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Banks not out of the woods yet

Publishing Date : 07 August, 2017


Despite an improved banking sector profitability in the first quarter of 2017 for the reporting season ending 31 March 2017, with the key driver being growth in Non Interest Income, banks are not yet out of the woods.

With a prolonged sluggish domestic economy, local banks are still witnessing weak loan demand among other challenges. While commercial banks are working out ways to reduce their dependence on defensive measures through aggressive strategies, burning issues like cybercrime, regulatory compliance and unconventional competition will keep their financials strained.

According to Motswedi Securities Q2 Economic Bulletin the sector is transforming and the primary objective of banks as intermediaries between savers and borrowers is no longer the key the driver of profitability, with complimentary services and fees taking a leading role. Under the current interest rate regime margins remain under pressure with banks forced to improve efficiencies and cost management to remain afloat.

Banks are trying every means to contain costs.

“We expect impairments to remain above 2% for the second quarter, as BCL and its employees continue to impact on the sector. Furthermore the SARB recently cut rates by 25 basis points, in the wake of a technical recession, placing the local economy under pressure and giving the Bank of Botswana room for a further cut before the end of the year, thereby squeezing bank margins,” reads the report.

According to the same report, Barclays momentum has slowed following a sterling performance in Q1, up by 13.1%, to close Q2 2017, up by a modest 3.5%, at P5.90 per share. FNBB’s performance was flat for the quarter, dipping by 0.7%, while Stanchart saw a massive 14.1% price slip, the biggest move of the quarter.

“We do not believe that the bank is out of the waters just yet, although activity on the counter is slowly improving, with volumes showing participation by institutional investors and not only desperate to sell retail investors. It might be too soon to say the company has turned a corner, but the last financials (Dec 2016), showed an improvement on profits before tax of over 50%, enough to raise interest on the counter,” concludes Motswedi Securities analysts.

Banks' strategies to focus more on non-interest revenue sources for strengthening their top line will not be smooth sailing. Prospects for generating non-interest revenue from sources like charges on deposits, prepaid cards, new fees and higher minimum balance requirement on deposit accounts may continue to be curbed by regulatory restrictions.

Foreign currency risk threatens Financial Services, Venture Capitalists

The Motswedi Securities Q1 economic bulletin highlights that foreign currency risk remains a sore point for the sector as all three companies are significantly exposed to forex fluctuations. Afinitas, pleasantly shocked the market, moving 10 thebe higher to close the quarter as the best performer in the sector, reads the commentary in the report.

“The stock appreciated by 10.6% following some relatively low volumes for the quarter. In Sept. 2016, the company acquired 50% Africa Event Limited, which runs and owns the Africa Financial Services and Investment Conference, and is the main driver of revenue. However this revenue stream has not been able to keep pace with the growing company’s operating costs. Earnings pershare showed minor improvement, standing at - 0.152 cents (USD) for the period ended Dec 2016.”

The Q2 report indicates that BIHL carried last year’s momentum, as investors continue to buy up the insurance giant’s stock, even with profits on the decline. Demand has seen the stock appreciate by a further 4% for the quarter to extend gains to 7% for the year. It further states that Letshego woes, continued, albeit at a slower pace.

“The company saw a decline in profits for the year, as costs of capital remain a challenge for the evolving micro-lender that has since amassed 6 deposit taking licences in its pursuit to reduce the cost of funds. The Debt to Equity ratio was last at 85% short of the company’s target of 100%, which may prove to be a double sided sword, paving way for growth, at a high cost to investors and increased risk.” Foreign currency risk is another key area of concern, however, with Mozambique, Zambia and Nigeria rebounding the year may end in smiles for investors.

Motswedi Securities says the immediate outlook for the stock however remains damp, selling pressure and expected flat results are most likely see the price take a further knock, before the company can exercise its share buyback programme, after the release of their results in September. “Whether this will actually take happen, is a subject of speculation, but the idea of which may keep the price afloat long enough to for some good news.”



Do you think the closure of BCL will compel SPEDU to double their efforts in creating job opportunities in the Selibe Phikwe?