DBRS Ratings Limited (Morningstar DBRS) confirmed the ratings of Barclays Bank PLC (Barclays Bank or the Bank) and Barclays PLC (Barclays or the Group).
This includes the 'A' Long-Term Issuer Rating of Barclays Bank, and the A (low) Long-Term Issuer Rating of the Group. The trend on all ratings remains Stable. Barclays Bank's Intrinsic Assessment (IA), which reflects DBRS Morningstar's view of the credit strength of the combined Group, was maintained at 'A' and the Support Assessment for Barclays was confirmed at SA3. Please see a full list of the rating actions at the end of this press release.
KEY CREDIT RATING CONSIDERATIONS
The confirmation of the credit ratings reflects Barclays' strong retail and wholesale banking franchise in the UK and well-established wholesale and consumer franchise in the United States (US), its solid capitalization as well as its sound funding and liquidity position that partly benefits from a strong deposit base and regular access to the wholesale markets. The credit ratings also take into account the Group's sound and diversified earnings generation and sound risk profile supported by low levels of non-performing loans, despite some deterioration in the US credit card business.
The credit ratings also consider that Barclay's Investment Bank represents a high proportion of the Group's risk weighted assets and revenues, which, in Morningstar DBRS' view adds a degree of volatility to the Group's earnings and capital.
Barclays' A (low) Long-Term Issuer Rating is one notch below that of the operating bank, in line with Morningstar DBRS's approach to rating bank holding companies.
CREDIT RATING DRIVERS
An upgrade of the Long-term Issuer Rating would arise if the Group consistently demonstrates improving and sustained profitability and maintains a sound risk profile.
A downgrade of the Long-Term Issuer Rating would arise if there is a sustained deterioration in the Group's risk profile, negatively impacting capital.
CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Strong
With total assets of GBP 1,577 billion at end-March 2023, Barclays is one of the leading UK banks with a strong retail and wholesale franchise in the UK and meaningful franchise in corporate banking and the cards business in the US. The Group's franchise is well diversified by business and geography and the non-UK operations contributed 48% to the Group's operating income in 2023. In February 2024, Barclays announced a strategic update for 2024-2026, aiming to improve operating efficiency across all businesses through revenue growth. In particular, the Group aims to grow corporate and unsecured lending in the UK whilst improving risk returns and capital allocation in the Investment Bank.
Earnings Combined Building Block (BB) Assessment: Good/Moderate
Morningstar DBRS considers Barclays earnings generation as solid, benefitting from its wide diversified operations across different businesses and geographies. However, the Group's revenues include a large proportion of revenues from the Investment Bank, which tend to be less predictable than other revenue sources and have added volatility to the Group's profitability in recent years.
In Q1 2024, net attributable income was down 13% Year-on-Year (YoY) to GBP 1.55 billion in Q1 2024 and the Return on Tangible Equity (ROTE) was 12.3% in Q1 2024, down from 15.0% in Q1 2023, although still comparing well to most international and domestic peers. The lower Q1 2024 results were driven by lower operating revenues, down 3.7% YoY, reflecting a slowdown in net interest income (NII) growth and lower fees commissions, largely driven by revenues at the Investment Bank, particularly from weaker client activity in FICC. In Q1 2024, the Group maintained sound cost discipline, with statutory operating costs only growing 2% YoY. The cost-income ratio increased to 60% in Q1 2024 compared to 57% in Q1 2023. In Q1 2024, loan impairment charges remained broadly stable and the cost of risk was 60 bps in Q1 2024, compared to 59 bps in Q1 2023 (according to Morningstar DBRS calculations), still within the Group's target of 50-60 bps through the cycle.
Risk Combined Building Block (BB) Assessment: Good
Barclays has a moderate risk profile, a well-diversified loan portfolio by business and sound asset quality with low levels of non-performing loans (NPLs). The loan book is mainly concentrated in the UK market (71% of total gross loans) with the rest being largely concentrated in consumer and corporate loans in the US. At end-2023, mortgage loans accounted for 49%, corporate and SMEs 37% with unsecured retail lending accounting for a relatively high 14% of the Group's total gross loans at end-2023. The Group's asset quality remains sound with very few signs of deterioration despite the higher interest rate environment and persistent inflationary pressures. Total Stage 3 loans totalled GBP 7.2 billion at end-Q1 2024, similar to end-2023 and end-2022 whilst the Stage 3 loan ratio was 2.1% broadly in line with end-2022. The Stage 3 loan ratio for cards and Personal loans deteriorated to 4.9% at end-Q1 2024 from 3.9% at end-2022 although they remain below the 5.7% at end-2019. The Group's Stage 2 loans (loans where credit risk has significantly increased since initial recognition), reduced to GBP 39.7 billion to account for 11% of total gross loans at end-Q1 2024.
Funding and Liquidity Combined Building Block (BB) Assessment: Strong/Good
Barclays's funding is supported by a large domestic franchise and a well-diversified wholesale funding by instrument, currency, maturity and investor. Customer deposits totalled GBP 528.8 billion at end-Q1 2024, slightly up from GBP 524.3 billion at end-2023 and GBP 525.8 billion at end-2022, driven primarily by growth at the Investment bank and to a lesser extent in the US card business. Around 50% of total deposits were Corporate and SMEs at end-Q1 2024 (up from 42% the year before) with the rest related to retail customers. Around 40% of total deposits were insured at end-Q1 2024, largely associated with retail deposits. The Group's customer net loan-to-deposit ratio was 63% at end-Q1 2024, slightly improved from 65% at end-2022. The Group has a sound liquidity position with a liquidity pool totalling GBP 323.5 billion at end-Q1 2024 or 20.5% of the Group's total assets at that date. Moreover, the Group reported a sound average Liquidity Coverage Ratio (LCR) of 163% at end-Q1 2024 and an average Net Stable Funding Ratio (NSFR) of 136%.
Capitalisation Combined Building Block (BB) Assessment: Strong/Good
Barclays has a sound capital position supported by its solid earnings generation. Under the new strategic targets, the Group expects to maintain its CET1 ratio within 13-14%, compared to the expected minimum regulatory requirement of 12%. Morningstar DBRS considers Barclays CET1 ratio to be slightly below its domestic peers but generally in line with most international peers. At end-Q1 2024, the CET1 ratio was 13.5%, slightly down from 13.8% at end-2023. The 30 bps decline in the Q1 2024 CET1 largely reflected a GBP 2.9 billion of increase in risk-weighted assets (RWAs) at the Investment bank and Barclays UK as retained earnings in Q1 2024 were fully offset by shareholder distributions. At end-Q1 2024, Barclays had total Minimum Requirement for Own Funds and Eligible Liabilities (MREL) instruments of GBP 116.8 billion, accounting for 33.4% of RWAs, which compares well to a minimum MREL requirement of 30.1% (or GBP 105.2 billion).
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/433001.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social factors that had a significant or relevant effect on the credit analysis.
There were no Governance factors(s) that had a relevant or significant effect on the credit analysis.
Since the last rating action the relevance or significance of the following Governance Factor(s) changed: corporate governance is not view as relevant anymore as Morningstar DBRS considers Barclays has made progress in improving its internal controls related to several past issues, including among others, the over-issuance of securities by Barclays Bank PLC in the US In September 2022.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings
Notes:
All figures are in GBP unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (15 April 2024) https://dbrs.morningstar.com/research/431155/global-methodology-for-rating-banks-and-banking-organisations In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
The sources of information used for these credit ratings include Morningstar Inc. and company documents, Barclays PLC Annual Report 2023, Barclays PLC FY 2023 & 1Q24 Results Presentation, Barclays PLC FY 2023 & 1Q24 Fixed Income Presentation, Barclays PLC FY 2023 & 1Q24 Results Announcements, Barclays PLC FY 2023 ESG Investor Presentation & Barclays PLC FY 2023 Pillar 3 Report. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.
With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.
With Rated Entity or Related Third-Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO
Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.
For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.
The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/433000.
These credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.
Lead Analyst: Maria Rivas, Senior Vice President, Sector Lead - European Financial Institution Ratings
Rating Committee Chair: William Schwartz, Senior Vice President - Global Fundamental Ratings, Credit Practices
Initial Rating Date: August 20, 1999
Last Rating Date: May 24, 2023
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BARCLAYS PLC 
