Barclays Africa squeezes higher profit from lower income
A stronger rand hit income from the rest of Africa division at Absa’s parent, but that division is expected to overtake SA in the second half
Absa’s JSE-listed parent, Barclays Africa Group, managed to squeeze higher profit from lower revenue in the six months to end-June, it reported on Friday morning.
Normalised revenue decreased 1% to R36bn.
The group’s overall interim income declined 0.5% to R36.3bn, due to a sharp increase in head office costs and lower contributions from its rest of Africa and its wealth, investment management and insurance (Wimi) divisions.
Barclays Africa’s South African banking division grew income by 1.1% to R26.2bn, contributing 72% of the total.
Income from its rest of Africa division fell 6.3% to R7.7bn due to the rand strengthening.
Income from its Wimi division fell 0.3% to R2.7bn while head office costs rose 68%, to reduce income by R545m.
Headline earnings grew 5% to R7.6bn thanks to the South African banking division increasing its contribution by 6.4% to R6bn and the rest of Africa division by 19.4% to R1.5bn. Wimi’s headline earnings contribution fell 7.6% to R574m.
Barclays Africa raised its interim dividend by 3.3%, to R4.75 from R4.60 in the year-earlier period.
UK parent Barclays, which has cut its holding in the JSE-listed group to under 15%, paid Absa’s holding company £765m in June to help with separation costs.
"This contribution will be invested primarily in rebranding, technology and separation-related projects, and it is expected that it will neutralise the capital and cash flow impact of separation investments on the group over time," the results statement said.
Regarding its traditional South African retail banking business, Barclays Africa said headline earnings fell 10% to R3bn, as pre-provision profits declined 7%, partially offset by 6% lower credit impairments. Transactional and deposits earnings dropped 14% to R1.2bn as costs grew 11%.
Home loans’ earnings fell 9% to R764m, largely due to 5% lower net interest income as loans declined 1% and its margin narrowed because of increased interest suspended.
Card earnings decreased 7%, reflecting 3% lower loans and margin compression as a result of the reduced National Credit Act caps.
CEO Maria Ramos said she expected the group’s corporate and investment banking division to grow faster than its retail banking division, and for rest of Africa to do better than its South African business in the second half of the financial year.
"Key risks facing SA in the second half include heightened political and policy uncertainty in the run-up to the ruling party’s December elective conference, the potential for the country’s sovereign credit rating to be downgraded further, and for weak business and consumer confidence to lead to a longer, more protracted recession," Ramos said.
"For the group’s rest of Africa economies the outlook looks somewhat stronger and for the full year GDP is expected to expand by 5.3% in 2017, slightly ahead of 2016’s growth."