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Investors scramble for BancABC 25 percent stake

Publishing Date : 12 November, 2018

Author : TSAONE SEGAETSHO

Fresh information from BancABC which is currently undergoing through a process of listing on the Botswana Stock Exchange (BSE) is that the bookrunner had received irrevocable undertakings from institutional investors to purchase 148.6 million offered shares, representing 82.3 percent of the offer.


BancABC shares sale opened on Tuesday and would close on November 23, then the local bank will be officially listed on 10 December. The Pan-African financial services provider ABC Holdings, Atlas Mara subsidiary, has decided to sell 24.9 percent of BancABC to raise P360 million for upgrading its banking infrastructure.


“BancABC has invited selected investors to apply to purchase up to 180 525 000 ordinary shares (“the offer shares”) at a price of P2.00 per share. With 725 million available shares of no par value, ABC Holdings Limited proposes to sell 24.9 percent of the ordinary issued shares. Furthermore, 30 percent of the offer shares will be offered to clients of the Sponsoring Broker and other registered stock broker, who may be members of the public as defined in Section 297 of the Companies Act,” said the banker on a statement released this week.


Of the 82.3 percent offered shares for institutional investors, BancABC Managing Director Kgotso Bannalotlhe revealed that even though their current target is mainly private institutional investors, “members of the public have an opportunity to participate in the offer through the brokers.” An institutional investor is a non-bank person or organization that trades securities in large enough share quantities or dollar amounts that it qualifies for preferential treatment and lower commissions.


If members of the public take up the Offer Shares available to them, the number of shares committed for institutional investors will be reduced pro rata by the number of shares taken up by the public. Of the P360 million which is offered and will be a dedication to develop IT infrastructure and banking platforms not excluding; migrating and upgrading core banking software of all banks, migrating onto a common mobile and internet banking platform, establishment of a centralized card processing platform, ATM upgrades and implementation of a centralized Point of Sale (“POS”) processing platform.


According to BancABC, this is why the bank listed, which is, to attract important stakeholders in Botswana into the shareholding of the bank which will serve the long term interest of the ABCH Group; to enable the Company to attain greater access to efficient capital markets in raising local funding to support future growth plans and to serve as an opportunity for the Selling Shareholder to monetise part of its shareholding in the company.


According to the latest available financial statements of other commercial banks in the industry, BancABC is Botswana’s 4th most profitable bank, and 5th largest in terms of assets. BancABC is confident that it has a competitive advantage over its rivals because it has a platform positioned for scale and profitability. The bank also believes it offers a low non-performing loan book supported by robust credit model. BancABC has a leverage unique and adventageous partnership with key institutions and has a sound performance on key financial metrics.


Challenges of Banc ABC


According to BancABC sponsoring broker Motswedi Securities, the bank needs to work hard on its non-interest income which is a low contribution to the bank. “BancABC lags the industry in terms of non-interest income. This revenue stream is key especially in the current environment where interest rates are at ultra-low levels. Some commercial banks are able to cover their non-interest expenses with non-interest income. For example FNBB non-interest income/total income stands around 45.7 percent while for BancABC it’s around 18.8 percent. The industry average is 38.5 percent according to Bank of Botswana 2017 Banking Supervision Annual Report,” said Motswedi Securities.


The broker further highlighted the bank’s higher cost to income. According to Motswedi Securities BancABC cost to income ratio of 62.1 percent is above the industry average of 59.9 percent and we believe the bank has scope to reduce operating cost. The broker says investment in IT infrastructure will bear fruits in the long term through income growth and improved efficiencies which will help bring costs down. It is understood that BancABC management is targeting a cost to income ratio of less than 55 percent in the medium term and Motswedi Securities approves this move as it is “attainable.” 


In its latest analysis received this week, the bank’s loan book skewed to the retail sector.“The composition of BancABC loan book is more skewed towards consumer lending at 73 percent. The corporate and lending book make up 15 percent and 10 percent respectively. The large part of the loan book is unsecured personal loans. However, the bank collects over 96 percent of all repayments directly through deduction codes and this model has worked very well for other micro lenders such as Letshego. 


There is need for the bank to diversify its loan book to manage this risk. This can be done through growing the book from the corporate sector, SME’s and mortgage lending. The biggest concern in the banking sector is the high levels of households’ indebtedness and diversifying the book from the household will go a long way in managing this risk. Vehicle and asset finance is another area that the bank needs to focus on as currently it doesn’t have a presence at car dealerships in Botswana,” said Motswedi Securities.


Another point by Motswedi Securities is that the bank has a high cost of funds. According to the broker, as at December 2017, BancABC cost of funding stood at 4.0 percent and is relatively higher than its competitors. The broker says this is due to the fact that the bank’s deposit base is mainly comprised of institutional clients who mostly come with short term deposits that are somewhat costly as compared to retail deposits. In addition competition is very intense for this type of funding and this all reduces margins. Motswedi Securities further advised that the bank needs to diversify its streams and attract more deposits from the retail sector, which is less costly.

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