Reaction: Barclays reports Q3 profits of £2bn but seen as facing further challenges

Banking giant Barclays has overtaken market expectations and reported pre-tax profits of £2 billion for the third quarter – with one analyst branding the figures “strong” but stressing that challenges lie ahead.

The lender said the latest profit figure marks a 6 per cent year-on-year increase, and beat the consensus of £1.8bn. The uplift has largely been a result of a fixed income boom, which surged by 63 per cent to £4.7bn for its international division, as its clients upped trading during the recent period of market volatility.

Nevertheless, the group set aside £381 million in credit impairment charges, more than triple the £120m it reported a year ago, acknowledging that customers in the UK are more vulnerable to high inflation and rising interest rates.

However, it assured investors that "delinquencies remain below historical levels", meaning that it has not reported a notable increase in people falling behind on loan repayments despite the worsening cost-of-living crisis. It also revealed that expected credit losses (ECL) – the amount that banks must set aside in reserves against losses – had only been slightly raised. Its total ECL for home loans is £347m, up just 2.4 per cent, and rising to £432m based on its worst-case scenario.

Anna Cross, Barclays' group finance director, said: "We are not observing any worrying signs of stress in the book across any of our portfolios. Having said that, we are managing our book very prudently. In the context of impairments, we have been cautious and we believe we are well covered and well provided. Consumers are being quite cautious with their financials so they are remortgaging quickly, they are paying their credit cards off at high levels compared to historic norms, and we are seeing customers seeking more attractive savings rates. At this stage we see no change in behaviour and no increase in stress across any portfolio."

Furthermore, Barclays said its income from personal banking in the UK surged 14 per cent to £3.3bn, while it net interest margin – a key measure for banks of the returns they make on loans – grew to 3 per cent, up from 2.5 per cent a year earlier.

The lender also reported that the ongoing repercussions of a US paperwork blunder took a £37m bite out of its latest profits, while it has just been hit with a £50m fine from the UK’s financial watchdog over failures to disclose arrangements with Qatari investors.

Group chief executive CS Venkatakrishnan said: "We delivered another quarter of strong returns, and achieved income growth in each of our three businesses, with a 17 per cent increase in group income to £6.4bn.”

The banking giant has overtaken market expectations with pre-tax profits of £2 billion for the third quarter, a 6 per cent year-on-year jump. Picture: Oli Scarff/Getty Images.

John Moore, senior investment manager at RBC Brewin Dolphin, said Barclays has delivered a “strong” set of results. “But there is a caution to [the] statement and little in the way of news in terms of returns for shareholders – perhaps in response to the recently mooted prospect of a windfall tax on banks,” he added.

“Looking ahead, the uncertain economic backdrop will likely put a brake on some of Barclays markets, particularly at its credit cards and investment banking divisions... Despite previous errors still plaguing its results, Barclays remains the best positioned of the major UK banks with a more diversified income stream – but there are still challenges ahead.”