Accounting for interest income and expenses
Interest income on loans and advances at amortised cost, financial assets at fair value through other comprehensive
income and interest expense on financial liabilities held at amortised cost are calculated using the effective interest method
which allocates interest, and direct and incremental fees and costs, over the expected lives of the assets and liabilities.
The effective interest method requires the Barclays Bank Group to estimate future cash flows, in some cases based on its
experience of customers’ behaviour, considering all contractual terms of the financial instrument, as well as the expected
lives of the assets and liabilities.
The Barclays Bank Group incurs certain costs to originate credit card balances with the most significant being co-brand
partner fees. To the extent these costs are attributed to customers that continuously carry an outstanding balance
(revolvers) and incremental to the origination of credit card balances, they are capitalised and subsequently included
within the calculation of the effective interest rate. They are amortised to interest income over the period of expected
repayment of the originated balance. Costs attributed to customers that settle their outstanding balances each period
(transactors) are deferred on the balance sheet as a cost of obtaining a contract and amortised to fee and commission
expense over the life of the customer relationship (refer to Note 4). There are no other individual estimates involved in the
calculation of effective interest rates that are material to the results or financial position.