Tax shrinks Barclays Bank’s 2018 profits

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Barclays Bank’s profits after tax slipped slightly to sh68.9b from sh72b in 2017. The bank, however, maintained that it had registered solid growth of 13% on its balance sheet. The bank attributed the slump to the way it currently handles provisioning for loans to borrowers as new rules bite.

“Fundamentally, we had a change in our effective tax rate and that was driven by a change in treatment on how we handle provisions. As a result, we had to make provisions for more tax that we had to pay to the Government,” Michael Segwaya, the chief financial officer, said during a press briefing at the bank’s headquarters in Kampala.

Last year, the new accounting standards, the International Financial Reporting Standard (IFRS), required commercial banks to take a forward-looking approach to determine their provisioning for potential losses. The new rules were partly meant to help financial institutions in making strategic decisions for risk mitigation in the event of actual stressed conditions.

The Bank additionally registered a decline in non-performing loans, falling to sh53b in the year ended December 2018 down from sh106b in 2017. The fall, according to the bank’s published financial results, represents a 0.7 per cent decline attributed to tight credit controls that the bank undertook during the year.

Speaking during the release of the bank’s financial results, Rakesh Jha, Barclays managing director, said: “The ration of our credit loss fell from 2.3 per cent in 2017 to 0.7 per cent in 2018 driven by enhanced credit control and monitoring procedures,” noting that the level of non-performing loans had fallen to 1 per cent, which is below the industry average of 3.4 per cent. The bank, he said, had seen some solid growth on its balance sheet, registering a 13 per cent increase in profit before tax from sh86.8b in 2017 to sh97.8b.

However, the growth, according to Michael Segwaya, the Barclays executive director, was eaten into by the sh17b tax that the bank paid to government in the period but argued the current economic prospects will offer better returns this year.
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