Barclays Zambia FY2017 Headline Earnings rally 115% to the top; post Barclays London exit from Africa
BARCLAYS BANK ZAMBIAs FY2017 headline earnings rose by remarkable 115.5% to ZMW303.46million ($USD30.96million) from ZMW140.82million FY2016 according to Prudential Financial statements published in the press. Key drivers of this stellar performance was a (9.1%) rise in interest income to ZMW924.94million backed by an 88.6% narrowing of the credit impairment line to ZMW9.4million. Other contributors were a 26% decline in interest expense to ZMW292.86million offsetting a 10.1% uptick in non-interest expenses to ZMW599million.
Government debt gives interest income a 181% boost
A 181% rise in interest rate trading income from government bonds and treasury bills to ZMW345.9million backed by a 19% decline in income from lending to ZMW553million pushed total interest income to ZMW924.9million representing a 9.1% rise YoY. With a Kwacha curve that on average rallied lower in 2017 we can expect this income boost was from mark to market gains for the trading book and interest income for banking book positions taken, since they all feed into the interest income lines at some point.
Deposit cost leadership demonstrated
Interest expense line declined by 26.4% to ZMW292million YoY key drivers being a 25.6% easing of interest paid to depositors amounting to ZMW270million while other lines were infinitesimally flat. This improvement could signal that Barclays smelt the coffee early after the 2016 liquidity crunch when it slowed its asset growth – lending to allow expensive deposits to fall off its books while booking new assets at the appreciated lower interest rates. Some tough forward looking board room and risk management decisions could have been taken to go slow on credit extension so as to tap into a cheaper cost of funds and maximize on volumes according to our analysis. Compared to its peers Barclays is in the top 2 cost leaders after Standard Chartered Bank and Citibank.
Non-interest income marginally rises
Non -interest income – NII was not so much of the banks stronghold as it rose by a marginal 2%. However, Barclays recorded a 28% widening in fees and commission line to ZMW269.6million however these gains were backed by a 27% decline is foreign exchange revenue line to ZMW152million which our analysts deem could have given the bank a bigger boost compared to its peers such as Stanbic bank – ZMW229million.
Credit impairment right backs give Barclays a profitability boost
The bank successfully narrowed its credit provision lines by 88.5% to ZMW9.4million following ZM6.36million in right backs in Q4: 2017. Compared to its peers we can infer this reflects robust credit risk management through prudent and cautious lending to some extent. Barclays has written back over ZMW15.6million in credit provision with ZMW14.33million as at half year and a marginal ZMW1.3million in Q3: 2017. These have significantly preserved its profitability margin.
Balance sheet growth
Barclays grew its balance sheet by 8.6% to ZMW9.37billion from ZMW8.63billion YoY, generating a return on equity – ROE ( including subordinated debt) of 19.69% – 769bps higher than in 2017 at 12%.
Market commentary
“Following Barclays London exit from Africa Operations which got many nervous about the future of the bank, Zambia’s operation has demonstrated resilience and that truly opportunity resides in Africa. Barclays has against the odds outperformed the market clearly. The financial statements are merely a manifestation of the decisions that were taken in the 2016 financial year when Zambia experienced a liquidity crunch that drove cost of deposits to over 30% which most banks still grapple with still. Most income lines are up year on year signalling growth that cuts across the interest income lines, interest rate trading strategies to leverage off a compressed yield curve and good risk management tactics. Barclays has room for improvement in its market marketing especially on the foreign exchange faculty which could have earned them ZMW30-40million more net of taxes. On the other hand, the banks cost to income ratio improved significantly to 57.74% compared to 63% in 2016 as its ROE rose 769bps to 19.65% from 12% in the same period. One wonders if this divorce by Barclays London should have come sooner – Africa operations are bullish on performance.
It’s Mizinga’s first full year in office and she has made a statement which is nothing new to this market inferring from her previous track record while at Standard Chartered and her stint in Tanzania. These results beat our projections because Q4:2017 for Barclays at ZMW112million is equivalent to half to full year profitability for other commercial banks. The bank received various accolades that reflect the result we have seen today. Barclays could have just sent its competitors to strategy sessions for 2018.
Barclays Bank in 2017 demonstrated leadership in the education sector through its scholarship program, visiting the mines on its road show, financial inclusion partnerships with MTN, Zamtel and Airtel and credit extension to the agriculture sectors.