First National Bank Botswana (FNBB), the country’s largest commercial banking services outfit by market share ended their 2018/19 financial year on a high note raking a whooping P732,536 ,000 in profit after tax.
When presenting their audited consolidated summarised financial results to an audience of shareholders, stakeholders and members of the media in Gaborone on Wednesday, the bank Chief Executive Officer (CEO), Steven Bogatsu said during the financial year focus was placed on improving credit discipline with concentrated efforts on the distressed debt portfolio.
“Additionally, priority was given to our customer-centric strategy through continued investment in infrastructure and digital customer solutions, to upgrade management of risk and liquidity, and to achieving prompt compliance with the continued introduction of new regulatory requirements,” he said. Zooming into financial highlights the bank realized 4 % growth in deposits, driven by increases in the call and current account portfolios. Statistics available as at May 2019 indicate a comparable twelve-month market growth of 12%.
Bogatsu explained that the bank’s level of participation in the market was appropriately managed by growing the transactional base for short term funding and keeping term deposits relatively flat year on year to match advances growth achieved. Gross customer advances registered a growth of 5% year-on-year. FNBB top brass say this increases was slightly behind the twelve-month market growth of 7% as at May 2019, and was largely driven by consumer term loans and asset-based finance on the back of the Government wage increase.
“We continue to manage our credit risk profile with high amortisation in higher risk business advances being largely offset by the growth in the lower risk corporate advances,” shared Bogatsu. NPLs remained relatively flat closing the year at P1.14billion, being a significant improvement on the P1.3 billion disclosed in the December half year 2018 results and indicating some success from our focus on credit discipline and accelerated collection processes. The Bank improved its efficient deployment of cash and short- term funds and increased its investment portfolio.
Giving an in-depth detailed account on the financial performance, FNBB Chief Finance Officer Luke Woodford said both profit before tax and profit after tax rose by 13% due to efficient management of all the key income and expense drivers resulting in an improved return on equity of 22.7% compared to 22.1% in 2018. Gross interest income increased by 7% against gross advances growth of 5%. Woodford explained that net interest income benefitted from a reclassification of interest in suspense between interest income and impairments in accordance with the implementation of IFRS 9.
“Interest earned on investments followed the increase in the investment portfolio, the benefits were partially offset by reduced average client rates driven by a change in the portfolio mix and compressed margins,” he said. The CFO further added that notwithstanding the rollover effect of the liquidity pressures experienced in the prior year, the interest expense increased by 7%, largely driven by a reduction in professional funding and by strong growth in the call and current deposits.
The impairment charge for the year showed a reduction of 3% against the prior year, following prudent credit extension and focus on the management of distressed advances. The stage 1 and stage 2 impairment charge of P42m reduced by 68% compared to the P110m prior year portfolio impairment charge, largely due to the prior year charge including significant downward revisions to the key provisioning assumptions. The stage 3 impairment charge increased by 17% following reductions in the expected realisable value of the collateral supporting the Home Loans, WesBank and Commercial portfolios.
Non-interest revenue grew by 7% in the year. This follows a 7% increase in the customer base and a successful roll-out of new products such as the savings pocket. The improved connectivity in the point-of-sale machines and an increase in machines in use, combined with the swipe-and-win campaign resulted in an 18% growth in card and merchant commissions. Revenue from foreign exchange grew by 15%, partly from volatility in the South African Rand.
An improvement in the cost-to-income ratio reflects continued cost management initiatives, with several expenditure items remaining flat year-on-year. Increasing resources in the collections department together with the overall annual salary review resulted in staff costs rising 7%, whilst other costs were well maintained at a 4% increase.
FNBB Boss explained that the capital management philosophy of the Bank is to maintain sound capital ratios to ensure confidence in the solvency and the quality of its capital during both calm and turbulent periods in the economy and in the financial markets. “We therefore, aim to maintain capital ratios aligned to its risk appetite and appropriate to safeguarding its operations and stakeholder interests,” he said.
For the financial year ended 30 June 2019, FNBB continued to operate above the regulatory minimum capital adequacy ratios. As at the end of the financial year, the total capital adequacy ratio was 17.42% and is above the regulatory minimum of 15.00%.
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”