Barclays Bank out to claw back its lost position in Kenya

Barclays Bank is out to claw back its lost position. After going through two difficult phases between 2008 and 2013 which was characterised by flat growth in assets, the bank is now seemingly done with its so called loan book rationalisation.

The bank lost its position as the second largest in Kenya, in terms of assets as at 2008, over a five-year period to fifth place in 2014.

This was due to two factors: first, flat growth in earning assets which — loans, advances and government securities — grew by only four per cent in absolute terms in the period between 2008 and 2013.

This compared unfavourably with its Tier-1 peers, who recorded a 19 per cent growth in the same period.

Second, increased weighting in risk-free assets: the bank increased its investments in risk-free assets to 30 per cent as at December 2013 from 18 per cent in 2008.

This de-risking strategy was driven by two events. One, the global financial crisis of 2008 which significantly affected the parent company’s businesses. As a result, a decision was taken by the company to centralise several aspects of the bank’s credit process.

This elevated turnaround times in terms of credit approvals and negatively impacted its client relationships, hence the flat growth in risk assets.

Secondly, non-perfoming accounts grew as a result of a previous strategy to grow assets. In fact, at some point the bank earned the distinction of leading its Tier-1 peers in terms of its impairment charges.

As remedy, market chatter had it that the bank had even placed a moratorium on further lending into sectors such as real estate and agribusiness.

But this is changing, driven by the acquisition of Barclays Plc’s Africa operations by Absa (which is in turn owned by Barclays Africa Group).
Absa’s coming on board has changed the bank’s risk appetite structures. The bank has completed three key projects: a product update programme, redefining its target market by introducing a new segment, and developing its human resource capacity.

On the product update programme, the bank is enhancing its distribution capacity through a presence in capital markets. This is geared towards increasing its share of wallet among its high-value clientele.

Absa itself has very strong capital markets capabilities and will provide significant risk-share opportunities for Barclays. Additionally, the bank is also adopting a customer-centric focus as opposed to the previous product-centric focus.

This ensures that Barclays’ strong branch network become more of service centres rather than business origination centres.

The strategy often has profound impact on operating expenses. In regard to market segmentation, the bank is gaining significant traction with its business banking, which is geared towards small and medium enterprises (SMEs). In fact currently the segment is a net liability business.

So for investors tracking Barclays, the bank has changed its risk structures and is likely to start moving up the risk curve (and focus more on wholesale asset lending).

However, this could see the bank’s margins drop into the single-digit territory, which will likely be compensated by corresponding growth in non-funded income.

The writer is an investment analyst.