Barclays targets turnaround after tough year
Mbongeni Mguni | Wednesday February 12, 2014 19:29
Yesterday, the country’s second biggest bank by balance sheet unveiled a sombre set of full year 2013 results indicating a 34% drop in after-tax profits to P295.8 million. Net interest income was five percent lower at P1.15 billion, while operating expenses were 10% higher on administrative costs and depreciation.
Impairments jumped 58% to P198 million on methodology changes described by executives as “catching up to provisions” as well as debt stress among the households, who anchor the flagship retail sector.
Speaking at the results presentation yesterday morning, chairman, Rizwan Desai said besides local and global economic challenges the disappointing results were also the result of ongoing corporate transformation. The three-pronged transformation involves Turnaround, Return Acceptable Numbers and Sustain Forward Momentum. “This is a massive journey and no such journey is without short-term collateral consequences,” he said.
“There’s no escaping that fact, but there is also context to it. “Globally, Europe is still struggling with the after-effects of the global financial crisis and locally, lending to businesses has slowed to single digits due to sluggish domestic demand and government spending.”
Even as executives highlighted the poor 2013, they were quick to stress the local bank’s commitment to turning its fortunes around.
“With lower results, it’s easier to ignore the positive gains made during the year, which include growth in the corporate book, increases in non-interest income and fixing of the basics,” said finance director, Lipalesa Makepe. Traditionally, Barclays’ retail book has dwarfed other divisions including corporate, generally accounting for nearly half of other segment contributions in the group.
In a separate interview, Makepe told Mmegi Business that while the bank had recovered from a period of high impairments experienced in recession years and worsened by an over-exposure to unsecured loans, pressure on returns still remained.
“The market has recovered but the bulk of our customers are government and the wage issues mean lower household disposable incomes and a lot of pressure,” she said.
“It was necessary to change to either protecting at source through scheme loans or secured lending, in order to protect the impairment line and cushion the portfolio against economic conditions.
“At the time, the bulk of our book was personal instalment loans and we recognised that the strategy would be to set up a scheme portfolio per business unit where we target the business instead of the individual. The shift to scheme loans, which Barclays categorises as secured lending, came with a decline in interest income as the bilateral arrangements with businesses naturally include a negotiated interest rate.
Besides scheme lending and the increased focus on secured loans which saw the mortgage book rise 40%, Barclays plans to give increased attention to business and corporate lending where defaults are significantly less than in retail.
While interest income from corporate lending was down 14% in the full year to December 2013, executives were excited by the ramp-up in growth seen in the latter part of the reporting period.
Barclays also plans to ease its deposit book in favour of cheaper retail depositors, whom it will attract via the roll-out of new savings products. Last year, the bank launched the Motshelo savings product for cooperative societies, which has reportedly proved popular.
“We are operating in a low interest environment and there is intense competition in deposit interest rates, especially with the new banks on board, for wholesale deposits,” Makepe said.
“It would be expensive for us to compete and we have rather chosen to encourage savings within the retail portfolio.
“Going forward, we will build up new products to encourage this and offer more for our retail savers. We will be very selective with our wholesale depositors.” For his part, the bank’s chairman pledged commitment to the planned turnaround at the highest levels of the organisation.
“There is a very strong likelihood that shareholders and stakeholders may be disappointed by our results for this year and the board is also disappointed,” Desai said.
“However, together with our managing director and her executive team, we are taking all the necessary steps to turn our performance around.
“I assure shareholders and stakeholders that my board and the management are committed to achieving that turnaround in the shortest time.” Shareholders’ displeasure was already evident in Barclays share price on the Botswana Stock Exchange, which dropped 16% last year and another 4.4 percent in January of this year.