In its annual results to 31 December 2015, the bank said BAGL was currently reporting a 17% return on equity in its local currency results compared with the 8.7% return reported for Africa Banking in the group results.
Subject to regulatory and shareholder approval if and as required, a disposal would allow Barclays to ‘deconsolidate’ it from an accounting and regulatory perspective.
In its results, Barclays Group pointed to proposals from South Africa’s National Treasury and the South African Reserve Bank to adopt a resolution and depositor guarantee scheme in line with principles set by the Financial Stability Board.
BAGL and subsidiary Absa Bank will fall under these rules.
The statement said: “It is not clear what shape these schemes will take, or when the schemes will be adopted, but current proposals for a funded deposit insurance scheme and for operational continuity may result in material increases in operational and financing costs for the BAGL group.”
Clean-up operation
Laith Khalaf, senior analyst at Hargreaves Lansdown, warned a lot of “elbow grease” was required for Barclays’ clean-up operation but praised its efforts to strip out non-core interests that were holding back its profitability.
He said: “Cleaning is very much still in progress at Barclays, as the group seeks to focus its business around its core strengths and mop up the grisly legacy bits that are still weighing the bank down.
“Barclays has decided to jettison its African business, which will free up capital and get rid of an unwanted distraction as the bank continues its clean-up operations. The bank is also cutting the dividend in half for this year and next, and accelerating the run-off of its non-core assets.”
Ring fencing
Elsewhere, new rules under the UK Financial Services (Banking Reform) Act 2013 regarding the ring-fencing of UK, EEA and SME deposit-taking are expected to take hold this year.
The Prudential Regulation Authority is expected to finalise its rules this year, to become binding in January 2019, with an internal reform programme in the pipeline that will see banking costs rise.
Planned changes will include the launch of a new UK banking entity to serve UK retail and small business customers as well as UK wealth and credit card customers.
Barclays Bank is expected to serve the corporate, institutional and investment banking clients as well as international wealth and credit card customers.
The statement said: “Changes resulting from this work will have a material impact in the way the group operates in the future through increased cost and complexity associated with changes required by ring fencing laws and regulations.”
Khalaf added: “The new boss Jes Staley is clearly taking a big broom to Barclays’ operations in a bid to dramtically simplify the group. When the dust has cleared, the bank should have two high quality financial services divisions, and the potential to offer investors a decent dividend, but it’s going to take some elbow grease to get there.”
