Tuesday, December 5, 2023

BBS: The indigenous bank no one saw coming

It was in March 2012, when reacting to a High Court’s decision, that the BBS managing director Pius Molefe said, “The society’s victory against Bifm capital means that the board and management can now focus on other important matters of the society which include establishing an indigenous commercial bank without destructions”. 

Five years down the line, Molefe and his executive team seem to be on the right path to deliver exactly that ÔÇô the country’s first ever commercial bank. The country currently has ten commercial banks, all originally from outside and atleast two statutory banks being Botswana Savings Bank (BSB), National Development Bank (NDB). 

In 2012, BBS won a legal case in which it had sought to have the agreement it entered into with Bifm Capital when it first became an investor in 2005 declared null and void because it contravened the building societies Act and the Rule of the society.

Delivering the judgement at the time, Judge Lot Moroka agreed with BBS that the Building Societies’ Act and the rules of the Society do not give preferential treatment to a shareholder.
He also said laws do not take away the powers of the BBS board to redeem shares, thus declaring that the clauses in the agreement with Bifm are illegal. In the same breath, Moroka’s judgement brought to an end shareholding of Bifm Capital in BBS. 
In early 2016, although he could not state the exact date at which they expect to have acquired a banking licence, Molefe said: “We expect to have acquired a banking licence in a period not exceeding 18 months from now. At the most, we are optimistic to complete the process of converting into a bank between nine to 12 months”

As of late May 2016, Molefe and his team started consultations with members across the country on the plan to commercialise the society. The process is simply known as Demutualisation in the finance world. Through demutualisation, BBS will convert into a shareholder-owned company allowing the organisation to apply for a commercial banking licence.

In late July 2017, the custodian of shares owned by the government at BBS, also finance and economic development Minister Kenneth Matambo said that he expect the Society to make an application for a commercial banking license b December 2017. 

Matambo, who was at the time, “clueless” on the number of shares that the government hold at BBS told parliament that he can only recall that at some point the government was holding majority of shares of at BBS.
“As for the other members, they are many, including Pension Managers, Asset Managers as well as a number of Batswana may be some of them are present here”, said Matambo

The cluelessness of one shareholder at such a critical time cannot however stop BBS to tick boxes on it’s to do-list. The intention is to complete the process that will see BBS ceasing to operate as a society before the end of year. 
By Thursday this week, atleast 99 percent of BBS shareholders voted in favour of demutualisation. 

Given the outcome of the Thursday AGM and Special General Meeting, it is only a matter of time before Botswana gets its first ever indigenous commercial bank. In less than three years, history will be rewritten that after over fifty years of independence, Botswana has got a home groomed bank. 

BBS first opened its doors in 1976. With a humble beginning, the society advanced only nine new home loans in its first three months of operation. Its assets base was pinned at only P4, 108,000 after three months of business as at 31 March 1977.

These assets consisted of Government stock of P200, 000, advances of P2, 505,000 and cash and investments amounting to P1, 264,800.

The Society says its advances at the time comprised 488 mortgages taken over from the then United Building Society of SA, of which the Society had until then operated as a branch. On the liabilities side, BBS had P2, 644,700 in capital, mostly subscribed to by Government in shares, a statutory reserve of a mere P200, and retained earnings of P1, 900. Savings and fixed deposits accounted for P1, 388,700, with creditors and provisions making up the balance.
During its first ten years of operation, the Society was restricted by law to lend only against the security of immovable urban property. The Building Societies Act was amended in April 1986 to permit lending in rural areas. Since then, the number of mortgages in respect of rural properties has grown to 699, representing 12% of our mortgage book, compared with 4, 825 advances in urban areas, as at 31 March 2012.
This reflects the commitment to contribute to the social and economic upliftment of Batswana, most of whom reside in rural areas of the country. Up until 1986, the Society restricted its lending only to residential properties, as a matter of policy. It was only in 1986 that the Society ventured into commercial lending for the first time, and now has on its books 97 advances on commercial undertakings. These represent 8% of the Society’s mortgage book in terms of value.
The exceptional growth of the Society over the past 36 years can best be measured by the phenomenal increase in its reserves, from only P2,100 in March 1977 to just under P203 million in March 2012. 

In its recent financials, the society reported a 13 percent fall in profit during the year ended March 31, 2017 amid a challenging economic environment characterised by subdued housing market and squeezed household incomes.
In a statement accompanying its financials, the managing director, Molefe explained that the decline in profit was exacerbated by the fact that the business has a very limited product range compared to its competitors.

For the twelve months to March 2017, the society earned a profit of P47.9 million, reflecting a 13 percent decrease from P54.9 million the previous year. 

Time line 

1976 ÔÇô BBS established 

1986 – Building Societies Act amended

2005 ÔÇô Bifm becomes shareholder in BBS 

2012 ÔÇô Court rules in favour of BBS against BIFM 

2016 ÔÇô Demutualisation consultations begins 

2017 ÔÇô Shareholders approve Demutualisation 


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