One of the country’s biggest commercial bank – First National Bank Botswana, might be closing to hit the P1 billion in pre-tax profits.
The clue comes after the bank announced that its anticipated profit will be higher than the previous year.
The bank which boasts of the largest clientele and a huge balance sheet said that its profit before tax for the financial year ending June 2019 will higher by a range between 10 and 15 percent, which could be between P84 million and P126 million. Considering that in the previous full year profit the bank raked in P838 million in pre-tax profit, it means the bank’s anticipated profit before tax could be anywhere between P922 million or P964 million, just a few millions shy of P1 billion in pre-tax profit.
The bank’s latest upward momentum in profit is a pick-up from a brief slump of declining earnings which came after a decade of exceptional growth. In 2014, the bank recorded 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.
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. In 2016 the moratorium was lifted, and 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. The bank has over 500,000 customers concentrated in its retail segment. In the last financials of the bank, the retail arm led all other segments, contributing the most to total revenue. The retail segment also contributes the most to FNBB’s huge loan book, accounting for about 55 percent.
However, in the last five years the segment has come under economic pressures – rising unemployment figures, depressed disposable incomes, over indebted customers and tough competition – resulting in increased impairments and little room for growth. This has led to the bank being cautious about lending to this market.
Last year, the bank hinted that it will reduce its exposure to retail clients, and instead put concerted efforts towards emerging opportunities in the resurgent business sector. John Macaskill, FNBB chairman, was bullish about the local economy in his chairman report contained in the bank’s 2018 annual report, noting that the increase in government spending, foreign investment in mining, utilities and infrastructure development point to better days ahead, particularly in the business sector.
Meanwhile, as FNBB gets closer to hit the P1 billion in pre-tax profit, the central bank might pull another slower on the bank following their Thursday announcement of a bank rate cut, which has been slashed from 5 percent to 4.75 percent. The last time Bank of Botswana made changes to the benchmark rate was in 2017, and a reduction in the rate affects banks’ interest income.