P1.26 billion non-performing loans exposure staring at FNBB
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.
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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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