Among the country’s top three tier banks, Barclays Bank Botswana announced last week that the consolidated profits for the period ended 30 June 2016 will be significantly higher than the corresponding half year period in 2015. This is an overturn of the previous lackluster financial performance that the bank registered for the period ended 31 December 2015. The Bank had cited the tough operating conditions as the cause of its previous uninspiring financial results.
The material change to Barclays’ half year financial performance could be considered a record improvement given the industry’s recent trend of falling profitability. First National Bank Botswana (FNBB) warned earlier in a statement it released that its financial performance for the year ended 30 June 2016 is lower than the corresponding period in 2015. Barclays’ financial performance in that regard shows defiance to the industry trend.
However, the improved financial performance in the first half of this year, may likely not last too long. This is because the retail banking sector has been plunged into further unfavourable economic conditions with the recent bank rate reduction that the Central Bank introduced. Following the change, the Central Bank instructed the retail banks to adjust their interest rates in accordance with the downward adjustment of the bank rate. “Commercial banks must make the necessary interest rate adjustments with immediate effect to reflect this policy decision,” cited the Monetary Policy statement from the Bank of Botswana (BoB).
BoB, as with the preceding adjustments, has done so to stimulate economic activity by way of incentivising investors and the broader business community to borrow as to undertake productive activities. The reduction of the bank rate is intended to lower the cost of borrowing in the market.
In response to this reduction, a local broking firm Motswedi Securities opined that the going will get tougher for banks. “This is another hard pill to swallow for local banks. The cut in the bank rate will reduce banks interest margins further. Since the Bank of Botswana loosed its monetary policy local banks interest income and profitability has been falling. Last year all listed commercial banks released ‘profit warning statements’ due to the decline in profitability,” cites the firm’s analysis.