What Barclays’ Africa exit means for Kenya

Anxiety has gripped the Kenyan financial markets as Barclays, the London based parent owner of Barclays Kenya, is set to announce the future of its African operations. The move is expected to affect its Kenya business.

The planned exit has sent shock waves in the local industry with bank CEOs saying the news would be earth-shaking as the Barclays brand in Africa has outlived generations.

“The value of its brand is so huge having cut identities across several generations. This is quite a shocker,” said the CEO of a local bank who did not want to be quoted discussing a rival lender.

If the announcement of the move, which came to the limelight last week, is indeed made today by the new Barclays chief executive Jes Staley, it will be the end of an era in Africa’s banking history. Barclays Kenya is celebrating 100 years of existence. The lender’s parent company has also had well established operations in other parts of the continent for almost a century.

Barclays Africa Group Limited, which includes the South African branch network Absa, is one of the largest banks on the continent. Absa has 45,000 employees and 1,267 branches across 12 countries, including Kenya, Ghana, Tanzania, Mozambique, and Uganda.

Why is Barclays exiting a continent that economic analysts have invariably touted as the next frontier for unprecedented growth?

Financial Times reported that after a review of the African business, the bank’s board led by Mr Staley has decided in principle that it makes strategic sense to get out of the continent.

Mr Staley recently was quoted as saying he recognises Africa as one of Barclays’ few genuine growth areas, but said he believes it is increasingly becoming a costly distraction as the South African rand devalues and the country’s economy slows down.

Extra risks
The bank reportedly also sees extra risks of corruption and misconduct in Africa. Mid last month Barclays Africa Group reluctantly revealed it will close its regional management office based in Nairobi shifting all the support role to its South Africa premises, fuelling rumours about the future of its local unit in Kenya.

Barclays regional management office is slated to be closed in March. The move, the lender had earlier said, is expected to see redeployment of more than 30 staff based here but will not affect Barclays Bank Kenya employees.

Barclays Africa Group, which in 2013 revealed plans to raise its revenues from Africa and make it account for between 20 per cent and 25 per cent of its returns by 2016, said it is has been seeking to streamline its operations on the continent.

“Barclays Africa Group Ltd (BAGL) can confirm that it will close down its regional operations and technology management office in Nairobi, Kenya by 31 March this year. Our Africa operations will continue to be supported by the pan-African regional centre based in South Africa,” a statement from Barclays Africa Group mid last month read.  

The office was established in 2010 to offer Barclays subsidiaries in Africa technical support but it is said to have lost relevance in light of merging of operations with Absa to form Barclays Africa Group.

Analysts told Smart Company that the latest decision by Barclays to quit the African market if finally made today will not be surprising as recent contribution of the African business to the overall group’s profits has been hit by various factors.

“This decision had been widely telegraphed and the reasons behind it appear to be a mixture. First I think global banks are now running scared of ‘Africa reputational risk’ and here too Barclays carried all the risk whilst holding a minority position on the board in SA for example. Secondly, return on equity of 9.8 per cent is significantly below the bank’s target. Thirdly, I believe this is a big vote of no confidence in President Zuma.

The collapsing Rand was making Africa business not worth the candle,” Nairobi based analyst Aly Khan Satchu told Smart Company.

Barclays Bank Kenya Managing Director Jeremy Awori had only Mid February said the lender would ramp up its businesses while redoubling its focus on SMEs, women, youth and innovation to cement is foothold in the local market. He was speaking on February 22 when the lender celebrated 100 years of existence in Kenya.At the time Mr Awori assured its Kenya business would not be affected.

“We take the view that ours is shared growth, when Kenya prospers we prosper. So have no doubt that Barclays’ commitment to Kenya is real and we are therefore here to stay,” said Mr Awori.

Barclays Kenya has in the recent past announced several investment decisions to stay afloat. It has for instance opened a trading arm as margins thin. Dispelling fears of a wind-up from Africa, whose economic engines of oil, copper and iron ore have decelerated, Barclays Africa Group had earlier said it would continue its investment strategy in the continent.

“We remain committed to continue growing our Kenyan business and offering our customers access to cutting-edge financial solutions. We will continue investing in our infrastructure as well as the development of innovative products and systems to improve the way we reach and serve our customers across all African markets in which we operate,” the lender said on January 14.

So what next for Barclays? Tongues are already wagging with some economic experts saying Chinese or Arab-based banks with huge financial might and who have been angling to enter the African market with no success would be the most likely suitors.

In September 2014 Qatar National Bank (QNB) bought a 12.5 per cent stake in Ecobank for about $200 million. The purchase enabled QNB to propel its bid to be the biggest bank in the Middle East and Africa by 2017.It was the Qatari lender’s second African purchase in the past two years.

In March 2013, it bought Societe Generale’s Egyptian business for $2 billion and the bank is also present in Libya, Mauritania, South Sudan, Sudan and Tunisia. On February 1 China largest bank Industrial and Commercial Bank of China Limited (ICBC) acquired 60 per cent of Standard Bank’s London-based business for about $765 million.

Nigerian big banks as well as other indigenous banks would also be interested in Barclays massive banking infrastructure on the continent.

Mr Staley, the man spearheading Barclays’ Africa exit, replaced Mr Antony Jenkins on December 1 last year after the latter was ousted in July having served for three years battling to restore Barclays’ fortunes after the Libor crisis.

After taking over, Mr Staley told employees he would focus on personal, corporate and digital banking, as well as Africa, and Barclaycard. Before joining Barclays, the 58-year-old veteran American investment banker spent more than 30 years at JP Morgan before leaving in 2013 to join the hedge fund BlueMountain.

Nightmare vision
Interestingly after being ousted, Mr Jenkins in a hard-hitting speech in London last November warned of a nightmare vision for the future of big banks.

“The incumbents risk becoming merely capital-providing utilities that operate in a highly regulated, less profitable environment, a situation unlikely to be tolerated by shareholders,” he said.

Mr Jenkins warned that a series of Uber-style disruptions in the industry could shrink headcount at traditional big banks by as much as 50 per cent, while profitability in some areas could collapse by over 60 per cent. This was a hugely gloomy prediction from a man who, until recently, ran one of Britain’s biggest banks.