Barclays exceeds profit expectations for the latest quarter but revealed it allocated more than £430million to cover expected loan losses.
In its Quarter Three (Q3) results, the banking giant reported a pre-tax profit of £1.9billion in the three months to September. This figure slightly exceeded analysts’ expectations but fell short of the previous year’s profit of £2billion.
Higher interest rates and weaker house prices prompted the bank to increase its credit impairment charges to £433million for the period, up from £381million last year.
The increase came despite the proportion of people falling behind on loan repayments remaining low, it said.
Barclays’ corporate and investment banking division reported a six percent year-on-year decrease in income due to reduced customer activity caused by market volatility.
The bank’s overall income decreased by two percent, attributed in part to the merger of two divisions. This change offset higher borrowing costs and increased income in the UK.
CS Venkatakrishnan, Barclays’ group chief executive, said the bank was managing credit well and remaining “disciplined” on costs.
“We see further opportunities to enhance returns for shareholders through cost efficiencies and disciplined capital allocation across the group,” he said.
He added that it is set to provide revised financial targets within its full-year financial results.
John Choong, senior equity analyst at investing comparison platform, InvestingReviews.co.uk, commented: “Barclays’ wings continue to get clipped as its latest Q3 results show how much of a negative impact higher rates have had on its business.
“Pre-tax profits of £1.89billion were down from last year’s £1.97billon, but the fact that the Earnings Per Share (EPS) of 8.3p came in better than what several analysts were expecting, at 7.4p, should give investors some conviction that Barclays is holding its own.”
“With corporate lending and global markets seeing encouraging growth again, corporate investment banking (CIB) income may have found a bottom.”
Mr Choong continued: “The division is responsible for almost half of the bank’s profits, so these signs of life could reinvigorate investor sentiment. Additionally, the lender’s cost-savings initiatives helped to boost Barclays’ profits, which was also supported by impairment charges coming in much lower than expected.”
Barclays lowered its UK net interest margin (NIM) guidance for 2023, with the board now expecting a NIM between 3.05 percent and 3.1 percent for the year, down from 3.15 percent.
Net interest margin (NIM) is a measure of the net return on the bank’s interest-earning assets, which include investment securities, loans, and leases.
Mr Choong said: “That said, one of the sour points investors will take away is the downgrade to the UK net interest margin (NIM) outlook.
“As such, headwinds still persist and the Blue Eagle may take a while before it catches up to speed given the uncertain outlook regarding inflation and interest rates.”
