Breaking News

Tweet TWEET

Barclays Arms Tellers With IPads as Spigot Opens in South Africa

Barclays Plc (BARC)’s African unit is equipping tellers with iPads and offering customers mobile apps as the bank tries to win back market share by stepping up lending in the face of slowing growth in South Africa.

Barclays Africa Group Ltd. (BGA) is trying to regain clients after being overtaken as the country’s biggest mortgage lender by Standard Bank Group Ltd. (SBK) two years ago. It’s the only one of South Africa’s big four banking shares to decline this year and the company told analysts in a Nov. 28 presentation that it wants to be investors’ “favorite” African bank stock by the end of 2015.

“It may not be the best time to be lending, but they couldn’t keep bleeding and losing customers,” Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town, said in a phone interview on Dec. 5. “The key will be their credit scoring and if they can be strict enough that they don’t pick up a lot of bad debts.”

Barclays Africa Chief Executive Officer Maria Ramos is spending 1.2 billion rand ($116 million) on refurbishing branches, installing cash machines and upgrading technology to recapture clients lost to FirstRand Ltd. and Nedbank Group Ltd. (NED) After tightening credit criteria for the past three years, Barclays Africa is determined to regain market share, said Craig Bond, the company’s head of retail and business banking.

The bank appointed Anil Hinduja as head of risk six weeks ago to address some of its shortcomings, Bond said. Hinduja was previously responsible for managing retail credit risk globally for Barclays and spent 19 years at Citigroup Inc.

Overly Conservative

“We were overly conservative in mortgage and vehicle lending,” Bond said in a phone interview on Dec. 2. “The real crux was fixing the lending business.”

African operations contributed about 11 percent of London-based Barclays’s revenue last year. While cutting investment banking and European consumer and business banking jobs to reduce costs this year, the British bank increased its stake in the Johannesburg-based lender to 62.3 percent to tap growth in sub-Saharan Africa. Barclays CEO Antony Jenkins said in February that the bank planned to grow “significantly” in Africa.

Barclays Africa CEO Ramos wasn’t available to be interviewed, the bank said.

Standard Bank had 29.7 percent of South Africa’s mortgage lending market in the six months to June compared with 25.3 percent for Barclays Africa, central bank records show. That’s a reversal of the position two years earlier, when Barclays Africa had 29 percent and Standard Bank 27 percent.

Growth Prospects

“People are concerned about Barclays Africa’s growth prospects and where it’s going,” Tracy Brodziak, a banking analyst at Old Mutual Investment Group, said in an interview from Cape Town on Dec. 3. “Investors want returns.”

Barclays Africa will focus on consumer banking in the 10 countries it operates in on the continent and plans to finance more homes and cars in its home market, said Bond. Some analysts, including RMB Morgan Stanley’s Greg Saffy, will only change their outlook on the bank when it starts adding customers.

“We would like to see a return to meaningful top line growth before becoming positive on the stock,” Saffy, who attended the bank’s presentation, said in an e-mailed response to questions on Nov. 28. “Whilst the presentation was comprehensive and management upbeat about future prospects, the proof lies in the pudding.”

Conservative Stance

Barclays Africa reported a 5.4 percent decline in customers to 9.1 million in the six months through June as lower-income South Africans seeking unsecured loans opened accounts with Capitec Bank Holdings Ltd. (CPI), Bond said. Nedbank boosted clients 10 percent to 6.2 million over the same period, while Standard Bank posted a 9 percent increase to 9.9 million.

While Barclays Africa lost “entry-level clients” when it stepped back from unsecured lending, that conservative stance won’t change as the bank expects the benefits to show through in lower loan impairments, said Bond.

Bad debt charges as a proportion of Barclays Africa loans declined to 1.4 percent in the first half from a peak of 1.6 percent a year earlier. The ratio at Nedbank climbed to more than 1.3 percent and Standard Bank reported an increase to almost 1.2 percent over that period.

That partial withdrawal from unsecured lending came as the market for loans not backed by assets started to grow faster than other types of credit, increasing fourfold in the three years through 2012, according to Macquarie Group Ltd. Barclays Africa share price fell the most in a decade on June 26, 2012, as the bank forecast rising bad loans in its mortgage unit would cut profit.

Credit Management

While the ratio of non-performing loans has declined to 4.9 percent of total lending at Barclays Africa, it remains the highest of South Africa’s big four banks. Keeping bad loans under control, while boosting income may be difficult, Shaheeda Davids, an analyst a Nedbank Private Wealth, said in a phone interview from Cape Town on Nov. 29.

“Investors want to see further evidence that Barclays Africa has resolved its credit management issues,” Davids said. “Now it says it wants to grow its balance sheet at a time when it’s a tough environment.”

The central bank last month cut its full-year growth forecast to 1.9 percent from 2 percent. Strikes at South African automakers in the third quarter sent manufacturing into a slump, leaving economic growth on course to expand at the slowest pace since a 2009 recession.

Largely De-Risked

“The South African market will continue to be challenging and it is clearly not a time to be expanding aggressively,” Bond said. “That said, our business is largely de-risked having halved our share of market in the personal loans space to around 10% over the past four years.”

Barclays Africa shares saw their biggest monthly drop in November in almost five years. The six-member FTSE/JSE Africa Banks Index has climbed 3.7 percent this year with Nedbank gaining 10 percent and FirstRand 9.2 percent.

That underperformance persuades Lisa Haakman, an analyst at Noah Capital Markets, to keep a buy recommendation on Barclays Africa shares. While the bank’s first-half return on equity of 14 percent exceeded Standard Bank’s 13.2 percent, with Nedbank reporting 14.6 percent and FirstRand 22.5 percent, Haakman remains cautious about the outlook after attending the presentation last month.

“There were a number of positives, specifically around digital innovation, but Barclays Africa’s turnaround strategy is essentially about chasing market share rather than returns,” said Haakman. “Just increasing market share could shrink returns.”

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.