Rating agency Fitch Ratings has given thumbs up to the blending of Absa and Barclays’ African assets, saying this could improve efficiencies.
It said the restructuring of these operations endorsed Barclays’ obligation to its African strategy and to its majority-owned South African subsidiary‚ Absa.
Africa provided 21 percent of Barclays’ 2011 profit before tax‚ making it the group’s second largest non-UK contributor to profits after the US.
“Moving the operations in eight sub-Saharan countries into Absa should enable the Africa operations to be more cohesive and streamlined‚ benefiting cost and risk management,” Fitch said in a statement.
“The regional offices of Absa and Barclays’ African operations have already been consolidated. This leaves the group better placed to take advantage of the growth opportunities as the region’s economies develop. In the long term the profit contribution from Africa could rise as the group expands its bancassurance strategy and builds on its corporate and retail banking platforms.”
In the short term there would be earnings challenges. Barclays’ African businesses have suffered from high loan impairment charges on South African residential mortgages.
The challenging economic environment had left South African banks exposed to further asset-quality deterioration and weaker revenue streams.
Until the earnings from the rest of Africa made a greater contribution to Absa’s earnings‚ they were unlikely to provide much diversification benefit to Absa or be supportive of a pan-African strategy.
According to Barclays‚ the rest of Africa would have accounted for 15 percent of the group’s pro forma earnings‚ including the losses in Tanzania and Mozambique‚ assuming the transaction was completed on 1 January 2012.