Sunday, March 3, 2024

FNBB profit falls as uncertainty reigns

Botswana’s biggest commercial lender, First National Bank, saw its interim profit dip by almost a quarter as Covid-19 continues to cause uncertainty that has made many lenders to hold back in writing new loans to sectors that have been hard hit by the pandemic.

According to the bank’s financials that cover the six months period to December 2020, income from operations fell by 14 percent to P1 billion following a 15 percent reduction in interest income to P713 million, a 4 percent drop in non-interest income to P638.9 million, and a 16 percent increase in loan impairments to P199 million dragged the bank’s performance.

Though operating expenses reduced by 8 percent to P298.3 million and employee benefits were down by 3 percent to P292.8 million, FNBB’s profit before tax tumbled by 23 percent to P419 million.

“Profit before tax and profit after tax both declined by 23% due to pressure on top line revenue and increased credit provisioning to adequately provide for the effects of COVID-19. The December 2019 results were within the expected parameters given the prevailing operating environment,” the bank said in a commentary accompanying the release of the results.

“The overwhelming impact on the December 2020 results was the difficult trading environment created by COVID-19, which the banking industry as a whole continues to navigate responsibly. The pandemic has presented itself as a real and severe economic test, and FNBB has shown that its income streams are resilient while a key focus has been on strengthening the balance sheet.”

The country’s top lender disclosed that loan defaults for the year increased by 16 percent year-on-year with an impairment charge of P199 million, due largely to pressures felt in the tourism and transport industries, which for most of 2020 were shuttered due to travel restrictions. FNBB says the Covid-19 pandemic has made them overly cautious when it comes to lending as they anticipate downward pressure on customer risk profiles and realisable collateral values in the overall context of the pandemic.

“Given the current uncertainty surrounding the rollout and impact of the COVID-19 vaccine and the second wave of infection being seen across the world, we expect that 2021 will continue in a state of overall uncertainty,” the bank warned.

“We anticipate that pressures on discretionary household income will be sustained and that businesses will defer capital expenditure to conserve cash reserves pending stronger signs of imminent recovery. Furthermore, with credit default pressure rates mounting despite low interest rates, the operating environment for financial services is likely to remain challenging.”

The advent of Covid-19 outbreak last year has slowed down the lender’s strong momentum  that began three years ago. Business boomed for FNBB in 2019, bringing in the record setting P945.3 million in profit before tax for the year ended June 2019, up from P838 million in 2018.

Meanwhile, ministry of Finance and Economic Development permanent secretary Dr. Wilfred Mandlebe, has praised the local banking sector’s resilience on the face of the Covid-19 disruptions.

“Despite the problems of the COVID-19 pandemic, the Botswana financial sector has performed well and demonstrated considerable resilience. The banking sector withstood the COVID-19 shock without experiencing any significant increase in arrears or bad debts, although profits were reduced as provisions were made for potential loan losses,” said Mandlebe on Monday at Botswana Stock Exchange’s first opening bell ceremony of 2021.  


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