Thursday, July 2, 2020

Absa Botswana eyes bigger profit

The newly rebranded Absa Bank Botswana has told shareholders to expect higher profit, as the bank rides high from what has been a year of records in Botswana’s banking history. 

This week, the second biggest commercial bank in the country reported that pre-tax profit for the full year ended December 2019 is estimated to be between 10 to 15 percent, which translates to an increase ranging between P58 million and P88 million from 2018’s profit. This projects Absa Botswana pre-tax profit for 2019 to be between P646 million and P676 million. 

The jump in earnings is a cherry on top for the local bank that had to strategically carry out a rebranding exercise in the last three years, which culminated in a move from Barclays to Absa after the London based Barclays PLC reduced its controlling stake in Absa South Africa, trigging a separation process of brands. 

The double-digit growth in profit might be a surprise but all indications have been there that 2019 was a great year for the banking sector. For the financial performance in the first half of June, Absa Botswana impressed the markets with a 49 percent growth in pre-tax profit, recorded at P387.3 million, signalling that the bank will finish the year on a high note. 

The bank revealed that it achieved the impressive growth against a challenging environment. With interest rates at a record low, Absa Botswana managed to increase its interest income, while spending less on interest expense, and combined with tight credit policy that reduced impairments, the bank’s path to increased full year profitability became a certainty. 

Though the bank with a P12.8 billion loan book says the environment has been challenging, data from the central bank suggests that 2019 has been one of the best years for the commercial banks at least since a decade ago. 

The latest financial statistics from Bank of Botswana shows that total deposits held by banks grew by 7.7 percent last year, with deposits amounting to P75.7 billion, the largest amount of deposits ever held by local commercial banks.

The growth in deposits since the beginning of the year has been spurred by businesses which account for 76.4 percent of total deposits compared to 20.3 percent for households.

Another record was also set in the total credit extended by banks, which increased by 7.6 percent in 2019, resulting in total commercial loans valued at P62.7 billion, making it the largest outstanding credit in the history of the country. Households which account for 63.3 percent of total loans continued with their appetite for credit, bolstered by government workers who benefited from increased salaries. 

In the clearest sign that 2019 was another good year, the ten registered commercial banks raked in a cumulative of P1.8 billion in net income, lower than the record breaking P2 billion last year, and the second highest in the local banking history. The commercial banks are returning to accelerated growth that was stalled in 2013 when the central bank imposed a moratorium on bank charges. Since the suspension was lifted in 2016, local banks’ profits have surged.

The country’s biggest bank, First National Bank Botswana (FNBB), was the first send a clear expression of how the lifting of the moratorium on bank charges has spurred its ever growing profits, fuelled by remarkable rise in non-interest income after the bank was the first to start increasing its bank related charges annually. FNBB’s pre-tax profit for the half year ended December 2019 was up by 13 percent to P544 million. The top bank’s full year pre-tax profit for the year ended June 2019 had been P945 million, its largest profit since the bank started operating in Botswana nearly 30 years ago. 

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Sunday Standard June 28 – 4 July

Digital copy of Sunday Standard issue of June 28 - 4 July, 2020.