Category Archives: Barclays

Economic Forecasts from Citi, Barclays, World Bank, Brookings, Oxford

A roundup of recently published economic forecasts, reports, and surveys.   

AfDB: The African Development Bank’s interactive platform, #MapAfrica, maps the locations of the bank’s investments in every country across Africa.   

Also the AfDB launched their 2018 African Economic Outlook report. 

Barclays: In Nairobi this week, Barclays Africa launches the 2017/18 macro-economic report as well as the Africa Financial Markets Index,  which is a survey of 17 African stock markets.

Citi: Citi Research has just published two reports on frontier markets and one on food inflation in Africa. Citi found that frontier markets did better than developed markets and that Kenya did well (36% return on equities) despite the banking interest cap law and the prolonged election season which has now ended.

Citi’s forecasts of top picks for frontier markets in 2018 are Sri Lanka, Romania, and Kenya and they see weaknesses for Argentina, Morocco, and Egypt. The Citi rankings consider six factors: macro growth, macro imbalances, monetary factors, valuations, earnings momentum and price momentum for their forecasts. Citi also ranked five top stock for frontier markets BGEO Group (Georgia), Humansoft (Kuwait), IDH (Egypt), KCB (Kenya) and MHP (Ukraine). For KCB they like the growth profile of corporate and salaried customers from which the bank will grow market its share even if the banking law remains the same.

The Citi forecasts also looked at the Kenyan currency (shilling) which has remained stable relative to other African currencies and how it will continue to do so even with the country’s balance of payments deficits and heightened politics. But they found that one problem with making Kenya predictions is that a significant portion of inflows that offset the current account deficit is classified as other flows, and their timing is not predictable. They assume that the inflows are from the East and Central Africa region that sees Kenya as a safe haven, despite the politics of the second half of 2017. Another finding was that devaluation of currencies have a bigger impact on food inflation in sub-Saharan Africa but Kenya which had drought and food security issues in 2017 is able to draw on food production from its neighbors (Ethiopia, Tanzania, Uganda) that keeps food inflation in check even though the food trade data is not captured in official statistics.

World Bank: Meanwhile the World Bank is taking heat after one of their economists admitted that the WB “Doing Business” rankings for Chile had been manipulated for political reasons. The Doing Business reports are cited by leaders of several countries such as Kenya, Rwanda, India as indicators of their good performance in office, But this one admission of political interference could trigger fall out as to the credibility of other reports, country economic forecasts, growth statistics, inflation measures and discussions with governments that the World Bank does.

The Oxford Business Group: The Oxford forecasts reviewed the year Kenya in 2017 in which growth was expected to be about 5% (down from an initial forecast of 5.8% for 2017), but still above the sub-Saharan Africa average of 2.7%. It noted the mixed agriculture performance was due to the drought that affected maize, sugar, tea. Also that Kenya’s Supreme Court decision to nullify the presidential election set a good path for the country in 2018 despite the added cost of staging two elections in 2017 affecting the government’s ability to meet budgetary targets and which later resulted in Moody’s considering a downgrade of Kenya’s debt rating.

Brookings: The Brookings forecasts are contained in Foresight Africa, an Africa-focused report  that celebrates Africa’s growth and highlights priorities for the continent. For Kenya, it contains a sum up of the ability of the country to leverage technology and innovation for things like revenue collection and uptake of products and mobile bonds (M-Akiba), M-Tiba, and IFMIS. It mentions that Kenya can balance the impact of special economic zones and infrastructure from China against politics and that the successful launch of the SGR in May 2017 could one day serve Uganda Rwanda, Burundi and even Tanzania South Sudan and Ethiopia. It has special sections on the 2017 Kenya election and the M-Akiba bond (“The KSh 150.04 million (approximately $1.5 million) uptake of the M-Akiba bond was mainly dominated by small investors who invested less than KSh 10,000 (approximately $100)”)

Barclays Kenya Previews IFRS9

Barclays Kenya held a workshop session in Nairobi today to explain about the coming of IFRS9, a set of new accounting standards that will replace IAS 39 on January 1, 2018. which will have a great impact on banks, their capital, customer assessment and ultimately their profits.

Some of the highlights of the day:

Compliance Impact

  • Even as banks are still digesting the impact of interest rate caps, along comes IFRS9.
  • All institutions will adopt the impairment standard in 2018.
  • One challenge will be on how to report for impairment: Banks will have to do three sets of accounts, one for impairment according to Central Bank of Kenya (CBK) rules, one for the Kenya Revenue Authority to calculate taxes on profit after impairment, and another for Impairment according to IFRS9. This makes compliance a costly affair.
  • IFRS9 is data intensive, so auditors will be concerned with the quality of data and reconciling it to bank financial statements. They will have to trust that management is providing the right data to make decisions, and if not, they will engage with the bank board, then the bank regulator (CBK).
  • Banks need systems that are able to capture a lot of this customer data and products and come up with impairment models.
  • Banks will use predictive analytics, and big data to manage risk in customer lending.  

Customers

  • IFRS9 brings cross-product default, and if a customer defaults on one loan item like a credit card, a bank has to provide for impairment across all products advanced to them
  • Expect a change from the current practice of using credit reference more from the negative  perspective (a blacklist of borrowers) to a good one (banks will check to see who has been paying on time and offer them better rates)
  • Collection strategies will become very important, given the financial impact of IFRS9 for defaults over 30 days and 90 days.
  • Kenyan bankers are working to enable customers to get access to their own data and shop for products that will be easy to compare across different banks. This will be an enhancement of the loan calculator that the bankers association rolled out earlier.
  • IFRS9 seems to give an incentive for banks to lend shorter duration loans. 

    IFRS9 gives incentive to shorter loans

Profits

  • With IFRS9 banks estimate the credit risk of an instrument, at the point of origination – so losses are recognized earlier.
  • Previously, under IAS 39. banks only recognized a loss once an event occurred e.g customer does not pay a loan for many months. Now banks will have to expect and estimate some defaults and recognize the loss upfront.
  • Under IFRS9, accounting provisions are expected to be higher than the current regulatory provisions.

Financial Statement Changes

  • From day one of IFRS9, there will be an impact on retained earnings and a reduction in Tier 1 capital at all banks
  • Under IFRS9, letter of credit, financial guarantees, performance guarantees, unused credit cards, non-traded government bonds will also be used to calculate impairment.
  • Studies show that IFRS9 running concurrently with IAS 39 can impact on the capital of a bank by between 25 to 100 basis points.
  • Are government securities still risk-free for local traders and investors? Not so under IFRS9. But since Kenya has never defaulted on debt so IFRS9, provisioning will be minimal compared to bonds of some other nations

Way Forward

  • On 1 Jan 2018, international accounting standard IFRS9 will replace IAS 39.
  • Kenyans banks are at a fairly satisfactory stage in terms of getting ready for IFRS9 with Tier I banks, and those with global parentage at an advanced stage compared to local indigenous banks e.g. Barclays has been working on IFRS9 for two years
  • ICPAK (Institute of Certified Public Accountants of Kenya) is working on. rules for the consistent and uniform application of the IFRS9 standard and these will be ready by the end of October.
  • ICPAK will have other forums to further explain IFRS9 as will the Central Bank. 
  • CBK will come up with new classification of loans to replace the current measures of normal, watch, sub-standard, loss etc..

NewGold ETF Debuts at the Nairobi Securities Exchange

March 27 saw the listing of 400,000 gold bullion debentures, via NewGold, an exchanged traded fund (ETF)  at the Nairobi Securities Exchange. NewGold is represented by Barclays Financial in Kenya. It is incorporated in South Africa and is also listed on stock exchanges in Botswana, Nigeria, Mauritius, Namibia and Ghana. The listing will be equal to these previously issues ones.The NewGold ETF tracks the value of gold bullion and will be the Kenya shilling equivalent of the international market price of gold. Selling of NewGold will not attract capital gains in Kenya. Also in March 2008 NewGold got approval in South Africa for being shariah compliant with Islamic principle of ethical investing “NewGold and NewPlat ETFs open the way for Muslim investors to gain exposure to precious metals – gold and platinum – through investing in a listed ETF.”

NewGold listed at the Johannesburg Stock Exchange in 2004 and “since launch NewGold has grown rapidly, attracting over R21 billion investment, due to its healthy returns. It is the largest ETF listed on the JSE”

Notes from NewGold

  • JSE Code GLD: GLD are designed to track the spot gold price less management fees
  • ISIN ZAE000060067
  • Gold Entitlement Approximately 1/100th one fine troy ounce of gold.
  • The Underlying Assets: Allocated Gold – all gold is kept in the form of 400 oz London Good Delivery Bars. The gold is kept in an allocated form, and as such does not carry third party credit risk
  • Absa is the originator, Barclays is the sponsoring broker, and Mboya Wangongu advocates are the legal advisors.

Barclays Exiting Africa: Part II

Almost a year after Barclays Africa announced a decision by (parent) Barclays PLC to exit Africa, they released their Barclays 2016 results (PDF). While the world is now a different one after BREXIT and President Donald Trump, the exit plans are still on course.

Excerpts of the some statements released on Thursday 

  • Revenue from (the rest of) Africa) has been growing at about 16% a year, compared to 5% in South Africa, but, the rest of Africa (excluding SA) is still just 23% of revenue for Barclays Africa. They expect that rest of Africa growth should exceed South Africa’s
  • They have agreed with Barclays PLC on terms of the “separation payments and transitional services  – Barclays PLC will contribute £765m, comprising of £515m in recognition of the investment required in technology, rebranding and other separation projects, £55 million to cover separation related expenses, £195 million to terminate the existing service level agreement relating to the rest of Africa operations”.
  • Barclays PLC will contribute an amount equivalent to 1.5% of Barclays Africa market capitalization towards a black economic empowerment (BEEP) scheme and Barclays plans to create an equity plan for employees in the next 12 to 18 months.
  • They will continue to use the ‘Barclays’ brand in the rest of Africa for three years from the date on which Barclays PLC reduces its shareholding in BAGL to below 50%.
  • During 2016, Barclays PLC reduced its shareholding from 62.3% to 50.1%. Other shareholders include Public Investment Corporation (SA) 6.86%, Old Mutual Asset Managers 3.31%, Allan Gray Investment Council 2.16%, Prudential Portfolio Managers 2.01%, Schroders Plc 1.93%, BlackRock 1.69%, Vanguard Group 1.66%,  Dimensional Fund Advisors 1.65%, and Sanlam Investment Management (SA) 1.62%.

June 1 2017 update

  • Barclays Africa Group Limited today announced that following the completion of South Africa’s largest bookbuild in South African Rands, Barclays PLC has sold 33.7% of Barclays Africa’s issued share capital at a price of R132 per share.
  • This results in accounting deconsolidation of Barclays Africa from Barclays PLC.
  • Barclays PLC sold 285,691,979 Barclays Africa ordinary shares at a price of R132 per share, which results in Barclays PLC reducing its shareholding to 23.4%, with a further 7% to be taken up by the Public Investment Corporation at a later date, following receipt of the necessary regulatory approvals.
  • The significance of this sell-down is that Barclays PLC is no longer the controlling shareholder of Barclays Africa, which now has a diverse shareholder portfolio made up of very supportive, long-term, institutional and individual investors.
  • Ownership of Barclays and Absa operations in Africa does not change as a result of the reduction in shareholding. The 11 banks that form part of Barclays Africa will continue to be led and operated by people with deep local knowledge and a diversity of skills and experience.
    £1 is $1.25, £1 = KES 128.5, and  £1 = 16.1 ZAR.

Barclays Kenya 2016 Financial Results

Today, Barclays became the first Kenyan bank to release its financial results for the year 2016, which was a tumultuous year for the Kenya banking sector.

New bank chairman Charles Muchene said the year saw challenges with new business models, interest rate caps and the announcement of the parent sale. He also praised his predecessor, F. Okello.

Thereafter CEO Jeremy Awori said that while Kenya’s economy looked stable with an enviable economic growth rate, a stable currency and moderate inflation, the dip in shares at the Nairobi Securities Exchange and profit warnings issued by various companies showed some the struggles that companies, including their customers, were going through. He added that challenges at some banks had resulted in increased regulatory scrutiny and audits on systems, anti-money-laundering, and insider lending all other banks, and Barclays had passed. Also, that  2018 will bring new rules on impairment (bad loans) and capital requirements.

They had the investment in technology by going paperless and customer focused channels including intelligent ATM’s that allow 24-hour cash deposits, as well as enhancing internet and mobile banking. They have also invested in alternative channels and were the first international bank to embrace agent banking in a deal they signed with Posta Kenya under which they would have post offices in far-off places (like Wajir) act as customer interaction points for the bank.

Bank branches handled 43% of transactions in 2016, which was down from 59% as other channels recorded increases with ATM;’s handling 34%, digital 14%, and POS 9%

Summing up the financial results for the year, Barclays assets grew by 8% to Kshs 260 billion, deposits went up 8% to Kshs 178 billion while loans went up 16% to Kshs 169 billion. Interestingly 68% of bank deposits don’t earn interest (they are in transactional accounts). Also, the loans increases were mostly in the first half of the year while those after the interest rate cap law (passed in September 2016)  were mostly existing customers topping up their loans.

Income went up 8% to Kshs 31.7 billion as expenses also went up 8% to Kshs 16.9 billion. But there was a huge jump in provision got bad loans, which more than doubled, to Kshs 3.9 billion and this resulted in pre-tax profit dipping from Kshs 12 billion to Kshs 10.8 billion. 90% of the impairments were from retail/ personal lending.

The dividend for the year will be Kshs 1 per share – comprising an interim dividend of 0.2 per share and a final dividend od 0.8 per share – unchanged from 2015. The payout will be a total of Kshs 5.43 billion (~$54 million)

Going forward, digital and automation will be key drivers to give customers better and efficient experiences. Barclays also plans launch new mobile banking products soon, and to become a financial technology partner to their customers, not just a bank.