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.
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”