David Hodnett is the Deputy Chief Executive Officer and Financial Director of Barclays Africa.
He was appointed as Deputy Chief Executive Officer of the bank in December 2013.
David Hodnett joined the Group in 2008, as the Chief Risk Officer and became the Group’s Financial Director on 1 March 2010.
In this interview with Citi Business News, David Hodnett, clears the air about Barclays Bank PLC’s exit from Africa, Barclays Africa’s operations, its business operations in Ghana as well as the bank’s expectations for 2016 and beyond.
Citi Business News: There were a lot of speculations around Barclays PLC’s operations in Africa at the time that it announced it wanted to exit Africa.
Some were saying the move was because Barclays Africa wasn’t doing well, others were saying it was due to UK regulations among others.
Can you set the record straight on exactly why PLC wants to exit Africa?
David Hodnett: I think it is a couple of key points. The first key point for me is a lot of people don’t necessarily understand the importance of the creation of Barclays Africa group limited.
Because prior to that, in 2013, each of the countries, individually is owned by the Barclays PLC, but in 2013 when we brought all operations of Africa together, what we did is, we created one legal entity listed on the stock exchange in South Africa.
So all of the decisions on Africa specifically are now in control of Barclays Africa group limited.
So the only thing we are talking about, is, does Barclays want to keep their 62% stake in Barclays Africa group limited?.
All these stories that we might hear about, i.e. are individual countries for sale, can we split up the rest of Africa?, whatever it might be, we categorically are saying that just can’t even be discussed. Barclays Africa group limited we are in control of that decision, so I think it’s been very clear.
Ghana is not for sale and it won’t be for sale in our structures.
I think that is very important because it has allowed us to control all of the decisions around Africa around it which prior to 2013, we might have headed a different outcome so I think that’s a really good news story around it.
You know once you understand that key point, the reason PLC needs to pull out or sell is they have also made it clear is due to their specific issues that they have around regulations.
Barclays has to pay a bank levy and because we have got such a large balance sheet because we are a big bank, that bank levy is around £52million.
So PLC has to pay £52million before you start earning anything from the African operations and we in Africa don’t pay that because we are not based in the U.K, so we don’t have to pay that of our income statement that is carried by Barclays.
If you look at Barclays Africa, in fact we had a very good 2015 financial year.
We had one of our best financial years ever.
Our return on equity at 17% was the highest since 2008.
So we set in as one of the most profitable entities in Africa from a banking point of view and one of the largest banks in Africa.
So if you go across the African continent, we are the number three bank in Ghana, we are the number two bank in Botswana, we are the number three bank in Zambia, we are the number four bank in Kenya, we are the number three bank in South Africa and the biggest retail bank in South Africa.
Citi Business News: Clarify what Barclays Africa’s strategy will be especially Barclays Ghana, when Barclays PLC’s pulls out ?
David Hodnett: Ghana is not up for sales it’s going to be here. The operations are going to be here. It’s going to be a part of Barclays Africa group limited.
Our strategies are not changing so customers on the ground should see no change in our strategy.
If we look in the last two years, and hopefully from the consumer point of view, the consumers are the individuals or customers.
They are launching investment which is now coming to Ghana.
We are carrying on investing and that is going to continue. I think clearly the brand we understand is an emotional brand.
It’s very strong across Africa. We will be celebrating a hundred years in Kenya this year, its ninety nine years in Ghana so it will be a hundred next year so it’s a local brand.
We understand it. I think what we can say at this point is in time is we understand it. We have contractual protection in place so nothing is going to change in the short term.
But clearly depending on what the regulators in the UK require from Barclays around regulatory deconsolidation what that means, what their requirements are, we have to look at the impact of the brand.
I think no change immediately for customers.
Strategy, we have to understand that we have to sit down with PLC now and the regulators and understand what the announcement really means and what the requirements of those regulators are.
Citi Business News: What impact will PLC’s pull-out have on your operations here in Africa?
David Hodnett: So we think largely, limited around it, so big portions of our business are completely not impacted so, our bank assurance business which runs across the continent virtually is zero impact.
We did an acquisition in Kenya, we looking at Ghana now, to roll out our internal bank assurance operations.
Our retail and business banking operations, very limited impact so as individuals, if you look at the kind of branches and technology rallying now with ATM’s, in our view it’s probably going to be better.
There is some detail around your card, might be called Barclay card, so once again it speaks back to the brand but all that technology sits here. In our CIB space they are all areas that are business impacted.
A good example is multinational corporates. We had a clear advantage because of our international parents when big corporates like Tullow oil might have come to Ghana, they will naturally come to us the bank.
I think our strong belief though is Barclays still needs a partner in Africa. Their customers are still going to operate in Africa.
It will make perfect sense for us that our partnership with Barclays PLC continues in some session going forward because we have been their partner for so many years already so I think we believe a lot of that is solvable.
Citi Business News: It’s been just two months since the announcement but a lot of people are curious about how far negotiations are going on getting a new partner to come on board or to take up that 62%. Can you tell us how far that has gone?
David Hodnett: We have said that, clearly the regulators around it are playing important roles in that decision making as well. Why because we are systemic in every market. So the Ghanaian regulator is very concerned about who it’s going to be, what its impact is as much as the South African regulators so the regulator will have a say.
There are a lot of interested parties around it but we have to go through that detail.
Is that interest real? Is there funding behind it? etc, and we have quite a strong criteria for it.
We are looking for long term shareholders that want to be in Africa and understand the African growth story.
Citi Business News: A lot of names have come up from various quarters, as the likely investor, we have heard China’s ICBC, France’s Societe General, we even heard Bob Diamond for Atlas Mara and all that, what kind of investor would you like to see, that would continue to push the agenda that you have set in Africa?
David Hodnett: So when there is speculation, it is easy in terms of names that have come up. But I said no individual operations up for the sale. So that anything that is up for sale is the shares in Barclays Africa group limited.
So there is no way I can get Ghana, or I can buy Kenya or I can buy South Africa, that is not going to happen, that is categorical.
And then if you look at the size of the transactions, at any point in time, this stake is probably worth 60 to 70 billion Rand.
So it’s a significant stake and the kind of shareholder that I indicated earlier we looking for is someone who has long term interest in Africa and has the, money to do it. Regulators are not going to allow this operation to be bought by someone who needs to borrow money so they have to look for investors who are able to afford those kinds of purchase.
Citi Business News: Let’s look at your operations here in Ghana. A lot of banks didn’t perform so well in 2015, because we are still facing some amount of economic crises and there was such a huge portfolio of non-performing loans in the books of some banks largely because of the power crisis and other challenges faced by companies. How did Barclays bank perform in Ghana in 2015?
David Hodnett: So I think we had quite a strong year. We were impacted to buying payments like a number of people but overall we had a strong year and we continue to be the number three bank by revenue and I think by bottom line as well, we have a strong RE and importantly we have a strong balance sheet. So if you look at our balance sheet we have got proper capital levels, proper liquidity levels and strong provision levels.
Citi Business News: What do you think accounted for your impressive performance in 2015, while a lot of banks were struggling in the same period?
David Hodnett: When you are the size that you are, you can do the right business. Secondly, I think it’s our competitive advantages. We believe we have got a strong competitive advantage with our branch distributions, our ATM’s, some of our technologies are links into corporate and our ability to bank corporates and end to end. So I think it’s those kinds of areas.
And probably a third component that probably is very important, is, we have a very strong local team.
The way we set ourselves up is, we have an independent local board with very strong local board members who are able to understand the local economy and help management and we have a very strong local management team, who is in control of their own destiny. Because you send them and you will believe. We are not going to run Ghana out of South Africa just as much as we are not going to run Kenya out of South Africa.
Citi Business News: What projections would you want to make for 2016, for your operations in Ghana?
David Hodnett: So we don’t give Ghana, specifically any detailed level, per country but overall from the group, what we have seen from the market, we believe we have seen the growth opportunity, so our budget and how we view things is from a growth point of view despite what people might say about the economy. We understand the economy is going to be tougher but I’ve talked about all the opportunities that we believe we have.
And I think what you should continue to see in Ghana is growth in the areas that we have identified. So our market business will continue to grow, our corporate business will continue to grow, our investment in technology will continue to grow and I think what we have to do is to carefully manage payment and our relationships with customers in this tough economic times.
Citi Business News: A lot of issues keep on coming up with regards to small and medium size enterprises, the Agric business and the poor support from banks. Are there any clear cut opportunities we will soon see Barclays rolling out when it comes to SME’s in Ghana or the Agric business in Ghana?
David Hodnett: I think clearly we have got what we call easy commercial activities that all banks will do. And we believe that in these areas like Agric there are bigger opportunities so that we can take advantage of. But what is important for us is because we are an African bank, we don’t believe that we can succeed in Africa just with the pure corporate mentality. Our slogan is if Africa prosper then we prosper, and if Africa doesn’t prosper, then even if we are fantastic corporate, we are not going to prosper either.
So we say we can’t take responsibility for creating jobs, but we can make sure people are able to transition into jobs and the launch around ready to work on the campus yes will help individuals who have got degrees and education. But part of that is also getting people who want to be entrepreneurs setting up their businesses, generating how to get financing so that’s a free portal we are offering for individuals to go through.
The other two components are financial inclusion and enterprise development.
So that is the key components we think we have to get right as a corporate in other for the continent to succeed and us to succeed.
Citi Business News: Now let’s look at the economy of the country proper.
We recently had a new Governor and we have quite a high monetary policy rate 26% and we all know that t has some amount of influence on how banks come up with their lending rates.
What do you think we should do differently to get the rate down?
David Hodnett: I’m not an expert in the Ghanaian economy, I think speaking to some government officials during this trip, clearly I think the relation and the deal that got Ghana to the IMF, we need to stick to the criteria around it and I think some very brave commitments have been signed up by this country, over a period of time, if it has commitment and often these things, just need a lot of hard work, there is no easy solution to it.
You have got to ensure you don’t have a deficit, you got to ensure that your foreign exchange is at the appropriate level, and all of that is often the hard medicine, I think Ghana is already taking.
You have got to limit employment in government areas and salary wage levels, etc, you know my understanding of it is the Ghanaian government is already doing a lot of the hard work already but these issues just take time.
Citi Business News: Barclays has been in Ghana for about 99 years, would you consider at a point merging with one of the small banks to grow a bigger bank?
David Hodnett: If the opportunity for consolidation comes up I think we are very stable, very strong bank and we always look at those kind of opportunities, but we don’t need it to do deals, we are big enough in our own capacity as Barclays Africa group limited.
Citi Business News: So if an opportunity comes up to buy a small bank you would consider that?
David Hodnett: Yes if it is appropriate to our strategy and adheres to our strategy and can help us deliver in the country why not, but we don’t need it to do deals, we can do all of the deals.
Citi Business News: What is your impressions of the banking industry here in Ghana?
David Hodnett: What I will say to my management team here in Ghana, firstly, I think when you live in the country, sometimes you are blind to the development.
This is my second trip, but I haven’t been here for three years.
It is fantastic to see the development.
You can see it from the three years if you haven’t been here, the amount of significant progress.
So that is for the team, and for me, I am very excited by what Ghana offers and what we have in Ghana specifically.
Our team is very motivated and can see all of the opportunities that is there so I am looking forward to a lot of opportunities from our side in Ghana.