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Barclays bags 13 percent in profits

The bank with the second largest stock in the market has announced a 13 percent or P 558 million profits before tax. Barclays Bank Botswana, which will be operating as ABSA in July 2018 notes that it strives for excellence and they will continue holding on to the rights to trade as Barclays in Bank in Botswana.

The bank highlights that its Retail Banking market which was characterized by continued job losses in the mining sector and industries affected by the closure of a key mine in 2016 remain slightly affected. The Barclays Botswana Managing Director Reinette Van Der Merwe, has on Thursday highlighted that they have necessitated a revision of the lending criteria to the affected customer segments.

The released statements for the year which ended December 2017 show that there had been a continuous modest growth in household income which resulted in constrained demand for credit from households. The pressure on household incomes consequently led to a reduction in the savings and deposits from individuals and therefore a decrease in the Bank’s retail customer deposits. Despite the headwinds in the market, Retail Banking registered a strong overall performance. Profitability increased year-on-year driven by a marked improvement in impairments. While total revenue remained flat year-on-year, non-interest income registered a notable growth of 9 percent

The Bank Financial Director (FD), Mumba Kalifungwa notes that they forecast inflation to be at an average of 3.7 percent in 2018. This forecast comes after Inflation had been stable and averaged 3.3 percent in 2017. The moderate increase in economic activity, alongside slow growth in personal incomes which resulted in weak activity resulted in low inflationary pressures. As the cost of living including fuel, electricity, service tariffs, transport and water rose, the results note that it did not do much harm as it only moderately impacted inflation in 2017.

Imported inflation therefore is reported to have been restrained given low inflation among trading partner countries and the relatively stable Pula exchange rate. However in 2018, they note they expect inflation to pick up gradually on the back of rising international oil prices and expansionary government budget.

In line with their business strategy to grow fee income, the bank stresses that it will continue seeking better and improved ways of service provision. Deposits are reported to have grown by 6 percent while loans balances increased by 3 percent year-on-year. Barclay’s financial results show that significant strides were made in delivering strategic priorities during the 2017 financial year.  The FD explained that they will continue to review the number and location of their physical distribution channels as increasing number of customers continue migrate from brick and mortar to digital channels.  

The Business Banking strategy continued to deliver results with an 11 percent year-on-year growth in profit before tax. This growth in profitability is evident to have been driven by both net interest income and fee commission income. The main driver to net interest income was on the back of strong asset growth on loans and advances to customers then business strategy forecast shows that there will be a continued focus on embedding strong banking relationship in order to deliver client service that would differentiate service to customers.

The results show that the Bank through the launch of the Enterprise Supply Development (ESD) is positive the initiative will enable them to serve the Small Medium Enterprise (SME) market better through supporting the corporate value chain. “We will be rolling out new products and services during the year which we believe will continue to enhance our offering and in implementing our strategy,”

Loans and advances to customers increased by 14 percent year-on-year to P10.7 billion. This growth is largely associated with Corporate, Retail and Business Banking segments that grew by 36 percent and 6 percent respectively. This bank notes was mainly in their chosen business segments, where various debt and transactional banking solutions were offered. Customer liabilities decreased by 2 percent year-on-year largely driven by corporate deposits where we saw a reduction of 4 percent to P6 billion. We continue to strive to improve our customer service and product offering to existing and potential customers with a view of providing access to finance as well as various payment solutions.

This has continued to contribute positively to the momentum that the bank continues to build on. The results emphasizes that it remains important to insure there is growth in the fee income remains critical to their strategy and this will continue to be an area of focus in expanding the banks revenue base. The bank notes that it will continue to focus on controlling costs, and managing impairments by selective credit processes and maintaining the focus on collections throughout 2018.

The FD highlighted that their balance sheet remains solid at a total position of P15 billion, with strong liquidity and capital levels. He explained that they remained well above the regulatory Liquid Asset Ratio (LAR) requirement of 10 percent for the year ended 31 December 2017 ending at 15.49 percent. The Bank’s regulatory capital position was P2 billion representing a ratio of 19.8 percent above the regulatory limit of 15 percent.

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Business

New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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Business

BHC yearend financial results impressive

18th July 2022
BHC

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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