Barclays Africa hit by bond arrears

Posted by News Express | 1 August 2016 | 3,559 times

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Barclays Africa, whose Absa bank is SA’s second-largest retail home loan provider, has reported a 77% surge in soured home loans. It is the first large bank to put a number on rising mortgage arrears as high interest rates make it increasingly difficult for households to afford their loan repayments.

This trend has been observed since early 2016, according to analysts. “Early in 2016, we did see an increase in mortgage loan arrears levels,” said John Loos, a property strategist at FNB, FirstRand’s retail arm. “This has much to do with a broad slowing in new mortgage-lending growth in recent times, the impact of a slowing economy and rising interest rates.”

Interest rates have risen 200 basis points since the Reserve Bank began its hiking cycle in January 2014.

Standard Bank economists found the hikes placed affordability under pressure, increasing mortgage payments by about R1,000 each month.

“What we have seen is rates have responded appropriately to the economic environment,” Barclays Africa CEO Maria Ramos said on Friday, following the release of Barclays Africa’s interim results.

Barclays Africa is the first bank to report its results for the six months to June, with Nedbank’s on Monday and Standard Bank on August 18.

In an update to shareholders in May, Nedbank said credit losses for the first quarter of 2016 had risen; while Standard said it had seen “some strain in the associated credit environments, resulting in a rise in the group’s credit impairment charges.”

FirstRand reports its annual results, which are not directly comparable, in September.

The 77% surge in Barclays Africa’s home loan impairments led to a 7% drop to R825m in earnings for its home loans unit, contributing to a 46% rise in credit impairments across the wider group.

Ramos said her banking group had seen the credit “cycle start to turn” in March. In April, it issued a warning that its credit loss ratio – the measure of total debt as a percentage of gross loans – had worsened noticeably owing to higher bad debt provisions and impairments.

This ratio came in at 1.29% on Friday, compared with 0.97% previously.

This included loans to banks. For consumer loans, the measure Barclays Africa previously used, the ratio declined further to 1.48% from 1.11%.

“We wanted to align to the rest of the market,” said Ramos. “The practice with other banks was to do that (report credit losses on loans to customers and banks).” She said the impairments were not unanticipated, and the group had moved quickly to make provisions on them.

Kagiso Asset Management investment analyst Meyrick Barker said the R1.7bn increase – with the corporate and investment bank accounting for R1.1bn of this amount – in Barclays Africa’s credit losses was a bit worse than expected.

“Given the current weak economic environment in SA and across the continent, we have been budgeting for a marked increase in credit losses from unsustainably low levels.

“Positively, a large part of the increase in credit losses was due to the bank setting aside portfolio provisions, given the tough economic outlook.” (BusinessDay South Africa)


Source: News Express

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