Botswana Stock Exchange quoted lender, First National Bank Botswana (FNBB), is expecting bumper profit for its full year financial results, signalling that the bank may be well on its way to recovery.
In a trading statement released this week, the Steven Bogatsu led bank announced to its shareholders that the company’s profit for the financial year ended 30 June will be higher than that reported in the previous year. This means FNBB is looking at profit after tax in the north of P500.5 million that was realized in the previous financial year.
The bank’s profit momentum was set in its half year results released earlier this year as the bank’s profit after tax soared 9 percent to P346.4 million. The growth was spurred by reduced impairments and two digit growth in non-interest income. As of then, the bank was sitting pretty at P23.8 billion worth of assets, with a P15 billion loan book and P18.8 billion in deposits. An analysis of the bank’s financial statements shows that the bank’s second half results usually outpaces the first half of the financial year.
FNBB, the biggest company by market capitalisation on the Botswana Stock Exchange, has taken knocks from a challenging operating environment marked by lower interest rates, stagnated incomes, rising unemployment rate, and tough competition from other banks. The bank last hit an all time high profit after tax in 2014, recording a dizzying P719.6 million in profit, and then the downward pressures on profit started showing in subsequent years.
The first blow was delivered by Bank of Botswana in 2013 when it declared a moratorium on bank charges and fees, fed up with banks that were raking in millions in profits without many benefits to bank clients who complained of declining quality in products and services. With the moratorium in place, FNBB’s profit grew by a paltry 2.6 percent in 2014, a stark contrast to the 23.2 percent jump in the previous year. Further complicating the matter for commercial banks was the accommodative monetary policy the central bank engaged on after years of higher interest rates, now switching gears by lowering the rates. From the highs of 15 percent in 2009, the central bank started lowering rates with steep cuts. By 2017 the Bank of Botswana had an all time low rate of 5 percent.
This was a bitter pill to swallow for commercial banks, as profits declined every year. In 2015, FNBB’s profit was down by 17.8 percent, followed by another 14.8 percent plunge in 2016, while 2017 profit narrowed 0.6 percent. Now with the announcement that the bank’s profit for 2018 will be higher than the previous year, insiders are expecting FNBB to start showing positive momentum as profits climb, thanks in part to the removal of the moratorium on bank charges in 2016. Following the removal, FNBB was one of the first banks to rush to the central bank to have its upward charges adjusted, and this was approved.
As a mass market banker, FNBB’s retail segment is the backbone of the bank, ensuring that the bank receives substantial non-interest income from its huge transactions volume and its diversified distribution channels, to mitigate the under pressure interest income. Yet the same insiders warn that it will be long before the bank can think about ever topping its historic profit after tax in 2014. Still, FNBB remains the top bank in the country in terms of profit and asset base, while also leading on the BSE as the most valuable company.