Loan losses overshadow Barclays trading surge

Barclays has warned of a grim outlook as banks worldwide set aside billions to cover potential bad loans in the wake of the coronavirus pandemic. (AFP)
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Updated 30 July 2020

Loan losses overshadow Barclays trading surge

  • Barclays has made provisions of £3.7bn for the half-year

LONDON: Barclays set aside a higher than expected £1.6 billion ($2.1 billion) to cover a possible rise in loan losses in the second quarter and warned that a grim outlook and low interest rates would hurt profits into 2021.

The COVID-19 pandemic has forced banks globally to set aside billions to cover bad loans, and the British bank’s consumer business is under pressure from lower interest rates, smaller credit card balances and personal loan repayment holidays.

Barclays booked pre-tax profit for the first half of the year of £1.3 billion, down from £3 billion a year ago as provisions against potential bad debts outweighed improved revenues from its investment bank.

The bank’s shares were down 3.5 percent in early trade.

Barclays’ trading performance was a bright spot as virus-induced market volatility prompted a 60 percent jump in trading revenues in foreign-exchange, rates and credit trading.

Overall, the markets division posted a 49 percent rise in revenue to £2.1 billion, an endorsement of the strategy adopted by CEO Jes Staley, who has championed the investment banking business, contrary to the wishes of activist investor and top shareholder Edward Bramson, who wants to shrink the sector as part of a program to slash costs.

Barclays was expected to report credit impairment charges and loan loss provisions of £1.42 billion for the April-June period, according to an average of analyst forecasts.

That increase takes total provisions to £3.7 billion for the half-year and analysts predict that sum to rise to £5.79 billion for the full year.

Barclays said impairments in the second half of the year were unlikely to reach levels seen in the January-June period.

The bank also said it would see short-term pressure on efforts to keep costs low, as it spends on various pandemic- related initiatives.

Barclays’ capital ratio came in at 14.2 percent, up from 13.1 percent at the end of March as recent regulatory changes boosted its reserves. Barclays flagged the capital boost earlier this month.

However, the bank warned its capital buffer could come under pressure in the second half of the year.


Turkey on brink of recession as economy collapses

Updated 13 August 2020

Turkey on brink of recession as economy collapses

  • Consumer debt has increased by 25 percent to more than $100 billion in the past three months

JEDDAH: President Recep Tayyip Erdogan’s popularity is plunging in lockstep with Turkey’s collapsing economy and the country is on the verge of a potentially devastating recession, financial experts have told Arab News.
The value of the Turkish lira has fallen to 7.30 against the US dollar and the central bank has spent $65 billion to prop up the currency, according to the US investment bank Goldman Sachs.
Consumer debt has increased by 25 percent to more than $100 billion in the past three months as the government moved to help families during the coronavirus pandemic, but the result has been a surge in inflation to 12 percent.
With the falling lira and increased price of imported goods, the living standards of many Turks who earn in lira but have dollar debts have fallen sharply.
The economy is expected to shrink by about 4 percent this year. The official unemployment rate remains at 12.8 percent because layoffs are banned, although many experts say the real figures are far higher.
To complete the perfect storm, tourism revenues and exports have been decimated by the pandemic, and foreign capital has fled amid fears over economic trends and the independence of the central bank.
Wolfango Piccoli, of Teneo Intelligence in London, said logic dictated an increase in interest rates but “this is unlikely to happen.”
Piccoli said central bank officials would strive to avoid an outright rate hike at their monetary policy meeting on Aug. 20. “A mix of controlled devaluation and backdoor policies, such as limiting Turkish lira’s liquidity, remains their preferred approach,” he said.
There is speculation of snap elections, and Erdogan’s view is that higher interest rates cause inflation, despite considerable economic evidence to the contrary.