Banks defied hostile trading conditions in 2017
Business
The 2017 Financial year was very difficult for the Banking Sector as most commercial banks battled with harsh trading circumstances as well as sluggish economic growth which deterred any potential business expansions.
The August 2016 and October 2017 interest rate deductions resulted in margin compressions, consequently resulting in low earning for most banks. Still in the 2017 financial year, the retail banking sector realized suppressed personal incomes due to closure of a number of businesses in 2016 and early 2017, this constrained and shrunk people’s ability to access banking services and facilities. For Major Banks, their Corporate and Investment Banking (CIB) divisions had to wrestle with liquidation of some of their major corporate clients resulting in CIB asset balance sheet decline.
Last week, Bank of Botswana (BoB) which regulates and oversees all commercial banks released the 2017 financial year report. At a press conference last Friday the Central Bank underscored that the banking sector’s asset quality had deteriorated. The ratio of non-performing loans to gross loans and advances, it was highlighted, increased from 4.9 percent in 2016 to 5.3 percent in 2017. According to the Central Bank the deterioration in asset quality was against the background of closure of some mining operations in the country, rationalization by some parastatals resulting in loss of employment and defaults by some companies in the diamond industry.
However, the banking industry, which plays an integral role in Botswana’s economic make up as the nucleus of the financial services sector was against these aforementioned circumstances sound, prudently managed, solvent, liquid and satisfactorily profitable in the 12 months period ended 31st December 2017. Bank of Botswana says all licensed banks met the minimum requirements as set out in the Banking Act and Banking regulations. According to the Central Bank report, the financial position defied unfavorable trading circumstances registering a 3.5 percent hike.
“The banking sector financial position increased from 80.6 billion pula as of 31st December 2016 to register 83.5 billion 12 months later in December 31st 2017,” reads the report in part. The industry’s total deposits increased by 1.8 percent from P62.4 billion in 2016 to P63.6 billion in 2017, compared to an increase of 5.6 percent in loans and advances from P51.3 billion in 2016 to P54.2 billion in 2017. As a result, the financial intermediation ratio increased marginally from 0.82 in 2016 to 0.85 in 2017.
Further, the reports says, the annual credit growth declined from 6.2 percent in 2016 to 5.6 percent in 2017, reflecting the slower rate of increase in mortgage lending and early repayment of loans by some statutory corporations. Bank of Botswana monitors the performance of banks through a system of monthly and quarterly returns, risk-based supervision, on-site examinations, regular consultative meetings with each bank and trilateral meetings with banks as well as their external auditors.
Another key instrument which BoB uses to cordially oversee the Banking industry is the biannual meetings of the Banking Committee which facilitates detailed discussions of industry-wide matters. BoB Head of Banking Supervision, Dr Lesedi Senatla observed that despite sluggish economic conditions and against all odds, the sector was adequately capitalized, profitable and liquid as at December 31, 2017. “The industry’s compliance with the regulatory, prudential, capital and liquidity requirements was satisfactory,” he said.
BoB reports that most banks registered higher levels of profit in 2017 compared to 2016. However three banks registered losses for the year ending December 31, 2017. BoB Head of Finance Daniel N Loeto noted that losses recorded by some banks would, in the absence of additional capital injection, reduce capital adequacy ratios as losses are deducted from Tier I capital.
On other key events during the period under review Kingdom Bank Africa Limited (KBAL) got liquidated resulting in litigation instituted by one of its major creditors against the Bank of Botswana for alleged negligence in the performance of statutory duties. Abandoned funds continued to be administered in accordance with Section 39 of the Banking Act (CAP 46.04).
As at December 31, 2017, the total abandoned funds balance was P10.6 million, up from P6.9 million as at December 31, 2016. During the year, an amount of P2.9 million was claimed, while P445 962 was transferred to the Guardian Fund. For the period under review in the twelve months to September 2017 the banking sector grew by 5.4 percent contributing significantly to the finance and business services sector which expanded by 4.6 percent in the same twelve months compared to 4.1 percent in the year ended September 2016.
The growth cut across the entire financial and business services subsectors led by business services at 7.6 percent, real estate at 6.4 percent, insurance at 3.7 percent while business prospecting increased by 3.2 percent with owner-occupied dwellings growing by 1.8 percent.
Business
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.
Business
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.
Business
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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