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Banking industry faces tough operational environment

FNBB released their FY results where PAT firmed by 3% y/y to P719.7mn. Interest income was almost flat as well growing by 3%, reflecting the lower interest rate environment while interest expenses declined by 7% leading to a 6% growth of net interest income y/y.

The bank managed to expand its loan book by 17% to P12.1bn while impairments were relatively flat; up by a paltry 2%. Operating expenses ticked up by 13% offsetting the 7% rise in operating income, leading to its cost to income ratio to pick up vaguely, to 40.3%. The retail bank posted a return on equity of 34%. An 11thebe dividend was declared boosting its dividend yield to 4.1%.

At the end of q3, FNBB was trading at a P/E of 12.7x (compared to market; 13.7x) fairly valued at current levels. However we remain bullish about the bank’s long term prospects as it has been dominant in the technology space, bringing innovative and convenient services to the market place also its strong fundamentals makes it an attractive long term investment.

Barclays saw its PAT languish by 35%

On the other hand Barclays saw its PAT languish by 35% y/y for their interim results for the 6 months ended 30 June 2014. Net interest income declined by 6.5% though its interest expenses for the period were lower than those for the period 30 June 2013; (down by 33.3%). On a positive note, their non-interest income rose by 10% y/y to P145.9mn.

On the balance sheet, loan book was firmer by 17.3% to P7.77bn (the second highest loan book within the listed banks), albeit impairments surged by 24.3% y/y. The retail bank realized a 10% increase in operating expenses, pushing the cost to income ratio to 57%.

EPS plunged by 35% to 14.51thebe (relative to 22.2thebe: 30 June 2013), leading to an increased P/E multiple to 16.5 (the highest in the banking industry, as at the end of the quarter). Despite the higher P/E ratio the bank had an attractive dividend yield of 6%.

Although the bank posted disappointing results during their year-end for 2013 and the interims, it is still to be seen how the bank will turn around its fortunes and recover its market share given the operational environment which is characterized by lower interest rates, increased competition and central bank moratorium which will certainly put pressure on non interest margins.

However we are of the view that the bank has the capacity and capability to retain its market share as it is well capitalized and have a strong balance sheet.
BIHL net premiums rebound…

BIHL released their interims realizing a 15% soar in net premiums buoyed by growth from both recurring and single premiums. Fee income was also positive, growing by 19% y/y to about P55.1mn. The assets management division which contributes about 8% towards the group’s operating profits edged up marginally by 3% to P27.9bn. Gross benefits and claims paid increased by 20.9% y/y.

Total expenses rose by 12% to P279.1mn lead mainly by the administration expense which leaped up by 15% y/y. Total assets were almost flat, growing marginally by 2% to P14.3bn. This was mainly at the back of a paltry growth in financial assets at fair value (which contributes 81% of the total assets), of 1.3%. However investments in associates jumped by 12% y/y to P1.5bn. PAT was almost flat at P238.2mn while EPS declined by 2% to 86thebe.

BIHL currently has an attractive dividend yield of about 6.2%. Results were in line with our expectations, as the flat growth in PAT, reflected the intense competition within the insurance space. Although BIHL dominates the market share, it is presumably at a mature stage. However it is our view that the insurance giant has strong fundamentals which brightens up its long term view.

The resilience of the global picture as well, (though there has been slower growth expected from some of the emerging markets) presents a very conducive environment for the group to expand its AUMs and generate sustainable returns.

Adopted from Third Quarter Economic Bulletin Prepared by Motswedi Securities (Pty) Ltd

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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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