Fitch drops Barclays Africa to almost junk

Global credit rating agency Fitch has cut Barclays Africa and Absa to a notch above junk.

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Johannesburg - Global credit rating agency Fitch has cut Barclays Africa and Absa to a notch above junk.

In a statement released on Monday, the rating agency said it had cut Barclays Africa Group and Absa Bank’s foreign currency Long-term Issuer Default Ratings to 'BBB-' from 'BBB' and the local currency Long-term IDRs to 'BBB-' from 'BBB+'.

Read: Barclays' withdrawal 'is bad news for SA'

This is Fitch’s last grade before a downgrade to a level that is no longer considered investment level, which its otherwise termed junk status.

In the statement, the ratings agency says the downgrade follows news that Barclays will sell its African operations and comes despite Barclays Africa saying it is committed to Africa.

Barclays holds a 62.3 percent stake in Barclays Africa.

“The downgrades reflect Fitch's view that there is a lower support propensity from Barclays for [Barclays Africa] and Absa given the parent's intention to sell its controlling stake in [Barclays Africa].”

The ratings agency says, although Barclays may continue to provide support to the local unit, “we consider BAGL and Absa to be of limited strategic importance to Barclays and are unable to fully rely on any potential institutional support from the parent for the subsidiaries' ratings”.

In Africa, where Barclays has operated for almost a century, pretax profit slipped 7.7 percent in the third quarter, compared with increases at the credit-card and personal and corporate-banking divisions. The region reported a return on equity of 9.7 percent in the third quarter, below the bank’s target of at least 11 percent.

The bank had 52.2 billion pounds ($75 billion) of assets, or about 14 percent of its total, in the region at the end of the third quarter and employed 44 700 people in Africa and the Middle East at the end of 2014, according to its annual report.

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