Botswana conceived Pan-African financial group Letshego Holdings Limited announced its financial results for the first six months of 2018, mirroring a sound and satisfactory performance across its spread African footprint.
Key financial highlights indicate that the Botswana Stock Exchange (BSE) listed financial outfit raked in an impassive double digit growth on its profit before tax as well as gross loans and advances, compared to the six month ended June 2017. Profit before tax expanded by 19 percent to P590 million, with gross loans and advances growing by 12 percent, to P8.7 billion against to the half year ended June 2017.
Operating income increased by 15 percent following expansion of various strategic initiatives being; agency banking, mobile digital platforms, strategic partnerships, cross-selling and the launch of new solutions in select markets amongst others. Letshego told its stakeholder on Monday that operating costs for the period under review increased by 17 percent, which included P10 million in once-off costs following a write-down of redundant IT equipment as the Group prepares to migrate to a cloud environment.
Letshego executives explained that however a higher effective tax rate of 38 percent resulted in a lower increase in profit after tax for the period, the latter only moved up by 11 percent. The company also dealt with impairment provision increase of 37 percent following the implementation of new accounting standards, ‘IFRS 9’ as of 1 January 2018.
Letshego Group Chief Financial Officer (CFO), Colm Patterson explained that this meant a P150 million decline in the Group’s retained earnings and an increase in impairment provisions from P402 million to P552 million during the 2018 first half. He said IFRS 9 has also resulted in an increase in the Group’s Coverage Ratio to 95 percent. Patterson is currently overseeing Group operations in the interim while recruitment is ongoing to find replacement for Chris Low who resigned last month after 5 years of leading the BSE listed Group.
He highlighted that on another positive note Letshego Group’s loan recoveries continue to improve with exception of Nigeria, Tanzania and Uganda business which experienced increase in impairments during the period under review. “The Group continues to see gradual growth in deposits, with Mozambique and Rwanda seeing greater momentum in deposits than other markets in the Group’s footprint, Letshego’s ongoing success in forging strategic partnerships, rolling out our LetsGo solution in select markets and mobilizing our focus and strategy continues to deliver dividends,” shared Letshego CFO.
Patterson revealed that borrowing customers have increased by more than 50% and deposit customers have doubled over the same period. “Although deposit customer growth remains at a low base, we hope to maintain this momentum for the second half of the year,” he said. Colm explained that Letshego continues to make good progress with its diversification strategy into nongovernment segments across markets, with access remaining a core priority as the Group centers its focus on enhancing customer value.
“More specifically, Ghana and Tanzania have made the most progress in extending solutions to informal segments. Following Letshego Ghana’s launch of ‘Qwikloan’ late 2017, in partnership with MTN Ghana, more than 2.5 million loans have been disbursed to over 600,000 customers” he added. “Letshego’s Affordable Housing and Education Eco-System solutions remain key drivers of growth in the Group’s MSE (Micro and Small Entrepreneurs) loan book, together the two solutions constitute 6% of the total loan portfolio.”
Patterson explained that in support of Letshego’s financial inclusion agenda, the Group remains focused on increasing digital access channels, as opposed to adding more physical outlets to its regional footprint. “Digital channels include USSD, Agency Banking, Direct Sales Agents and Cards. In the first half of this year, Letshego has doubled the number of independent agent access points, and increased USSD registrations by more than 50 percent Cards, the Group’s most recently launched channel is achieving positive progress in roll out to customers in Namibia, Nigeria and Tanzania,” he said.
Letshego continues to reduce its dependence on bank loan funding by issuing notes off existing DMTN programmes in active domestic debt capital markets. Ghana recently issued GHS95 million (about P221 million) of new notes with 5, 6 and 7 year maturities, with all issuances being oversubscribed.
Letshego Ghana obtained approval to increase its DMTN Programme limit by GHS200mn. Three new bonds with a face value of GHS95million were issued in the first half of the year, maintaining a stable bond rating of BBB+(GH) from Global Credit Rating (GCR) – three notches above investment grade. The Group’s credit rating from Moody’s remains unchanged.
This first half also saw conclusion of P256million of funding from international investors. New funders include development finance institutions, investors who focus on micro and inclusive finance ventures and impact investors. “Most of these newer finance partners are headquartered in the UK and Europe, all with a keen interest in sustainable development in Africa.
The funding arrangements mentioned above are expected to deliver treasury benefits and mitigate funding risk for the Group by achieving geographical diversification in its funding base, increasing the current number of funders, securing longer tenors as well as reducing the Group’s overall open foreign exchange exposure by drawing new local currency-denominated facilities,” explained Colm Patterson
He echoed that Letshego Group remains on track and committed to its current strategy of increasing access to simple and appropriate solutions across its 11 market footprint, leveraging digital technology and strategic partnerships – ultimately achieving our collective objective in increasing financial inclusion across Africa.
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”