Barclays Africa reports solid results on talk of sale

Headline earnings up 10%, ROE 17%.
Maria Ramos is CEO of Barclays Africa.

JOHANNESBURG – As markets widely anticipate an announcement regarding a possible sale by Barclays Plc of its 62.3% stake in Barclays Africa Group Limited (BAGL), the African banking group on Tuesday reported a credible set of financial results for the 12 months to December 2015.

Headline earnings grew 10% to R14.3 billion, while 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.

Speculation has been rife for some months that Barclays Plc plans to offload all or some of its stake in Barclays Africa. On the weekend, the UK bank said it “continues to evaluate its strategic options in relation to its shareholding” in BAGL and expects to update the market on March 1.

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”.

In a stock exchange filing on Tuesday, Barclays Africa flagged a challenging operating environment, with slowed growth in South Africa. “Weak consumer confidence and rising interest rates weighed on household spending. The rand lost a quarter of its value against major currencies during the year,” Barclays Africa said.

“Growth in the Barclays Africa Group markets in the rest of Africa moderated further due to lower commodity prices and an adverse external environment,” the bank noted.

Excluding South Africa, revenue from the Rest of Africa grew 14% 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 for loans, 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 to R6.6 billion, 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.

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