JOHANNESBURG – Barclays Plc has confirmed its intention to sell down its 62.3% interest in Barclays Africa Group Limited (BAGL). This will happen over the coming two to three years, Barclays Africa said in a stock exchange filing on Tuesday, in order to “deconsolidate it from an accounting and regulatory perspective, subject to shareholder and regulatory approvals if and as required”.
BAGL said that Barclays Plc is reducing its shareholding in BAGL due to recently introduced “regulatory burdens” specific to Barclays Plc as a UK-headquartered and globally significant financial institution.
“These regulations significantly decrease BAGL’s standalone returns for Barclays Plc,” Barclays Africa said.
“BAGL is a well-diversified business and a high-quality franchise. However, the stake in BAGL presents specific challenges to Barclays as owners, such as the level of capital held in respect of BAGL,” the bank explained.
Other regulatory burdens include capital requirements, under Basel, relating to globally systemically important banks (GSIB).
“While our shareholders will be changing over time, our destiny is firmly in our own hands. Today we embark on the next chapter of our journey,” Barclays Africa CEO, Maria Ramos told journalists at a press briefing at Barclays Africa’s head office in Johannesburg on Tuesday.
“We will now engage with Plc and regulators to find the most appropriate and satisfactory outcome for all stakeholders. I don’t know what that is going to look like,” Ramos said.
She stressed that Barclays Africa’s strategy to build a pan-African business remains in place and the change in shareholding would not change that.
Barclays Africa Group was formed on July 31 2013 when Absa and Barclays’s African operations were combined. As part of the merger, Absa bought Barclays’s interests in its African operations through the issue of ordinary shares to Barclays at a value of R18.3 billion.
As a result, Barclays Plc’s stake in Absa Group, rebranded Barclays Africa Group, increased to 62.3% from 55.5%
After falling 3.13% in early morning trade on Tuesday, Barclays Africa’s share price was 5.11% higher by the afternoon, reversing some of Monday’s losses.
Barclays Africa reports solid results
Barclays Africa reported headline earnings growth of 10% to R14.3 billion, for the 12 months to December 2015.
Return on equity improved to 17%, from 16.7% a year earlier, comfortably above its 13.75% cost to equity. All of the bank’s operating divisions reported growth in headline earnings. Africa Banking in Barclays’ results reported return on equity of 8.7%
Speculation has been rife for some months that Barclays Plc plans to offload all or some of its stake in Barclays Africa.
BAGL’s share price closed Monday 6.10% lower at R136 a share, while the JSE Banks Index gave up a more modest 2.04%.
“Barclays Africa Group Limited (BAGL) wishes to reiterate that we remain committed to Africa, where we continue to be optimistic about our growth prospects, and to operate in the normal course of business,” the group said in a statement on Monday, with CEO Maria Ramos insisting that the future of the organisation is “firmly in our own hands”.
Excluding South Africa, revenue from the Rest of Africa grew 14% for the 12-month period and headline earnings rose 17% to R2.3 billion, to contribute 21% and 16% respectively to the group’s earnings.
The group grew revenue 6% to R67.2 billion, as net interest income increased 8% and non-interest income rose 5% to R27.8 billion, accounting for 43% of total income. Credit impairment’s increased 10% to R6.9 billion, off the back of higher provisioning, resulting in a 1.05% credit loss ratio from 1.02% in the prior period.
Gross loans and advances to customers grew 11% to R703 billion.
Retail Banking South Africa’s loans rose 2% to R375 billion, given single-digit growth in vehicle and asset finance (VAF) and personal loans, with home loans flat.
The division reported a 16% growth in headline earnings, accounting for 44% of total earnings, excluding the Group centre.
Net fee and commission income rose 8% to R20.2 billion, with strong growth in credit cards and electronic banking, while merchant income decreased due to reduced industry interchange rates, Barclays Africa said.
Retail Banking South Africa increased fee income 5% to R12.3 billion with 2% growth in customer numbers offsetting continued migration to bundled products and electronic channels, the bank said.
Against the backdrop of weak global growth, rising inflation expectations in South Africa – as well as a possible credit ratings downgrade – and a challenged economic environment for the continent, Barclays Africa said it expects low single digit loan growth, with rest of Africa growing faster than South Africa.
“The balance sheet is well positioned for a potential deteriorating economic environment given its high level of portfolio provisions and low NPLs [non-performing loans], as well as strong capital ratios and liquidity,” Barclays Africa said.