Barclays Bank of Botswana has delivered strong performance in their half year results for the period ended June 2016 as the bank continues with its journey to be the leading bank in the country. The latest strong results were achieved amidst a challenging trading environment marked by slow economic growth and declining commodity prices.
“Every business faces challenges especially in the current turbulent economic environment. However I’m excited to inform you that despite the challenges we face daily, we remain optimistic and excited about the future. We are committed to maximising shareholder value through our strategy. We are about to see that indeed our strategy is working and resilient despite the challenging environment,” said Reinette van der Merwe, Managing Director of Barclays Bank Botswana.
Ms. van der Merwe says their numbers will show they have achieved and exceeded their objectives and they are now moving into becoming the leading bank in Botswana. She highlighted that they were able to deliver a strong set of results despite the challenging environment. Moreover, she said the bank continues to make progress in growing their key segments in the various sectors of the economy.
For the period under review, Mumba Kalefungwa, Barclays Botswana finance director, said the half year results demonstrate their commitment to delivering on their strategy and also on contributing to the various sectors of the economy through credit extension and provision of various payment solutions.
“The performance that we are reporting today has mainly been driven by sustained revenue growth in our retail banking business and significant growth in excess of 50% in our Corporate and Investment Banking business and indeed our Business Banking business which has contributed to register excellent growth. Some of the factors that drove business in the year were efficient balance sheet utilization, improved margins, increased foreign exchange transaction volumes, generally transactional volumes and growth in our customer base,” he said.
The bank’s profit before tax was up by 144% to P270.6 million on the back of strong growth in revenue despite operating in a challenging and competitive environment. The bank realised revenues in the excess of P740.6 million, representing an increase of 27% following solid balance sheet increase and non-interest revenue growth in all the bank’s segments. Retail business registered growth of 10% mainly driven by transactional volumes while the bank also realised significant growth in Corporate and Investment banking as well as business banking segment which grew by 58% and 22% respectively.
The Net Interest Income increased by 8% to P499.6 million after corporate and investment banking and business and banking registered strong growth in terms of balance sheet momentum propelled by various chosen markets that the bank have elected to ply their trade in. The retail business remains the bank’s biggest cash cow in terms of revenue generation, contributing the largest share to revenues. The growth in Net Interest Income was helped in part by a fall in interest expense which went down by 27% to P92.2 million. The reduction was the result of a combination of optimised alternative funding sources and improved liquidity in the market following a reduction in the statutory reserve ratio which improved overall funding in the banking sector.
The Non-Interest Income increased by 18% while the Net Fee and Commission Income was up by 20% to P150 million. This was driven by improved customer transaction volumes in all chosen business segments. The bank says as part of their channel strategy, they have been migrating customers from the costly traditional bank branch to convenient and affordable digital channels. The operating expenses increased slightly by 4% to end at P374.3 million, which Barclays Bank Botswana says it’s in line with inflation growth rate. The bank has also impressed by cutting down on what was perhaps their biggest headache after they suppressed impairments down by 16% to P96 million. This comes after the bank reported lower profits in previous full year results after experiencing a spike in impairments. Barclays Bank Botswana was able to reduce impairments through improvements on retail losses which they attribute to revised collection models.
The second largest listed bank in Botswana in terms of market capitalization managed to grow its balance sheet to P14.5 billion, up by 12% riding on the growth of loans and advances to customers which spiked by 18% to almost P10 billion. The growth has largely driven by Corporate and Investment banking and Business Banking segments that grew 79% and 116% from a balance sheet perspective as the bank continues to offer debts and transactional solution products. On the liabilities side, deposits due to customers went up by 10% to settle at P10.5 billion largely driven by corporate deposits rising by 16% to P5.7 billion.
“This growth was driven by positive flows from our various corporate relationships where we continue to focus on all identified opportunities. We continue to strive to improve our customer service and product offering to existing and potential customers with a view to providing access to finance and providing various payment solutions. This has continued to contribute to the momentum that we have built over the last few years.”
Barclays bank Botswana half year results show that the bank is strongly capitalised at P1.9 billion in terms of regulatory capital, representing a ratio of 19.2% against the regulatory limit of 15%. Furthermore the bank remains highly liquid at 19.7% and operating well above the regulatory limit. As a way of returning positive returns to shareholders, the bank has declared an interim dividend of 14.67 thebe, representing P125 million in dividend payout, up from P100 million paid out in the corresponding period.
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.