Barclays Bank’s Adan Mohamed. Analysts cite the bank’s ‘Hello Money’ service as one way of reducing costs instead of laying off workers. le="text-align: left;" trbidi="on">
Thursday, 28 February 2013
Home Business Business Barclays Bank Tanzania worst performer in EA
Barclays Bank’s Adan Mohamed. Analysts cite the bank’s ‘Hello Money’ service as one way of reducing costs instead of laying off workers. le="text-align: left;" trbidi="on">
Data from the research released last week shows earnings from the Tanzanian unit have declined at an annual compounded rate of 43 per cent over the past six years.
During that period, the Kenyan unit has recorded a growth of 11.6 per cent while Uganda’s earnings have surged by 5.5 per cent.
The Tanzania unit’s cost to income ratio — a financial measure that shows a company’s costs in relation to its income — stood at 94 per cent, higher than that of the subsidiaries in Kenya and Uganda, a factor that Citi says has eroded the lender’s value.
Kenya’s cost to income ratio is at 52.5 per cent (above the industry average of 50 per cent) while Uganda’s is at 72 per cent. Ordinarily, this ratio gives investors a clear view of how efficiently a firm is being run — the lower it is, the more profitable the bank will be.
“What makes the high cost to income ratio even more unacceptable, in our view, is that Barclays Tanzania earns 44 per cent of its revenue in the form of non-interest revenues (NIR), which is markedly higher than for most of Barclays’ operations in Africa. We believe Barclays Tanzania needs to cut costs and/or increase lending margins otherwise it has no value,” said the analysts.
NIR is basically income earned from sources other than what banks charge customers for loans — such as deposit and transaction fees and monthly account service charges.
Barclays Bank’s operations in the region have struggled to contain expenses, with the Kenyan subsidiary announcing on February 13 it will cut 200 jobs this year as it tries to bring down costs.
For the Kenyan operation, costs jumped by their largest margin in five years for the 12 months ending December 2012. Operating costs jumped five per cent from Ksh13.8 billion ($157 million) to Ksh14.2 billion ($165 million).
Barclays Bank of Kenya posted a 7.7 per cent increase in profits after tax, riding on higher returns from government securities, which pushed net profits to Ksh8.74 billion ($97.6 million) for the full year 2012 compared with Ksh8.11 billion ($94.3 million) a year earlier.
Laying off workers
Last year, Barclays Tanzania closed down 10 branches, and laid off 100 employees in an attempt to bring down costs.
Analysts at Old Mutual see the “laying off workers approach” as unsustainable in the long run. “They can lay off this year, but what about say next year?” asked Erick Munyowki, a research analyst at Old Mutual, adding that investing in technology would be a more suitable way of bringing down costs.
“For example, on average, a bank incurs Ksh7 ($0.08) for every mobile-based transaction compared with Ksh100 ($1.16) for over the counter transactions. Agency transactions cost less than Ksh30 ($0.34),” said Mr Munyowki.
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