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SCBB has exposures to BCL Group, employees

Standard Chartered Bank Botswana has become the first bank to confirm that it has significant exposures to BCL Group.

The confirmation by the bank comes after a month of uncertainty and speculation concerning the after effects the closure of the mines will have in the overall economy, particularly the banking sector. The bank finds itself in a tough spot after posting lower profits in their previous two reporting periods. The latest announcement will most likely hamper the bank's efforts towards increased profits.

"In terms of the listing requirements of the Botswana Stock Exchange, the Board of Directors hereby notifies shareholders that Standard Chartered Bank Botswana (SCBB) has considerable exposures to the BCL Group and its employees, its liquidation could adversely impact the 2016 performance," the bank said in a cautionary statement to shareholders, also adding that the bank continues to have sufficient liquidity and capital to deliver on its strategy imperatives.

In early October the government announced that they are placing BCL Group under provisional liquidation, effectively meaning that the country's largest copper mine in Selibe Phikwe and Tati Nickel mine in Francistown will cease to operate pending the liquidator's assessment which is expected to take four months. The liquidator is expected to determine whether the mine could be restructured and salvaged or liquidate BCL group's assets to meet its credit obligations.

While liquidation process is underway, the liquidator Mr. Nigel Dixon-Warren has since issued out retrenchment letters to more than 5000 employees of BCL group. Furthermore, the affected employees have been issued letters pertaining to their terminal benefits. The sudden closure of the mines has rattled the banking sector which has not only provided credit lines to the group but also to the axed employees.

When the news of the liquidation broke, Barclays Bank of Botswana acted swiftly to assure its shareholders and clients that its exposure to the struggling miner is shielded by a guarantee from the government. The bank had extended P1 billion guaranteed credit to the mine, meaning that should the mine fail to pay, the government will pick up the tab.

The other commercial banks have so far avoided stating their exposure, instead offered that they cannot discuss confidential matters between a bank and a client with a third party. But behind the scenes, the banks have been frantically assessing and trying to mitigate the impact the closure of BCL will have on their books.

The revelation by Standard Chartered Bank Botswana about its considerable exposure to the BCL group and its employees is the first of many expected from listed banks as they approach the reporting season. The listing requirements require that listed companies warn their shareholders if they expect their financials to be impacted.

With Barclays and Standard Chartered Bank Botswana having declared their positions, the eyes are on the country's biggest bank- First National Bank Botswana- to state its position, with analysts speculating that there is no way the bank will emerge from this unscathed.

It has been an awful year for Standard Chartered Bank Botswana and their announcement will put more pressure on the bank which has been operating in a tough trading environment. The bank was in a shock 85 percent profit drop for the year ended 2015.

"Our performance in 2015 was impacted by the challenging trading environment, characterized by subdued macro-economic conditions, low interest rates and a significant decline in market liquidity. These factors resulted in a substantial increase in our cost of funding, causing considerable margin compression, which ultimately reduced income and profit.

Throughout these challenges, the group remained focused on implementing long term sustainable solutions to keep the statement of financial position resilient and ensure that the group remains here for good for our customers and stakeholders, " Mr. Moatlhodi Lekaukau, the bank's CEO said in March in a press conference with analysts and the media following the release of the end of year results.

The bank's performance was dragged down by a huge surge in net impairments which jumped by 7200 percent from P1.4 million to P104 million. The increase came as a result of the company’s exposure to businesses that have been operating under challenging market conditions, particularly those in the mining sector which has seen commodity prices plunge. The bank was later revealed to have had a significant exposure to a diamonds dealing company.

The harrowing experience caused the bank to limit its role in diamond financing deals. While the bank remained optimistic about future operations, the bank's interim profit for the half year ended June 2016 dropped by 5% following a 42% surge on net impairments losses. The results at the time sparked fresh fears that the bank might post profit lower than the one realized in 2015. Now it looks likely that the bank's upcoming end of year results will be materially impacted in light of their significant exposure which is expected to push up net impairment losses.

The statement from the bank advised shareholders to exercise when dealing in the bank's securities until the results are announced. The bank has performed badly in the stock market this year with its share price dropping by 30 percent to trade at P7.79. The precipitous drop in the share price has wiped over a billion pula from the bank's market valuation, leaving the bank with a market capitalization of P2.3 billion down from P3.3 billion in the beginning of the year.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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