Saturday, May 25, 2024

Top banks anticipate poor financial results

Two of the country’s top commercial banks, Barclays Bank Botswana and Standard Chartered Bank Botswana have confirmed that their financial performance was poor during 2015. The duo as such expects the consolidated profit for the period ended 31st December 2015 to be lower than that reported for the period ended 31st December 2014. 

The caution from the two banks follows the one made by another Botswana Stock Exchange (BSE) quoted banking outfit, First National Bank Botswana (FNBB) a few weeks back. The market leader said it was also anticipating a not so impressive financial outcome for its half year period that ended 31 December 2015. In separate statements released to the capital markets late this week, Barclays Bank Botswana and Standard Chartered Bank Botswana attributed the reduced earnings to challenging trading environment in the domestic market. 

Recently Motswedi Securities financial analyst, Garry Juma said that the anticipated suppressed earnings doesnot come as a surprise, given the tough operating environment in the banking sector.  

“The low interest rate environment and the decline in disposable income, which are reducing transaction volumes, are some of the challenges the banking sector has had to grapple with,” he said.

Juma said the low interest environment could persist and make things tougher for FNBB and other banks, as another interest rate cut cannot be ruled out.

 “Going forward, it is our view that the survival of the banking sector will be premised on their ability to grow non-interest income and diversify income away from interest income,” said Juma.

The anticipated material change by the three banks comes several months after a period of reduced liquidity that rocked the banking sector and forced the Central Bank to change some of its monetary instruments. By end of 2014, leading commercial banks tightened their credit lending schemes as the loan/deposit ratio rose to unprecedented levels. At the same time, deposits increased at a slower pace of 31.7 percent from P40.4 billion to P53.2 billion between 2010 and 2014. The Central Bank has urged banks to put more emphasis on deposit mobilisation and improved financial inclusion as measures of improving the operating environment. 

While the local banking industry was squirming and pleading for some kind of relief, Bank of Botswana governor, Linah Mohohlo last year cast a relaxed demeanour of a Governor at ease, saying the slower growth in deposits was possibly due to sluggish growth in incomes, inadequate financial inclusion, more streamlined procedures for government funding of parastatals and very low interest rates paid by banks on deposits.

“It is indeed imperative that banks undertake measures to attract deposits and focus on productive use of more limited funds available for lending. More emphasis on deposit mobilisation and improved financial inclusion would be steps in the right direction towards a more mature banking sector,” Mohohlo said in March last year.

The BoB governor said recent economic and market developments have had no adverse impact on levels of capital in the banking industry, with the aggregate Capital Adequacy Ratio at 19 percent as at January 2015, and above the prudential limit of 15 percent. The three banks will be releasing their financial statements in a few weeks time. 


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