The Botswana Building Society (BBS) is poised to become the first indigenous commercial bank in the country and even better is that it will likely make far reaching changes to the affordability of home financing.
The financial results released by the Society for the six months ended September 2017 registered an increase in profit which is attributed to the reduction in interest expense due to the replacement of more expensive borrowings with lower priced loans. The results indicate that the Society earned a profit of P26, 194 million in the first six months of the financial year which is 8.8 percent higher than the profit for the same period last year.
The replacement of more expensive borrowings with cheaper loans appears a very promising direction the Society will pursue. Towards the end of 2017 a member of the World Bank Group, the International Finance Corporation (IFC), listed its first local currency denominated bond in the Botswana Stock Exchange (BSE) from which $25 million (P250 million) will be given the Society in a move expected to increase access to housing finance in the country.
When speaking at the listing IFC Director Treasury Client solutions, Keshar Gaur, said the country’s underserved population will through the $25 million access long term mortgage. This is also expected to allow for significant development impact particularly regarding financial inclusion. In other words, the long-term funding will support the transformation of the Society into a full-service commercial bank financing underserved population, including small and medium enterprises. According to BSS, home ownership in Botswana is currently characterised by two percent of the population that has used housing finance with the significant majority of people using non-mortgage credit. BBS intends to use the funds to broaden its product offering to cater to the underserved segment of the economy. Similarly, the World Bank found that formal borrowing from financial institutions in Botswana was 13 percent. The Society defines financial inclusion as “means that individuals and businesses have access to useful and affordable financial products and services that meet their needs ÔÇô transactions, payments, savings, credit and insurance ÔÇô delivered in a responsible and sustainable way.” It is as such anticipated that the partnership between IFC with BBS will give people access to affordable financing intended to incentivize home ownership.
IFC became the first non-resident bond issuer in the local bond market. The debut bond, given the name Kgalagadi bond, makes Botswana the latest beneficiary of IFC’s Pan African medium term bond programme which has been established in various other African bond markets. Prior to the issuance by IFC BSE had listed six bonds since the start of 2017. With seven bonds listed during 2017 the total number of bonds on the BSE is now at 48. There were 41 listed bonds on the local bourse at the end of 2016. According to the BSE Chief Executive Officer, Thapelo Tsheole, during 2017, excluding the newest issuance by IFC, the bourse listed bonds valued at P2.9 billion adding however that it also had bonds that delisted valued at P1.3 billion. This put the value of bonds listed in the local market over 2017 at P1.5 billion.
The listing of Kgalagadi bond could be seen as giving a new lease of life to BBS, more so for the benefit of ordinary folks who will access cheaper housing financing. According to the Society’s latest results the long term loans and advances grew by 0.4 percent since the end of the financial year, this being 1 percent growth compared to the same period last year. With funding of $25 million the Society has the opportunity to bolster its loan term loans.