Saturday, October 23, 2021

Market stress reaches the non banking sector

Whilst the banking sector has been subject to reports on financial markets stress, it has emerged that even the non banking players are beginning to catch up the “flu”.

In the past few years, the commercial banks have been experiencing their ‘fair’ share of market stress and it appears the same can now be said about non bankers like micro lender, Letshego Holdings.

The company’s interim financial results, presented on Friday, show that profit after tax declined by six (6) percent. Letshego deems itself an inclusive finance bank that plays in a different space from that of local commercial banks. Whereas commercial banks focus on large and medium companies as well as white collar workers, Letshego cites its interest on small and micro businesses, government employees and blue collar workers. The company considers its market as the financially excluded group. It seems though that the different spaces are offering a similar strain which is currently exerting itself on the profit margins. Profit before tax recorded an increase of two (2) percent. Tax gobbled into the company’s income and the explanation offered by Colm Patterson, Group Chief Finance Officer, was that the effective tax rate charged the company at 27 percent was higher than that of the corresponding period last year. The tax expense ate into the profit by a six (6) percent cut.

Chris Low, the Group Managing Director, shared that there was good growth from all the countries which Letshego operates in. Letshego’s market penetration as at June 2017 as was indicated was registered at 20 percent in Botswana, 22 percent in Mozambique and 51 percent in Namibia, being the only three countries out 11 that recorded penetration at 20 percent and above. This makes 31 percent, 12 percent and 24 percent of the loan book respectively. The country with the least penetration was Nigeria and Rwanda both at zero. It is not surprising that Namibia is leading given the recent development of a planned first of its kind Initial Public Offering (IPO) on the Namibian Stock Exchange (NSX) intended to bring the general public up to speed with wealth generation tactics. Preference is will be given to Namibian residents who are typically financially excluded. Botswana remains dominant in the size of the loan book of the Group currently sitting at $226 million, far outpacing other countries. The second highest loan book is that of Namibia at $175 million. The other nine countries have loans books less than $100 million, with the smallest loan book in Nigeria at $6 million with Rwanda following it at $7 million. The irony of Nigeria is that it has the highest number of government employees on Letshego’s books compared to all the countries. Botswana has one of the smallest number of government employees on the company’s books.

The Group is in the process of establishing an intermediate holding company structure in Mauritius and overtime, the Group is planning that its subsidiary companies will be moved into that ownership structure. It mentions however that this change will not result in any change in the ultimate ownership of the subsidiaries but ‘will allow for a more efficient movement of dividends within the Group’.  

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