The Botswana Building Society (BBS), the country’s largest home-ownership mortgage lending company, broke records by seeing its bond being over-subscribed more than threefold, thus endorsing the current management of the company.
The P 75 million bond priced at 11.1 percent is aimed at shoring-up the cash strength of the company against its competitors in the market.
“We are satisfied with the current mortgage demand, though there is like a slowÔÇôdown,” Sipho Showa, spokesperson of BBS, said Friday night.
“This not only set a new standard in Botswana, it insured that the bond was heavily over-subscribed. It’s another great deal for a great name in the Botswana market,” advisors to BBS, Absa of South Africa, said.
The mortgage lending bank, which has over 70 percent of the formal mortgage borrowers under its thump, placed 12-year paper on the market that was largely supported by institutional investors.
“We are also impressed with our mortgage loan book,” Showa said Friday night.
Recently, BBS moved down its fixed mortgage by 100 basis points while the flexible went down by 125 basis points.
“We are an indigenous financial institution and our belief is that where possible we should make it possible for Batswana and other clients to borrow at affordable cost,” the society said at the time.
Its statement came at a time when the entire banking sector is engaged in ferocious competition on product designÔÇöespecially towards consumer banking.
Under the new arrangement, BBS will cut variable mortgage interest rates from 16 percent to 14.75 percent variable while fixed rate will be lowered from 15.5 percent to 14.5 percent.
“When we say fixed rate we exactly mean that. Our fixed rates are not in any way linked to the (Bank of Botswana) prime rate,” he added.
The move was applauded by financial analysts who pointed out that BBS’ move shows that the “holidays are over where they can scream any interest rate at the top of their heads” and now they have to compete for money.
“It is very clear that for you to survive (as a bank) you have to offer competitive products and interest rates. Consumers are now, more than ever, not prepared to settle for anything,” an analyst at BBS, Leutwetse Tumelo has said.
“I do not think that they (other banks) would go down as BBS. I think they would look at other products,” he added.
BBS’s latest decision comes at a time when it has reported some outstanding results at the end of the year profits to the end of March 31, which showed profits up 88 percent up to P 58 million while its income ÔÇô cost-ratio was slashed aggressively from P 72 to 45 percent.
“Our profits this year were phenomenal. This can be attributed to the young and educated employees we have recruited. I am confidant that even going forward we will be able to achieve our set targets,” BBS chief executive officer, Pius Molefhe, has said, adding that the situation is being aided by the improved relations between the major shareholdersÔÇöincluding government.
However, the banking institutions said the mortgage demand has slowed down but they are crossing their fingers on the upcoming mining development in the northern parts of the country. Palapye, Francistown and Mahalapye are expected to have a windfall because of the mining activities taking place within their doorsteps. Gaborone is expected to be jerked up by DTC Botswana and Block 10.
“The banks are fighting to get their piece of cake and are providing cheap funding. But we are not afraid of that because we are a brand. Our turn around time is much better, our administration charges are the lowest compared to competition,” Molefhe said.
Molefhe, who took BBS as an ailing bank with profits of less than half a million in 2004, has built its assets to over P 1.3 billion within a period of three years.
“In 2004 we decided that we should take the institution to a higher level and profile. And that included a process of re-engineering, such as rationalization and the introduction of performance management system,” he added.
The transformation saw the bank controlling close to 70 percent of the residential mortgage market as it fought against the monied banking houses such as Barclays and Standard Chartered Bank.