Botswana’s second biggest commercial bank, ABSA Bank Botswana, has warned shareholders of a more than two thirds drop in pre-tax profit, attributing the decline to credit impairments made worse by the strategies implemented to curb the spread of the coronavirus.
ABSA Botswana on Wednesday announced that interim results for the period ended 30 June 2020 will be substantially lower than the results reported for the period ended 30 June 2019. Profit before tax is expected to plunge by as much as 60 to 70 percent, lowering this year’s interim pre-tax profit by as much as P230 million to P270 million from June 2019’s pre-tax profit of P387 million.
“The outbreak of Covid-19 has had a significant impact on the economy and business community across different industries at large. In our business, the impact has been significant on the credit impairment provisions line given the size of our business as well the strategies we deployed to support our customers during this difficult time, through extension of payment holidays and other relief programs. This surge in credit impairments provisions has materially impacted our profit before tax in comparison to prior period results,” the bank said in the cautionary note sent to shareholders.
The massive drop in profit is unusual for ABSA 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. However, Barclays 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.
ABSA Botswana ended 2019 with stellar performance, with financials for the full year ended December 2019, reflecting a strong financial position, boasting of an asset base of P18.8 billion, up by 10.6 percent from 2018. The growth was spearheaded by a 6 percent increase in customers, which improved growth in loans and deposits. The loan book stood at P13.4 billion, a 13 percent growth from the prior year, while customer deposits surged by 21 percent to P14 billion, giving the bank strong liquidity and capital adequacy levels.
ABSA Bank Botswana, formerly Barclays Bank Botswana, saw its net interest income rise by 6 percent to P1.1 billion, while non-net interest income increased by 7 percent to P387.4 million, and in addition to other incomes, the bank’s total income in 2019 was reported as P1.6 billion, up by 7 percent from 2018’s total net income. After an 8 percent spike in expenses, the bank was left with P677 million in pre-tax profit, an impressive growth of 15 percent from 2018’s P587.9 million profit. The bank paid a slightly higher corporate tax in 2019, from 22.7 percent to 23.4 percent, resulting in profit after tax of P520.6 million. Botswana’s corporate tax rate is pegged at 22 percent.