Higher credit growth expected for 2018
Business
An investment analyst with Stock Brokers Botswana, Donald Motsomi has said conversations with industry leaders in the banking sector give credence to an expectation of higher credit growth in 2018 largely on the back of increased government spending which is also expected to boost business activity in the economy.
This comes on the backdrop of a harsh 2016 that saw the sector’s profitability came under pressure with net income declining by 9.6% and ROE falling to 7% (2016: 14.4%). Writing in the Stockbrokers Botswana Banking Sector review report, Motsomi indicates: “We are therefore cautiously optimistic of a pickup in credit growth and have factored this into our forecasts. Rates are expected to remain unchanged, and we have also factored the October rate cut to translate to a slight reduction in interest margins.”
He says given the low interest rate environment and tight competition in the sector, banks are looking to increase the contribution of non-funded income to their revenues. The SBB analyst furthers states that there is an increased focus on digitization through numerous initiatives including mobile technology, enhanced ATM functionalities, online banking, and partnerships with merchants through point of sale machines. There is growth potential from leveraging on these initiatives. Further, banks are increasingly diversifying their services through offering insurance and wealth management services.
“The commercial banking segment of the sector could see the entry of a new player in the short to medium term. Botswana Building Society (BBS), a statutory bank registered as a society, is currently undergoing demutualization and conversion into a public limited company with the intention to obtain a commercial banking license from the Bank of Botswana. BBS, although looking to focus mainly on the unbanked, would intensify competition in the sector through financing banked individuals and SMMEs given they obtain the license. The bank has an established customer base from its property finance loans and saving and investment products, which it could leverage on.”
According to Motsomi, the implementation of IFRS 9 is set to impact the banks, with some more poised to withstand the hit than others. Banks’ capital is set to be negatively impacted. “FNBB and Barclays both have strong capital positions, while Stanchart’s capital levels were weakened by the heavy loss incurred in 2017. The bank is currently looking at various options to enhance its capital base in preparation for the standard’s implementation. The standard will also require impairment recognition to be incurred in a timelier manner.”
Motsomi argues that the banking industry landscape has changed over the last five years with credit growth slowing from double digit growth to the lows seen in 2017. Furthermore, the Monetary Policy has been accommodative over the period with the bank rate coming down from 9.5% in 2013 to 5% in 2017. He states that the decline in credit growth and rates over the years, as well as increased competition has seen the industry’s profitability normalizing, as seen from some of the listed banks’ ROEs coming down from as high as 30 – 40% to regions of 18 – 24%.
“The period under review, 2017, was a challenging one for the sector characterized by slower GDP growth of 2.4% (2016: 4.3%), weak business confidence, and marginal growth in employment creation and wages. These factors translated to credit growth of 5.6% (2016: 6.2%), with reports of businesses generally holding back on utilizing facilities and the aforementioned pressures on households limiting their capacity to take on more debt,” writes Motsomi in the SBB Banking Sector Review.
Going forward, Motsomi and the SBB analysts expect household credit growth to moderate on the back of the pressures faced as well as higher expected inflation for 2018. They stress that Business credit growth should be more robust given higher levels of business confidence for the year as per Bank of Botswana Business Expectations Survey, and increased government spending in the run up to next year’s general elections.
Sector Review
Commenting on the 2017 decline in credit growth to 5.6% (2016: 6.2%), Motsomi says it was attributable to a slowdown in lending to both businesses and households. Annual credit growth to businesses was 3.2% (2016: 4.2%), which was largely due to loan repayments by parastatals. Household credit growth was 7.2% (2016: 7.6%), the lower growth largely attributable to lower growth in mortgage lending of 4.8% (2016: 6.3%) while in contrast; unsecured loan growth was higher to 8.8% (2016: 8.3%).
Total deposits growth was sharply lower at 1.8% (2016: 4.1%) owing to a reduction in household deposits of -8.4% (2016: -3.6%) indicative of the pressures consumers are facing. Business deposits growth albeit lower was robust at 5.1% (2016: 7.2%). According to the SBB Banking Sector review, the higher growth in credit compared to funding saw the sector Loan to Deposit ratio increase to 85.2% (2016: 82.2%).On the backdrop of an economy operating with a negative output gap and the positive inflation outlook, the Central Bank cut the Bank rate by 50 bps to 5% (Prime rate: 6.5%) in October 2017.
“The impact on credit growth, if any, will be seen in 2018 as well as further squeeze on the sector’s margins. Lower deposit rates in line with the rate cut could act as a disincentive for households to save, which would exacerbate the reduction in household deposits further. A continuation of this trend would make it particularly difficult for banks to constrain their cost of funding given that 75.8% of total deposits are business deposits, which are relatively costlier.”
The Review states that Sector net interest income rose 3.4% on the back of higher interest income growth of 3.0% in comparison to interest expense growth of 1.7%. Non-interest income increased 3.0%. Despite this growth, the sector’s profitability came under pressure due to higher provisioning and operating expense growth.
Meanwhile Provisions increased 17.9%, with NPLs/Total Loans rising to 5.3% (2016: 4.9%). The higher NPL ratio was a result of higher NPLs/Total Loans for businesses, which increased to 6.4% (2016: 4.9%). However, NPLs/Total Loans for households reduced to 4.5% (2016: 4.9%). “This is a comforting development considering the concerns over high indebtedness of households.
Faster growth in expenses vis-à-vis income translated to a higher cost to income ratio of 63.9% (2016: 57.0%). Ultimately, sector net income declined 9.6% and ROE more than halved to 7% (2016: 14.4%). We believe Stanchart’s losses for 2017 played a significant part in the sector’s profitability decline given the bank’s large market share,” observes Motsomi.
There are 10 licensed commercial banks in Botswana, with the 5 largest banks accounting for 90% of total assets according to the latest Banking Supervision Annual Report. The listed banks, First National Bank Botswana, Barclays Bank of Botswana, and Standard Chartered Bank Botswana are amongst these dominant players.
Business
Gambling Authority expects bumper attendance at IAGR conference
With just four weeks to go, the Gambling Authority of Botswana has revealed that it is expecting a record attendance at the much anticipated International Association of Gambling Regulators (IAGR) Conference, which will be held in Botswana from 16 – 19 October 2023.
According to a communique from the IAGR, the Gambling Authority will most probably break the record in the number of accredited countries that will attend the conference in Botswana.
“We are on track to match and potentially exceed the incredible delegate turnout we saw in Melbourne last year,” read a statement from IAGR’s.
In its global reach alert, IAGR revealed a glimpse of jurisdictions that will be represented at the conference, among them Australia, Canada, Denmark, Japan, Jersey, Mauritius, United Kingdom, United States and Netherlands. African countries that have so far confirmed attendance include Zimbabwe, South Africa, Nigeria, Tanzania, Kenya and Burundi.
Commenting on the expected bumper attendance, IAGR said the amazing diversity elevates the conference to a whole new level, which will enrich discussions with a tapestry of regulatory perspectives and insights.
Botswana won the bid to host this year’s conference last year in Melbourne, Australia. The IAGR consists of representatives from gaming and gambling regulatory organizations from around the world; with a common mission to advance the effectiveness and efficiency of gaming regulation.
According to Gambling Authority Chief Executive Officer (CEO) Peter Kesitilwe, the Authority is a member of the IAGR by dictates of the Gambling Act; which compels it to align with international organizations whose objectives are to regulate gambling, and build collaboration among regulators.
“The IAGR conference is held annually and hosted by different member jurisdictions. It provides opportunities for gambling and gaming regulators from around the world to engage, learn and network with industry peers through events, workshops, research, information sharing, and the development of best practices,” explained Kesitilwe.
Funding requirements for the conference are shared between IAGR, the host country and conference participants. The government of Botswana has reaffirmed its commitment to supporting the Gambling Authority to host IAGR; as it is in line with its objectives of promoting the country as a Meetings, Incentives, Conferences, and Exhibitions (MICE) tourism destination.
According to Kesitilwe, the conference is coordinated by a Technical Committee of IAGR; together with a Local Organizing Committee (LOC) that comprises of representatives from the Ministries of Trade, Tourism, Foreign Affairs, Botswana Police Service and other stakeholders.
“We promise to deliver this hugely important event and showcase the best that Botswana has to offer. In addition to the exchange of ideas and culture capital, the Organizing Committee will also ensure maximum benefits for the tourism, hotel and hospitality industry, entertainment, transport, telecommunications, vendors, hawkers of cultural artifacts,” said Kesitilwe.
As part of preparations to host IAGR2023, the Gambling Authority recently went on a benchmarking mission to Great Britain.
“What we learnt there can assist the Gambling Authority as we enter a new era of growth and expansion. The meeting also provided a timely opportunity to catch up on preparations for IAGR2023. We are ready to host the conference and we look forward to meeting other regulators from across the world to share best practice, discuss common challenges and tackle illegal gambling,” concluded Kesitilwe.
Business
BDC on Diversity and Inclusion in the Corporate Sector and Workplace
In recent years, diversity and inclusion have emerged as crucial aspects of the corporate sector. Recognising the importance of inclusivity, the Botswana Development Corporation (BDC) has taken significant steps to signal its commitment to the inclusion of all regardless of age, gender, background. By implementing a comprehensive Diversity and Inclusion policy, BDC aims to create an environment that fosters equality, attracts top talent, and promotes creativity and innovation.
BDC has demonstrated its commitment to inclusion by crafting and implementing a bespoke Diversity and Inclusion policy. This policy recognises and values the differences within its workforce, striving to create a culture of equality. By fostering an environment where all employees feel respected and supported, BDC aims to attract and retain top talent, which in turn contributes to the organisation’s overall success.
The Corporation has implemented policies and strategies that promote diversity and inclusivity in the workplace. The Diversity and Inclusion policy emphasises the value and respect for employees from diverse backgrounds, creating an inclusive environment where everyone can thrive. By having this policy in place, BDC ensures that all employees are treated fairly and have equal opportunities for growth and development within the organisation.
In the realm of inclusivity, leading firms and companies have emerged as trailblazers, championing diversity and equity by implementing progressive policies and initiatives. These organisations have made significant strides in demonstrating their commitment to inclusivity through actions that support individuals with disabilities and foster work-life balance for all employees.
Microsoft actively recruits individuals with disabilities and fosters an inclusive workplace through accommodations and a dedicated resource group. Netflix offers generous paternity leave, Unilever supports surrogate parenthood and gender-neutral caregiver benefits, while IBM provides comprehensive adoption support. Companies like Google, Apple, and Facebook establish employee resource groups to amplify underrepresented voices. Adobe prioritises inclusive workplace design, and Accenture and Deloitte focus on diverse leadership representation. These companies set a powerful example, demonstrating the value of diversity and fostering a more inclusive corporate landscape.
Rising to the challenge, BDC has also taken several measures to respond to the different needs of its work force. These measures include fostering open and respectful communication, encouraging the formation of employee resource groups or affinity networks, and promoting diverse perspectives and contributions. The Corporation has also shown its commitment to inclusivity by recruiting persons with disabilities, providing paternity leave benefits, and recognising and supporting surrogate parenthood, primary caregiver benefits regardless of gender, as well as the adoption of children. These efforts demonstrate BDC’s progressive approach to embracing diversity and supporting employees in all aspects of their lives.
By so doing, The Corporation exemplifies the essence of progressiveness, embracing inclusivity as a core value. By championing diverse talent, providing supportive benefits, and fostering inclusive cultures, BDC is part of a movement that is shaping a future where every individual is valued and empowered.
Inclusion and diversity are not only moral imperatives but also strategic investments for success. BDC’s commitment to fostering diversity and inclusion, sets an example for other organisations in Botswana and beyond. By implementing policies and strategies that create an inclusive environment, celebrating diversity, and supporting employees from all walks of life, BDC paves the way for a more equitable and inclusive corporate sector in Botswana. Embracing diversity is not only the right thing to do; it also drives innovation, boosts employee morale, and contributes to the overall success of organisations.
Business
Sales, Profit up as Choppies new strategy pays off
Choppies Enterprises Limited, a supermarket chain led by Botswana businessman Ramachandran Ottapathu, reported an increase in profit after tax which is up 3.4%, hence improving from P145 million realized in 2022, to P150 million in 2023.
The results demonstrate sustained increases in consumer demand, improved operational flexibility, efficiency, cost-effectiveness and despite stiff competition, the Group managed reduce its debt levels by paying off P263 million debt from the previous fiscal year.
The chain supermarket realized growth in Group retail sales which went up 6.5% to BWP6 433 million compared to P6 042 recorded in 2022. The growth is attributed to a broad presence across Botswana and a growing footprint in three other African countries, being South Africa, Zambia and Zimbabwe, according to a recently financial results statement.
In Pula terms, gross profit grew by 4.0% to BWP 1 359 million (2022: BWP 1 307 million) despite the challenging economic environment. Botswana and Namibia marginally grew gross profit rates while rates in Zambia and Zimbabwe declined.
During the period under review, the group’s Group net cash generated from operating activities rose by 4.5% to P484 million, this is a significant improvement when compared to P463 million recorded in 2022. This segment was boosted by strong showing from Botswana and Namibia, which performed exceptionally despite the challenging trading conditions. Furthermore, it was driven by sixteen new stores coupled with price growth of 6.8%.
As a result of the robust financial performance, the group’s total assets increased from P1 886 million to P2 177 million, while retained losses decreased from P811 million to P664 million.
Meanwhile, the Group faced a demanding economic environment characterised by stubbornly high inflation, higher interest rates and unemployment, all of which continue to constrain consumer spending and the consumer’s ability to digest higher prices. Sales volumes were lower in many categories, exacerbated by competitor discounting, with cost pressures only partly recovered through price increases.
According to the audited results, the gross profit margin accordingly reduced to 21.1% from last year’s 21.6% due to higher supply chain costs, including fuel and managing prices in response to higher cost inflation and competitor discounting.
Furthermore, while expenses increased 5.1% excluding the depreciation restatement, expenses grew 9.8% partly due to new stores and inflation. Foreign exchange losses on lease liabilities of P31 million (against a gain of P28 million last year) were partly offset by foreign exchange gains on Zimbabwean legacy debt receipts of P18 million (2022: BWP15 million).
Operating profit (EBIT) reduced by 1.8% from BWP 279 million to BWP 274 million whilst Adjusted EBIT, which excludes foreign exchange gains and losses on lease liabilities, movements in credit loss allowances, Zimbabwean legacy debt receipts and the reassessment of depreciation, reduced by 7.5% as costs grew faster than gross profit.
CASH MANAGEMENT
According to the Choppies Enterprises financial statement commentary, the Group continues to manage its cash resources and liquidity prudently with a reduction of P132 million in debt with P87 million paid out of internally generated funds and the balance of P45 million paid out of the proceeds of the rights issue.
In addition, capital expenditure increased to P185 million when compared to 2022 fiscal year which had recorded P122 million. This was a result of the Group strategy to invest in new stores and maintaining the distribution fleet.
Choppies Enterprises raised BWP50 million from leases to fund the fleet, an improvement because in 2022 only P36 million was raised.
Despite the growth in sales, inflation and new stores, Choppies Enterprises inventory reduced by P20 million helped by more stable global supply and the benefits of implementing an inventory optimisation system.
Finally, commentary from the Choppies Enterprises Group observes that as the economies in which the Group operates recover and the new stores reach full potential, an improvement in margins is expected. “With a value proposition that resonates with customers and with the cost of everyday items still stubbornly high in too many categories, more customers are choosing Choppies for the value and assortment we are known for. While we have strong and resilient brands, affordability is a growing constraint for consumers, limiting their ability to digest higher prices,” reads a commentary on the Group’s Financial statement.
Choppies Enterprises Limited (“the Company”) is a Botswana-based investment holding company operating in the retail sector in Southern Africa. Dual-listed on the Botswana Stock Exchange (“BSE”) and Johannesburg Stock Exchange (“JSE”), its are food and general merchandise retailing as well as financial service transactions supported by centralised distribution channels through distribution and logistical support centres. Each week, approximately 2.0 million customers visit 177 stores under five formats in four countries. With annual revenue of more than BWP6 billion, Choppies employs 10 000 people and is the largest grocery retailer in Southern Africa, outside of South Africa.
EVENTS AFTER REPORTING DATE
On 19 July 2023, Choppies acquired 76% (seventy-six percent) of the Kamoso Group for BWP2.00 (two Pula) and took cession of shareholders’ loans to the value of BWP22 million. The Botswana Development Corporation (BDC) will retain its 24% stake.
This acquisition will take Choppies to become a P8 billion business in revenue with 11 000 employees and 274 retail stores.
SNEAK VIEW: COUNTRY PERFORMANCES
According to the financial results, Botswana experienced sales growth to BWP4 459 million an improvement from P4 209 million recorded in 2022. This was supported by volume growth from new stores and double-digit price inflation. Sales from Botswana increased by 5.9% and like-for-like sales growth was 2.2%, as the business continued to show strong resilience in an increasingly challenging economic environment. The Botswana economy continues to experience elevated inflation, high unemployment, and low economic growth.
EBITDA grew 5.8% and adjusted EBITDA was flat on last year. The performance for the second half was much stronger than in the first half as our strategies, leadership and inventory optimisation system have started to come to fruition.
As for the Rest of Africa being Namibia, Zambia and Zimbabwe sales increased by 7.7% to P 1 974 million, yet another improvement from 2022, which had realized P1 833 million sales. The increase was driven by the addition of nine new stores, inflationary increases in Zimbabwe and Zambia and volume growth in Namibia and Zambia. “However, this was offset by a very weak Zimbabwean Dollar resulting in Zimbabwe’s Pula sales declining by 48.3%.”
Meanwhile Namibia has successfully turned around with sales growth of 60.0% and like-for-like sales growth of 14.4%. Five new stores were opened during the year. EBITDA grew 140% with EBIT loss reducing from BWP9 million to BWP2 million. Adjusted EBIT, excluding the depreciation reassessment, reduced from BWP9 million to BWP6 million.
Connectedly, Zambia continues to grow with sales up 44.7% and like-for-like sales growth of 33.3%. Three new stores were opened during the year. While EBITDA declined by 26.4% due to the foreign exchange loss on the lease liability, adjusted EBITDA grew 27.1%. Adjusted EBIT declined marginally at 2.6%. Choppies Enterprises Directors are confident that Zambia will generate taxable profits in the foreseeable future.
Lastly in Zimbabwe, the Zimbabwean Dollar (ZWL) has significantly weakened especially in the last two months of the financial year. As a result of the above mentioned factors, Pula sales declined by 48.3%. EBIT and EBITDA declined by 151.6% and 125.5% respectively as cost inflation reduced margins. Adjusted EBIT and adjusted EBITDA declined 133.3% and 108.1% respectively.