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Barclays Africa soothes stakeholders, warns of tough 2016

Mar 01 2016 10:45
Matthew le Cordeur

Cape Town – Barclays Africa (BAGL, formally Absa) will ensure there is an appropriate and satisfactory outcome for all stakeholders after its holding company announced plans to exit the business on Tuesday.

As was expected, Barclays Group (PLC) announced its intention to sell down its 62.3% interest in Barclays Africa within the next two to three years.

Barclays Africa [JSE:BGA] said Barclays Group will retain a minority stake in its bank.

The Barclays Africa board said in a statement that the exit was due to “recently introduced regulatory burdens specific and particular to Barclays PLC as a UK headquartered and globally significant financial institution”.

“These regulations significantly decrease BAGL's standalone returns for Barclays PLC,” it said. “We will now actively engage with Barclays PLC and our regulators to ensure that this process has an appropriate and satisfactory outcome for all our stakeholders.”

Barclays Group said Barclays Africa is a well-diversified business and a high quality franchise. “However the stake in BAGL presents specific challenges to Barclays as owners,” it said.

“Through Barclays Africa, we have excellent franchises in Africa, with a great management team,” said Barclays Group CEO Jes Staley. “Today’s financial results demonstrate its fundamental strengths.”

Barclays Africa is facing slow growth in its market in 2016. “We forecast 3.3% global growth in 2016, but the outlook remains fragile, with risks tilted to the downside,” it said in its financial results on Tuesday.

“In South Africa, (which makes up 80% of the bank’s profits), weak confidence points to low investment and consumption spending in 2016,” it added. “Inflation is expected to rise sharply, averaging 6.4% due to food inflation and a weaker rand.

“We forecast a further 75bps of interest rate increases this year and expect GDP growth to slow to 0.9%.

“Key risks facing South Africa include continued electricity supply disruptions and a potential credit ratings downgrade.

“Africa’s medium-term outlook remains challenging given global and domestic factors. Overall, we expect economic growth of 5.1% in our presence countries in the rest of Africa.”

Barclays Africa expects low single digit loan growth, with Rest of Africa growing faster than South Africa.

Its net interest margin should decline slightly, while the credit loss ratio is expected to increase, it said. “However, continued focus on revenue growth and cost management should improve the group’s cost-to-income ratio further,” it said.

“The balance sheet is well positioned for a potential deteriorating economic environment given its high level of portfolio provisions and low non-performing loans, as well as strong capital ratios and liquidity.”

With over R1trn on Barclays Africa’s balance sheet, Absa customers won’t have to close their bank accounts, the bank said on Tuesday.

The repercussions of the decision have already started, with an announcement that Barclays Africa chairperson Wendy Lucas-Bull will step down from the Barclays Group and Barclays Bank board with immediate effect.

This is to “ensure that no conflicts of interest exist as a result of her being a member of these boards,” Barclays Africa said in a statement on Tuesday.

Her status will be that of independent non-executive chairperson on the boards of Barclays Africa and Absa Bank.

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barclays  |  banks

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