Sunday, January 29, 2023

Botswana’s first indigenous bank limps into the commercial arena

The announcement of the banking licence was made this week, more than a year after BBS made an application for a commercial licence to the regulator Bank of Botswana in August 2021. BBS has been operating as part of the three statutory banks owned by the government. Now with a commercial banking licence, BBS joins the other eight commercial banks in a lucrative sector dominated by multinational brands.

Established in 1976 by the Botswana government with a balance sheet of P4 million, BBS’ core business was to provide mortgage loans. However, in 1986 the bank evolved to offer other financial intermediation services, mostly savings accounts. In preparation to become a commercial bank, BBS started a demutualization process in 2017, moving form a society owned entity to a company limited by shares.

In September 2018, BBS registered 487 million shares on the Botswana Stock Exchange’s Serala Board, designed for emerging companies. The rationale for listing was to raise the profile of BBS as a bank, improve liquidity for shareholders and to accommodate future growth by having access to capital raised in the stock market. BBS shares started trading at P1.20 and have since fallen to 46 thebe a share, a 61.6 percent decline. Due to net income losses that started in 2018, the bank has not been able to pay dividends.

With 46 years in operation, BBS has nine branches across Botswana. The balance sheet currently stands at P3.8 billion, with the main asset being the P3.1 billion mortgage loan book – their core banking product. In the half year results ended June 2022, BBS registered a P19.9 million loss – a little lower than the P25 million loss recorded in the full year ended December 2021, and higher than the P14 million loss in December 2020. BBS accumulated losses over its lifespan currently stand at P126.7 million, and more losses are expected as it transitions into a fully-fledged commercial bank in the next 12 months.

While BBS is expecting losses due to the transformation, it is entering a field dominated by eight multinational banking firms that have been raking in massive profits, with the big four banks accounting for nearly 80 percent of banking assets and profits.

According to Bank of Botswana’s annual banking supervision report, total assets for the eight banks increased from P103.3 billion in 2020 to P108.6 billion in 2021, mainly driven by the growth in loans and advances from P65.6 billion to P68.9 billion in the same period. Customer deposits grew by 4.8 percent from P80.5 billion in 2020 to P84.4 billion in 2021.

Commercial banks’ total income, made up of net interest and non-interest income, increased from P7.1 billion in the preceding year to P7.3 billion in 2021. The increase in total income was due to a 6.2 percent growth in non-interest income from P2.8 billion to P2.9 billion. Non-interest income, which has become a key driver of revenue for banks during a period of low interest rates, rose from 38.8 percent to 40.5 percent as a proportion of total income.

The source of non-interest income was mainly growth in fees and commissions, which gained from the increased transactional volumes driven by the use of digital platforms. Fee and commission income in the 12 months to December 2020 was P1.8 billion or 66 percent of total non-interest income, and it was P2 billion or 70 percent of total non-interest income in the corresponding period in 2021.

Net interest income declined marginally by 1.1 percent from P4.4 billion in 2020 to P4.3 billion in 2021 owing to the low interest-rate environment. The ratio of net interest income to total income declined from 61.2 percent in the 12 months ending December 2020 to 59.5 percent in the similar period of 2021.

Operating expenses constituted 70 percent of commercial banks’ total expenses, while the share of interest expenses was 30 percent. Operating expenses grew marginally from P4.36 billion in the prior year to P4.39 billion in 2021. The largest operating expense item was staff costs, at 46.1 percent, followed by administration and other expenditures, at 36.9 percent, other expenses – audit and consulting fees, and occupancy and depreciation at 9.8 percent, and legal and management fees at 7.2 percent. In the end, the eight banks posted a net after-tax profit of P1.8 billion, up by 25 percent from P1.5 billion profit in 2020.

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