interest rates. Period end extended credit balances were 19%, or £1.1bn, higher (at £7.1bn) than at 31st December 2001, of which Providian UK contributed £434m. Recruitment of UK customers reached a record 1,218,000 (2001: 763,000) in the period, up 60%, driven by the continued application of Information Based Customer Management (IBCM) capabilities. Despite strong competition in the market throughout 2002, Barclaycard increased its market share of new cards issued.

Net fees and commissions increased 20% (£117m) to £696m (2001: £579m), principally as a result of replacing UK annual fees with fees based on account activity.

Operating costs increased 13% (£63m) to £552m (2001: £489m). Excluding Providian UK, costs grew 6%. The cost income ratio was maintained at 35% (2001: 35%).

Provisions, which increased 7% (£28m) to £402m (2001: £374m), rose in line with the growth in average extended credit balances and broadly tracked Risk Tendency. The provisions impact of strong customer recruitment was mitigated by a number of new risk management initiatives primarily focused on collections.

Barclaycard International businesses recorded an operating loss of £13m (2001: loss £20m). Operating profits were recorded for the last four months of 2002, delivering profitability ahead of schedule. Income increased 30% and average extended credit balances rose by 29%.

Operating profit in 2001 increased by 18% to £520m (2000: £439m).

Net interest income in 2001 increased by 19% to £807m (2000: £681m). This was mainly as a result of good growth in average UK extended credit balances which rose 9% to £6.0bn (2000: £5.5bn), and improved cardholder rate management coupled with lower interest rates.

Fees and commissions in 2001 increased by 12% to £579m (2000: £518m) principally reflecting the impact of replacing UK annual account fees with fees based on account behaviour.

Operating costs in 2001 increased 8% to £489m (2000: £454m). This was largely attributable to higher strategic investment costs arising from increased recruitment of customers outside the UK and investment in capacity to facilitate the growing number of online users.

Provisions in 2001 increased 23% to £374m (2000: £304m) and was mainly attributable to growth in lending across the UK and international businesses and the continuing high levels of recruitment during the last two years.

Business Banking

Financial performance

	2002		2001		2000
	(£ millions)
Net interest income	1,620		1,553		1,488
Net fees and commissions	864		833		787
Other operating income	24		(4	)	8

Operating income	2,508		2,382		2,283
Operating costs	(1,018	)	(1,061	)	(1,078	)
Provisions for bad and doubtful debts	(226	)	(210	)	(120	)
Loss from associated undertakings	(2	)	(11	)	(1	)

Operating profit	1,262		1,100		1,084
Restructuring costs	(42	)	(49	)	(78	)
Integration costs	(1	)	(1	)	—

Profit before tax and exceptional items	1,219		1,050		1,006

Business Banking operating profit increased 15% (£162m) to £1,262m (2001: £1,100m), reflecting improved income growth and tight cost management.

Net interest income increased 4% (£67m) to £1,620m (2001: £1,553m) partly as a result of increased volumes. Average lending balances increased 4% to £42.6bn and average deposit balances increased 3% to £43.9bn. Lending margins continued to ease modestly, but stabilised in the second half of the year. Deposit margins improved slightly, reflecting good growth in higher margin products combined with changes in the product mix.

Lending growth was concentrated towards large business customers. The strategy for the large business sector is to take advantage of profitable market opportunities and to increase industry focus and expertise within the relationship management teams. Lending volumes to medium business customers showed encouraging signs of growth in the second half of the year, while lending to the small business sector continued to be affected by weak economic conditions. The Sales Financing product range remained a high growth area with turnover volume up 57%. The overall lending portfolio remained well diversified by industrial classification.Net fees and commissions increased 4% (£31m) to £864m (2001: £833m). Lending related fees increased strongly and included an increased contribution from leveraged finance. Money transmission income fell as a result of price competition and a reduction in average fee levels due to the migration to more efficient, lower cost, electronic payment mechanisms. Foreign exchange related income was flat despite a reduction in volumes.

Other operating income mainly represented income from a restructuring of the leasing portfolio.

Operating costs fell 4% (£43m) to £1,018m (2001: £1,061m), reflecting continued management focus on operational cost efficiency. Business as usual costs fell by 1% as a result of a reduction in headcount but also reflected the impact of the discontinuation of the BarclaysB2B customer proposition in the first half of 2002. The cost income ratio improved to 41% (2001: 45%).

Provisions increased 8% (£16m) to £226m (2001: £210m), broadly in line with expectations. Conditions in a number of industries were weaker, although the composition of the lending stock and flow by risk grade for end 2002 against end 2001 remained steady. Provisions remained below Risk Tendency.

Operating profit in 2001 increased by 1% to £1,100m (2000: £1,084m).

Net interest income in 2001 increased 4% to £1,553m (2000: £1,488m) reflecting increased lending and deposit balances partly offset by a slight reduction in the overall margin.

Net fees and commissions in 2001 increased 6% to £833m (2000: £787m). Lending related fees growth was driven by good activity levels in Large Business. Money transmission income fell with higher volumes offset by the impact of competitve pressures on fee levels. Foreign exchange related income increased strongly as a result of higher turnover.

Operating costs in 2001 fell 2% to £1,061m (2000: £1,078m).

Provisions in 2001 increased 75% to £210m (2000: £120m) this reflected weaker economic conditions especially in the manufacturing sector.

Barclays Africa

Financial performance

	2002		2001		2000
	(£ millions)
Net interest income	160		176		179
Net fees and commissions	114		130		126
Other operating income	1		6		7

Operating income	275		312		312
Operating costs	(143	)	(157	)	(156	)
Provision for bad and doubtful debts	(27	)	(25	)	(47	)

Operating profit	105		130		109
Restructuring costs	(16	)	(7	)	(16	)

Profit before tax and exceptional items	89		123		93

Operating profit decreased 19% (£25m) to £105m (2001: £130m). This decrease was mainly attributable to the situation in Zimbabwe, where there was a decline in operating profit of £14m. All businesses remained profitable in local currencies.

Net interest income fell 9% (£16m) to £160m (2001: £176m) primarily attributable to the effects of Zimbabwe. Excluding Zimbabwe, net interest income increased 2% (£3m) to £151m (2001: £148m) reflecting growth in customer balances, with lending up 29% to £1.5bn and deposits rising 25% to £2.5bn. Net interest margins fell due to the impact of lower interest rates, particularly affecting deposit margins.

Net fees and commissions decreased 12% (£16m) to £114m (2001: £130m), mainly due to Zimbabwe.

Operating costs declined 9% (£14m) to £143m (2001: £157m) largely as a result of the impact of Zimbabwe. The cost income ratio increased marginally to 52% (2001: 50%) with tight control of costs offsetting increased strategic investment spend.

Provisions increased by 8% (£2m) to £27m (2001: £25m).

Operating profit in 2001 increased by 19% to £130m (2000: £109m), primarily as a result of a £22m reduction in the net provisions charge to £25m.

Barclays Capital

Financial performance

	2002		2001		2000
	(£ millions)
Net interest income	889		639		474
Dealing profits	827		1,006		680
Net fees and commissions	463		389		453
Other operating income	60		53		39

Operating income	2,239		2,087		1,646
Operating costs	(1,312	)	(1,322	)	(1,061	)
Provisions for bad and doubtful debts	(334	)	(103	)	(66	)

Operating profit	593		662		519
Restructuring costs	(12	)	(7	)	(2	)

Profit before tax and exceptional items	581		655		517

Operating profit fell 10% to £593m (2001: £662m), due to increased provisions as the difficult economic conditions affected specific sectors. Operating income grew 7% to £2,239m (2001: £2,087m). This reflects the underlying strength of the Barclays Capital business model and continued progress in building the client franchise. Weighted risk assets grew 3% to £53bn (2001: £52bn). The average daily value at risk (DVaR) remained relatively low at £23m (2001: £19m).

Secondary income, comprising net interest income and dealing profits, primarily arises from market activities including client risk management and financing solutions. The increase to £1,716m (2001: £1,645m) reflected strong growth in net interest income to £889m (2001: £639m), in particular from money markets and structured capital markets. Dealing profits fell to £827m (2001: £1,006m). The fall resulted from poor conditions in the credit and equity markets partially offset by strong gains in fixed income and commodities.

Primary income, net fees and commissions, increased to £463m (2001: £389m). This growth was driven by the Credit business with strong performances from primary bonds and structured capital markets. This reflected both increasing market share and the depth and quality of client relationships. Net fees and commissions included £87m (2001: £61m) of internal fees for structured capital market activities arranged by Barclays Capital.

Operating costs fell 1% to £1,312m (2001: £1,322m). There was continued strategic investment in product, client coverage and distribution capabilities, offset by focused cost reduction in other areas. Revenue related costs fell in line with performance. Staff costs were maintained at 53% (2001: 53%) of operating income less provisions. Headcount remained flat at 5,500.

Provisions increased to £334m (2001: £103m). The increase reflected continued difficult economic conditions (particularly in the US), primarily in the telecommunications and energy sectors. In the second half, provisions largely arose from the further deterioration of existing non performing loans.

Operating profit in 2001 increased 28% to £662m (2000: £519m).

Secondary income in 2001 increased 43% to £1,645m (2000: £1,154m) reflecting strong growth in net interest income and dealing profits. Both the Rates and Credit businesses performed well.

Primary income in 2001 fell 14% to £389m (2000: £453m) mainly due to lower financing volumes in syndicated loans.

Operating costs in 2001 rose 25% to £1,322m (2000: £1,061m), largely due to variable revenue related costs increasing in line with performance.

Provisions in 2001 increased to £103m (2000: £66m). There was an increase in new and increased provisions in the US, primarily relating to a small number of large loans.

Barclays Global Investors

Financial performance

	2002		2001		2000
	(£ millions)
Net interest income	12		5		6
Net fees and commissions	538		518		435
Other operating income	—				(1	)

Operating income	550		523		440
Operating costs	(439	)	(444	)	(381	)
Loss from associated undertakings	(1	)	(1	)	—

Operating profit before tax and exceptional items	110		78		59

Barclays Global Investors operating profit increased 41% (£32m) to £110m (2001: £78m) reflecting strong asset gathering, a greater proportion of higher margin active funds business, good investment performance across a range of products and ongoing cost management.

Fees and commissions increased by 4% (£20m) to £538m (2001: £518m) despite significantly lower stock market levels. Within an increasingly diverse set of business lines, this increase reflected the continued expansion in the advanced active business and growth of Global iShares (Exchange Traded Funds). These more than offset the impact of the decline in the stock market levels and lower securities lending fee spreads (which were the result of a more stable interest rate environment) and the impact of exchange rate translation movements.

New business from strong asset gathering coupled with a shift in asset mix towards higher margin active products drove growth in management fees. Performance fees benefited from strong advanced active product investment performance and new assets within incentive contracts. A change in the timing of the recognition of management fees has contributed £11m to the growth in fees. 58% of management fees are derived from active asset management.

Operating costs of £439m were down 1% relative to 2001. Increased performance related pay was offset by improved efficiency and the impact of exchange rate translation movements. The cost income ratio improved to 80% (2001: 85%).

Total assets under management decreased 13% (£68bn) to £462bn (2001: £530bn). This was the net result of an increase of £56bn attributable to new assets being more than offset by £52bn due to exchange rate translation movements and £72bn attributable to adverse market movements. Assets under management comprised £338bn (73%) of indexed assets, £41bn (9%) of managed cash assets and £83bn (18%) of active assets.

Growth in Global iShares (Exchange Traded Funds) continued to be strong. Global iShares assets grew to £22bn, up 47% (2001: £15bn). The launch of the first Fixed Income iShares in the US in the third quarter of the year demonstrated the ongoing commitment to market leading innovation.

Operating profit in 2001 increased 32% to £78m (2000: £59m) in a year of significantly lower stock market levels.

Fees and commissions in 2001 increased by 19% to £518m (2000: £435m). The increase was driven by a large increase in performance fees as a result of strong active product performance, increased securities lending revenues as a result of increases in stock lending volumes and spreads, and by higher transition fees due to increased business in client portfolio restructuring.

Operating costs in 2001 increased by 17% to £444m (2001: £381m) primarily reflecting higher performance related staff costs.

Other operations

Financial performance

	2002		2001		2000
	(£ millions)
Property costs	12		14		31
Central services	(17	)	(10	)	2
Management of Group capital	(37	)	5		15
South American Corporate Banking	(127	)	(18	)	25

Operating (loss)/profit	(169	)	(9	)	73
Restructuring costs	(10	)	(19	)	6

(Loss)/profit before tax and exceptional items	(179	)	(28	)	79

The loss in South American Corporate Banking for the full year 2002 of £127m (2001: £18m) reflected provisions relating to various Latin American exposures primarily in Argentina.

The Management of Group capital includes the internal fees charged by Barclays Capital for structured capital markets activities. In 2002, these fees amounted to £87m (2001: £61m).

The reduced property surplus in 2001 reflects decreased disposal activity. The increased deficit in Central services reflects additional investment in core technology and operational infrastructure.

The decreased surplus in 2001 in Management of Group capital was attributable to reduced credits arising in centrally managed transition businesses partially offset by lower internal fees payable The loss in South American Corporate Banking reflected the higher level of provisions relating to various Latin American exposures primarily in Argentina.

Head office functions

Financial performance

	2002		2001		2000
	(£ millions)
Operating costs	(109	)	(75	)	(53	)
Restructuring costs	(12	)	(5	)	(11	)

Total	(121	)	(80	)	(64	)

The increase in operating costs of £34m primarily reflects increased expenditure relating to marketing and central systems costs.

The increase in 2001 operating costs reflected expenditure on various group initiatives, the cost of which were held centrally.

Results by nature of income and expense

In the tables below, statutory basis refers to the presentation of the Group's results in the statutory profit and loss account on page 105. In addition, income and cost totals are shown excluding, where appropriate, Woolwich fair value adjustments and costs associated with the integration of Woolwich plc, the restructuring charge relating to staff displacement and related costs and goodwill amortisation, to assist in the analysis of the ongoing business performance.

Consideration of the results for 2001 and 2002 as compared to 2000 is materially impacted by the acquisition of Woolwich plc on 25th October 2000.

Comparative figures have been restated as a result of the changes in accounting policy and accounting presentation as set out on pages 102 to 103.

Net interest income

	2002		2001		2000
	(£ millions)
Interest receivable	12,044		13,458		11,788
Interest payable	(5,839	)	(7,492	)	(6,682	)
Profit on redemption/repurchase of loan capital	—		—		2

Statutory basis	6,205		5,966		5,108

Excluding Woolwich fair value adjustments	6,257		6,001		5,115

Group net interest income increased by 4% to £6,205m, reflecting growth in balances which more than offset a 16 basis point fall in the Group net interest margin to 2.75%.

Average interest earning assets increased by 10% to £225bn, primarily due to a £6bn increase in UK mortgage balances within Personal Financial Services and increases of £4bn in holdings of debt securities and £5bn of lending to banks in Barclays Capital.

Domestic average interest earning assets increased by 8% to £152bn (2001: £141bn), predominantly driven by the £6bn increase in mortgage balances in Personal Financial Services. International average interest earning assets increased by 15% to £73bn (2001: £64bn), primarily driven by an increase in Barclays Capital wholesale activities.

The reduction in the Group net interest margin reflected decreases in both the domestic and international margins.

The domestic margin has shown a decrease of 14 basis points reflecting active management of margins across the UK businesses in competitive market conditions, particularly in the mortgage market, and a low interest rate environment. The international margin has fallen by 11 basis points mainly as a result of managing down the higher yielding South American Corporate Banking business and an increase in non performing loans in the US.

The benefit of free funds fell 0.08% to 0.33% as a result of the reduction in interest rates.

The overall benefit of free funds on a hedged basis rose to 0.55% (2001: 0.53%) reflecting an increase in the effective rate of the hedge more than offsetting the fall in the liability interest rates.

Net interest income of £5,966m in 2001, including the impact of the inclusion of Woolwich for the whole year, was 17% higher than 2000 (£5,108m).

In 2001, overall banking margins were 17 basis points down on the level recorded in 2000 (3.08%) The adverse impact on the margin of the acquisition of Woolwich plc was mitigated in part by the benefit of a gain on closure of a surplus hedge following the acquisition of Woolwich plc. Increased margins in Barclaycard in part offset margin pressure in Personal Financial Services, Barclays Private Clients and Business Banking.

In 2001, the benefit of free funds fell 0.09% from its 2000 level of 0.50%. The fall in short term market rates increased the contribution to the net margin from the central management of Group interest rate exposure to 0.11% from 0.05%.

Prevailing average interest rates

		2002	2001	2000
		(%)
UK:
Barclays Bank PLC base rate		4.00	5.12	5.96
London Inter-Bank Offered Rate (LIBOR):
	three month sterling	4.06	5.04	6.10
	three month eurodollar	1.80	3.78	6.47
United States prime rate		4.68	6.92	9.24

Average interest earning assets and liabilities—banking business

	2002	2001	2000
	(£ millions)
Average interest earning assets:
Group	225,178	205,017	166,200
Domestic	151,810	141,087	104,845
International	73,368	63,930	61,355
Average interest bearing liabilities:
Group	199,708	184,105	147,949
Domestic	130,045	122,422	89,712
International	69,663	61,683	58,237

Yields, spreads and margins—banking business (a)

	2002	2001	2000
	(%)
Gross yield (b)
Group	5.35	6.56	7.09
Domestic	5.97	7.10	7.90
International	4.06	5.38	5.71
Interest spread (c)
Group	2.42	2.50	2.58
Domestic	3.22	3.23	3.51
International	0.80	0.91	1.01
Interest margin (d)
Group	2.75	2.91	3.08
Domestic	3.61	3.75	4.15
International	0.96	1.07	1.25

Notes

(a): Domestic business is conducted primarily in the UK in Sterling. International business is conducted primarily in foreign currencies. In addition to the business carried out by overseas branches and subsidiaries, international business is transacted in the United Kingdom by Barclays Capital.

The yields, spreads, and margins shown above exclude non-margin related items including profits and losses on the repurchase of loan capital and the unwinding of the discount on vacant leasehold property provisions.

(b): Gross yield is the interest rate earned on average interest earning assets.
(c): Interest spread is the difference between the interest rate earned on average interest earning assets and the interest rate paid on average interest bearing liabilities.
(d): Interest margin is net interest income as a percentage of average interest earning assets.

The net interest income and average balances of the trading business are shown separately on the average balance sheet on pages 82 to 83.

Net fees and commissions

	2002		2001		2000
	(£ millions)
Fees and commissions receivable	4,454		4,202		3,676
Less: fees and commissions payable	(529	)	(465	)	(320	)

Statutory basis	3,925		3,737		3,356

Group net fees and commissions increased by £188m (5%) to £3,925m, predominantly reflecting increases in Barclaycard and Barclays Capital.

In Barclaycard, the impact of replacing annual fees with fees based on account activity was the principal factor fuelling growth in net fees and commissions of 20% to £696m (2001: £579m).

Barclays Capital net fees and commissions increased 19% to £463m (2001: £389m). This growth was driven by the Credit business with strong performances from primary bonds and structured capital markets.

In Business Banking, net fees and commissions increased by 4% to £864m (2001: £833m).

Barclays Private Clients and Barclays Global Investors contributed increases totalling £47m. In Barclays Africa, there was a £16m reduction principally due to the situation in Zimbabwe. In Personal Financial Services, there was a reduction of £12m reflecting lower income from independent financial advice.

Personal Financial Services, Barclays Private Clients and Business Banking fees and commissions included £135m (2001: £129m) in respect of foreign exchange income on customer transactions with Barclays Capital.

Net fees and commissions in 2001, including the impact of the inclusion of Woolwich for the whole year, were 11% higher than in 2000 (£3,356m).

In addition to the inclusion of Woolwich plc there were strong performances in a number of areas in 2001. In Personal Financial Services net fees and commissions increased by 44% to £806m reflecting a good performance from IFA operations, fees from lending activities and higher fee income from fee-based Additions accounts. Barclaycard net fees and commissions increased by 12% to £579m, principally as a result of replacing UK annual account fees with fees based on account behaviour.

Barclays Global Investors net fees and commissions increased £83m to £518m largely driven by a large increase in performance fees.

In Barclays Capital net fees and commissions fell 14% to £389m (2000: £453m) mainly due to lower financing volumes in syndicated loans. In Barclays Private Clients net fees and commissions were £12m lower than in 2000 (£579m) primarily due to lower fund management and brokerage fees.

Dealing profits

	2002		2001	2001
	(£ millions)
Rates related business	876		823	635
Credit related business	(43	)	188	42

Statutory basis	833		1,011	677

Almost all the Group's dealing profits are generated in Barclays Capital.

Dealing profits fell to £833m (2001: £1,011m). The fall resulted from poor conditions in the credit and equity markets with losses in the credit related financing business and in equity related activities partially offset by strong gains in fixed income and commodities in the Rates business.

Total foreign exchange income was £496m (2001: £490m) and consisted of revenues earned from both retail and wholesale activities. The foreign exchange income earned on customer transactions by Personal Financial Services, Barclays Private Clients, Barclaycard, Business Banking, Barclays Africa and Barclays Global Investors, both externally and with Barclays Capital, is reported in those business units within fees and commissions.

Dealing profits in 2001 were 49% higher than in 2000 (£677m). The strong performance was underpinned by increased customer business, with client transaction volumes increasing by 77% and improved contributions from the US and Europe.

Other operating income

	2002		2001	2000
	(£ millions)
Dividend income from equity shares	7		8	14
Profits on disposal of investment securities	58		37	45
Loss/income from the long-term assurance business	(51	)	127	114
Property rentals	20		30	22
Premium income on insurance underwriting	178		158	126
Other income	152		68	32

Statutory basis	364		428	353

Other operating income decreased by £64m (15%) to £364m (2001: £428m).

Virtually all the Group's long-term assurance activity is based in the UK. This UK business, which closed to new business following the Legal & General alliance in 2001, was the main contributor to the reported loss of £51m for 2002 compared with an income contribution of £127m in 2001. The result mainly reflected the impact of movements in the stockmarkets. The FTSE 100 index declined 24% in 2002.

Income from the sale of Legal & General products following the alliance in 2001 is included in net fees and commissions.

The cost of redress for customers of Barclays Life and Woolwich Life who have claimed for the misselling of endowment policies was £19m for the year (2001: £3m).

Premium income on insurance underwriting rose by £20m to £178m as a result of increased payment protection income related to consumer lending activities.

Other income increased by £84m to £152m. An increase of £59m resulted from a revision of estimated amounts expected to be repaid on banking liabilities in the light of experience since the Woolwich acquisition in 2000 and to align Woolwich with Barclays practice. The increase also reflects income of £39m from a restructuring of the leasing portfolio.

Other operating income in 2001, including the impact of the inclusion of Woolwich plc for the whole year, was 21% higher than in 2000 (£353m).

In addition to the inclusion of Woolwich plc, the increase was primarily fuelled by a £32m increase in premium income on insurance underwriting reflecting increased volumes relating to consumer lending and credit card borrowings.

Administrative expenses—staff costs

	2002		2001		2001
	(£ millions)
Salaries and accrued incentive payments	3,159		3,149		2,655
Social security costs	240		243		178
Pension costs	(27	)	(17	)	(31	)
Post-retirement health care	15		—		1
Other staff costs	368		339		416

Statutory basis	3,755		3,714		3,219

Included above:
Restructuring charge	(124	)	(114	)	(171	)
Woolwich integration costs	(2	)	(24	)	(1	)
Woolwich fair value adjustments	1		2		—

Excluding Woolwich integration costs, Woolwich fair value adjustments and restructuring charges	3,630		3,578		3,047

Staff numbers (a)

		2002		2001		2000
Personal Financial Services (b)		29,600		32,100		30,600
Barclays Private Clients (c)		8,900		11,100