Sunday, April 5, 2020

Banks’ profits to come under pressure – analysts

Financial analysts warned last week of the jaded banking sector profits as listed banks are set to start releasing their results this week.

“Banks will certainly make profits this year but they would not be as phenominal as last year. The last year results were largely driven by the Bank of Botswana Certificates (BoBCs), an analyst at Capital Securities, Leutwetse Tumelo said Friday.

His comments were supported by a leading banking sector analyst, Kudzani Pickup, of African Alliance Assets Management in his report Priced beyond diamond prospects.”

“We downgrade the Botswana banking sector to underweight based on our dividend discount model (DDM) approach. We expect the Botswana economy to do well and banks to post 21.8 percent earning growth. Bank stocks have, however, rallied over the year growing by 143.1 percent,” he said in his report.

The move comes at a time when ABC Holding is expected to increase its half year results on Friday but analyst were non committal on its credit score but stressed that at last year end it showed that it had turned a corner.

He said the banking sector profits are expected to be dented by a number of factors ÔÇô especially on the treasury division ÔÇö notably government’s decision to change payment for Debswana for royalties, dividends and taxes to be made in US dollars. He said under the arrangement, government will then convert the US dollars as and when it needs to meet its pula liabilities.

“This would be carried by the Bank of Botswana as the government banker. The move will reduce forex trading income for banking sector. We expect commercial banks to lose 25-30 percent of its income on forex trading,” he said in his report.
The move will have a net effect on the inter-bank foreign exchange trading and skew trades in favour of the central bank.

“In our 2006 banking sector report, our view was that the banks would benefit from the changes in Bank of Botswana Certificates (BoBcs) regulation in the short term. This would decline over our forecast period of 5 years. We maintain this view and treat the additional BoBcs-related income as temporary,” he added.

However, they concurred that the only growth point for the banking sector will come from the consumer lending ÔÇô an areas which is already saturated. However, First National Bank of Botswana is expected to do better in that area given its innovation and the understanding of the market.
FNBB has jumped up to the use of IT in a bid to make banking better for its customers. Further, it has become aggressive on the mortgage front and currently is the leader in the country.

However, Barclays is not left far behind, it has relaxed its terms of opening an account and erased some of the loan requirements. As if that was not enough, it has outsourced some of its services, such as loans application, top-ups and the credit card application to one of the biggest Call Centers, Oseg Group, while it concentrates on its core business.

“Going forward, we expect the banks to benefit from the economic boom from the mines in northern Botswana. People working there will be able to apply for loans. That is where the growth in loans and advances is,” analysts said.

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