Today I am looking at why I think rising exposure to lucrative African markets bodes well for Barclays’ (LSE: BARC) (NYSE: BCS.US) long-term growth possibilities.
Bless the gains down in Africa
Fellow British banking leviathan HSBC’s mantra may proclaim it to be “The World’s Local Bank“, but Barclays has an equally enviable exposure to lucrative regions spanning the entire globe ready to deliver bountiful returns. And in particular, I believe that the firm’s operations covering 12 countries across Africa provide exciting growth potential.
Barclays’ extensive network spans more than 50 countries in the Europe, the Americas, Asia and Africa, and employs more than 140,000 people. And the bank has said that its Transform restructuring programme will see it focus investment towards Africa, as well as its core UK market and the US.
And Barclays decision to bet big on Africa looks to be a canny decision, even if revenues have stalled in recent months. The value of loans and deposits across its African Retail and Business Banking (Africa RBB) division slipped 8% to £27.6bn in January-June 2013, while customer deposits fell 7% to £18.2bn, although this was mainly down to adverse currency movements. At constant currencies income was similar to the corresponding period in 2012.
Despite signs of stalling revenues, the bank reported that Africa RBB’s pre-tax profit rose 16% in the first six months of the year, to £212m, primarily down to lower provisions on its home loans recovery book in South Africa, and fair value adjustments on its commercial property finance portfolio in 2012.
The bank has taken a number of steps to boost regional business as part of its “One Africa” strategy, which has included integrating its operations across the continent with its Absa business to produce a more streamlined machine. And heavy investment should also help it to broaden its services in leading African markets, such as the introduction of life insurance products in Botswana, Mozambique, Zambia and Ghana in recent months — as well as Islamic banking products in Kenya — in order to underpin future growth.
Barclays’ Africa RBB arm now accounts for around 6% of group profits, still a small slice of the overall pie but up from 4.2% at the mid-point of 2012. On top of this, the continent also plays host to regional outposts for the bank’s Barclaycard, Investment Bank, Corporate Banking, and Wealth and Investment Management divisions. In total, the firm’s operations boast a customer base of well over 14.3 million people, a figure that looks on course to rise sharply.