Barclays' Poised to Grow Retail Loan Volume by 5% Annually

By Trefis Team,

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Barclays ( BCS ) has been focusing on achieving greater depth in its businesses, which is why it is going beyond the U.K. retail and commercial banking industries and expanding its operations to emerging markets such as India, China and the Middle East. The London-based global bank competes with other worldwide banking institutions and financial services group like Citigroup ( C ), The Royal Bank of Scotland Group ( RBS ), Bank of America ( BAC ), UBS ( UBS ) and JPMorgan Chase (JPM).

We maintain an $18.30 price estimate for Barclays stock , roughly in-line with the market price.

Our analysis of Barclays shows that the company's consumer banking division contributes to more than a quarter of its total value. The primary source of income for the division is clearly the interest income earned by Barclays on loans given out to customers, which include personal loans, mortgage loans and loans for businesses, among others.

The value of outstanding loans has grown considerably…

The value of retail & commercial banking loans given out by Barclays increased from $303 billion in 2005 to $445 billion in 2007, largely due to the launch of retail banking services in India and UAE. The figure swelled to $499 billion in 2008 because of Barclays' acquisition of Lehman Brothers' U.S. operations. While loans have remained at nearly the same value in GBP terms since then, negative exchange rate movement caused their value to drop to $417 billion by 2010.

… and this will only get bigger

With the UK reeling under economic pressure, entering into emerging markets becomes all the more important for Barclays. The strong retail and commercial banking potential in India, China and the Middle East should drive growth in loan figures in the years to come. The ongoing recovery in the global economy would also aid Barclays' cause.

In the UK, attractive mortgage plans are making a come-back which should improve sentiments in the mortgage market. Also, the UK government announced public sector spending cuts in late 2010, which will help new startups and corporates and spark a direct increase in commercial loans.

All these factors point towards growth in the value of outstanding loans. We estimate that the loan amount could grow by about 5% annually, crossing the $500 billion mark by 2014.

See our full analysis and $18.30 price estimate for Barclays stock

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: BAC , BCS , C , RBS , UBS

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