Barclays African unit may buy parent’s Zimbabwe, Egypt banks in ‘low risk’ strategy

Bank’s wealth and investment management and insurance unit waiting for a Kenyan license and may consider West African expansion.

BARCLAYS Africa Group Ltd., the South African lender controlled by Barclays Plc, said it’s in talks with the parent company to buy the British bank’s operations in Egypt and Zimbabwe.

“We’re keen to acquire them, but it has to be done at a competitive price and be value accretive and that’s the process we’re in with Plc,” Maria Ramos, chief executive officer of the Johannesburg-based lender, said on a conference call Tuesday. “Our core priority is to extract value from our existing portfolio.”

After buying its parent company’s operations in eight countries on the continent in 2013 in an all-share deal, Barclays Africa has been standardising technology across the continent and rolling out investment-banking products.

The lender, which lost domestic market share in consumer banking to rivals like FirstRand Ltd., has also been developing products and strategies to lure more customers in its home market.

The bank’s wealth and investment management and insurance unit is waiting for a Kenyan license and may also consider West African expansion, Ramos said.

“The group’s African expansion is a much lower-risk strategy as it bought operations it knew well from its parent, so the same principal would apply if they were to buy Egypt and Zimbabwe,” Adrian Cloete, portfolio manager at PSG Wealth in Cape Town, said in an e-mailed response to questions.

Profit rises

Net income for 2014 climbed to 13.2 billion rand ($1.13 billion) from 12 billion rand a year earlier, Barclays Africa said in a statement earlier.

Earnings per share excluding one- time items climbed to 15.38 rand, compared with the 15.44 rand median estimate of 14 analysts surveyed by Bloomberg.

The total dividend rose 13% to 9.25 rand per share.

While Barclays Africa expects further expansion in loans in South Africa this year, interest rates that are likely to remain low will curb improvements in its net interest margin, the bank said in its statement.

“Focus on revenue growth and continued cost management should improve the group’s cost-to-income ratio, while its credit-loss ratio has probably troughed,” the bank said. “These factors should increase our return on equity in 2015.”

Operating expenses climbed 7% to 35.8 billion rand. Credit impairments dropped 10 percent to 6.3 billion rand, resulting in a 1.02% credit-loss ratio, compared with 1.2% a year earlier.

‘Impairment magic’

Barclays Africa dropped 1.7% to 187.29 rand as of 10:27 a.m. in Johannesburg trading, making it the only lender among the six in the FTSE/JSE Africa Banks Index to show a decline.

“Results were in line with expectations, but it’s worthwhile highlighting that much of the growth came from ‘impairment magic’—results excluding impairments only grew 5 percent, and their costs are growing faster than revenue,” Sean Ashton, chief investment officer at Anchor Capital, said in an e-mailed response to questions.

“The credit-loss ratio is likely close to the bottom, which means they have to control costs better—salaries grew 12 percent in 2014—and grow the top line in 2015 to achieve meaningful growth,” Ashton said.

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