We have made a little more money, so says the banks…...

10 Aug 2018

Despite tougher trading conditions in the domestic market, atleast three market leaders in the banking sector are anticipating higher profits in the incoming “reporting season”.

Already Standard Chartered Botswana and First National Bank Botswana (FNBB), both trading their stocks at the Botswana Stock Exchange (BSE) have notified the market of the possibility of recording significantly higher profits for the half year period that ended June 2018.

The imminent turning of tables comes hardly a few months after tough trading conditions for the banking sector. In 2017, the industry saw a decline in credit growth to 5.6 percent from 6.2 percent in 2016.

The slowdown is attributable to a slowdown in lending to both businesses and households. Fast forward to 2018, there is still an expectation of higher credit growth largely on the back of increased government spending which is also expected to boost business activity in the economy.

HERE IS A QUICK LOOK AT INDUSTRY LEADERS PERFORMANCE

FNBB:  the country’s largest bank for half year 2017 recorded a total advances grew by 4 percent year-on-year, outpacing market credit growth of 2 percent. At the back of this, deposit growth was at 3 percent emanating predominantly from good growth in short term funding over the year with current and call accounts posting growth of 28 percent and 9 percent respectively as well as the improvement in the market liquidity over the period leading to a decline of 27 percent in interest expense. The Bank also continued with efforts to improve and lengthen the tenure of its book, which will see the Bank enjoy benefits under the Basel III framework, which requires enhanced capital and liquidity requirements to ensure long term funding sustainability.

Going into full year 2017, bank posted good results despite a flat loan book. Performance was buoyed by strong non-interest income growth and a reduction in impairments, bringing net income for the interim period 9 percent higher to P346.4 million from P317.8 million in 2016 .

With regard to growing the loan book, FNBB is looking at lending opportunities in tourism, agriculture and mining sectors, as well as public private partnerships.

Stanchart: Prior period reported the balance sheet remained strong with loans and advances to customers increasing by 1 percent. The Bank indicated that operating income remained flat year on year due to continued challenging market conditions.

For its full year, the Bank delivered dismal results for 2017 on the back of a reduction in revenue, a sharp increase in operating expenses, and a huge impairment charge which resulted in the bank posting a loss of P189.3 million from P79.7 million in 2016. Net interest income and net fee and commission income saw slight declines, while similar to its peer Barclays, net trading income reduced significantly on the back of squeezed margins from intense competition. Stanchart will look to drive income growth given its unsustainably high cost to income ratio. The bank is looking to leverage on its international network and will be funding a multinational set to participate in a major electricity infrastructure project in the country. The bank is also looking to lend in the mining space.

The commercial banking segment is expected to break even in the current financial year on the back of driving top line growth and cost rationalization. With regard to retail lending, the group sees opportunities to increase the contribution of mortgages and credit cards to income. Considering the weak housing market and pressures on households, analyst say the bank will look to tread lightly.

Barclays: achieved an overall Profit Before Tax of P249m for the period ended 30 June 2017 and impairments increased marginally by 1 percent in comparison to prior period ended 30 June 2016. This stable performance is attributable to its enhanced collection capability and conservative credit extension.

In its full year, the Bank delivered commendable results on the back of a significant reduction in impairments and efficient cost controls, with net income increasing 11 percent to P432.1 million from P389.2 million in 2016. The bank’s loan book was flat mid-year but closed the year 14 percent higher with most of the growth having occurred in the last quarter of 2017. The expect growth in interest income is however expected to spill over into 2018 by local analysts. On the lending front, Barclays is looking to fund in the mining space as well as major public sector infrastructure development projects. The Bank is currently searching for the Managing Director’s replacement, Reinette Ven der Merwe who will depart before the end of the year.