The country’s top commercial banks, First National Bank Botswana (FNBB), Barclays Bank Botswana, Standard Chartered Bank Botswana and Stanbic Bank Botswana are battling with the decline in their net interest income.
With the trend expected to continue this year, financial analysts says this could translate to a further decline in interest income for some of the big banks.
“We predict that overall credit extension will remain below 8 percent to 2019, allowing for slight increase in business confidence returns, while the household credit remains restricted by the current pressures on consumer incomes”, FNBB said recently when unveiling its interim for the year ended 31 December 2017.
Given such predictions, FNBB and other big boys of the financial sector are now forced to look into non-interest income to bolster their earnings in future, after the central bank maintained the policy rate at a record low of 5 percent.
The Bank of Botswana first cut the bank rate by 50 basis points in August 2016 and another 50 basis points in October 2017.
Faced with loan impairments stress, withering industries and the slowest economic growth pace in decades, Botswana’s banks are now forced to diversify their income sources, integrate their businesses and others forced to adopt the digitisation.
As the reporting season ends, here are the highlights of how the top lenders performed in their half and full year results respectively in 2017.
Standard Chartered Bank Botswana
Standard Chartered Bank Botswana has not been hit once but twice by the diamond and jewellery sector. This has forced the bank to consider de-risking from the sector and diversifying its risk exposure across other sectors including mortgage lending where is has been an underdog.
Managing Director, Mpho Masupe recently told a group of journalists in the capital Gaborone during the bank’s financial results presentation that while the bank is not completely quitting the mining sector, “as opportunities still exist”, the lender has exited high risk sector and improved concentration risk in its asset book.
“We are not completely moving away from the mining sector as there are still a lot of opportunities in other sub sectors of the mining sector” said Masupe.
Masupe said that the bank is eyeing Debswana Diamond Company’s Cut 9 project amongst others.
Whilst a reduction in the bank rate by Bank of Botswana put pressure on interest margins of Stanchart, it was ultimately single big loan impairment in the Corporate and Institutional Banking (CIB) segment that is said to have caused the greatest attrition to the bank’s performance.
The bank’s performance, just like its peers also faced significant challenges from within an already stretched banking environment. These collective factors contributed to the London based bank franchise recording a loss for the period ended 31 December 2017. The bank recorded a loss of P189 million for the first time in many years.
Barclays Bank Botswana
Counted amongst top listed lenders in the country, Barclays Bank’s Net interest income decreased by 1 percent year-on-year driven partly as a by impact of margin compression.
The bank’s overall cost to income ratio was 52 percent for the reporting period, which is below the banking industry market average of 59.5 percent.
“Prudence in incurring operating expenditure continues to be at the heart of our strategic agenda, as we look to grow our business”, says
Mumba Kalifungwa, Finance Director at Barclays Bank Botswana.
Meanwhile the bank’s credit impairments decreased by 45 percent year-on-year while the balance sheet remained strong at a level of P15 billion.
While waiting to change to a new name (Absa), the bank is said to be focusing on optimising its balance sheet, as well as creating new revenue generating opportunities.
The bank’s loans and advances to customers increased by 14 percent year-on-year to P10.7 billion.
“The increase in non-interest income is positive in this low interest environment as it will enable the bank to cover most of its noninterest expenses with non-interest income, says Garry Juma, a financial analyst and researcher at Motswedi Securities.
Motswedi Securities is one of the four official stock brokers recognised by the Botswana Stock Exchange (BSE) where Barclays, FNBB and Stanchart are listed.
Juma says the 45 percent decline in Barclay’s impairments reflects the improving quality of the Bank’s loan book which in the past was the major issue for the lender that is expected to change names to Absa in the future.
“The decline is attributed to improvement in retail loan losses, revised collection model, enhancement of collection strategies and continued focus on monitoring and control activities relating to debt collection”, says Juma.
First National Bank Botswana
The First National Bank Botswana’s interim results for the period ending 31 December 2017 shows that its Net interest income before impairments recorded a muted growth of 2 percent, indicative of margin squeeze in a low-interest environment.
The bank says while there is still scope for the continuation of expansionary policy by the Bank of Botswana given the accommodative real rate differential with trading partners as well the continuous reduction in the core inflation, “…the Bank of Botswana has to be mindful of risks t outflows in low interest rate environment as well as concerns over interest rate differentials ÔÇô mostly with South Africa, whose repo rate is currently at 6.75%”.
During the half year period that ended December 2017, FNBB’s Profit before tax grew by 9 percent year-on-year driven by reduction in impairments as well as strong non-interest revenue growth. The bank’s non interest income grew by 10 percent. The bank’s financials shows that its impairment charge ratio for the period improved from 2 percent in the prior year to 1.6 percent as at December 2017.
Stanbic Bank Botswana
Stanbic Bank Botswana remains the only unlisted company amongst the top four banks in the country. The Fairgrounds office space based bank, which is a member of the South African bank group ÔÇô Standard Bank also recently released its full year financial results for the year ended 31 December 2017.
The bank’s statement of profits/loss and other comprehensive income shows that at the time of closing the books, then bank had recorded a 22 percent growth in net interest, partly driven by a 5 percent growth in customer loans, combined with 6 percent decline in interest expenses. At the same time, the bank which was led by Leina Gabaraane for most part of the year recorded return on equity of 21 percent. Still during the same period under review, the bank posted Profit After Tax of P243 million, representing an annual growth of 24 percent.
Just like its peers, the bank blames the general rise in impairments on tough operating environment in the banking sector.
“We observed a significant rise in overall credit impairment provisioning during the year in the banking sector. The bank managed to reduce the impairment charge by 8 percent on account of prudent lending over the years as well as benefiting from intense focus on credit counselling, remediation and recoveries”, reads parts of the statement accompanying the Stanbic Bank’s financials.
“There was some nervousness at the start of the year with uncertainty around the impact of BCL/Tati mines shutdown. As we travelled across the country, we saw businesses struggling with declining sales and looming retrenchments. Credit extension was low and utilisation of approved loan facilities remained low as business adopted a wait and see attitude” ÔÇô Stanbic Bank
“The last four years have been tough trading period for the banking industry with the fall out of BCL and the generally sluggish economy. In response to this, we remained cautious on lending and focused more on recoveries and operational efficiencies which are positively impacting the profitability growth and ensuring sustainability of our performance into the future” ÔÇô FNBB
“These results underscore Barclays Bank of Botswana’s resilience as a business. They were realised in the midst of various external trials such as the sluggish economic growth, declining credit growth across the sector, low interest rates and a general slowdown in the recovery in commodity prices” ÔÇô Barclays Bank
“ As a bank, we have made a solid commitment to be digital bank with human touch and will be leveraging on the continuous enhancements of our digital platforms to truly drive convenience for our customers but also gain significant cost efficiencies for the bank” ÔÇô Standard Chartered