Barclays closes loan talks with parent as net profit rises 10pc

Barclays Kenya is set to receive a Sh4.5 billion loan from its London-based parent after finalising negotiations for the 10-year debt.

The bank, which on Friday announced a 10 per cent growth in net profit for 2014, intends to use the loan to boost its capital base.

Barclays’ current capital ratios are above the minimum regulatory thresholds, but a large portion of the buffer is in the form of core capital, which leaves room for a supplementary capital boost.

“We have finalised the application for the $50 million (Sh4.5 billion) loan, the drawdown should be anytime now. We have enough capital, we just want to balance the tier I and tier II capital,” said Barclays chief financial officer Yusuf Omari.

The bank announced a net profit of Sh8.3 billion in 2014 compared to Sh7.6 billion the year before, rewarding shareholders by raising the dividend payout to Sh1 per share from the previous year’s 70 cents.

The performance was boosted by the Sh788.2 million the bank spent to retrench 170 employees in 2013, an expense item whose absence contributed to the profit growth.

“The total capital ratio is sufficient to support business growth in the medium term. However, the bank will be looking to raise tier II capital to ensure that we have the right balance between tier I and tier II,” said Jeremy Awori, Barclays’ chief executive.

Besides restructuring the bank’s capital, the dollar-denominated loan will also be used to support lending in foreign currency.

Mr Omari said the loan realignment will boost the bank’s return on equity, which stood at 23.4 per cent in the year ended December.

He added that the loan is priced at a premium of 2.7 percentage points on the London Interbank Offered Rate (Libor), placing its effective cost at about three per cent based on current market rates.

READ: Barclays cuts loan cost after CBK base rate reduction

Barclays applied for the international debt to sidestep the local market where loans and corporate bonds are more expensive, at double-digit interest rates.

Banks like CfC Stanbic and NIC, for instance, have recently issued corporate bonds at an interest rate of 12.5 per cent. Other lenders, including DTB, have raised more funds by selling new shares to existing shareholders.

Barclays however faces a foreign exchange risk since its earnings are in shillings but the loan repayments will be in dollars.

The bank’s profit growth in the review period was also helped by lower costs. Its loan book rose 5.9 per cent to Sh125.4 billion, helping to increase interest income 7.7 per cent to Sh22.9 billion.

Interest expenses rose sharply by 36.9 per cent, reflecting the expansion of customer deposits by Sh13.6 billion to a cumulative Sh164.7 billion.

Barclays’ non-interest income, including fees charged on transactions, declined 4.1 per cent to Sh8.6 billion. This weighed down interest earnings and saw total income grow marginally at 1.3 per cent to Sh28.2 billion.

The bank’s operating expenses, including staff costs, remained flat at Sh16 billion.