Barclays Bank of Botswana Limited on Thursday announced its financial results for the year ended 31 December 2016.
The Bank delivered an excellent overall performance despite severe economic disruptions such as the slowing economic growth and a general slow rebound in commodity prices. The Bank continued to make progress in growing the key business segments in various sectors of the economy.
The Bank achieved a 49% growth in Profit Before Tax in comparison to the year ended 31 December 2015, growing from P332 million to P494 million. This strong performance was mainly driven by sustained revenue growth in our Retail and Business Banking (RBB) segments which grew by 11%, as well as significant growth of 30% in the Corporate and Investment Banking (CIB) segment.
Barclays Bank of Botswana declared a final dividend of 14.669 thebe per share subject to regulatory approval for the year ending 31 December 2016, after considering its strong capital levels and internal capital generation capacity. Given the economic environment and the company’s current performance, Barclays Bank of Botswana is undertaking a set of actions to drive value creation over time. In addition, the focus on certain sectors of the economy will be important contributors to its strategy of improving product portfolio and financial performance.
Reinette van der Merwe, Managing Director of Barclays Bank of Botswana said, ‘Our performance reflects the commitment of our colleagues and all our stakeholders. We believe that as we continue our journey to foster comprehensive, cutting-edge financial solutions, we ultimately simplify and improve the customer experience, achieving our goal to be the “Bank of Choice” in Botswana.’
Net interest income increased by 9% year-on-year, mainly driven by balance sheet growth and optimal utilisation of funding sources, which resulted in net reduction in our interest cost yearon-year by 26%. Net fee and commission income increased by 16% year-on-year. This growth was driven mainly from our RBB segment where we had an increase in transactional volumes and activity from our various digital channels.
Net trading income increased by 70% year-on-year. This growth was driven by increased volumes from client acquisition and execution of cross selling opportunities, during the year. Operating costs have remained well contained with a cost-to-income ratio of 49% for the current year, compared to 55% in the previous year. This is in line with our continued focus of managing costs through various cost control programmes and rationalisation activities, while continuing to invest in our people and systems.
On a year-on-year basis our impairments grew by a modest 7% in comparison to the prior year. This positive performance is attributable to our enhanced collections capability and selective credit extension to high risk sectors. During the year, management took a prudent view to accelerate recognition of Retail impairments provisions related to personal loans of employees of one of our mining clients.
Excluding the impact of this significant event, our impairments would have reduced 50% year-on-year. Consequently on a normalised basis our overall loan loss rate would have been at 1.2% from the previous year’s levels of 2.4%. Due to accelerating impairments provisions, our impairment loss rate is 2.7% compared to 2.4% in the prior year.
As we continue to focus on delivering on our strategy, we were able to realise a 5% growth in our overall balance sheet. The major components of our balance sheet remained largely unchanged, with customer loans and liabilities representing the most significant parts. Loans and advances to customers decreased 4% year-on-year. This decrease was mainly driven by the early settlement of a loan facility by one of our mining clients. Therefore, on a normalised view, our customer assets grew by 3% year-on-year. Deposits due to customers increased by 2%, largely driven by positive flows from our CIB segment that drives a significant portion of our funding.
Our regulatory capital position was P1.9 billion at financial year end, representing a ratio of 19.8% against the regulatory minimum of 15%. The Bank remains well capitalised to support future balance sheet growth and will continue to review its capital position in line with capital demand and regulatory changes. Reinette concludes: “We are determined to attain a leading market position in various sectors, in full support of our customers and all other stakeholders countrywide. With financial and business power to invest in future growth, Barclays Bank of Botswana is ready to seize the opportunity that will support the long term strength of our business.’
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
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”