South Africa’s tough economic conditions have taken their toll on Barclays Africa [JSE:BGA], with the bank’s revenue falling by 1%. It still outperformed its UK counterpart, which felt the effect of its Africa sale in June.
Barclays Africa reported a solid financial performance for the first half of the year, with the bank’s half-year profit increasing by 7%. Headline earnings rose to R7.8bn.
The bank said it demonstrated continued resilience in a deteriorating economic environment, despite revenue decreasing to R36bn. Its return on equity also rose to 16.8% from 16.1%.
But group revenue declined 1% to R36bn, given a deteriorating economic environment in South Africa, which in turn caused pre-provision profit to decline 6%, the bank said.
South Africa, the bank’s largest market, is in a technical recession after gross domestic product shrank 0.7% on an annualised basis in the first quarter.
This was the first time Barclays Africa released financial results since UK-based Barclays’ sale of its stakeholding two months ago.
It said successful separation from Barclays will be an overarching priority for Barclays Africa over the next three years.
“Our results today are testament to the resilience of our business and the momentum we are creating,” said Barclays Africa chief executive Maria Ramos. “We expect the economic environment to remain challenging, but we believe the long-term opportunities remain attractive.”
Barclays Africa’s headline earnings jump was driven by strong earnings growth in its other African operations. But positive earnings growth in South Africa, on the back of strong growth in corporate banking, also helped the banking giant along.
Credit impairments declined 27% from a high base in the first half of 2016 and effective cost containment helped achieve a cost-to-income ratio of 55.6%.
The bank’s balance sheet stands at R1.1trn, with strong capital adequacy and liquidity reserve positions
“We are presenting a set of results that demonstrate the real value of the 2013 acquisition of the Barclays businesses in Africa,” said Ramos. "They are proving their worth in yielding a strong performance for the first half, even as our biggest market, South Africa, has suffered the impact of an economic downturn.”
In June Barclays sold R37.71m worth of its shares - 286 million shares at R132 each. This was the biggest ever transaction of its kind in the local market at R37.7bn.
This follows the sale of 12.2% of its stake in May 2016, where its shareholding was reduced to 50%. Bloomberg reported that Barclays first bought Absa in 2005. Its 60% holding grew to 62% in 2013, following a reshuffle exercise where Absa took over Barclays' operations in eight African countries.
The sale created an opportunity for the Public Investment Corporation to grow its shareholding by 7% to 14.9%, making it the second biggest shareholder in Barclays Africa.
The bank said that for the remainder of the year, Barclays Africa will place priority focus on its retail and business bank performance in South Africa and on driving opportunities in its businesses outside South Africa.