Johannesburg - Barclays Africa Group just delivered further
evidence that South Africa’s
economy won’t be climbing out of the doldrums anytime soon.
The Johannesburg-based
lender kicked off the earnings reporting season for South Africa’s banks with a decline
in total first-half income, the first interim contraction since Maria Ramos
took over as chief executive officer in 2009.
The stock dropped on Friday leading declines on the six-member FTSE/JSE Africa Banks Index and extending
its losses this year to 14 percent.
The strain of South Africa’s
economic contraction also showed in the 10 percent decrease in earnings
excluding one-time items at the bank’s main South African consumer unit in the
six months through June as lending at its mortgage and credit card businesses
shrank. Income from fees on transactions and commissions and deposits dropped
14 percent, while costs increased faster than revenue.
“We expect the economic
environment to remain challenging,” Ramos said in an emailed statement. The
company also sketched a bleak outlook for the rest of year across its
businesses in 12 African countries, predicting “low- to middle-single digit
loan growth,” a decline in its net-interest margin, slower revenue growth and
higher costs.
South Africa slumped into a recession in the first quarter after
all but two industries shrank amid continued political wrangling and policy uncertainty. Barclays
Africa’s South African banking operations account for 74 percent of normalized
earnings before one-time items.
The country’s
foreign-currency debt was downgraded to junk in April after President Jacob
Zuma fired his respected finance minister and replaced him with someone who has
no financial experience. Unemployment is also at a 14-year high as the
governing African National Congress prepares to pick a new party president at
the end of the year.
“Key risks facing South
Africa in the second half include heightened political and policy uncertainty
in the run up to the ruling party’s December elective conference, the potential
for the country’s sovereign credit rating to be downgraded further, and for
weak business and consumer confidence to lead to a longer, more protracted
recession,” Barclays Africa said.
Its Johannesburg-based peer,
Nedbank Group, reports first-half earnings on Monday.
‘Slightly Negative’
“The main risk to our view
on Nedbank and on South African banks in general remains the political and
economic situation in South Africa,”
Henry Hall, a banks analyst at HSBC Holdings Plc in Johannesburg, said in a note on Friday. The
lender, controlled by London-based Old Mutual, will report 2 percent growth in
earnings per share before one-time items, Hall said.
Read also: The meaning of banks downgrade for South Africans
A 25 basis-point reduction
in interest rates last week will also be “slightly negative” for South African
banks, Harry Botha, an analyst at Avior Capital Markets, said in a note.
Barclays Africa hedges most of its short-term interest rate exposure so it’s
probably in the best position followed by Standard Bank Group, he said.
A 27 percent improvement in
impairments following credit losses from two large corporate clients the
previous year and 19 percent growth in profit from its African businesses
helped boost earnings. The lender reported a 7 percent increase in
normalized EPS excluding one-time items to 9.18 rand, beating the 8.80 rand
median estimate of four analysts.
“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 of South Africa,”
the lender said.