Seen as the top challenger for Botswana’s biggest bank, ABSA Bank Botswana, is seeing red, with the bank warning shareholders that profit will fall on the back of increases in credit impairments.
The second largest commercial bank on Thursday warned that consolidated year end results for the year ended 31 December 2020 will be substantially lower than the results reported for the year ended 31 December 2019. Profit before tax is expected to be lower by between 40 – 50 percent (approximately P271 million to BWP339 million) than that reported for the year ended 31 December 2019, which amounted to P678 million.
“The outbreak of Covid-19 has had a significant impact on the economy and business community across different industries at large. The impact has been significant on the Company’s credit impairment provisions line given the size of the business as well the strategies deployed to support the Company’s customers during this difficult time, through extension of payment holidays and other relief programs. This increase in credit impairments provisions has materially impacted the company’s profit before tax in comparison to prior year results,” the bank said in a cautionary notice to shareholders.
The expected fall in profit will not shock market observes following last year’s tough operating environment, which led to a 70 percent drop in half year profit. For the six months ended 30 June 2020, ABSA reported profit after tax amounting to P90, which was a fall from 2019’s half year profit of P298.7 million.
The decline in profitability is a new territory for ABSA Botswana, formerly Barclays Bank Botswana, which has been resilient over the years when local commercial banks’ profitability was under pressure following the Bank of Botswana’s moratorium on bank charges which was implemented between 2014 and 2016, banning banks from raising bank fees during the period.
The top two bank showed strength in that period, delivering pleasing set of results that propelled it to the second biggest bank in the country after surpassing Standard Chartered Bank Botswana, which for a long time was the second contender to the throne after First National Bank Botswana (FNBB), which remains the leader.
Still, FNBB is feeling the Covid blues, losing a quarter of its profit also due to increase in credit impairments. According to the bank’s financials that cover the six months period to December 2020, income from operations fell by 14 percent to P1 billion following a 15 percent reduction in interest income to P713 million, a 4 percent drop in non-interest income to P638.9 million, and a 16 percent increase in loan impairments to P199 million dragged the bank’s performance.
Though operating expenses reduced by 8 percent to P298.3 million and employee benefits were down by 3 percent to P292.8 million, FNBB’s profit before tax tumbled by 23 percent to P419 million.
On the green side, Standard Chartered Bank, seems to be clawing its way up. The bank also known as Stanchart, announced to shareholders that the consolidated profit before tax for the year ended 31st December 2020 will approximately be between 42 percent to 47 percent (P29.2 million to P32.5 million) higher than the P69.6 million reported for the year ended 31st December 2019.
The Covid-19 defying performance was set in motion last year when Stanchart pressed ahead with stellar performance despite the disruptions brought by interventions aimed at containing the spread of the virus.
In September 2020, the bank reported that the financials for the six months ended 30 June 2020 defied expectations. The operating income was up by 14 percent to P384.2 million, and though expenses rose slightly by 5 percent to P308.4 million, Stanchart delivered a strong profit after tax, up from 2019’s P27 million to P90 million.
Stanchart, which has been operating in Botswana since 1897 fell from the list of the top three most profitable banks in the country in 2017 when it posted a P232 million loss, hit by massive credit impairments from the closure of the BCL mines – one of the bank’s top clients. The steep loss was in contrast to the P79.7 million profit made in 2016, which of course was also a sign of the bank’s declining bottom line performance – falling from the highs of P319.2 million made in 2014, before plunging to P47.4 million in 2015.