The local unit of UK-based Barclays Plc dominated Kenya’s banking industry for decades, ranking as the largest lender in assets and profitability.
The conservative lending stance, however, started changing last year when the bank was consolidated with Barclays Plc’s other African subsidiaries under Barclays Africa, which has greater risk appetite.
Last year, for instance, its loan book rose to surpass the 2008 level at Sh118.3 billion before rising to set a new high of Sh128.4 billion in the half year ended June.
The Business Daily spoke with Barclays CEO Jeremy Awori —who took office early last year— on the bank’s strategic shift and other emerging issues in the local banking market.
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Barclays’ loan book declined significantly from 2008 through 2012 and rose by Sh11.6 billion in the second quarter. What informs the change in lending appetite?
This can be attributed to our reorganisation under the Barclays One Africa strategy. Our group CEO Maria Ramos wants us to be number three. We cannot achieve that without meaningful participation in our operating environment.
Which sectors does Barclays see as providing large growth opportunities and how are you planning on increasing your share there?
Mortgages and the SME segment where we haven’t been very active before. We are setting up a mortgage centre here in Nairobi. It doesn’t mean that other branches will not issue mortgages. What the centre will do is that it will bring together high quality professionals who will guide our overall mortgage business.
We want to back serious investments in the property market. We will not be involved in speculative financing where a customer seeks a credit line accounting for almost the entirety of the project cost.
On the SME lending side, we have recently brought in an executive who has expertise in that area. SME lending has higher margins compared to the corporate segment.
As you lend more, there is a risk of also running up bad debts. How will you mitigate this?
When we assess a loan application, we give priority to a customer’s ability to repay and not their collateral. Our non-performing loans are less than one per cent of our loan book and this is significantly lower than the industry average of nearly six per cent.
Which sectors are generating most of the bad debts for Barclays and the industry at large?
It’s broad, but there has been a clear problem among firms that have exposure to government contracts where the State has delayed payments.
Barclays did not declare an interim dividend for the half- year ended June, citing the need to preserve cash for compliance with higher capital adequacy ratios. What will be the impact of the increased capital levels for Barclays and the industry in terms of dividend payments this year?
Banks have up to December to comply with the new capital requirements. We, however, adopted them early on to demonstrate that we are conscious of our obligations to our customers and the regulator. While we didn’t pay an interim dividend, we expect our full-year payout ratio to remain at 50 per cent of net earnings.
You are, however, likely to see a reduction in the payout ratios among other banks, especially those who have to boost their core capital. You wouldn’t expect one to raise funds for capital and then deplete it by paying a higher dividend. Barclays only needs to top up its tier II capital. Our core capital is more than adequate.
You have said the bank is likely to take a loan from its parent Barclays Plc to boost its tier II capital, could you give us details of the loan in terms of its interest and tenor?
When we look at our fundraising options, we can either issue a bond in the local market or take a loan from our parent. The latter is significantly cheaper and this gives us an advantage because we are part of a financially strong group. It will attract a small premium on the London Interbank Offered Rate (Libor) whose rates are less than one per cent.
If you issue a corporate bond in the local market you will pay a premium on the T-Bill rate and the interest will top 10 per cent. The other issue is that we are likely to see several banks come to the market at once seeking to raise money through a rights issue or a corporate bond.
So individual banks will be competing for investors who will be choosing which lender to back, basing their decisions on which security offers the best returns.
Barclays has in the past few years undertaken staff retrenchments to cut costs. Has the bank completed this exercise?
We have reduced our head-count and are now focused on growth. We are even hiring for some of our new services.
Which are these new service offerings that the bank is venturing into?
We are, for example introducing derivatives to help customers hedge their exposures to volatility in currencies and interest rates. Others are bancassurance that will add to our fixed income trading that is already ongoing.
Barclays had planned to open a shared services centre in Nairobi to support its regional subsidiaries. What is the update on those plans?
It remains an option for us. The challenge is that we need to demonstrate that it can be done at a lower cost here. The other challenge is that it requires approval of the respective central banks that regulate our affiliates who will outsource services like account opening to us.
