Botswana Stock Exchange listed banker First National Bank Botswana (FNBB) faces a stubborn burden of borrowers who default on their loan payments or debtors would not pay either principal or interest of the borrowed money.
The latest unaudited half year results for the year ended December 2018 Bank reveal that FNBB has difficulty collecting interest and principal on their credits with a reflection of the non-performing loans (NPL) to gross advances ratio increasing from 6.6 percent to 7.6 percent year-on-year, with the NPL exposure increasing to P1.26 billion.
Two years ago Bank of Botswana governor Moses Pelaelo highlighted that there is a disturbing emerging trend where customers cannot pay their loan. This was after there was a trend which showed that since December 2014, the industry’s NPLs rose from 3.6 percent to 3.9 percent in 2015 and 4.9 percent in December 2016. That same year of 2017 when the central bank governor raised concern statistics shows that at July 31, 2017 the NPLs had increased further to 5.9 percent of total bank loans. Many observers believe the increase of NPLs in 2016 and 2017 were mainly due to the abrupt closure of the BCL mine which left many in financial dire straits.
Furthermore, according to the World Bank statistics, the average value for Botswana during 2012 to 2017 was 3.94 percent with a minimum of 2.62 percent in 2012 and a maximum of 5.28 percent in 2017. As suggested by the recent FNBB half year financial statement, the trend continues.
In its latest financial results which were released this week, FNBB has said consumer indebtedness in the market remains a concern and the bank will continue its cautious approach in lending into this market. The bank further explained that NPLs stubborn growth is due to the deterioration of certain high-value FNB business segment exposures.
“This significant growth in NPLs is largely due to the deterioration of certain high-value FNB business segment exposures, and the relegations that have been experienced in the FNB Retail and WesBank segments,” explained FNBB directors in the financial report. The bank gave an insuring statement that it remains wary of financial risks despite the positive focus. The bank further promised that the resolution of the NPL portfolio remains a top priority and continue to invest in the iterative refinement of processes and systems required to improve collections. On the other hand impairments increased by 23 percent year-on-year largely due to the FNB Business segment inflow into NPL according to FNBB. Impairment grew from P127 160 in 2017 to P156 112 in 2018.
FNBB lining up to cash in on anticipated unlocking business activity
Despite the bogyman of NPLs standing tall before FNBB the bank made slight improvements in the unaudited half year results for the year ended December 2018. This is highlighted by promises like the increase in tax profit after tax by 9 percent, Non-Interest Revenue growth of 10 percent and interest income increase of 6 percent. Furthermore, the half year results show a boom in the banking app, signaling the bank’s dominance in the digital space and an upper-hand in the market, which has recorded registration increase of 11 percent.
According to FNBB when announcing its unaudited condensed consolidated financial results and dividend announcement, the bank also continue to maintain its deposit market share of just below 30 percent. FNBB said it saw customer deposit growth of 3 percent as at December 2018 and it emanated predominantly from increases in transactional balances.
When explaining its increases, FNBB said the Non-Interest Revenue growth of 10 percent which is an increase from P548 811 in the unaudited results for the six months ended 31 December 2017 to P605 824 for the same period of last year (2018), was due to increases in both foreign exchange revenue and transactional revenue.
“The foreign exchange revenue growth was due to a significant increase in the value and volume of foreign exchange transactions as a result of ZAR volatility. The growth in transactional revenue was largely due to increased merchant transactional turnover,” said FNBB. For interest income to grow by 6 percent from P757 421 in 2017 to P804 772 in 2018 is because of increase in advances according to FNBB. The bank said however this increase was largely due to the optimized investment portfolio while the change in the advances portfolio mix resulted in reduced average yields on advances.
With this slight progress FNBB suggested that it is steady on its marks to cash in on anticipated increased business activity and commensurate growth in market advances which coincides with the current positive outlook for the Botswana economy. The bank further anticipates growth in targeted financing for some sectors of the economy such as agriculture, manufacturing and tourism, which are sectors expected to be supported by credit guarantees from development finance institutions.
“The Bank is well-positioned to assist customers in their participation in these developments. The Bank will continue to invest in key strategic enablers to continue to deliver a superior customer experience. Investment in digital capabilities, human capital and process re-engineering will continue,” said FNBB.
While giving an economy outlook for Botswana which gives it confidence to position itself for the time of harvest when the economic activities are ripe, FNBB expects the local economy to register a growth rate of 4.4 percent for 2018 due to higher diamond mining output. The bank’s growth forecasts for 2019 and 2020 at 4.7 percent and 4.5 percent respectively.
“The key to unlocking further growth opportunities for Botswana lies in the success of diversification initiatives such as special economic zones and public private partnerships, with consequent creation of employment opportunities. The service sector has accounted for over 50 percent of the growth in the past decade, thus reflecting some achievements in the diversification of the economy,” said FNBB in its half year results.
The bank has however noted that Botswana remains reliant on diamonds, as they account for over 85 percent of the country’s exports and contribute close to 30 percent of fiscal revenue, thus exposing the fiscus to external volatilities. FNBB says its growth forecasts therefore remain cautiously optimistic as policy implementation, together with effective infrastructure development, has historically been a challenge.
Accordingly, successful diversification will depend largely on investor-friendly regulation and effective implementation of development projects. Given that the economy remains consumer led, with household expenditure at 49.1 percent of GDP in Q3 of 2018, sustained economic growth will depend upon both employment creation and real wage increases,” said FNBB directors in its financial results.
Inflation rates remain cyclical lows
When giving health report on Botswana’s inflationary statue FNBB said headline inflation averaged 3.2 percent in 2018 compared to 3.3 percent in 2017. The inflation was subdued by lower demand-pull pressures, a reduction in the administered prices of mobile network operators and the alcohol levy, as well as continued zero-VAT rating on most staple food products. Upside pressures were mostly led by an increase in fuel prices as well as public transport fares.
“We reiterate that demand-pull pressures are likely to limit the increase in inflation as growth in real income levels remains modest. We anticipate the headline in figure of a short-to-medium-term average of 4.0% through to 2023, being within the 3% to 6% target range of the Bank of Botswana,” said FNBB directors on the half year financial report. FNBB also stated that it believes that the Bank of Botswana will continue to focus on supporting economic growth and keep its monetary policy stance accommodative for the next 12 to 15 months.
“We expect that the Bank of Botswana will leave the bank rate unchanged at 5.0 percent for the rest of 2019. We foresee overall credit extension remaining below 8 percent through to 2020, allowing for a slight increase in business credit as confidence returns, but with household credit remaining restricted by the current pressures on discretionary household income,” said FNBB.
In the coming months prices will go up and inflation will shoot sharply above the target of 3 percent to 6 percent towards the third quarter of 2021, the Bank of Botswana on the other hand will continue to withhold its knife on the Bank Rate. This is according to a forecast made by Kgori Capital in its recent Market Watch Segment.
Statistics from Statistics Botswana show that the recent 1.8 percent increase in the September inflation, from 1 percent in August, was a reflection of the upward adjustment in public transport fares (Transport (from -6.9 to -3.9 percent) in September 2020, which is estimated to have increased inflation by approximately 0.64 percentage points.
Local anti-trust body, Competition and Consumer Authority (CCA), this month received back to back acquisition proposals from South African clothing retailers to wipe out their former rivals, Edcon, from Botswana malls.
Last week BusinessPost was in possession of Merger Notice No 23 of 2020 whereby a South African clothing retailer owner, Retailability Proprietary Limited, through Oclin Proprietary Limited, proposed to acquire parts of the Edgars business conducted by Edcon in Botswana (through Edcon Botswana), as a going concern, consisting of certain assets and identified liabilities.
South African government’s Business Rescue Practitioners earlier this year announced that Retailability will buy Edgars, after the latter filed for a business rescue plan in April after it failed to pay suppliers. This move will see Retailability add Edgars to its portfolio consisting of brands such as; Legit, Beaver Canoe and Style.
Retailability landed on Botswana shores 18 years ago with its flamboyant urban fashion Style which had 17 stores. Style, having almost the same target market as Edgars as it offers men’s and ladies’ contemporary and formal fashion, gave the 91 year old legendary clothing retailer a run for its money, and has won the battle as its parent company has taken over Edgars.
Retailability brands are synonymous with Botswana shopping centres and there are currently five (5) Beaver Canoe stores, 10 Style stores and seven (7) Legit stores across this country. The Beaver Canoe stores sell clothing apparel for men and boys only. The Legit stores have a fashion store format which focuses on the retailing of clothing, footwear, accessories, colour cosmetics and cellular products.
Retailability operates in over 460 stores across South Africa, Namibia, Botswana, Lesotho, and Eswatini. Many observers suggest that because of the deal with Retailability to swallow Edcon, most Edgars stores in Botswana will change their name and be branded Style. A sad tale for religious consumers of the Edgars trademark who got used to love their favourite brand for years.
According to CCA’s Merger Notice No 23 of 2020, Retailability is controlled by Clifford Raymond Lines (through a company which functions solely as a holding company of his interests in Retailability) and Metier Investment and Advisory Services Proprietary Limited (“Metier”). Metier is a private equity enterprise with investments in a number of industries spanning from healthcare, hospitality, FMCGs and telecommunications.
Retailability directors are mostly South Africans; Clifford Raymond Lines, Mark Richard Friday and Norman Victor Drieselmann. Only Nasreen Essack, who was appointed February this year, is a Motswana. He comes after Brian Thuto Tsima left on the same date. Retailability 100 percent owns Oclin Proprietary Limited, the company it is acquiring Edgars with, by a capacity of 3000 shares.
The target business, Edgars, offer textiles, cosmetics and cellular products. Edcon has a Motswana director, Charles Mzwandile Vikisi, a South African, Shane Van Niekerk and Zimbabwean Jethro Kamutsi.
“The Target Business comprises of two (2) Edgars franchise brands and private label stores across Botswana. These stores target middle to upper income customers and are home to a range of private label brands such as Free2BU, Charter Club and Stone Harbour, and a wide range of market label brands (such as Levi’s and Guess) for clothing, footwear and cosmetics.
In addition, the Target Business operates iconic Edgars Home and Edgars Beauty stores as store-in-store formats rounding out the department store offering in Botswana,” said CCA. Foshini also lines up to take Jet Botswana from Edcon.
The Foschini Group (TFG) released a statement confirming its latest intentions to acquire Edcon assets or Jet for a cash purchase consideration of R480 million. This was after the business rescue practitioners offered TFG to buy Jet by that amount.
CCA is currently mulling on a proposed merger by TFG to take over Jet operations in Botswana. Merger Notice No 21 of 2020 from TFG came a few days before the Retailability proposal. In this merger TFG, acting through Foschini Botswana, want to take over “parts” of the Jet business conducted by Edcon through Jet Supermarkets Botswana.
TFG will be willing to add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents. TFG will also get Jet’s distribution centre located in Durban and certain stores in Botswana, Lesotho, Namibia and Eswatini. Also part of this fat deal is that the company is looking to also acquire JET Club and all existing JET stock of no less than R800 million.
Johannesburg listed TGF owns Foschini Retail Group which owns the local operations called Foschini Botswana, the acquiring enterprise according to CCA merger notice. “TFG is not controlled by any enterprise/s and for completeness, the three largest shareholders of TFG holding shares greater than 5% as at 27th March 2020 are: Government Employees Pension Fund (16.2%) Public Investment Corporation (13.2%); Old Mutual Limited (6.7%); and Investec Asset Management (6.3%). The remaining issued share capital in TFG is widely held,” said the merger notice.
Only Abdool Rahim Khan is a Motswana in the Foschini Botswana directorship, the rest; Ganeswari Shani Naidoo, Anthony Edward Thunström and Gustav Jansen (alternate director) are South Africans.
According to the CCA merger, the Jet Business is Edcon’s discount department store division, selling clothing, footwear, homeware and some cosmetics as well as cellular products and targets lower-to-middle income consumers throughout Botswana. The Jet Business does not directly or indirectly control any enterprises, says the notice. CCA seeks any stakeholder views for or against the proposed merger, which may be sent within 10 days from date of this publication to the following address.
Botswana Communications Regulatory Authority BOCRA signed a memorandum of Agreement (MoA) with the Ministries of Transport and Communications (MTC), Basic Education (MoBE) as well as Local Government and Rural Development (MLGRD).
The MoA seeks to continue the collaboration that dates back to 2016 when the three parties first agreed to work together in a project aimed at computerizing and providing broadband Internet to primary schools in remote and underserved areas of Botswana.
The project benefitted 68 primary schools and 9 secondary schools through the construction of Local Area Network (LAN) in each primary school, provision of 5 Mbps dedicated broadband Internet to each Primary School and provision of Wi-Fi enabled tablets, laptops and related peripherals such as printers and copiers.
Further, the project will see the augmentation of computers in 9 Junior Secondary Schools with 30 laptops per identified school and employment of Information Technology (IT) officers at each primary school.
When speaking at the signing ceremony in Gaborone, Chief Executive of BOCRA and Chairperson of Universal Access and Service Fund (UASF) Board of Trustees Martin Mokgware said the project’s ultimate goal is to facilitate pupils in schools and host villages to be able to play a meaningful role in the digital economy.
Mokgware indicated that this necessitates upgrading of existing Telecommunications infrastructure to high capacity broadband that will support delivery of education, accessibility to the quality Internet and usage of ICTs.
The Fund began its inaugural programme by sponsoring the provision of WiFi hotspots in public areas around the country as its first project. Following the successful implementation of public WiFi hotspots, the Fund identified Kgalagadi, Ghanzi and Mabutsane areas for mobile network upgrades, schools computerization and internet provision.
Conscious that the project would not be possible without buy-in and support from MoBE, MTC and MLGRD, the Fund facilitated the signing of the first MoU between the three parties in 2016 for implementation of the project.
BOCRA Chief Executive said the signing of this agreement is aimed at benefitting the Kweneng District, adding that they have already assessed the area and have determined that they will be covering 62 underserved villages and 119 schools, 91 of which are primary schools.
“This is a project for which the partner Ministries need to re-commit for its success. Lessons from the previous schools’ computerization and internet connectivity project require that we increase our involvement and resources dedicated to the project for it to be successful. It is my belief as the project coordinator, that we will not do things the way we did them during the first project, for if we do, then we will not have learnt anything,” he said at the signing ceremony.
The purpose of learning is so that there can be continuous improvement to minimize the length of time and amount of resources utilized, he said expressing confidence that their partners will step up to the plate and ensure they play their part in the implementation of the project and that it will progress smoothly having already tread along a similar path.
UASF’s role lies mainly in funding and project management. According to Mokgware, once the project is completed, the work to integrate ICTs into the classroom begins in earnest. Therefore, he said, the project will not succeed without full cooperation and oversight of partners.
“MoBE will put in place the necessary content and ensure that the curriculum is available to all. MLGRD will provide, among others, the enabling environment by ensuring readiness of the school’s infrastructure and necessary security.”