First National Bank of Botswana (FNBB), the country’s most innovative commercial bank, warned Friday of dark clouds of depressed business mood in the coming six months as the economy would be struggling to come out of the downturn.
“We expect margins to squeeze further and our margins will remain under pressure. Non Interest Revenue will remain under pressure and most of the businessÔÇöincluding growth margins on loans and advancesÔÇöbecause of the current economic conditions,” FNBB Finance Director, Steve Bogatsu said.
Bogatsu was speaking at the company’s presentation of the audited results to the end of December that showed that profit for the period edged down six percent to P 204.9 million as it got a battering from the effects of the global economic downturn.
The figures released by the second biggest listed company showed a jaded economic climate over the last six months which it said will spill-over up to June this year.
“Indications are that the economy is recovering, albeit at a slow pace. The diamond industry has recovered somewhat but remains volatile and extremely uncertain. The non mining sector is also beginning to come under pressure as government spending slows and consumer income takes strain,” the bank said.
The FNBB position was supported by Leutwetse Tumelo, head of Capital Assets Management, on Friday evening who said he thought those who think that 2010 would see full recovery are being over optimistic.
“I think FNBB was exercising caution really. Recovery does not mean that things will grow rapidly to the levels of 2008,” he said, adding that those who are saying 2011 seem to have a better case.
“Maybe, stabilising, yes! And as for recovery (this year) we have to be careful about that,” Tumelo said.
The second half of last year saw the spill-overs of the mining houses retrenchment impacting on the general performance of the company as it got strict on its credit vetting in a bid to avoid an avalanche of default rates.
The move sparked a situation whereby the bank was left with a swathe of cash ÔÇô as the balance-sheet was up 15 percent to around 17 percent above the minimum requirement under the Bank of Botswana regulation even after the declaration of dividend of 4.5 thebe per share.
“This has resulted in impairment losses growing by only 12 percent from the low base. Although the level of retrenchment in the mining sector has reduced, consumers are still experiencing financial strain with diminished income levels,” the bank said.
According to Bogatsu, FNBB impairment level is below the industry average at 0.8 percent against its normal target of 1.5 percent.
“We have had a very good handle of our non performing loans despite the challenges we had under the current economic conditions,” Bogatsu said.
Further, the bank said a number of areas were affected by the economic downturn such as the interest income that slouched down 17 percent and the retail banking. However, the ongoing government infrastructural development supported the corporate division of the bank as contingencies grew 29 percent.
The bank’s treasury department is hoping to benefit from government’s planned issuance of bonds which are aimed at filling up the P 12 billion deficit that was announced during the budget speech on Monday. Government has pledged to borrow locally through the issuance of bonds.