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Shareholders cautious about upbeat Barclays Africa

In spite of economic and sociopolitical headwinds, Barclays Africa says it is well on its way to becoming one of the continent’s major banks. But after it released its annual results this week, the markets did not appear to share this conviction.

The bank, which operates in 12 countries and has 12-million customers, reported headline earnings growth of 10% to reach R13-billion, and pre-provision operating profit rose 5% to R27.3-billion for the year ended December 31.

The results were helped by a 10% drop in credit impairments to R6.3?billion. The bank’s return on equity, at 16.7%, was also at its highest since 2008. Its reported revenues climbed by 6%, almost a fifth of which came from outside South Africa. Net interest income for the group was up by 10%, but fixed income (non-interest income derived largely from fees) grew by only 2%.

“The group has never been in a stronger position than it is today,” Barclays Africa chief executive Maria Ramos said at the bank’s results presentation in Johannesburg this week.

“These results clearly show we have built a solid foundation and that we are building the go-to bank in Africa.”

But with revenue growth of 6% for the year, she said, “it is clear we are not making the most of our franchise”. Revenue growth was higher at 9% for the rest of Africa, which Ramos described as “good, but not good enough”.

Share price appreciation
Investors appeared to agree with her as the bank’s share price dipped from R193 to R184 on the day. But Barclays Africa’s share price, as Ramos noted, has appreciated almost 50% since February last year.

Barclays’s retail banking business in Africa was disappointing, with headline earnings decreasing by 19% in 2014. But it was offset by strong growth in corporate and investment banking, where earnings grew 9% in South Africa and 38% in the rest of Africa.

Ramos said the group needs to make additional efforts if it wants to reach the top three in each of its five largest markets.

The priority is to extract more value from the existing portfolio, she said. Investment pushed the cost-to-income ratio up to 56.8% – but, she said, the bank remains on target to reach the 50s by 2016, despite a commitment to invest a further R1-billion in retail banking this year.

“We recognise that there are economic and sociopolitical headwinds in the short term, but the fundamentals for long-term growth remain strong. That’s why the creation of Barclays Africa in 2013 was exactly the right step for us – we are well placed to take advantage of the growth potential.”

Analysts said investors will be relieved that the credit loss ratio for Barclays’s retail banking business in the rest of Africa was not too far behind that of South Africa, at 1.75% and 1.35% respectively.

Lending and bad debt
Barclays Africa’s results, like those of Nedbank announced the week before, were helped by the tightening of its lending book and the reduction of bad debt. Most banks began to limit their extension of credit in late 2013, particularly unsecured lending, following the fall of African Bank and the government’s insistence on clamping down on reckless lending.

Personal loans constitute 2% of Barclays’s book, but executives said the bank’s position had been muted for several years while it tried to grow its business in a “responsible way”.

The bulk of the bank’s revenues still come from South Africa, where Barclays Africa said it is winning back customers.

The number of new customers who opened accounts with Absa, its local brand, increased by 7% over the full year, although it reached 15% in the second half, and “43% of these new customers had at some point in the past closed their account with Absa”, Ramos said.

Barclays also wants to expand its insurance offering in West Africa and will look closely at countries in which it already has retail banks.

Ramos said the next expansion will be in Kenya, where Barclays is awaiting confirmation on its licence application.

Ramos said that although Barclays will look at how it can contribute to domestic financial markets in Africa, maintaining value for shareholders remains important.

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