First National Bank of Botswana’s profit for the year fell by 15%, marking two years of declining profits on the back of a challenging trading environment characterised by low interests, limited lending and investment opportunities.
Net Interest Income (NII) before impairment of advances was up by 8% at P944.8 million. The growth in NII was spurred by a 12% reduction in interest expense as the market stabilised from a strain in liquidity in the previous year as well as alternate cheaper funding models.
When adjusted for impairments, the NII was reduced to P716.3 million following a 14% spike in impairment of advances which were driven mainly by specific impairments from business closures and a difficult business environment. In addition to the NII, the bank’s Non Interest Income grew by 7% to P927 million, delivering a total of P1.6 billion in income from operations, up by 7% from the previous period.
“In a low-interest environment, income diversification continues to be a focus area. To this end, stimulation of transactional volumes has been a key priority with significant growth being recorded on FNB Connect at 94%, Online Banking at 15%, Mobile banking at 16% as well as new offerings such as Hyphen which have also gained momentum.
Growth in the branch network volumes, the more expensive channel for our customers, showed lower growth levels of only 1%, reflecting success in our strategy to encourage customers to make more use of the electronic products in favour of visiting branches, so as to pass on real savings to our customers in terms of bank charges, ” said the banking group in a statement signed by Steven Bogatsu, FNBB’s Chief Executive Officer.
However, the growth in income operations was eroded by an increase in operating expenses which went up by 31% to P520 million. The surge in operating expenses was the result of the bank’s investment in infrastructure, increased depreciation of assets and regulatory processes enhancements. Further dragging the operations income was employee benefits costs which went up by 19% to P440 million, following the bank’s decision to invest in its human capital and build strong governance and support structures.
In the end, the country’s biggest bank saw its profit before tax fall by 13% to P659 million while the profit after tax was at a 2 year low of P504 million. The earnings per share (EPS) was also down by 15% at 19.81 thebe. The bank has declared a dividend of 6 thebe which means it will pay as much as P154 million in dividends to its shareholders, reflecting a 45% decline from the previous year’s dividend payouts. The bank, which is also the biggest company by value in the Botswana Stock Exchange (BSE), has lost as much as 20% of its share price since the beginning of the year.
FNBB’s balance sheet grew by 4% to P21.9 billion rallied by a 12% increase in advances to customers which now stands at P14.3 billion. Other notable increases that spurred the growth of the lance sheet include 187% growth in derivate financial instruments, 8% increase in investment securities and a 78% growth in accounts receivable. Still on the balance sheet, deposits from customers went down by 1% to P17 billion, while deposits from other banks were up by 51% to P300 million. The borrowings shot up by 177%, representing P1 billion.
“In an environment of limited lending and investment opportunities, the Group made a deliberate strategy of focusing on balance sheet efficiencies. This focus resulted in reduced deposits from customers which declined by 1%, and in changes in the deposit mix in order to manage interest expenditure and elongate funding term to address the maturity profile.
Although showing overall decline in deposits from customers, current, call and fixed deposits all grew while notice deposits and foreign currency deposits declined. Borrowings grew by 177% over the period, due to the success of a bond issue. This funding mix reflects our success in achieving diversification of both source and term funding, so as to mitigate future liquidity and concentration risk,” the bank explained.
The group is made up of five segments; retail banking, business banking, Rand Merchant Bank (RMB), Wesbank and treasury. The retail segment grew by 20% from the previous period and remains king in terms of contribution to revenue. The segment contributed P789 million to the group’s operating income, reflecting a 42% contribution. The business banking segment registered modest growth of 5% and has contributed 31% to the total operating income after bringing in P577 million.
The investment arm of the bank, RMB, showed strong growth at 17% from the previous period. RMB’s contribution to total operating income stood at P338 million, representing a contribution of 18% to the group. Another notable performance was from the vehicle and asset financing division, Wesbank, which grew by 18.3% while contributing P109 million or 5% of the group’s operating income.
The treasury segment, which manages the group’s liquidity and funding, was the worst performer as interest expenditure continues to depress income margins. The segment’s operating income declined by 66% to P56.3 million from the previous year.
The banking group says economic growth in Botswana is expected to remain below trend as the implications of low commodity prices in mining sector are still being felt. However, the group believes opportunities can be unlocked in other existing selective markets. To that end, the bank says it will continue on investing in its workforce while also improving the internal processes to make banking more effective and efficient.
“In conjunction with this, the Group is implementing various new processes to comply with changes in the regulatory environment. The Group will continue to invest in infrastructure, notably branches as well as other channels such as ATM with deposit machines and Point of Sale machines,” the bank said.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.