Friday, July 12, 2024

Banks set to make new record profits amid stubborn inflation

Commercial Banks profits could surge to a record high despite a slowing economy sponsored by strong domestic inflation. Botswana’s consumer inflation averaged 12.1 percent in 2022, almost twice the annual inflation rate in 2021 which averaged 6.7 percent. 

Recent financial statements and cautionary statements from the listed banks shows that some, if not all the big four commercial banks had made the best of the changing environment to have a “very good year” in 2022. 

The statements shows that local banks in 2022 positioned their businesses to benefit from the then rising interest rate market, and their prudent lending policies continued to allow them to report very low loan losses for the period under review. 

As per the already released statements, most banks report a positive growth in net interest income, which is the difference between borrowing and lending costs. 

In 2021, collective net interest income declined marginally by 1.1 percent from P4.4 billion in 2020 to P4.3 billion, owing to the low interest-rate environment. On the other hand, the sector’s operating expenses grew marginally from P4.36 billion in the prior year to P4.39 billion in 2021, resulting in the lenders posting a net after-tax profit of P1.8 billion, 25 percent higher than the profit in 2020. 

Fast forward to 2022, the country’s largest commercial bank, First National Bank Botswana (FNBB) easily delivered bumper profits as high interest rates and banking charges drove up earnings. In the six months ended 31 December 2022, FNBB reported profit after tax of P536 million, up from P450 million in the same period in 2021. The bank’s loan book went up from P14.2 billion to P15.9 billion, while customer deposits also grew from P20.4 billion to P21.6 billion. 

The 19 percent growth in profit after tax was powered by 33 percent increase in interest income, rising from P696 million to P925 million, thanks to the Bank of Botswana’s decision to increase the monetary policy rate by 1.51 percent, driving up the costs of loans. With higher interest rate, FNBB says it also benefitted from the optimization of their investment securities as they increased holdings in treasury bills and bonds. 

FNBB direct competitor, Absa Bank Botswana has disclosed through a cautionary statement that its financial performance for the year ended December 2022 was strong. The Botswana Stock Exchange (BSE) quoted banker expects to make anything between P198 million and P264 million as gains to 2021’s profit before tax of P659 million, translating in gains between 30-40 percent in profitability. ABSA is expected to publish its full financials by the end of March 2023. 

Another banking giant, Stanchart, is expecting profits that are significantly higher for the period under review. The banker, which is also the country’s oldest lender, anticipates a profit before tax for the financial year ended December 2022 to surge by as much as 224 to 234 percent, reflecting a potential gains of between P172 million and P180 million to the 2021 profit that was P77 million. 

At minimum Stanchart, or the ‘green bank’ is looking at pre-tax profit of P249 million and at most, a profit of P257 million. The bank’s full financials are also expected end of this month. 

On the bottom four end, Access Bank is leading the pack and has since notified the markets that its profits will double. The BSE listed bank disclosed to the markets that its profit before tax for the period ended 31st December 2022 is expected to increase by about 230 to 250 percent (P48 million to P52 million) compared to 2021 pre-tax profit of P20.8 million, which means the pre-tax profit for 2022 will likely fall between P68.8 million and P72.8 million. During the first half of 2022, the banker however reported a 36 percent drop in pre-tax profit falling to P44 million from 2021’s interim period of P69 million.  The bank formerly known as BancABC Botswana also said at the time that its profit was reduced by spike in operating costs as they forged ahead with strategic expansion. Access Bank Botswana is currently the fifth largest lender in Botswana and has made it public that part of its expansion strategy is to grow into the top three of the biggest banks in the country. 

Despite subdued performance in 2021, Stanbic Bank, the only un-listed top tier bank also has some good news for its private shareholders. The banker expects a profit gain that will range between P309 million to P337 million, adding to 2021 profit before tax that was P281 million. This means Stanbic at minimum might report profit of P590 million or at maximum, a profit of P618 million for 2022 when it publicly releases the results end of this month.

As per the cautionary statements released recently, the stage is set for the resultant cumulative gains to be reaped by the multinational banks operating in the country.

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