Batswana, a nation of defaulting borrowers
Business
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.”
Business
ICT sector contributed P1.6 billion in Q4 2022
The latest figures by the government owned statistics entity, Statistics Botswana show that the Information and Communications Technology (ICT) sector in this country registered significant growth during the fourth quarter of 2022 (Q4 2022).
According to the figures the ICT sector made a contribution of 2.5 percent to the total Gross Domestic Product (GDP) at current prices, in Q4 2022.
The figures show that at constant prices, the ICT sector realized an annual growth rate of 4.6 percent and the sector contributed around P1.6 billion to the economy during the fourth quarter of 2022. “In Q4 2022, the contribution of ICT sector to the economy stood at 2.5 percent of total GDP at both current and constant prices. The ICT sector’s value added at current prices amounted to P1, 633.6 million while at constant prices it amounted to P1, 242.2 million. The sector registered an annual growth rate of 4.6 percent in constant prices,” according to the Botswana Information and Communication Technology recent update by Statistics Botswana. The statistics entity noted that the Postal and Courier Services sector’s value added amounted to P67.2 million in current prices, which constituted 0.1 percent of total GDP in Q4 2022.
Giving an update regarding the performance of other ICT sub sectors Statistics Botswana stated that fixed telephone line subscriptions decreased by 2.3 percent in Q4 2022, from 93,925 subscriptions recorded in Q3 2022 to 91,725. Mobile cellular telephone subscriptions however increased by 0.8 percent in Q4 2022, from 4,315,368 registered in Q3 2022 to 4,348,010. Comparing Q4 2022 to the same quarter of 2021, fixed telephone lines decreased by 30.8 percent while mobile cellular telephone subscriptions went up by 4.5 percent. Both pre-paid and post-paid mobile cellular telephone subscriptions increased in Q4 2022. Pre-paid mobile cellular telephone subscriptions rose by 0.8 percent from 4,149,143 in Q3 2022 to 4,181,783 while post-paid mobile cellular telephone subscriptions increased slightly in Q4 2022 from 166,225 registered in Q3 2022 to 166,227, according to Statistics Botswana.
Total internet subscriptions both mobile internet plus fixed internet subscriptions increased by 3.6 percent in Q4 2022, from 2,875,153 registered in Q3 2022 to 2,977,845. Mobile internet subscriptions went up, registering an increase of 4.5 percent from 2,721,946 subscriptions in Q3 2022 to 2,844,958 in Q4 2022. Meanwhile fixed internet subscriptions decreased by 13.3 percent (from 153,207 registered in Q3 2022 to 132,887 in Q4 2022).
Statistics Botswana stated that mobile money subscriptions have been increasing over the years. In Q4 2022, mobile money subscriptions went up by 1.3 percent, from 1,788.551 registered in Q3 2022 to 1,811,036. Mobile money is a technology that allows customers to receive, store and spend money using a mobile phone. To enjoy the benefits of mobile money, a customer has to register and open an account with a mobile money service provider. Existing mobile money services in Botswana include Smega by BTC, Orange Money by Orange Botswana, Myzaka by Mascom and Poso Money by Botswana Post.
The statistics entity stated that on-net fixed telephone domestic calls (Fixed to fixed telephone calls) traffic went down by 8.0 percent in Q4 2022, from 15.4 million minutes registered in Q3 2022 to 14.1 million and added that off net fixed telephone domestic calls (Fixed to mobile telephone calls) traffic decreased as well in Q4 2022. It went down by 0.6 percent from 23.9 million minutes in Q3 2022 to 23.7 million minutes.
With regard to mobile telephone domestic calls traffic, on-net mobile telephone traffic decreased by
0.8 percent in Q4 2022 while off-net mobile telephone traffic increased by 1.6 percent. While mobile to fixed telephone traffic decreased by 1.1 percent in Q4 2022. International outgoing fixed telephone calls traffic declined by 8.2 percent in Q4 2022, from 1.1 million minutes in Q3 2022 to 1.0 million.
The entity noted that outgoing international mobile telephone calls traffic increased slightly by 0.8 percent in Q4 2022, from 4.1 million minutes recorded in Q3 2022. On-net short message services (SMS) declined by 1.5 percent and off-net SMS traffic also went down by 0.5 percent in Q4 2022, according to figures from the statistics entity.
Business
State owned MDCB comes to Minergy’s rescue
Government owned mining investment firm Mineral Development Company Botswana(MDCB) has agreed to bail out embattled Minergy Coal, and clear its arrears with mining contractor – Jarcon, the Botswana Stock Exchange coal miner said in a circular to the market this week.
In the statement Minergy which operates Masama Coal Mine in Media, near Lentsweletau said it has signed a term sheet for funding offered by its main funder, the Minerals Development Company Botswana (Pty) Ltd.
The facility terms are subject to normal legal counsel review, satisfactory due diligence, final documentation, and the review, acceptance, and execution of the relevant financing agreements by the MDCB and the fulfilment of suspensive conditions.
The funding will be utilised to significantly repay the arrears of the Jarcon trade account as required by the Term Sheet. The statement said Minergy and Mineral Development Corporation intends to finalise and allow the disbursement of funds by no later than 30 June 2023.
The funding will allow Minergy to initially continue operations in a reduced sales environment with the associated reduced-cost initiatives implemented to stabilise the business ahead of ramping up to pre-shutdown levels.
In mid- March Minergy announced the halt of Mining operations at Masama due to what it termed a drastic decline in coal prices which resulted in a cash flow crisis.
It emerged that the infant coal miner owed it’s mining contractor, Jarcon over P80 million in arrears. Jarcon had reached a decision to tool down and let go of some of its employees citing cash flow shortfalls as it sought to demand clarity on outstanding payments from Minergy.
Minergy has previously received funding in hundreds of millions from Mineral Development Company (MDC), another Botswana Government 100 percent owned entity.
MDCB, which is housed under the Ministry of Minerals & Energy, is the wholly owner of Morupule Coal Mine. The relatively new minerals investment company also owns 15 percent of De Beers Group on behalf of Government.
Minergy ’s other state funders are Botswana Development Corporation (BDC), the state owned investment entity, 100 percent owned by Government of Botswana, housed under the Ministry of Trade & Industry.
Combined, BDC and MDC have previously pumped over P300 million debt funding to Minergy to bring Masama coal mine to production and later for expansion.
Minergy incurred a net loss during the year ended 30 June 2022 of P131 151 034 (2021: P106 903 609). As at 30 June 2022 the Group had accumulated losses of P376 420 873 (2021: P245 269 838) and its net liabilities exceeded its net assets by P180 279 583 (2021: net liabilities exceeded its net assets by P56 030 697).
This gave rise to a material uncertainty that casted significant doubt on the Group’s ability to continue as a going concern, and therefore, that it may be unable to realise its assets and discharge the normal course of business.
Significant progress towards stabilizing the business was made during the financial year in mitigating the going concern which included receipt of the final tranche of debt funding, completion of debt restructuring to stabilise the business and successful commissioning of Stage 4 of the Processing Plant (Rigid Screening and Stock Handling section) which allows it to now operate at nameplate capacity.
In addition to this, the ongoing war in Ukraine stimulated high coal prices from the end of the third quarter of FY22, as the energy market and the security of supply came under severe pressure. This led to extraordinary demand, allowing access to previously uncompetitive and uneconomical exports into the seaborne market during the fourth quarter.
Minergy successfully exported coal via Walvis Bay, with two 30 000-tonne vessels dispatched in May and June 2022 on a FOB basis. The Group also exported coal through Maputo via rail to the port, with two trains dispatched in June 2022 on a Free-On-Rail (“FOR”) basis. These events increased sales volume for the financial year by 40%, with record sales achieved in May 2022. These increased sales levels have been maintained post year end.
Business
G4S Botswana gross profit down P12 million
G4S Botswana Limited gross profit for the year ended 31 December 2022 declined by around P12 million, according to the company’s consolidated financial statements released by Botswana Stock Exchange (BSE) this week.
G4S Botswana gross profit declined by P12, 373 000.00 from P51, 289 000.00 recorded for the year ended December 2021 to P38, 916 000.00 for the year ended 31 December 2022.
G4s Botswana provides security services to among others, financial services industry and the services include cash transportation, counting and reconciling cash, sorting of notes for use in ATMs, counterfeit detection and removal, redistribution of cash to bank branches, ATMs and retail customers. The company also collects and processes cash notes within the retail environment.
In the recent financial statements, the BSE listed security services provider noted its revenues and profits were negatively affected by increase in fuel prices and cost of proving security services. “The significant decline in gross profit for the year was as a result of the abnormal price increases on fuel, as fuel expenses increased by 88% for the full year, compared to prior year adding significantly to total cost. Additionally due to the heightened security risk environment, the business invested in enhanced security upgrades to its infrastructure specifically in the cash service line. Investment in live monitoring of all cash vehicles further added to the cost of providing service putting further pressure to total costs.”
The company recently indicated that following the increased national security risks characterized by attacks on cash in transit vehicles, the company was forced to improve security of its vehicles, by adopting the latest technology.
According to the company’s management the significant miss in Gross Profit (GP) largely drives the decline in the profit before tax (PBT) year on year. “Added to the PBT decline is the increase in administrative expenses owing to the normalization of the alarm monitoring and response (AMR) teams wherein from September 2021 Management added back the full crew complement to the AMR response crew structure which had been reduced during 2020 – effectively experiencing the full cost of this change in the whole of 2022.
G4S Botswana management meanwhile noted that its revenue for the period increased by 6.45% driven primarily by good growth in the manned guarding service line and added that the top line growth was despite the contract losses experienced during the period under review primarily because of the new Citizen Economic Empowerment (CEE) legislation. “The Cash service line grew marginally by 4% while the Electronic Security Systems (ESS) remained largely unchanged as it continues to experience intense competition from new entrants particularly in the Alarm monitoring and response (AMR) space.”
G4S Botswana management noted that the company will continue to focus on growing revenue following encouraging increases in revenue quarter on quarter for both the third quarter and fourth quarter of 2022, indicating that revenue lost during the first half of 2022 is systematically being recovered. “We will continue driving the sale of integrated security solutions to ensure that we remain at the forefront of security capability in Botswana. The trading conditions remain challenging with significantly fewer opportunities than in prior years primarily due to CEE legislation. As a response, Management continues to drive its commercial strategy of focusing on industry-specific growth such as the retail growth strategy that has driven revenue growth. The infusion of technology into our service offering has also been successful as a revenue driver. Specific focus for the year is on cost management with driving efficiencies across the business and continued fuel management aimed at managing profitability.”
G4S management noted that the company will continue to focus on improving profitability. “Despite the reduced performance of the company, in lieu of stated reasons, the Board of Directors and Management are confident of the company’s going concern status and will continue to work hard towards improved profitability in the foreseeable future.”