Bad loans pile up woes for Barclays Africa

Growth weaker in SA market

THE BARCLAYS Africa Group, the lender that is being sold by its London-based parent, forecast that its credit-loss ratio will worsen as customers fall behind in loan repayments and economic growth in its main South African market deteriorates.

Barclays announced last month that it was planning to sell its 62.3 percent stake in Barclays Africa over the next two to three years.

The bank also said it expected to maintain singledigit loan growth this year with the rest of its African operations expanding faster than South Africa. In its quarterly trading update, Barclays said revenue continued to improve and growth in the rest of Africa remained well above that of South Africa.

Net interest income growth reflected a wider margin and high single-digit loan growth, while the weaker rand remained a noticeable feature during the quarter.

The net interest margin increased due to higher interest rates in several markets, including South Africa. Corporate and investment bank loan growth continued to exceed retail and business banking.

Revenue growth, however, remained solid in target areas, including South African retail banking, markets in the rest of Africa, corporate, card acquiring and wealth, investment management and insurance, particularly outside South Africa.

Slashed

Last month credit ratings agencies downgraded Barclays Africa and South Africa with Fitch slashing Barclays Africa Group’s foreign currency and local currency long-term issuer default ratios to BBB-, from BBB and BBB+, respectively.

The downgrade followed official confirmation of the bank’s intention to sell its stake in its African unit in a bid to save costs after the UK bank had announced that net losses more than doubled last year.

Matthew Pirnie, a credit analyst at Standard & Poor’s, said the banks’ outlook was consistent with their own estimates for the South African banking sector.

Pirnie said they expected top-tier banks would face credit losses on their lending activities ranging between 0.9 percent and 1.2 percent this year, and worsening by another 20 basis points next year.

“The outlook on all banks we rate in the country turned negative at the end of 2015, reflecting the negative outlook on the sovereign, the prospect of slower economic growth, rising interest rates, and inflationary pressures on the banking system’s asset quality,” Pirnie said.

Bob Diamond, who ran Barclays before his 2012 ouster during the London Interbank Offered Rate, or Libor, scandal, confirmed this week that he and investors, including US private-equity giant Carlyle, were working together on a potential bid for the Johannesburg-based lender.

In a statement about first quarter performance, Barclays said it was “pleased with the level of indicative interest in what is a high quality business. Barclays Africa is an important partner, and we are working closely with local management, including on the planning for the operational separation of the two businesses, in a way that will preserve value for shareholders in both groups.”

Brad Preston, the chief investment officer at Mergence Investment Managers, said it was difficult to pre-empt what would happen to Barclays in the future.

“There are lots of parties involved and lots of different requirements,” he said. “As far as the current environment goes, the macroenvironment for banks is undoubtedly tough. But on the other hand, they are relatively well positioned for the cycle, with good levels of provisioning and a relatively conservative positioning compared to previous cycles.”

Preston said it was a known factor that Barclays wanted to sell at least 42 percent of the 62.3 percent of Barclays Africa.

“The SA Reserve bank is going to have a large say in what happens and I would be surprised if they would like to see all of Barclays Africa sold to international investors and delisted,” Preston said.

“In the interests of financial stability, the Reserve Bank will either want to see Barclays Africa with one very strong shareholder of reference or for it to remain listed with a diversified shareholder base,” he added.

Barclays Africa was up by 3.34 percent on the JSE to R149.66 per share.