Management of Capital Bank Botswana predicts that the recently-announced acquisition, by their parent, of a majority stake in Barclays Bank of Zimbabwe will be an advantage for Botswana customers, staff and for trade and investment into this country.
Last week Barclays Bank PLC announced it was selling 42.68% of its 67.68% shareholding in Barclays Bank of Zimbabwe to First Merchant Bank Limited (FMB) with an additional 15% of shares being earmarked for an employee trust and FMB receiving the right to purchase Barclays PLC’s remaining 10% interest at a future date. FMB owns 38.6% of Capital Bank Botswana, giving it effective control of the growing commercial banking operation.
FMB’s Group Managing Director Dheeraj Dikshit said the Barclays Zimbabwe transaction represented a “profoundly important” milestone in the Malawi-headquartered bank’s strategy to become a leading regional bank. “In 2008, in terms of that same strategy, we acquired control of Capital Bank Botswana, an investment which has translated into considerable, steady, growth since then, in terms of our physical presence, employment, profits and our offering to Botswanan customers,” said Dikshit.
“In acquiring a respected but vibrant institution such as Barclays Zimbabwe, the FMB group will accelerate its regional growth strategy by helping to foster our customers’ cross-border trade and the expansion, by large and mid-sized corporates, of regional operations. In the process we are confident of facilitating new job-creating investment both in Botswana and across the region.”
Dikshit said the strength of FMB’s leadership, its human capital, information technology (IT) and customer solutions and relationships were demonstrated by the bank’s latest (2016/17) financial results which showed that both Capital Bank Mozambique and FMB’s Zambian operations had achieved profitability after just three years of acquisition. In 2016/17, Capital Bank Botswana delivered record profits, of BWP23.9 million.
In Malawi FMB Malawi offers retail and corporate services and also owns the Leasing and Finance Company which offers asset financing, mortgage loans and leasing schemes. FMB owns 70% of Capital Bank Limited Mozambique and has effective control of Capital Bank Botswana and First Capital Bank Zambia. At its latest financial year end the group had total capital of US$74 million and total assets of US$452 million. Barclays Zimbabwe had total capital of US$65 million and total assets of US$470 million. In 2016/17 the FMB group recorded US$12.8 million net profit after tax and Barclays Zimbabwe a net profit after tax of US$10.4 million.
“In selecting which entity it would sell its Zimbabwean interests to, Barclays PLC was very concerned that the new owners would be in a position to safeguard its 104-year legacy in that country and the interests of its employees and customers,” commented Dikshit. “To that end, Barclays PLC undertook an exhaustive due-diligence exercise of FMB and its operations.
“Without speaking on their behalf, I believe I can very safely state that Barclays PLC was impressed with the strength of our people and systems across the markets in which we operate as well as our commitment to investing in those people and in our communities.” Dikshit explained that Barclays PLC and FMB had agreed on a three-year transition plan which will facilitate a systematic migration from Barclays’ operating platforms to those of FMB and that, during this period, both banks will deploy considerable resources to ensure a smooth transition. He added that he believed a key consideration for Barclays PLC was the strength of FMB’s IT platforms, in which it has made a substantial investment over the past three years.
“Capital Bank Botswana is today thoroughly integrated into our IT systems and it will be one of FMB management’s key priorities in the months ahead to work with Barclays Zimbabwe on bringing the same benefits that Capital Bank and others have enjoyed, from our technology platforms, to Zimbabwe. Based on our experiences in Botswana, Mozambique, Zambia and Malawi I have no doubt that we will achieve this objective.”
Capital Bank Chief Executive Officer Jaco Viljoen said local customers would stand to benefit the most from FMB’s Barclays Zimbabwe acquisition. “Our Botswana clients want seamless, affordable solutions for trade and investment across our shared border,” said Viljoen. ‘They want a dynamic, responsive bank that has real resources and skills in both Botswana and Zimbabwe. Soon, through our shared FMB network, Capital Bank will have the best banking expertise, IT and services in both countries.’
“Of particular significance is the fact that our already highly-skilled staff will be able to interact with a tremendously strong pool of talent in Zimbabwe, to develop cost-effective, innovative solutions for our shared clients.” Barclays PLC’s sale of its shareholding in Barclays Zimbabwe is subject to regulatory approvals but is expected to be concluded by the end of the third quarter (Q3) 2017.
About the FMB group
FMB is an entrepreneurial banking group committed to innovation, customer service and sustainable value creation for investors, employees and other stakeholders through its operations in both the commercial/corporate and retail sectors which it serves in Malawi, Botswana, Zambia and Mozambique. It and its associates employ a combined 950+ people through 250 physical contact
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Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”