Barclays Kenya tipped to reap more income after parent firm exit

What you need to know:

Separation will enable Barclays Kenya to reap more from the non-funded income stream that has been underperforming.
This is likely to raise its competitiveness as it markets more products including bancassurance, brokerage, asset management and mortgage financing.

Barclays Kenya #ticker:NMG separation from Barclays Plc will likely give it more flexibility to push its diversification programme and enable it reap more from the non-funded income stream that has been underperforming, Dyer and Blair Investment Bank says.

The analysts see the separation as likely to raise its competitiveness as it markets more products including bancassurance, brokerage, asset management and mortgage financing.

The institution’s non-funded income declined 5.1 per cent year-on-year to Sh2.3 billion due to a 6.7 per cent year-on-year decline in fees and commissions to Sh1.4 billion and a 5.7 per cent decline in forex income to Sh800 million.

Fees and commissions on loans rose 5.4 per cent to Sh172.5 million whereas other fees and commissions declined 8.2 per cent to Sh1.2 billion.

“These movements are [not in congruence] with the rest of the sector. As the bank continues to scale its alternative channels and other sources of non-funded income, we expect to see strong growth in the year,” said Dyer and Blair.

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The analysts note that the bank has traditionally traded at a premium on the Nairobi Securities Exchange due to its superior dividend pay-out, a trend they expect to continue even with the separation. The share traded at Sh11.80 on Tuesday.

“As the main shareholder of Barclays Kenya remains the same, management does not expect the dividend pay-out policy to change,” said Dyer and Blair.

However, analysts at Standard Investment Bank (SIB) have a less positive view, saying that its inability to expand its revenues streams to shore up the shrinking net interest margin is cause for worry. As a result, they have retained a “hold” recommendation on the company.

SIB also recommended that recoveries of non-performing loans be in top gear.

“Our key worry nevertheless, revolves about Barclays’ inability to grow its non-interest revenue streams to shore up its net interest margin shrinkage, in addition to the asset quality concern that isn’t fading.