What the Barclays exit of Africa really means

Market News

Last week, Financial Times confirmed speculation that Barclays will exit the African market. Barclays Plc owns 62% of Barclays Africa Group Limited following a 2005 merger with South Africa’s ABSA. The bank has had a presence in the African continent for more than 100 years and employs over 45,000 people on the continent according to BBC. Barclays Plc released its earnings report for the period ended 31st December 2015 with the CEO Jes Staley confirming the decision to exit the African business in the next 2–3 years.

The imminent exit has sent panic among Barclays customers with some interpreting the exit as the Bank shutting its operations. The same seems to have reflected on the stock market. Barclays Bank of Kenya was listed on the NSE in 1986 and is 68% owned by Barclays Africa Group limited. As at close of trading, the BBK stock was down 4.26% in intraday trading. The Barclays Plc shares fell 11% earlier in the day leading to halting of their trading. In Kenya, the Bank has taken to social media and mainstream media to reinforce both customer and investor confidence.

Why the Exit?

Barclays Bank Plc operates(d)four core areas of business Barclays Personal & Corporate banking, Investment Banking, Barclaycard and Africa. The bank has been looking for a turnaround, which is why Jes Staley was hired at the bank. The investment banking unit was the worst performing followed by the African business. Investment banking units of most banks had faced a tough year including those of J.P Morgan with others like Credit Suisse exiting the business altogether. From what I have gathered, Barclays had two options, one of exiting investment banking as Credit Suisse has done or offloading the African Business, which seemed like the most probable option to turn the bank around and create shareholder value. The bank believes the investment banking division will become profitable in the long term.

Barclays has also faced stiff competition in the African market. The rise of new players such as Equity Bank in Kenya took a significant share of the Bank’s market. For instance, implementation of key decisions in Kenya was met with bureaucracy having to relay these decisions to Johannesburg then London. The Kenya arm has both Consumer Banking and Corporate Banking segments, which have been under intense pressure from the newer and more aggressive players.

Way Forward?

Over the last couple of years, Barclays has been doing interesting stuff in the African market. The bank has been looking to leverage technology to position itself for the FinTech space. During the GES summit, the bank announced the launch of the Rise Africa challenge seeking the next big thing in finance. The competition rewarded the winner with $10,000 for ideas centered on Blockchain (the technology behind bitcoin). Barclays also announced the launch of an innovation hub in Capetown centered on Fintech. Locally, Barclays Bank of Kenya launched a Mobile point of sale service in Kenya. I am hopeful the bank will maintain the same projects as the runs could be huge for them in the long-term.

So what happens to the bank?

The bank’s 62% stake may be offloaded to one single institution. I can think of several organizations with such financial muscle including Banco Santander and BNP Paribas, which already has a presence in franco-speaking countries. However, the slowdown in the European market may not make sense to acquire these African operations. Chinese banks might also be interested in acquiring the stake seeing as their footprint of the African market has grown.

The other contentious issue is of course branding. The Barclays Bank brand name invokes strength and confidence in consumers. I think the bank will probably negotiate the retention of the Barclays brand in Africa owing to its already established brand recognition despite the exit of the operations altogether. I mean Alcatel has done it with the Alcatel smartphones and they are killing it in the African market.

Overall, the bank is not shutting. Do not fret, do not offload your investment in Barclays or shut your bank account with them. Think of it as your landlord selling his property to someone else. It does not mean he is selling your Television set.

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