Johannesburg - A combination of Barclays' African operations
with Absa Group [JSE:ASA] could improve efficiency and allow the UK group to expand in the
faster-growing region‚ Fitch Ratings said on Thursday.
The reorganisation of these operations confirms Barclays'
commitment to its Africa strategy and to its majority-owned South African
subsidiary‚ Absa‚ it said.
Africa delivered 21% of Barclays' 2011 profit before tax‚
making it the group's second largest non-UK contributor after the US.
“Moving the operations in eight sub-Saharan countries into
Absa should enable the Africa operations to be more cohesive and streamlined‚
benefiting cost and risk management. The regional offices of Absa and Barclays'
African operations have already been consolidated. This leaves the group better
placed to take advantage of the growth opportunities as the region's economies
develop. In the long term the profit contribution from Africa could rise as the
group expands its bancassurance strategy and builds on its corporate and retail
“In the short term there are earnings challenges. Barclays'
African business suffered in 9M12 from high loan impairment charges on South
African residential mortgages. The challenging economic environment leaves
South African banks exposed to further asset-quality deterioration and weaker
revenue streams‚” Fitch said in a statement.
Until the earnings from the rest of Africa made a greater
contribution to Absa's earnings‚ it added‚ they were unlikely to provide much
diversification benefit to Absa or be supportive of a pan-African strategy.
According to Barclays‚ the rest of Africa would have
accounted for 15% of the group's H112 pro forma earnings‚ including the losses
in Tanzania and Mozambique‚ assuming the transaction was completed on 1 January
Barclays will increase its stake in Absa to 62.3% after the
transaction from 55.5% and rename Absa "Barclays Africa Group". It
will keep the Absa brand for its retail banking and card businesses in South
“This confirms our view that there is a very high
probability of support for Absa from Barclays‚ and this underpins Absa's 'A-'
Although Barclays has made an agreement to combine the
majority of its African operations with Absa‚ the transaction is subject to
approval of Absa minority shareholders and regulators‚” the rating agency