Botswana’s biggest commercial bank, First National Bank Botswana (FNBB) is planning on entering the used car market which has grown substantially in over a decade. FNBB’s latest plan comes on the back of WesBank – the bank’s vehicle financing arm ÔÇô facing declining sales and impairments. However, the bank’s foray in the used car market comes amid warnings from Statistics Botswana.
Giving an update on the bank’s performance in 2017, Steven Bogatsu, chief executive officer of FNBB, said the vehicle and asset finance portfolio was flat in the prior year, reflecting both reduced sales levels in the market and increased competition. Bogatsu who assumed the top post of the country’s leading bank in 2015 added that their vehicle financing segment has become a key risk concern.
“We have seen an increase in non-performing loans (NPLs) particularly for property and vehicle asset finance, which has particularly affected the retail and lower end of the business segment,” said Bogatsu in the bank’s 2018 annual report. “Given the stresses with the macros, impairments are expected to remain high for both property and vehicle finance categories.”
While Wesbank has achieved notable successes in growth market share, particularly with franchised dealer market share, up from 30 to 32 percent, the bank finds itself in a shrinking market, with most people preferring used cars over new cars. To this end, the bank said the previous year was difficult for its vehicle financing division, made worse by decreasing new vehicle sales due to challenging economic conditions that spans unemployment, business restructuring, and the under pressure disposable incomes.
“For the year ended June 2018, total units available in the market in the franchised dealer space were 528, a 4% year-on-year increase from 507 in 2017. The new vehicle component was down by 6% to 390 units in 2018 from 415 units in 2017. The market also experienced a shift towards a higher proportion of used cars being sold,” revealed the bank in the annual report.
In a turn of events, the bank seems to finally accept the reality that has been in the making for over 10 years and has resigned to the fact that imported used cars have become the new normal.
“Used vehicle imports remain the dominant source of vehicle stock and used cars continue to dominate the automotive market in Botswana. Opportunity for growth exists in this area and WesBank will align its credit decision making across all channels to support the shift from new to used vehicles,” the bank said.
The shift in policy from FNBB comes hardly as a surprise to many observers who have witnessed the popularity of used cars in Botswana. In fact, the realisation that used cars are here to stay was signalled by the insurance companies as they started to offer covers to imported used cars, also known as grey imports.
Statistics Botswana’s recently released 2017 Transport and Infrastructure report reveals that the national vehicle stock has doubled since 2008 and shows no signs of retreating, despite concerns about the pressure exerted on roads and the traffic congestion. The annual stock of vehicles which comprises of government owned motor vehicles and privately owned motor vehicles grew at an annual rate of 9.7 percent from 2008 to 2017.
In the previous year alone, the number of licensed vehicles in Botswana increased by 5.5 percent, bringing the total number of registered cars to 527,901. The increase in new registrations is a result of import cars from Asia and the United Kingdom which are proving to be more affordable to the low income market.
Data from 2017 shows that total privately owned vehicles went up from 487,523 in 2016, to 515,370 in 2017, which was an increase of 5.7 percent. There were three categories of first registered vehicles, namely used, brand new and rebuilt. The bulk of the vehicles registered for the first time in 2017 were used vehicles (83.9 percent), these were followed by brand new vehicles with 15.9 percent while rebuilt vehicles constituted only 0.2 percent.
Most of the used vehicles registered for the first time came from Japan (86.8 percent). Countries that followed Japan were Singapore and South Africa with 5.0 and 3.9 percent respectively. As for brand new vehicles most of them came from South Africa (82.5 percent). Botswana came second with 8.7 percent.
The growth in the national vehicle stock is attributable to privately owned vehicles which constitute 97.6 percent of the total vehicle population. The increase on vehicle stock has brought with it some major challenges, for example, an increase in road accidents as and congestion on the roads especially in cities,” said Dr. Burton Mguni, the Statistician General.