Barclays sails out of choppy waters
Brian Benza | Friday March 20, 2015 14:29
In an environment characterised by tight liquidity, squeezed interest margins and a freeze on bank charges, Barclays Bank recorded a 16 percent rise in profit after tax to P335.9 million for the full year ended December 2014.
The 16 growths represent a weighty recovery from the 34 percent and 18 percent profit plunge suffered in 2013 and 2012 respectively.
Presenting the financials yesterday, the bank’s managing director, Reinette van de Merwe said the bank’s turnaround was anchored on a deliberate focus to propagate transaction fees income in compensation for depressed interest rates margins.
The Bank of Botswana cut the benchmark bank rate by a further 100 basis points early this year, a development that has squeezed banks’ interest income at a time when tight liquidity conditions have pushed up the cost of funds. “The low interest rates environment impacted on our net interest income which declined marginally. However net fee and commission income rose 12.7 percent on higher transaction volumes from some of our new products such as cash deposit machines, Barclays Insurance and money cashsend,” she said.
Contributing to the positive profit growth was a 19 percent decline in interest expenses as the bank cut the cost of funding by the reducing the usually expensive wholesale deposits. On the other hand, the bank’s strategy of skewing towards secured lending such as businesses and mortgages and group schemes paid dividends through a P48 million reduction in impairment charges, despite loans and advances to customers increasing by 10.8% to P8.1 billion in the year.
“As a result of credit strategy changes, which sought to improve the performance of new bookings and improved collections execution on our consumer portfolio, our credit loss ratio improved to 1.8 percent from 2.7 percent. The credit loss ratio for the consumer book improved to 2.2 percent from 3.5 percent,” she said.
Despite the new strategy, the bank’s loan book is still dominated by unsecured lending, which constitute 73 percent of loans and advances.
Reflecting the tight liquidity in the market, total advances to customers stood at P8.1 billion in the period while deposits from customers total P8.9 billion translating to the Loan to Deposit Ratio (LDR) of 90 percent.
While the Bank of Botswana recommends for banks to have an LDR of between 60 to 80 percent, Barclay’s treasurer Kgotso Bannalotlhe believes the bank is not over-lent but rather, their LDR reflects efficiency in the balance sheet. “Lower LDR usually means that we have a lot of liquidity that is not being employed effectively. We also have additional capacity elsewhere as we can tap into the P2 billion bonds we floated last year, while part of our capital base is also lend-able. At this level, we are confident that our level of liquidity is comfortable as it reflects the ‘new normal’ in the market,” he said.
The managing director further said recovery to profit growth is just the beginning of their long-term turnaround strategy as they try to claw their way back to the top position in the banking industry. “Going forward we will continue to focus on non interest income to drive revenue growth with particular focus of digitalisation, insurance products, SMEs, business and corporate banking,” she said.
In the period Barclays declared a P100 million dividend to shareholders, translating to 11.74 thebe per share. Although Barclays has bounced back to profitability growth, the levels are still below the bank’s peak of P526 million profit after tax recorded in 2011. Barclays is also still lagging behind peers such as FNBB whose full year profit to June 2014 stood at P719 million.