Barclays ups dividend despite drop in profit

Barclays Bank of Kenya defied a steep drop in net profit for the year 2011 to reward its shareholders with a 10 per cent rise in the dividend payout.

The bank’s chief executive, Adan Mohamed, said the directors had recommended a final dividend of Sh1.5 per share, including a special dividend of Sh0.6 per share.

The payout is 10 per cent higher than the Sh1.35 per share that shareholders got the previous year. Mr Mohamed said the generous dividend payout was driven by the bank’s healthy cash position that is rooted in a cautious lending strategy in high interest rates environment.

He made the announcement after releasing the annual results showing that the bank’s net profit for the year ended December 2011 dropped 23.8 per cent, falling short of market expectations.

Barclays, which is Kenya’s second largest bank by asset base, said it had posted Sh8 billion after-tax profit compared to Sh10.5 billion a year earlier on the back of marginal total income growth. That translates to a performance of Sh1.49 per share compared to Sh1.95 per share in 2010 — an outcome that was significantly below the forecasts.

ApexAfrica Capital had, for instance, said on Wednesday that it expected Barclays’ net earnings to drop only slightly to Sh1.87 per share, but the outcome appears to have been heavily diluted by a near-flat growth in the bank’s income that rose to Sh26.3 billion from Sh26 billion the previous year.

Barclays attributed the dip in profitability to the absence of the Sh3.5 billion gain it made from sale of its custody business in 2010, shoring up its earnings. “Adjusting for the one-off impact from the sale of the custody business and restructuring cost in 2010 amounted to Sh0.7 billion,” Mr Mohamed said.

That position is supported by the fact that Barclays’ underlying profit before tax grew by 11 per cent to Sh12 billion pointing to staying power in a particularly tumultuous year when the inflation rate more than tripled and interest rates nearly doubled heavily polluting the lending market.

Inflation rose from below five per cent at the beginning of the year to more than 18 per cent at the close forcing commercial banks to raise their lending rate from an average of 14 per cent to 25 per cent. Barclays’ loan book expanded by Sh12 billion to Sh99 billion but the interest income grew modestly from Sh142 million to Sh13.6 billion.

Aggressive cost-cutting

The bank’s non-interest income fell to Sh10 billion from Sh10.3 billion but its impact was effectively smoothened out by prudent management of costs whose ratio to total income dropped to 52 per cent from 54 per cent the previous year.

The biggest cost-saving item was from staffing where a retrenchment programme involving 200 middle level managers helped shave off Sh1 billion, leaving it at Sh7.3 billion.

Barclays has been executing an aggressive cost-cutting plan helped by efficiency gains from increased rollout of ATMs, mobile and Internet banking.

“There is still scope for further reduction of our cost to income ratio from automation,” said Mr Mohamed who promised that the bank will migrate more customers from traditional banking halls to new technology-based channels like mobile banking.

Barclays introduced free ATM transactions last year to increase usage of the machines and attract more retail customers.