Barclays Bank of Botswana, the country’s second largest by market share has realized an impressive financial cruise as it builds up final transformation into a full ABSA trading outfit. The Banks’s financial results for the half period year ended 30 June 2019 mirrors a glittering 49 percent statutory upswing in profit before tax to close the year P387 million from P260 million registered in 2018 half year.
According to Barclays the performance is mainly attributable to growth in income, contained costs and favorable credit losses. “Despite the challenging environment we operate in, a steady growth in income across the business segments relative to the previous year has characterized our performance for the period under review,” said Barclays Managing Director, Keabetswe Pheko-Moshagane when announcing the financial results in Gaborone this week.
Barclays’s total income from operations realized 9 percent growth year on year translating to an increase of P67 million, this in particular according to the MD was bolstered by Balance sheet growth of 6% and an increase in net fees as well as commission income increase of 5% year on-year. “We continued to drive momentum across all our key segments to negate the effects of compressed margins arising from an increase in cost of funding,” she said.
Financial figures indicate that net Interest income increased by 8 percent year on year, mainly driven by balance sheet growth. Mogashane further noted the business remained resilient in its selected market segments and continued to drive credit growth with operating costs being contained resulting into a cost to income ratio of 53 percent for the period ended 30 June 2019.
“This is in line with our strategy to achieve cost to income ratio of lower 50’s. We incurred total costs of P431 million on a statutory basis representing an increase of 8 percent year on year on a normalized view costs grew by 4 percent We continue to seek opportunities to realize cost efficiencies to ensure a sustainable business operation,” she explained.
On credit losses Barclays Bank managed to compress figures by 110 percent when compared to previous half year , ending the June 2019 half year period with an overall net recovery of P8 million. “Our year to date expected credit losses performance has benefited from a significant recovery from one of our corporate clients, our enhanced collections capability and conservative credit extension to high risk sectors,” added the Barclays MD.
Deliberating on the bank’s financial position Barclays Finance Director Mumba Kalifungwa revealed that Loans and advances to customers grew 12 percent year on year to P12.8 billion from P11.4 billion. “The growth in loans was realized across all business segments as we continue to focus on client penetration and acquisition to drive up our volumes,” he said.
Customer liabilities increased by 7 percent year on year to P13 billion from P12 billion driven by positive growth across our business segments. “Our balance sheet position remains solid at a total financial position of P17.9 billion, with strong liquidity and capital adequacy levels. Barclay’s regulatory capital position stood at P2.5 billion representing a ratio of 18 percent against the regulatory limit of 15 percent and liquid assets ratio was well above the regulatory minimum of 10 percent.”
Zooming into segments financial performance, Barclays Finance Boss explained that the first half of 2019 has seen restrained growth in the economy which resulted the bank’s Corporate Investment Banking segment revenue only growing by 6 % year on year. “We have not seen much activity from the much talked about government spending and it has not emerged as a driver of the economy, although there is growth in other sectors,” he said.
Non-interest income went up by 8% driven by growth in transaction volumes in the bank’s CIB markets business. “There has been a recovery of a balance due from corporate during the period which has led to a positive variance on the expected credit losses line, and as a result of this, corporate segment profit is significantly up year on year,” said Barclays Finance Director.
The sectors that have performed well in this period include wholesale and retail, hospitality, healthcare and telecommunications. Natural resource focus has shifted from diamonds as evidenced by lower production and sales in the first six months of 2019, although there is renewed interest in base metals and coal.
The Retail and Business Banking space made significant progress towards the delivery of its strategy. Growth of 16 percent was registered in loans and advances to customers, which accounted for 9 percent growth in the net interest-income. Deposits due to customer grew by 14 percent year on year. Net fee and commission income increased year on year by 6 percent, on the backdrop of increased transactional volumes and increased uptake of the bank’s digital channels.
“In order to provide instant benefits to our customers when they transact at various merchants outlets, we have signed new partnership agreements, our customers can now enjoy discounts at merchants such as restaurants, hotels, clothing stores as well as health and beauty spas. One of the key components of our strategy is to offer convenience to our customers when transacting,” explained Mumba Kalifungwa.
The Finance Boss added that there has been good growth in both the registrations and usage of Digital channels such as mobile, internet and the Barclays application. “The branches remain pivotal to our distribution strategy,” he said. Speaking to the outlook and future prospects Barclays Managing Director, Keabetswe Pheko-Moshagane noted that as the bank continues with its journey towards re-branding to Absa, more emphasis will be on ensuring that everyone tags along. “Our commitment towards our employees, customers, communities and shareholders remains our highest priority. We remain brave and passionate and ready as we bring the possibilities for our stakeholders to life,” she said.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”