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Batswana, a nation of defaulting borrowers

The recent Bank of Botswana Banking Supervision Annual Report shows that the banking fraternity is hampered by people who are failing to pay back the money they borrowed, with Non-performing loans and advances standing at P3.2 billion in the year under review.

According to the Banking Supervision Report, household non-performing loans and advances were high in 2017 at 52 percent followed by private businesses loans at 46 percent in the previous year. In the year under review, loans which have been defaulted were at 47 percent in the household sector compared to the 51 percent in the private business sector, numbers still at the peak of non-performing loans.

According to the central bank report the banks’ large exposures to unimpaired capital ratio increased to 209 percent (2017: 200 percent), and was within the 800 percent prudential limit for banks in Botswana. Generally, according to the Bank, the composite credit risk for the banking sector was considered high and is expected to increase in the short- to medium-term due to the dominance in banks’ loan books of the household sector credit, which is mostly unsecured. This makes the banking sector vulnerable to business restructuring and employment risks, particularly for state-owned entities, says the central bank.

“Past due loans (accounts in arrears) increased by 1.2 percent between December 2017 and December 2018. Non-performing loans (NPLs) increased by 10.7 percent from P2.9 billion to P3.2 billion in the same period. As a result, the ratio of NPLs to gross loans and advances rose from 5.3 percent in December 2017 to 5.5 percent in December 2018, thus a slight deterioration in asset quality.

The ratio of specific provisions to NPLs fell from 53.7 percent in 2017 to 42.7 percent in 2018, an erosion in the coverage of NPLs. But the credit-risk mitigation measures that banks have put in place are expected to absorb the residual risks,” says Bank of Botswana Banking Supervision Annual Report.

A cry echoing at judicial chambers

During the just ended Legal Year address Attorney General Abraham Keetshabe told the nation that the judiciary chambers of this country is constipated by debt collection cases. He said the justice system cannot handle the cases brought to court against people who cannot service their debts, as there is a stiff competition for space and time to have such cases heard and resolved within the shortest possible time.

Keetshabe borrowed from the central bank as he highlighted that the commercial bank loans to the household sector grew at elevated rates. “For example, about 13 percent in 2019, to approximately P40 billion and account for a larger proportion of bank credit, at 63.3 percent,” he said.

But the sad story does not end there, it continues with the total credit composition having 68 percent of unsecured loan, mortgages and motor vehicle loans account for 25 percent and 5 percent respectively. “Meanwhile household credit from micro lenders is estimated at P3.6 billion as at November 2019. Clearly the significance share of unsecured loans and advances has the potential to cause financial distress and conflicts in households, given the inherently expensive nature of such credit,” said Keetshabe.

The attorney general said that the risk posed by this credit composition is moderated by the extent to which unsecured credit is diversified. He added that the bulk of household credit is to the working class who are assessed by lenders to determine their capacity to repay the loan. Keetshabe also observed that credit risk is also lowered where a loan is under the custodian of a credit life insurance.

The amount of household credit relative to income and the size of the economy(GDP is modest and stable at around 48 percent and 19 percent respectively, but much lower than what pertains in more mature markets, said Keetshabe. “In this respect, domestic household borrowing appears to be in line with trends in personal incomes, representing relatively stronger debt servicing capacity.  As a result, the rate of household loan default has been modest at 3.3 percent as at September 2019,” said the number one state lawyer.

Keetshabe spoke to lack of financial discipline by Batswana who lack adequate financial planning and evaluation of prospects for borrowing as well as over-borrowing through use of multiple institutions and padding of income sources. He said this leads to inability to repay. This does not only affect the banking fraternity and debt collectors, but the courts also find themselves at loss of time and resources.

“We are all too familiar that there is a beehive of activity in the issuance of writs of execution and subsequent attachment and sale of whatever property that can be salvaged by Deputy Sheriffs; with traumatic effect on the concerned. In the business environment the philosophy is simple- minimize the minimums and maximize the maximums with a clear target of expanding the profit margin,” said the attorney general.

Keetshabe said Batswana are easily tempted by earthly riches hence irresponsible borrowing. As the case of a public servant being rendered a defaulter, he or she is financially embarrassed to a point of being inefficient and this is considered as misconduct. He emphasized the need for continuously promotion of financial literacy.

A continuing credit plague

One of the leading commercial banks, a big player in the local bourse too, First National Bank Botswana could have been far if it was not the rise of non-performing loan exposure from 6.6 percent to 7.6 percent year-on-year, an huge increase to P1.26 billion, according to the bank’s last financial statements.

Three years ago Bank of Botswana Governor Moses Pelaelo highlighted that there is a disturbing emerging trend where customers cannot pay their loan. This was after there was a trend which showed that since December 2014, the industry’s NPLs rose from 3.6 percent to 3.9 percent in 2015 and 4.9 percent in December 2016.

That same year of 2017 when the central bank governor raised concern statistics shows that in July 31, 2017 the non-performing loans had increased further to 5.9 percent of total bank loans. Since 2013 International Monetary Fund (IMF) also shows concerns about unsecured household credit and risks to banks.

Solution

Years ago when Botswana was toying with the idea of strengthening its credit laws, it looked at its southern neighbor South Africa for benchmarking. This is despite antagonists of the South Africa credit legislation saying the law does not offer full solution the country’s high levels of non-performing loans. South Africa’s National Credit Act (NCA) of 2007 received a rude awakening barely two years in its existence as firms and households were not able to live up to their credit expectations in the 2009 recession.

In the past former, legislator, trade minister and Econsult Botswana economist Bogolo Kenewendo suggested that there should be a National Credit Information Registry to make it easier to track and evaluate trends in credit habits in the country.  Last year former Minister of Finance and Economic Development Kenneth Matambo said the ministry was in a process of drafting the credit information bill.

Matambo said the legislation is in line with the implementation of the national financial inclusion roadmap and strategy that runs from 2015 to 2021. According to Mathambo that time,“the bill will seek to improve both positive and negative financial information which will improve access to credit which is extended to small businesses and citizens.”

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Pula smiles at COVID-19 vaccine

25th November 2020
COVID-19 vaccine

A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.

With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.

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Choppies high on JSE rollercoaster volatility

25th November 2020
CHOPPIES

After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.

Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”

Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.

However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.

The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.

In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.

“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.

This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.

On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.

However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.

Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.

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Foschini-Jet merger, a class and rivalry conundrum dissection

25th November 2020
Foschini

Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.

According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.

The two entities are South African retailers whose services stretched to Botswana shores.  Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.

South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.

However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.

When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.

“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.

The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.

This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.

What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.

“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.

Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.

CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.

Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.

“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.

CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.

Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.

“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.

According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of:  i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.

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