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Barclays Africa H1 profit slows as economic growth drops

Credit impairments increased 46% to R5.2 billion.
Maria Ramos, Barclays Africa CEO

Barclays Africa Group Ltd., the South African lender that’s being sold by its London-based parent, reported first-half profit growth of 3.7% even as credit impairments and non-performing loans increased and the economy shrank.

Net income climbed to R7.02 billion in the six months through June from R6.77 billion a year earlier, Johannesburg-based Barclays Africa said in a statement on Friday. Earnings per share excluding one-time items increased 7% to R8.57, beating the R8.44 median estimate of four analysts surveyed by Bloomberg. The bank declared an increased interim dividend of R4.60 per share.

The results were better than expected and showed “strong top line growth from the rest of Africa,” Patrice Rassou, head of equities at Cape Town-based Sanlam Investment Management, said in e-mailed comments. “Hopefully bad debts will stabilise. They should be able to grow dividends in line with earnings.”

Barclays Africa shares gained as much as 2% to R157.48, on track for the highest close since December, and traded 1% higher as of 9:36 a.m. in Johannesburg. The stock has risen 9.3% this year, lagging the 15% gain in the seven-member FTSE/JSE Africa Banks index.

Recession threat
The bank is focusing on managing its expenses to cope with a South African economy tipping toward a recession and the risk of a credit-rating downgrade to junk by the end of the year. Barclays Plc said in March it’s selling its controlling stake in the South African lender, which has operations in 12 countries across the continent, because of regulations that make it too expensive to hold all the shares. The London-based company said on Friday that profit fell by more than half in the second quarter.

“We didn’t expect South Africa’s growth to slow as rapidly as it did,” Maria Ramos, chief executive officer of Barclays Africa, said on a conference call from Johannesburg on Friday. “We see another 25 basis points increase in interest rates before year end. We do see the endowment effect in our margins but there are more downside risks than upside.”

The credit-loss ratio should improve from the first half, while return on equity is likely to be slightly lower in 2016 after falling to 16.1% in the first six months, the lender said. Credit impairments increased 46% in the first half to R5.2 billion.

Cost management
“We expect low to mid-single digit loan growth, with corporate and investment banking growing faster than retail and business banking and the rest of Africa growth exceeding South Africa,” Barclays Africa said. “Continued focus on revenue growth and cost management should improve the group’s cost-to-income ratio.”

Parent Barclays continues to explore strategic and capital market options to reduce its shareholding in Barclays Africa, the South African company said. The banks continue to plan for the operational separation of the two businesses, it said, without giving more detail.

“The bank’s non-performing loans are well covered and Barclays Africa continued to build portfolio provisions on performing loans,” said Adrian Cloete, a banks analyst at PSG Wealth in Cape Town. “It will be more of the same in the second half.”

© 2016 Bloomberg L.P

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