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.”
Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.