April 7 2010: Barclays Bank of Botswana (BBB), the biggest commercial bank in the country, shrugged off its historic write down with a handsome 11 percent profit before tax in a challenging twelve-month period to the end of December 31.
The P 204 million, or 236 percent, impairment was the first biggest since 2007ÔÇöthe year in which the logistics company, Lobtrans, collapsed ÔÇö and was prompted by the low income customer bracket that fiercely felt the impact of the economic down-turn.
“As you know, we went aggressively on the lower end of the market in the past years in an attempt to get them financially included. But as the economy turned down this segment of people were the ones who greatly felt the impact of the recession.
“Ordinarily, these are people who are easy to get retrenched when things go bad. So, we had a situation where customers will turn up at the end of the months and produce a letter stating that he or she has been retrenched,” Managing Director, Thuli Johnson, told Sunday Standard on the sides of the results presentation that was done last year at Gaborone Hotel.
Barclays used its muscle some three years ago to roll-out a number of products that were aimed at improving service delivery and, at the same time, tried to deal with the nagging issue of the financially excluded people.
It brought down the floor of people who qualify to open an account to a minimum level of salary of P 8,00.00 per month and tried to connect them to the modern day financial flexibility of issuing them with credit cards.
On the other hand, the retail segment played a crucial role on the better than expected results that were announced last week Tuesday. The net interest income shot up 30 percent to P 1 billion, largely driven by customer borrowing that went up from P 5.2 billion to P 5.8 billion during the same period under consideration.
According to the financial statement income growth was 17 percent faster to P 1.3 billion against P 1.1 billion like-on-like.
“People started this year (2009) with many challenges given the economic environment,” Finance Director, Wilfred Mpai, said, adding that “this disturbing development affected us”.
“People needed to be more careful about their deposit and big companies used their deposits for cash injection in their businesses,” he said.
The other more affected and very important segments of the bank, such as the corporate and treasury divisions, which went down by negative five percent and negative twenty-five percent, respectively during the worst and the recovery year for the global economy.
The global economy was cushioned by fiscal stimulus plans that were designed and implemented by big economies. The gesture has led to an improved demand of Botswana’s main exportÔÇödiamonds — since the second quarter of last year.
However, Johnson issued a cautionary message saying that 2010 would not be a magical year as many would have thought, adding that “market condition will continue to be difficult” and a number of factors will add pressure on the domestic economy.
He cited the value added tax adjustment that came into effect at the beginning of April that will hit on the consumer pockets for the next twelve months before falling out of calculations. He also said that GDP is expected to grow at a moderate five percent while government is running a huge deficit.
“We expect impairment to remain high during the year (2010),” Johnson said , but stressed the point that the bank will tighten credit scoring measures to ensure that they are lending to “people who can pay us back”.
One of the measures that will come into play will include the inter bank credit weight measureÔÇöthat is geared towards sharing customer information on default rate ÔÇô a role currently played by ITC ÔÇô and added to that it will have all available information on borrower’s existing commitments to all the commercial banks in Botswana.
Sparked by high default rate and notably the Lobtrans debacle the system is expected to give lending financial institutions a fair assessment of borrowers before they are given cash.