To enjoy the full Mail & Guardian online experience: please upgrade your browser
11 Dec 2013 16:08
Absa Bank, part of Barclays Africa, has lost market share in recent years. (Gallo)
Barclays Plc’s African unit is equipping tellers with iPads and offering customers mobile apps as the bank tries to win back market share by stepping up lending in the face of slowing growth in South Africa.
Barclays Africa Group is trying to regain clients after being overtaken as the country’s biggest mortgage lender by Standard Bank Group two years ago. It’s the only one of South Africa’s big four banking shares to decline this year and the company told analysts in a November 28 presentation that it wants to be investors’ "favourite" African bank stock by the end of 2015.
"It may not be the best time to be lending, but they couldn’t keep bleeding and losing customers," said Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town.
"The key will be their credit scoring and if they can be strict enough that they don’t pick up a lot of bad debts."
Barclays Africa chief executive Maria Ramos is spending R1.2-billion on refurbishing branches, installing cash machines and upgrading technology to recapture clients lost to FirstRand Ltd.
The bank appointed Anil Hinduja as head of risk six weeks ago to address some of its shortcomings, Bond said. Hinduja was previously responsible for managing retail credit risk globally for Barclays and spent 19 years at Citigroup Inc.
"We were overly conservative in mortgage and vehicle lending," Bond said in a phone interview on December 2. "The real crux was fixing the lending business."
African operations contributed about 11% of London-based Barclays’s revenue last year. While cutting investment banking and European consumer and business banking jobs to reduce costs this year, the British bank increased its stake in the Johannesburg-based lender to 62.3% to tap growth in sub-Saharan Africa. Barclays chief executive Antony Jenkins said in February that the bank planned to grow "significantly" in Africa.
Standard Bank had 29.7% of South Africa’s mortgage lending market in the six months to June compared with 25.3% for Barclays Africa, central bank records show. That’s a reversal of the position two years earlier, when Barclays Africa had 29% and Standard Bank had 27%.
"People are concerned about Barclays Africa’s growth prospects and where it’s going," Tracy Brodziak, a banking analyst at Old Mutual Investment Group, said in an interview from Cape Town on December 3. "Investors want returns."
Barclays Africa will focus on consumer banking in the 10 countries it operates in on the continent and plans to finance more homes and cars in its home market, said Bond. Some analysts, including RMB Morgan Stanley’s Greg Saffy, will only change their outlook on the bank when it starts adding customers.
"We would like to see a return to meaningful top line growth before becoming positive on the stock," said Saffy, who attended the bank’s presentation. "Whilst the presentation was comprehensive and management upbeat about future prospects, the proof lies in the pudding."
Barclays Africa reported a 5.4% decline in customers to 9.1-million in the six months through June as lower-income South Africans seeking unsecured loans opened accounts with Capitec Bank, Bond said. Nedbank boosted clients 10% to 6.2-million over the same period, while Standard Bank posted a 9% increase to 9.9-million.
While Barclays Africa lost "entry-level clients" when it stepped back from unsecured lending, that conservative stance won’t change as the bank expects the benefits to show through in lower loan impairments, said Bond.
Bad debt charges as a proportion of Barclays Africa loans declined to 1.4% in the first half from a peak of 1.6% a year earlier. The ratio at Nedbank climbed to more than 1.3% and Standard Bank reported an increase to almost 1.2% over that period.
That partial withdrawal from unsecured lending came as the market for loans not backed by assets started to grow faster than other types of credit, increasing fourfold in the three years through 2012, according to Macquarie Group Ltd. Barclays Africa share price fell the most in a decade on June 26 2012, as the bank forecast rising bad loans in its mortgage unit would cut profit.
While the ratio of non-performing loans has declined to 4.9% of total lending at Barclays Africa, it remains the highest of South Africa’s big four banks. Keeping bad loans under control while boosting income may be difficult, said Shaheeda Davids, an analyst a Nedbank Private Wealth.
"Investors want to see further evidence that Barclays Africa has resolved its credit management issues," Davids said. "Now it says it wants to grow its balance sheet at a time when it’s a tough environment."
The central bank last month cut its full-year growth forecast to 1.9% from 2%. Strikes at South African automakers in the third quarter sent manufacturing into a slump, leaving economic growth on course to expand at the slowest pace since the 2009 recession.
"The South African market will continue to be challenging and it is clearly not a time to be expanding aggressively," Bond said. "That said, our business is largely de-risked having halved our share of market in the personal loans space to around 10% over the past four years."
Barclays Africa shares saw their biggest monthly drop in November in almost five years and have declined almost 18% this year. The six-member FTSE/JSE Africa Banks Index has climbed 3.3% this year with Nedbank gaining 9.3% and FirstRand 9%.
The relative underperformance is one of the only reasons Lisa Haakman, an analyst at Noah Capital Markets, recommends buying Barclays Africa stock. While the bank’s first-half return on equity of 14% exceeded Standard Bank’s 13.2%, with Nedbank reporting 14.6% and FirstRand 22.5%, Haakman remains cautious about the outlook after attending the presentation last month.
"There were a number of positives, specifically around digital innovation, but Barclays Africa’s turnaround strategy is essentially about chasing market share rather than returns," said Haakman. "Just increasing market share could shrink returns." – Bloomberg
Create Account | Lost Your Password?