Focus on loan book as Barclays announces half-year performance

Barclays Bank is expected to release its half-year results today, which will give an indication of the lender’s strategy for managing costs and growing its loan book.

Analysts say that Barclays has relied on cost cutting to grow profits in recent years while adopting a conservative lending policy, but the space to reduce expenses has been shrinking.

The bank’s cost-to-income ratio has gradually reduced from 2008’s 66 per cent, 62.5 per cent in 2009, 59.4 per cent in 2010 to 55.6 per cent as of last year.

An industry report by Standard Investment Bank says that staff costs as a percentage of operating expenditure accounted for 54 per cent in 2011, down from 59.9 per cent a year before.

“Barclays has been on a cost cutting strategy since 2009 and we will be keeping an eye to what extent they will be able to do that,” said Francis Mwangi, a research analyst at Standard Investment Bank.

Mr Mwangi said that once costs are down to the bare minimum the bank will then have to be more aggressive in lending if it is to continue to grow its profits.

In January, Barclays announced that it had cut 50 jobs a month earlier to reduce its wage bill.

The lender retrenched 200 managers in December 2010, which helped it to save Sh1 billion in the nine months to September, a period when its income remained flat.

Johnson Nderi, a research analyst at Suntra Investment Bank, said that the bank should see staff costs either reduce or flatten due to the investments they have made in Enterprise Resource Planning (ERP), an automated management software.

“They should be repositioning their company following acquisition of a new ERP,” said Mr Nderi.
It has been a mixture of results in the banking industry with Kenya Commercial Bank (KCB) and Equity Bank reporting double-digit profit growths but National Bank of Kenya (NBK) recording a slowdown in growth in the first six months of the year.

KCB’s net profit increased 50 per cent in the six months to June to Sh6 billion compared to Sh4 billion in a similar period the year before.

Equity’s net profit rose to Sh5.4 billion from Sh4.7 billion over the similar period.

NBK’s profit declined to Sh575 million from Sh640 million over a similar period last year.
The bank reported a 10.1 per cent drop in half-year profit after tax, which the management attributed to higher interest paid on customer deposits.