First National Bank Botswana (FNBB) has acknowledged that it has entered a new banking era in Botswana characterised by heightened competition, increased regulation and a low interest rate environment. The bank said the moratorium on fee rate increases continues to impact on fees and commissions for banks and pile pressure on its non-interest income.
Led by Chief Executive Officer (CEO) Steven Bogatsu, the bank stated in its 2015 annual report that falling interest rates in a low inflation environment have had a negative impact on net interest margins, and credit extension is slowing despite the rate cuts. Bogatsu stated that it incurred increased cost as it aligned the bank’s systems and reporting requirements to comply with new regulations such as the National Credit Act, which will further erode interest margins.
“FNBB expects increased competition from new entrants, particularly non-bank financial service providers, whose offering competes directly with some of our e-channel solutions, and this will challenge our ability to maintain our market share,” he stated.
He also admitted that both businesses and households are under pressure in the prevailing tough economic conditions, increasing impairments and nonperforming loans, and banks are enforcing tighter credit requirements. He is of the view that there has been a rapid shift from a market awash with liquidity to one characterised by liquidity constraints, chiefly due to structural reforms and aggressive lending on the one hand, and slowing deposits on the other. He added that streamlined government disbursements and the direct payment of taxes into government accounts have also negatively affected liquidity.
“The success of FNBB and its growth as a company will continue to be bound directly to our determination to deliver outstanding, world-class customer service and our culture of innovation, which will continue to grow the bank’s impressive list of market firsts,” Bogatsu stated.
Regarding financial inclusion, the FNBB CEO stated that numerous studies such as FinScope Botswana point to the economic advantages of a banked society, and much has been written over the years to promote financial inclusion. He added that the eWallet platform fulfils this function by literally “banking the unbanked”. He said the popularity of eWallet is evidenced by the more than P2.7 billion sent through eWallet since its inception in 2010.
Bogatsu believes that the industry remains solid, saying he is confident that FNBB will continue as a substantial player and a leader in innovation, solution provision and service excellence. He pointed out that in the year ahead, FNBB will continue to focus on tightly managing liquidity and risk while driving transactional volumes and launching innovative solutions, adding that in order to maintain their momentum in these endeavours they will concentrate on a number of specific strategic focus areas.
“We continue to focus on the potential to create new income streams as we implement our revenue diversification strategy. Despite the continuing moratorium, non-interest income increased by 8.5 percent to P862 million, rewarding our endeavours to reduce our dependency on interest-based income and our vulnerability to macroeconomic factors,” he stated.
Currently, FNBB’s balance sheet has grown from P17.6 billion in 2014 to P20.9 billion in 2015. During the period, non-interest income increased by nine percent and advances grew by six percent. The cost-to-income ratio remained satisfactory at 44.8 percent, while profit after tax declined by 18 percent from P720 million to P591 million, while the declared dividend remained unchanged from the previous year at 16 thebe per share.