Barclays Africa Profit Climbs 20% as Credit Impairments Drop

Barclays Plc’s South African unit said full-year profit increased 20 percent after the Johannesburg-based bank set aside less money to cover bad debts.

Net income rose to 12 billion rand ($1.1 billion) from 10 billion a year earlier, the bank said in a statement today. Earnings per share excluding one-time items climbed to 13.97 rand, beating the 13.67 rand median estimate of 15 analysts surveyed by Bloomberg.

Barclays Africa Group Ltd., which bought most of its U.K. parent’s African operations last year, said boosting revenue “remains challenging” as the bank tries to win back market share in South Africa. While bad loans declined after the lender tightened credit criteria, those gains may be threatened by higher interest rates, said Harry Botha, an analyst at Avior Research in Johannesburg.

“The drop in credit impairments was a highlight,” Botha said by phone from Johannesburg today. “We may see improved credit impairments for the next couple of months, but if we see a sharp rise in the credit rate cycle, that will be at risk.”

Barclays Africa shares rose 2.8 percent to 127.50 rand at the market close in Johannesburg. The stock has declined 3.6 percent this year compared with a 10 percent drop in the six-member FTSE/JSE Africa Banks Index.

Mortgage Improvement

Credit impairments fell 21 percent to 6.99 billion rand, the bank said, while non-performing loans declined to 4.7 percent of total lending from 5.9 percent a year earlier.

“Improved credit impairments, particularly in retail mortgages and commercial property finance, was the principle reason for higher earnings,” the lender said in the statement.

The South African Reserve Bank unexpectedly lifted its benchmark repurchase rate 50 basis points to 5.5 percent on Jan. 29. Further rate increases are not “automatic”, governor Gill Marcus said last week.

While Barclays Africa sees more interest rate increases in South Africa this year, it is “well positioned going into an environment of interest rate rises,” Ramos said.

The lender plans to expand its corporate- and investment-banking operations across the continent after its acquisition of Barclays’ operations in eight African countries.

“The Barclays Africa deal gives us access to markets with good growth prospects,” Chief Executive Officer Maria Ramos said on a conference call. “I’m confident we are in the right place at the right time.”

Performance Bonuses

In South Africa, there is a “low probability of gross domestic product growth accelerating faster without major policy shifts, improved confidence levels, and an alleviation of binding energy and transportation infrastructure constraints,” the lender said. Barclays Africa estimates economic growth of 2.7 percent for 2014.

The lender used restated figures to show how it would have performed if its acquisition of Barclays’ African operations had been included in previous financial reports.

The company increased its full-year dividend 20 percent to 8.20 rand, and announced a special payout of 7.08 rand at its first-half results.

Bank executives have qualified for performance bonuses, said Ramos, adding that she has “every intention” of staying on as CEO this year.

While the company is not capping bonuses, about 60 percent of bonuses are deferred over three years in equal portions, she said. Select senior executives will have their pay subjected to certain set restrictions of the Barclays group, Ramos said.

Barclays Plc yesterday reported adjusted pretax profit for 2013 of 5.2 billion pounds ($8.5 billion) as litigation and compensation charges complicated CEO Antony Jenkins’s overhaul of Britain second-biggest bank. That’s 26 percent down from 7.05 billion pounds in 2012 and missed the 5.4 billion-pound consensus analyst estimate compiled by the bank.

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