Renee Bonorchis

Barclays Africa Group is outperforming its South African peers for the first time in three years, after backing out of a chase for market share in unsecured lending helped stem bad loans and boost profit.

The bank is the only stock on the JSE’s six-member banks index to show gains this year, rising 1.5 percent, compared with the gauge’s 7 percent decline. Even so, it is still the cheapest lender, trading at 8.9 times estimated earnings against an average of 11.1 for its three largest competitors, including Standard Bank at 11.6, data show.

Barclays Africa, which trades as Absa in South Africa, “avoided unsecured lending, so it could be seen as a defensive stock as the economy takes a downturn”, Johann Scholtz, the head of research at Afrifocus Securities, said on Tuesday. “Levels of profit should now be ahead or in line with the leaders in its sector. Barclays Africa is undervalued relative to its peer group.”

Loans not backed by assets surged fourfold in the three years through 2012, as lenders including FirstRand and Nedbank joined a rush by African Bank Investments and Capitec Bank to add customers as mortgages stagnated.

One in every two South Africans with credit are behind in payments, according to the National Credit Regulator, amid the slowest economic expansion in five years, faster inflation and unemployment of about 25 percent.

Barclays Africa has declined 14 percent over the past 12 months, compared with a 5.2 percent rally in Nedbank, the Johannesburg-based lender owned by Old Mutual. FirstRand, the country’s second-largest bank, has climbed 3.3 percent over the period.

Absa, which bought eight African operations from its UK parent last year to form Barclays Africa, plans to expand its corporate- and investment-banking businesses across the continent. In South Africa, Absa is stepping up lending after being toppled three years ago as the nation’s largest provider of home loans and losing customers after tightening credit criteria since 2010.

“It’s had anaemic revenue growth out of its core franchise, but amid the negativity people may have missed a trick,” Scholtz said.

“They didn’t have a true sense of the companies it bought from Barclays – some are very profitable.”

Steps to slow lending would pay off, chief executive Maria Ramos said last week, as Barclays Africa predicts more interest rate increases in South Africa after the Reserve Bank unexpectedly lifted its benchmark rate 50 basis points to 5.5 percent last month. Still, only 22 percent of analysts rate the stock a buy, compared with 47 percent for Nedbank, 40 percent for FirstRand and 28 percent at Standard Bank.

“We’ve been buying” Barclays Africa shares, Jean Pierre Verster at 36One Asset Management in Johannesburg, said on Wednesday. “There’s a window of opportunity.” – Bloomberg