Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 270 report information sustainability report Governance review review statements Annual Report 2022 Material existing and emerging risks (continued) numbers of the population catch infrastructure and supply chains, business in the lending portfolio and underwriting COVID-19. Longer term, the shift away processes and technology services activity of the Group with resultant higher credit losses driving an increased from market-based reforms towards provided by third parties, and unavailability state led initiatives to increase self- of staff due to illness. These interruptions impairment charge which would most sufficiency and economic security, with to business may be detrimental to notably impact retail unsecured portfolios potentially negative implications for customers (who may seek reimbursement and wholesale non-investment grade world trade. from the Group for costs and losses lending and could have a material effect on the Group’s business, results of incurred as a result of such interruptions), • Higher US interest rates and slowing and result in potential litigation costs operations, financial condition and demand for natural resources could (including regulatory fines, penalties and prospects. cause economic deterioration in other sanctions), as well as reputational emerging markets, with a material Interest rate cuts may affect, and put damage. adverse effect on the Group's results pressure on, the Group’s net interest margins (the difference between its from operations if these stresses lead to Changes in macroeconomic variables such higher impairment charges from a as gross domestic product (GDP) and lending income and borrowing costs) and deterioration in sovereign or corporate unemployment have a significant impact could adversely affect the profitability and creditworthiness. on the modelling of expected credit losses prospects of the Group. (ECLs) by the Group. The economic In addition, changes in interest rates could ii) Risks relating to the impact of environment remains uncertain and future have an adverse impact on the value of the COVID-19 impairment charges may be subject to securities held in the Group’s liquid asset The COVID-19 pandemic has had a additional volatility (including from changes portfolio. Consequently, this could create material adverse impact on businesses to macroeconomic variable forecasts) more volatility than expected through the around the world and the economic and caused by further waves or new strains of Group’s Fair Value through Other social environments in which they operate. the COVID-19 pandemic and related Comprehensive Income (FVOCI) reserve Consequently there are a number of containment measures and the continued and could adversely affect the profitability factors associated with the COVID-19 efficacy of vaccines and/or boosters, as and prospects of the Group. pandemic and its impact on global well as the longer- term effectiveness of iv) Competition in the banking and economies that have had and could central bank, government and other financial services industry continue to have a material adverse effect support measures. For further details on on the profitability, capital and liquidity of The Group operates in a highly macroeconomic variables used in the competitive environment in which it must the Group. calculation of ECLs, refer to the credit risk evolve and adapt to significant changes as The COVID-19 pandemic caused performance section. a result of regulatory reform, disruption to the Group’s customers, Any and all such events mentioned above technological advances, increased public suppliers and staff globally. Most could have a material adverse effect on the scrutiny and prevailing economic jurisdictions in which the Group operates Group’s business, results of operations, conditions. The Group expects that implemented severe restrictions on the financial condition, prospects, liquidity, competition in the financial services movement of their respective populations, capital position and credit ratings (including industry will continue to be intense and with a resultant significant impact on potential credit rating agency changes of may have a material adverse effect on the economic activity. It remains unclear how outlooks or ratings), as well as on the Group’s future business, results of the COVID-19 pandemic will evolve Group’s customers, employees and operations, financial condition and through 2023 and the risks from further suppliers. prospects. waves, new strains and/or vaccines iii) The impact of interest rate changes proving ineffective, cannot be ruled out New competitors in the financial services on the Group’s profitability and could result in the reintroduction of, or industry continue to emerge. Changes to interest rates are significant for additional, restrictions placed on local Technological advances and the growth of the Group, especially given the uncertainty e-commerce have made it possible for populations . The Group continues to as to the size and frequency of such monitor the situation. non- banks to offer products and services changes, particularly in the Group’s main that traditionally were banking products Macroeconomic expectations are that the markets of the UK, the US and the EU. such as electronic securities trading, effects of the COVID-19 pandemic will be Interest rate rises result in higher funding payments processing and online long lasting with the level and speed of costs but could positively impact the automated algorithmic-based investment economic recovery still uncertain. To the Group’s profitability as retail and corporate advice. Furthermore, payments extent that the residual impacts of the business net interest income increases processing and other services could be COVID-19 pandemic continue to due to margin decompression, as significantly disrupted by technologies, adversely affect the global economy and/ observed for the interest rate rises in such as blockchain (used in cryptocurrency or the Group, it may also have the effect of 2022. However, increases in interest rates, systems) and 'buy now pay later' lending, increasing the likelihood and/or magnitude if larger or more frequent than expected, both of which are currently subject to of other risks described herein or may could lead to generally weaker than lower levels of regulatory oversight. pose other risks which are not presently expected growth, reduced business Furthermore, the introduction of Central known to the Group or not currently confidence and higher unemployment. Bank Digital Currencies could potentially expected to be significant to the Group’s This, combined with the impact interest have significant impact on the banking profitability, capital and liquidity. rate rises may have on the affordability of system and the role of commercial banks Further waves or new strains of COVID-19 loan arrangements for borrowers within it by disrupting the current provision could impact the Group's ability to conduct (especially when combined with of banking products and services. This business in the jurisdictions in which it inflationary pressures), could cause stress disruption could allow new competitors, operates through disruptions to