First National Bank Botswana (FNBB) continues to swim through difficult times of slow economic growth caused by amongst others the fall out of BCL Mine and generally sluggish economy.
The Group which is listed on the Botswana Stock Exchange (BSE) as FNB Holdings registered 9 percent increase in profits before tax for half year trading period ended 2017 December 31st . This was revealed by the company’s top brass at a financial results briefing in Gaborone on Wednesday. FNBB Chief Executive Officer (CEO), Steven Bogatsu shared that his bank continues to deliver positive results despite the unfavorable environment. He attribute the bank’s gains to innovative customer tailored products that best satisfy FNBB clientele.
Bogatsu highlighted that 95% of volumes were accumulated from clicks, that is to say growth in digital banking transactions significantly contributed to their positive financial output. “Click transactions involve both online banking and cell phone banking. These are platforms the bank continues to provide to customer to ensure ease of banking,” he said.
Bogatsu revealed that in response to the aftermath of BCL closure and general sluggish economy, his bank has remained cautious on lending and focused more on recoveries and operational efficiencies which are positively impacting the profitability growth and ensuring sustainability of the banks’s performance into the future.
Giving an in-depth look into the financial results FNBB Chief Finance Officer (CFO), Makgau Dibakwane highlighted that the 9 % increase in profit before tax was due to over 444 million pula registered compared to 407 million pula recorded in the six month ended 31st December 2016. The Bank also realized 10 percent increase in noninterest income registering over 548 million pula compared to 499 million pula accumulated in the previous corresponding half year period.
This, according to the FNBB CFO, was due to significant increase in the volumes of electronic transactions. “This reflects success of promotional campaigns over the period to encourage customers to make less use of branches and greater use of the lower-priced electronic options, with a view to providing customers with greater convenience,” said Dibakwane.
A further scrutiny of the financial highlights indicates that advances to customers did not record any significant change in figures. Deposits from customers climbed by 4 percent from 17, 077, 199 000 in half period ended 31st December 2016 to 17, 818,762, 000 in trading period under review.
Dibakwane said although advances growth fell slightly below the market rate, the Bank still holds the largest market share of advances of 30% , adding that Growth of 10% was achieved in retail advances, mainly through employer schemes, while muted demand for business credit of the right risk profile subdued the overall advances growth. “There have, however, been recent signs of improved business confidence for 2018,” he said.
The bank also revealed that in overall their balance sheet grew by 6.7% from P22.4 billion to P23.9 billion on the back of growth in its retail and business deposit base, particularly in current accounts, which strengthens the Bank’s customer base. The Chief Finance Officer explained that this growth was posted in the term deposits, coupled with a further issuance of senior debt during the second quarter. “Both these initiatives are aimed at further lengthening the Bank’s funding profile. As a result, the deposits to customers and borrowings which represent senior debt posted growth of 4% and 21% respectively leading to a stable loan to deposit ratio of 85%.”
FNBB executives also shared that the Bank redeemed non-compliant Tier II capital instruments and reissued compliant instruments to enhance the capital position of the Bank and lengthen the maturity profile. As such, the Bank’s total capital adequacy ratio before dividend has been maintained at 19.88% as at 31 December 2017. “This is well above Bank of Botswana’s required minimum ratio of 15%,” said FNBB Chief Finance Officer explaining that as at 31 December 2017, Tier I capital ratio stood at 15.41% above the regulatory minimum of 7.50% whilst Tier II capital ratio was 4.47% in the same period.
He noted that the current Tier II capital ratio can be built up to the regulatory minimum of 7.50% over time, depending on the Bank’s strategy, capital demand and supply dynamics. “However, as per the regulations, the entire minimum capital adequacy ratio of 15% can be covered with Tier I capital. When the strategy dictates, the Bank would keep on tapping the capital markets for Tier II capital instruments in line with the Capital Management Framework,” he said.
INVESTING IN CAPITAL AND SKILLS
Meanwhile the Chief Executive Officer of FNBB, Bogatsu said Botswana needs to differentiate itself as a destination for investments in capital and skills. He indicated that the local growth slowed to 1.8% year on-year in the third quarter of 2017, 0.5% lower than at the same time in 2016. “Growth was led by the services sectors of transport, communications and financial services, whereas the trade sector has suffered from the downturn in the mainstream cutting and polishing diamond industry,” he said.
Bogatsu said In the short term, growth prospects were anticipated to reach 4% by 2019 with a medium-term average of 4.1% however he underscored that local growth should improve saying government must take deliberate actions in oiling growth dynamics, such as improving business confidence, policies and business regulations that will allow for more business to operate effectively as well as identifying specific economic zones.
The FNBB Boss noted that moving forward his bank will be focused on specific strategies such as building partnerships, improving customer service, investing in digital transformation and automation as well as banking efficiencies. "It has been an environment of efficiencies and we will continue building momentum for growth. The bank has worked on improving costs efficiently and as a result the bank has experienced 3.0% growth on assets,” he said.
Bogatsu also shared that despite resistance from some customers, FNB was 97% compliant of "Know Your Customers" popularly known as KYC. The company directors proposed an interim dividend of 5.0 thebe per share, the group says cautious approach to lending in recent times, has impacted on its net interest income growth, but reduced the Bank’s exposure to impairments, leaving the Bank well-placed to take advantage of future opportunities
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.”
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.”
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.