Barclays Q1 profit flat as transition to Absa gains momentum

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Barclays Bank (Kenya) has registered a flat growth in profit for the first quarter of 2019 as ongoing rebranding to Absa continues to impact its balance sheet.

The Nairobi Securities Exchange (NSE) listed lender has reported a Ksh1.89 billion (US$18.7million) net profit for the period under review, a marginal 0.5 per cent growth compared to Ksh1.88billion (US$18.6million) posted in a similar period last year.

READ:Barclays Bank Q1 profit up 8% despite squeeze on loan book

This is despite gains on interest earnings and reduced expenses during the quarter.

Quarterly results published through the NSE shows total interest income edged up 7.2 per cent to close at Ksh7.4 billion (US$73million), compared to Ksh6.9 billion (US$68million) posted in Q1 of 2018.

Interest income from loans and advances to customers was Ksh5.4 billion, a 3.8 per cent up from Ksh5.2 billion in a corresponding period last year.

That from government securities and placement with banking institutions also increased to Ksh1.9 billion and Ksh63.6 million respectively, an increase compared to Ksh1.7 billion and Ksh18.2 million the previous year.

Costs related with the transition to Absa however weighed down the gains according to the bank’s financials.

“The separation from Barclays PLC will have an impact on Barclays Kenya’s financial results over the next two years. This includes a substantial change in spend as we invest in systems required to be separated , the transitional service agreement costs we pay to Barclays PLC for the provision of various services during the separation period together with the costs that we shall incur for rebranding ,” Barclays Kenya Managing Director Jeremy Awori said in a statement.

In the quarter under review, the bank has reported separation costs of Ksh243 million (US$2.4 million.

“This is an exceptional item and will be incurred throughout the separation period,” the management has said.

The costs are most likely to run into billions of shillings on increased spend on advertising, rebranding ATMs, cards and branches to the Absa brand.

The re-branding is part of Barclays Africa Group transition after reaching a separation agreement with Barclays PLC.

It will see the African entity adopt the Absa brand across Africa by 2020, shedding off the British multinational bank- Barclays PLC corporate image.

The Barclays brand may only be used in the rest of Africa up to June 6, 2020, subject to an additional two-year run off period in respect of cards.

READ:Barclays Africa to change name to Absa Group Limited

During the first quarter of this year, Barclays Bank (Kenya) reduced its operating expenses to Ksh4.9 billion (US$48.4million), a 1.9 per cent drop compared to Ksh5 billion (US$49.3million) in 2018.

Staff related costs reduced to Ksh2.3 billion (US$22.7million) from Ksh2.8 billion (US$27.6million).

During the period, the bank’s loan book expanded 9.1 per cent to Ksh180.5 billion (US$1.78billion), compared to Ksh165.5 billion (US$1.63 billion) extended to customer as loans and advances in Q1 of 2018.

This is despite the capping of interest rates in the country which has reduced lending to the private sector and individuals by commercial banks, whom they consider “high risk borrowers”

READ ALSO:Why banks in Kenya will lend at a maximum 13%

Banks have been investing heavily in government securities since the law came into place in 2016.

The value of Barclays’ assets grew by 18.8 per cent during the quarter to a total Ksh345.4 billion (US$3.4 billion) compared to Ksh290.7billion (US$2.9 billion).

Customer deposits increased to Ksh223.9 billion (US$2.2billion), a 15.8 per cent growth compared to Ksh193.3 billion (US$1.9billion) in Q1 last year.

During the period, net Non-Performing Loans (NPLs) were valued at Ksh2.6 billion (US$25.7million) which is higher compared to Ksh1.9 billion (US$18.7 million) the previous year.

 

Martin Mwita is a business reporter based in Kenya. He covers equities, capital markets, trade and the East African Cooperation markets.

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