The Bank of Botswana has said banking sector’s profitability improved in 2016, with income after-tax increasing by 29.3 percent from P1.1 billion in 2015 to P1.4 billion in December 2016.
As a result, Return on Average Total Assets (ROAA) and Return on Equity (ROE) also increased from 1.5 percent and 13.3 percent to 1.8 percent and 14.4 percent, respectively. Overall, the banking sector complied with the minimum prudential and statutory thresholds as expected. According to the Banking Supervision Annual Report 2016 released this week, the banking sector’s total assets increased by 5.3 percent from P76.6 billion in December 2015 to P80.6 billion. Loans and advances grew by 6.2 percent to P51.3 billion in December 2016, compared to growth of 7.1 percent in 2015.
“The Liquid Assets to Total Assets Ratio rose from 15.4 percent (2015) to 16.7 percent (2016), following an increase in liquid assets. Similarly, the ratio of NPLs to Total Loans and Advances increased from 3.9 percent in December 2015 to 4.9 percent in December 2016. The household sector accounted for 59 percent of total NPLs. The ratio of aggregate Large Exposures to Unimpaired Capital was much lower than the 800 percent maximum prudential limit set for banks in Botswana, implying satisfactory management of credit concentration risk,” reads the report.
In 2016, total customer deposits grew by 4.2 percent to P62.4 billion, the report further states. It recognizes that customer deposits constituted the largest proportion of liabilities at 77.4 percent and, as expected, the primary source of funding for the banking assets. “Interbank balances and credit from institutions increased by 20.4 percent from P3.3 billion in 2015 to P4 billion in 2016, as banks accessed alternative sources of funding for asset growth. As a result, the Financial Intermediation Ratio (the ratio of Loans and Advances to Deposits) increased from 80.6 percent to 82.2 percent.”
The Banking Supervision report notes that the banking sector was adequately capitalised and met the new regulatory capital requirements, with all banks reporting Capital Adequacy and Common Equity Tier 1 Capital Ratios in excess of the minimum prudential requirements of 15 percent and 4.5 percent, respectively. The banking industry’s capital adequacy ratio was 19.6 percent in December 2016 (December 2015: 20.1 percent).
Access to banking services, as measured by the ratio of Bank Accounts to Adult1 Population, improved from 75.9 percent in 2015 to 76.5 percent in 2016. Notwithstanding the fact that an individual can have multiple accounts, the ratio of Bank Accounts to Adult Population provides a rough indicator of access to banking services. The aggregate number of bank accounts grew by 3 percent from 1.13 million in 2015 to 1.17 million in 2016, while the number of accounts held by the adult population grew by 2.7 percent from 1.49 million to 1.53 million.
The Banking Supervision Annual report states that the employment levels in the banking sector for 2015 and 2016 increased by 0.5 percent from 5 030 in 2015 to 5 055 in 2016. The increase in employment levels was due to branch expansion. However, it further records that five banks recorded declines in their employment levels during the year under review due to branch rationalisation and automation.
The report indicates that Banks continued to innovate and introduce new products and services, including Credit Default Swaps (CDS)2 for institutional investors. CDS is an agreement where the buyer of the CDS makes a series of payments (the CDS “fee” or “spread”) to the seller and, in exchange, receives a payoff if the loan defaults. Various savings accounts, such as target savings and offshore accounts, were also introduced.
To further enhance the existing service delivery channels, some banks upgraded the intelligent ATMs, among others, improving functionality with respect to cash and cheque deposits, withdrawal of foreign currency (e.g., South African rand (ZAR)), bill payments, and cardless services. Point of Sale (PoS) functionalities were also upgraded to permit acceptance of Union Pay International cards3, as well as allowing local merchants and customers to pay in any currency of their choice, where feasible.
Furthermore, PoS machines were enhanced to allow payment using earned cash-back points. In addition, the online banking platforms for small and medium enterprises were extended to include services such as payments to other bank accounts held in Botswana, bulk file payments for multiple beneficiaries and segregation of duties in the platform, according to an individual client’s needs.
FINANCIAL POSITION OF BANKS
According to the Banking Supervision Annual report, the banking sector’s total assets increased by 5.3 percent in 2016 (December 2015: 12.7 percent) from P76.6 billion in December 2015 to P80.6 billion; mainly reflecting a 6.2 percent increase in gross loans and advances to P51.3 billion in December 2016. Net loans and advances constituted a larger proportion of total banking sector assets (62 percent), followed by investment and trading securities (14 percent).
It states that the proportions of both assets and liabilities for 2015 and 2016 have largely remained unchanged, with minimal variations between the two periods. The report further buttresses that it is evident that the major source of funding for commercial bank assets continues to be customer deposits. In an effort to enhance and strengthen the resilience of the banking sector to economic and financial shocks, the Bank of Botswana says it implemented the Basel II Capital framework which came into effect on January 1, 2016.
“In order to facilitate an orderly transition to the new capital regime, the Bank adopted a gradual approach to Basel II implementation, commencing with Pillar 1 (Simple Approaches) and Pillar 3 disclosure requirements. The implementation of Pillar 2 and the Advanced Approaches has been deferred to a later stage.” According to the report, the commercial banks’ Large Exposures to Unimpaired Capital Ratio increased to 195 percent (2015: 194 percent). This ratio differed considerably among individual banks, ranging from 65.5 percent to 484.1 percent.
“The large exposures increased from P18.2 billion in 2015 to P20 billion in 2016, while unimpaired capital increased to P10.2 billion in 2016 (2015: P9.4 billion). The Large Exposures to Total Loans and Advances Ratio was 38.9 percent (2015: 37.7 percent). All banks maintained Large Exposures to Unimpaired Capital Ratios within the recommended 800 percent prudential limit.” The Banking Supervision Annual report states that the banking sector’s Liquid Assets to Total Deposit Ratio increased from 19.7 percent in 2015 to 21.6 percent in 2016, which was significantly above the 10 percent minimum prudential requirement.
“Similarly, the Liquid Assets to Total Assets Ratio increased from 15.4 percent in 2015, to 16.7 percent in 2016, following an increase in liquid assets. Overall, the total liquid assets held in the banking sector increased to P13.5 billion as at December 31, 2016 (December 2015: P11.8 billion),” it states. The banks’ aggregate cash and balances with the Bank increased by 38.2 percent from P4.6 billion in 2015 to P6.3 billion in 2016. Commercial banks’ placements with other banks and credit institutions increased by 3.9 percent from P10.5 billion in 2015 to P11 billion in 2016.
Chart 2.14 shows Bank of Botswana Certificates (BoBCs) holdings by banks for the period 2012 – 2016. There was a slight decrease in BoBCs holdings to P7.9 billion during 2016 (December 2015: P8.2 billion). The Report says overall, the liquidity indicators show an improved liquidity condition in 2016.
“The banking industry’s unimpaired capital increased by 9.2 percent from P9.4 billion in 2015 to P10.2 billion in 2016, due to an increase in retained earnings of 4.1 percent (2015: 11.5 percent) and Tier 2 capital instruments (5.8 percent). Four banks voluntarily injected additional Tier 2 capital amounting to P240 million. In addition, increases in banks’ capital levels can also be attributed to increases in RWA, as banks grew their loan books. All banks, with the exception of two banks, which paid out dividends, recorded increases in their unimpaired capital,” reads the report.
The report further shares that the country’s financial depth and development indicators improved marginally, with the ratios of Private Sector Credit and Banking Credit to GDP increasing from 31.6 percent and 32.4 percent in 2015, to 31.8 percent and 32.6 percent in 2016, respectively. However, the M2 to GDP ratio decreased from 45.7 percent in 2015 to 42.8 percent in 2016.
“As was the case in the prior year, five banks dominated the banking sector, accounting for 90 percent of total banking assets. There was a dilution of competitiveness, as measured by the Herfindahl-Hirschman Index (HHI), during the year. However, the banking sector remained moderately competitive. The pressure on banks to innovate, develop and improve their products and services, in order to maintain high profitability levels, is expected to enhance competitiveness.”
The Banking Supervision report suggests that there is still room for more players in the banking sector.
Botswana Stock Exchange (BSE) moved swiftly this week to suspend BBS Limited from trading its securities following a brawl between Board of Directors and Managing Director, Pius Molefe, which led to corporate governance crisis at the organisation.
In an interesting series of events that unfolded this week, incumbent board Chairperson, Pelani Siwawa-Ndai moved to expel Molefe together with board Secretary, Sipho Showa, who also doubles up as Head of Marketing and Communications. It is reported that Siwawa-Ndai in her capacity as the board Chairperson wrote letters of dismissals to Molefe and Showa.
Following receipt of letters, the duo sought and was furnished with legal opinion from Armstrong Attorneys advising them that their dismissals were unlawful hence they were told to continue to report to work and carry out their duties.
Documents seen by BusinessPost articulate that in the meeting which was held on the 1st of April, the five outgoing board members, unlawfully took resolutions to extend their contracts by a further 90 days after April 30 2021 as they face tough competition from five other candidates who had expressed interest to run for the elections.
Moreover, at the said meeting, management explained that neither management nor the board have the authority to decline nominations submitted by shareholders or the interested parties which is in line with Companies Act and also BBS Limited constitution.
Molefe also revealed that as management they cautioned the board that it was conflicted and it would be improper for it to influence the election process as it seems they intended to do so. “Nonetheless, in a totally unprecedented move in the history of BBSL, the board then collectively passed the unlawful resolutions below. Leading to the illegitimate decisions, the board had brazenly directed that its discussions on the Board elections should not be recorded totally violating sound corporate governance,” reads the statement released by management this week.
When giving their legal advice, Armstrong Attorneys noted that notice for the AGM should state individuals proposed to be elected to the board and directors have no legal authority to prevent the process.
Armstrong Attorneys also noted that, “due process” cited by board members are simply to ensure that the five retiring Directors avoid competition from interested candidates to be appointed to the BBS Limited board. The law firm further opined that the resolution of the 90 day extension of term of the five directors pending re-election or election was unlawful.
Molefe expressed with regret that BBS has been suspended from trading by BSE until the current matter has been resolved. “I am concerned by this development and other potentially harmful actions on the business. As management, we are engaging with stakeholders to mitigate any negative impact on BBS Limited,” expressed a distressed Molefe.
He assured shareholders and the rest of Management that they are working very hard to ensure that the issues are being dealt with in a mature manner. BBS which hopes to become the first indigenous commercial bank has seen its shares halted barely four months after BSE lifted the trading suspension of shares for BBS following submission of their published 2019 audited financial statements.
According to Chief Executive Officer (CEO) of the local bourse, Thapelo Tsheole said the halting of shares of BBSL is to maintain fair, efficient and orderly securities trading environment. “The securities have been suspended to allow BBS to provide clarity to the market concerning the recent allegations which have been brought to the attention of the BSE relating to the company’s Board of Directors and senior management,” said Tsheole.
Meanwhile in their audited financial statements for the year ended 31 December 2020, BBS recorded a loss of P14.6 million as at 31 December 2020 compared to the loss of P35.7 million for the comparative year ended 31 December 2019. According to Molefe the year under review was the most challenging for the bank, its shareholders and customers endured the difficult economic environment and the negative impact of the coronavirus.
He revealed that as the bank, they were forced to put in place several measures to ensure that the business withstands the impact of coronavirus and also to cushion mortgage customers from the effects of the pandemic. “Since April 2020 up to the end of December 2020, BBS assisted 555 mortgage customers with a payment holiday,’’ he said.
This is the bank whose total balance sheet declined by 12 percent from P4, 626 billion for the year ended. 31 December 2019 to P4, 088 billion as at 31 December 2020. As if things were not bad enough, total savings and deposits at the bank declined by 14 percent from a balance of P2, 885 billion as at 31 December 2019 to P2, 494 billion as at 31 December 2020.
On a much brighter side, BBSL mortgage loans and advances improved from P3, 401 billion to P3.408 billion with impairment allowance significantly improving to P78, 648 million from P102, 532 million for the year under review, representing a positive variance of 23 percent. BBS maintained a strong capital base with capital adequacy ratios of 26.32% for the year ended 31 December 2020.
Molefe was optimistic and anticipated a positive outcome during the implementation of the new BBS corporate strategy, whose main drive is commercialization of operations, which is in full force. “It will be spurred on by the positive results we have achieved for the year ended 31 December 2020, and our planned submission of our banking license application to Bank of Botswana which we anticipate to operate as a commercial bank in the third quarter of 2021,” he alluded.
Chief Executive Officer (CEO) of Premium Nickel Resources Botswana (PNRB), Montwedi Mphathi, has said his company will resuscitate the formerly owned BCL assets and deliver a new, sustainable and cutting edge mining operation.
The new mine which will leverage on modern and next generation technology, will be environmentally sensitive and cognisant of the needs of its people and that of the communities around the area of influence.
In a statement last week, Premium Nickel Resources Botswana and its parent company, the Canadian headquartered Premium Nickel Resources announced that they have now completed the Exclusivity Memorandum of Understanding (MOU) with the Liquidator.
The MOU will govern a six-month exclusivity period to complete its due diligence and related purchase agreements on the Botswana nickel-copper-cobalt (Ni-Cu-Co) assets formerly operated by BCL Limited (BCL), that are currently in liquidation.
On February 10, 2021, Lefoko Moagi, the Minister of Mineral Resources, Green Technology and Energy Security of Botswana, affirmed in Parliament a press release by the Liquidator for the BCL Group of Companies, stating that PNR was selected as the preferred bidder to acquire assets formerly owned by BCL.
“This is encouraging for the company and for Botswana. Our ambition in this new project dubbed “Tsholofelo” is to redevelop the former BCL assets into a modern, environmentally sensitive, efficient NI-Cu-Co-water producer where sustainability and the people are at the forefront of the decisions we make,” said Mphathi in a statement last Thursday.
“We also understand that no matter how successful we are at building the “New BCL” , our success will only be measured at our ability to create local wealth , skills and support the continued transition of local economy to a longer term sustainable base.”
The next step during the exclusivity period will be the completion of the definitive agreement. Simultaneous to this the PNRB will be conducting additional investigative work on site to further its understanding of the potential of these assets.
Specifically the company will complete an environmental assessment, a metallurgical study, a review of legal and social responsibilities, a review of the mine closure and rehabilitation plans and an on-site inspection of the legacy mining infrastructure and equipment that has been under care and maintenance.
Mphathi said they continue to monitor the global Covid-19 developments noting that they are committed to working with health and safety authorities as a priority and in full respect of all government and local Covid-19 protocol requirements. PNRB has developed Covid-19 travel, living and working protocols in anticipation of moving forward to on site due diligence.
“We will integrate these protocols with the currently applicable protocols of Ministry of Health & Wellness as well as District Health Management Team ( DHMT) and surrounding communities,” reads a statement released by the Gaborone based Premium Nickel Resources team.
PNRB is looking to become a catalyst in participating and building a strong economy for Botswana, with a purpose where respect and trust are core to every single step that will be taken. “Our success will mean following international best-in-class practices for the protection of Botswana’s environment and the focus on its people, building partnerships and earning respect, through cooperation and collaboration,” explains PNRB on its website.
“We are committed to Governance through transparent accountability and open communication within our team and with all our stakeholders.” Mphathi, a former BCL Executive, is widely celebrated for achieving unprecedented profitability at the mine during his tenure as General Manager.
The Serowe-born mining guru obtained a Diploma in Mining Technology from Haileybury School of Mines in Canada. He later obtained a B.Eng. Mining degree from the Technical University of Nova Scotia. Mphathi went on to City University in London, UK and obtained a M.Sc. in Industrial and Administrative Sciences.
Before ascending to the top country managerial role of Premium Nickel Resources. Mphathi was General Manager of Botswana Ash (Botash), Southern Africa’s leading salt and soda ash producer. He was at some point linked to Debswana top post, which is still to date not substantively filled following the death of Managing Director, Albert Milton, in August 2019.
With Mphathi out of the race and now leading the rebuilding of his former employer, the top post at De Beers- Botswana joint venture is likely to be filled by current acting Managing Director Lynette Armstrong, a seasoned finance executive with unparalleled experience in the extractive industry.
“We are happy to hear that former General Manager of BCL, Mr Montwedi Mphathi, has a relationship with the new Company that intends to resuscitate the mine, he is an experienced Mining Executive who knows BCL better, we want the mine to be brought back to life so that our people can be employed ” said Dithapelo Keorapetse Member of Parliament for Selibe Phikwe West recently in Parliament.
BCL was liquidated in October 2016 following a series of losses and government bailout occasioned by low Copper prices and allegedly poor Investment decisions and maladministration. Recently PNR CEO, Keith Morrison said his team of seasoned experts both from Canada and Botswana are committed to resuscitate the BCL assets and deliver a high performance mining operation.
“The World, Botswana and the mining industry have changed dramatically since mining first started at the former BCL assets in the early 1970s. The nickel-copper-cobalt resources remaining at these mines are now critical metals, required for the continued development of a decarbonized and electrified global economy,” he said.
Morrison added: “As we move forward, it is our goal to demonstrate the potential economics of re-developing a combination of the former BCL assets to produce Ni-Cu-Co and water in a manner that is inclusive of modern environmental, social and corporate governance responsibilities.”
He explained that to attain this, extensive upgrades to infrastructure will be required with an emphasis on safety, sustainability and the application of new technologies to minimize the environmental impact and total carbon footprint for the new operations.
“Our team remains committed to working with the local communities and all of the stakeholders throughout this period and we encourage anyone with questions or feedback to reach out to us directly,” he noted.
Lucara Diamond Corporation, the Canadian 100% owners of iconic Karowe mine, this week announced the extension of its supply deal with Belgian diamond midstream giant HB Antwerp.
The definitive supply agreement is in respect of all diamonds produced in excess. of 10.8 carats in size from its rare gem producing Karowe diamond mine located in the Boteti district of Botswana. Large, high value diamonds in excess of 10.8 carats in size account for approximately 70% of Lucara’s annual revenue.
Though the Karowe mine has remained fully operational throughout the COVID-19 pandemic, Lucara made a deliberate decision not to tender any of its +10.8 carat inventory after early March 2020 amidst the uncertainty caused by the global crisis.
Under the terms of this novel supply agreement with HB, extended to December 2022, the purchase price paid for each +10.8 carat rough diamond is based on the estimated polished outcome, determined through state of the art scanning and planning technology, with a true up paid on actual achieved polished sales thereafter, less a fee and the cost of manufacturing.
“Lucara is beginning to see the benefits of this strategy in accessing a broader marketplace and delivering regular cash flow based on final polished sales,” said Lucara CEO, Eira Thomas on Wednesday.
“We believe these early results warrant an extension of the arrangement for at least 24 months to determine if superior pricing and market stability for our large, high-value diamonds can be sustained longer term.”
The Canadian junior miner initiated a supply agreement with HB for large stones from its Botswana Karowe mine in July 2020, after pausing its tenders shortly after the Covid-19 pandemic began. The deal enables Lucara to sell the rough diamonds to HB at a price based on an estimate of the polished outcome, which the companies determine using diamond scanning and planning technology. Once HB sells the goods, it adjusts the price that Lucara receives based on the actual selling price of the polished, minus a fee and manufacturing costs.
The extended supply deal will follow the same payment terms as the initial agreement, and will be in effect through to December 2022. Lucara said in a statement this week that the agreement also provides increased tax revenue and beneficiation opportunities for the government of Botswana, and creates a streamlined supply chain for Karowe’s rough.
“More than a supply agreement, this collaboration structurally embeds a new transparent and sustainable way of working in the diamond-value chain,” said HB CEO, Oded Mansori. “For the first time, different partners of the value chain are fully aligned, sharing data and information throughout the process from mine to consumer.”
Mansori added: “We are truly proud with this innovative and straightforward collaboration that has proven itself through the volatile and uncertain reality of 2020. We are confident to achieve even better results during the term of this new contract and demonstrate the power of a true partnership.”
Lucara, which early this year secured extension of Karowe mining license to 2040, announced over P2.4 billion funding for Karowe underground mining expansion project a fortnight ago. The Vancouver headquartered top large diamond producer says this supply agreement deal extension with HB will bring about regular cash flow for Lucara using polished pricing mechanism. Furthermore, the company says the deal has potential revenue upside, particularly suited for Lucara’s large, exceptional diamonds.
In the main, Botswana will benefit increased tax revenue and additional beneficiation opportunities for the Government and communities around Karowe mine. A streamlined supply chain that achieves alignment between Lucara and HB to maximize the value of each +10.8 carat diamond produced at Karowe.