Bar­clays Zam­bia FY2017 Head­line Earn­ings rally 115% to the top; post Bar­clays Lon­don exit from Africa

Zambian Business Times - - FINANCIAL MARKETS - Busi­ness Times Lead An­a­lyst

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.

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