7 March 2016

Uganda: Barclays to Get New Owners

Photo: Supplied
Absa Barclays logo

Barclays Bank Uganda branch on Luwum Street in kampala. INDEPENDENT/JIMMY SIYAChange in Group shareholders won't affect Barclays operations in Uganda, says Central bank

On Feb.26, the London-based Financial Times caused a furor in Africa including Uganda when it reported that financial services giant Barclays Bank PLC was "exiting Africa." As it turned out, it was an overstatement as the bank only wants to 'sell-down' or reduce its 62.3% shareholding in Barclays Africa Group Ltd (BAGL), the entity that also owns Barclays Bank Uganda Ltd.

The process, which officials said would happen over the next two-three years, aims at stemming losses and cutting costs in London as it consolidates its more lucrative business lines in the UK and US markets. Barclays Bank PLC has four core business divisions: Personal & Corporate, Barclaycard, Investment Banking, and Africa, which contributes the least to the revenue pool.

BAGL, listed on the Johannesburg Stock Exchange, has operations in 12 African countries including South Africa, Uganda, Botswana, Zambia, Kenya and Tanzania among others, and is one of Africa's major financial services provider with a portfolio that includes personal and business banking, credit cards, corporate and investment banking, wealth and investment management, among others. Financial analysts have attributed the British giant's move to retreat from the Africa to several factors - the effects of the 2008/9 global financial, poor reputation following several scandals in the US and UK, currency instability, and dwindling interest in investment banking. Though at Group level Barclays PLC has struggled in 2015 according to its financial report issued on March 01, the Africa business unit reported substantial growth in earnings, which rose by 17% to $142.93 million for the rest of Africa, with the South Africa unit rising by 8% to $ 746. 57 million. Adverse currency movements on the continent were however reported to have had a negative impact on BAGL by slashing profit before tax by $ 6.93 million compared to 2014, though income increased 7% ($5 million) and profit before tax went up by 11% on a constance currency basis, according the Group results.

Barclays PLC reasons that despite strong returns profile locally, Barclays Africa's good numbers are significantly diluted at Group level. Also, the Group sees the fact that it owns 100% financial responsibility in BAGL with only 62.3% benefits as untenable.

Additionally, the Group is desperate to improve its Tier 1 common capital ratio - a measure of a bank's capital adequacy level - within the next 2-3 years to comply with regulatory standards. They therefore see a 'sell-down' as an opportunity to bring about regulatory deconsolidation.

Over the next two-three years, the Group will have to find buyers for its 62.3% shares in BAGL, which translate into more than $ 4.86 billion. It is expected that other shareholders including BlackRock Inc. (UK & USA), Investec Asset Management, Dimensions Fund Advisors, and the Vanguard Group, among several others based in South Africa, will increase their shareholding. Alternatively, another top investor could also snap up the shares.

Normal business

At Barclays Bank Uganda Ltd, one of Uganda's most popular and biggest banks by assets, business is going on normally.

Rakesh Jha, the managing director, told journalists that the eventual exit of Barclays PLC from BAGL, would not have any effect on operations in Africa including Uganda, a sentiment affirmed by Bank of Uganda Director of Research Adam Mugume.

Mugume told The Independent that the exit of Barclays PLC shouldn't affect operations of Barclays Bank Uganda because Barclays Uganda is not a branch of the London-based Barclays Bank. "Barclays Bank Uganda Limited is a financial entity licensed and regulated by Bank of Uganda. Therefore, to the extent that Barclays Uganda capital and profitability are quite healthy and are entirely separate from Barclays UK, selling of African operations should not impact on Barclays Uganda operations," he said. He said the only effect could be a change of name to whichever entity eventually buys the majority shares in BAGL. Salima Nakiboneka, a fixed income & equities analyst at the Crested Capital, a financial advisory firm in Kampala, suggested that there is no way a bank of Barclays' caliber can close operations because the banking industry is East Africa is still viable given the low financial inclusion and the ongoing large-scale infrastructural development projects. Given the financial woes that have befallen Barclays Bank PLC in recent years, some analysts say liquidating its business interests in Africa and other smaller markets was inevitable.The Group has faced hefty fines that have severely hit shareholders' net asset values with the dividend payment being slashed by a half over the next two years. They were handed the biggest UK bank fine in history as six banks were ordered to pay $5.41billion over manipulating foreign exchange markets.

"At this moment, Barclays PLC needs to concentrate on the regions where it has a comparative advantage," George Mulindwa, the portfolio manager at Stanlib, told The Independent. "I think US and UK look to be a bit more stable than Africa."

Barclay PLC also said in its annual report that it plans to exit investment banking operations across much of Asia, continental Europe and Latin America as it focuses on its core US and UK markets. The annual report indicates a 2% fall in annual pre-tax profit to $7.5 billion, stripping out one-off items including fines for mis-selling of payment protection insurance. This was lower than the $8.05 billion expected by investors.

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