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FNBB’s focus on customer-centric strategy fired up the balance sheet

First National Bank Botswana FNBB released its unaudited summarised consolidated financial results recently in Gaborone. The financials depict a strong balance sheet for the six months ended 31 December 2019.

During the past six months, the Bank continued to place focus on improving credit discipline with concentrated efforts on the distressed debt portfolio. According to the Bank, priority was given to customer-centric strategy through continued investment in infrastructure and digital customer solutions, with the roll-out of new products such as Cash Plus together with contactless POS devices and cards.  When announcing the results, FNBB’s Chief Financial Officer, Luke Woodford noted that the Bank’s funding increased year-on-year by 5 percent, with customer deposits increasing by 10 per cent. ‘’This is largely attributable to a 12 percent increase in demand deposits in line with the Bank’s strategy to enhance its transactional offering base, and a 3 percent decline in fixed and notice deposits.

During the year under review, the Bank increased the funding pool by issuing Tier II Capital amounting to P196 Million. Woodford announced that gross customer advances growth of 3 percent year-on-year was predominantly driven by retail lending although offset by further reductions in the business portfolio due to the intentional reduction of key high-risk accounts.
He further shared that ewallet volumes increased by 31 percent over the period while Pay 2 Cell increased by 41 percent, as customer continued to take up to the Bank’s convenient solutions. These factors combined with an overall increase in digital transactions resulted in a 29 percent growth in card and merchant commissions.

FNBB says its forward-thinking approach to technology and innovation will remain a constant focus point as the Bank enters the next era of rapid technological development around the world. The Bank has launched contactless point of sale devices and cards to further streamline and develop the customer and merchant experience.  ‘’Creating a seamless channel experience for our customer remains a focal point, with further developments planned for the FNB banking App. The Bank seeks to provide its clients with the flexibility to serve themselves in the form of convenient, value-added services. Combatting the ever-changing nature of cyber security remains paramount. The Bank deploys significant resources in this area and remains constantly vigilant to the evolving nature of the risk,’’ reads a statement from the Bank.

According to the Bank’s financial results, profit after tax jumped 12 percent due to the strong growth in income and resulting in an improved return on equity of 25.4 percent as compared to 24.6 percent in 2018. Interest income rose by 5 per cent against a gross advances growth of 3 percent.  ‘’The increase in average client rates was driven by a change in the portfolio mix towards retail as the Commercial portfolio continued to experience attrition. Set against the significant liquidity pressures seen in the prior period, the easing of liquidity in the current period and the success of the Bank in increasing transactional balances across all segments saw the interest expenses reduce significantly by 17 percent,’’ said Woodford.

Woodford also indicated that the impairment charge for the period indicated an increase of 10 percent against the prior year, following continued default pressure in the retail portfolio and further impacted by an extension of the collateral realisation period in the provisioning models. The impairment charge was further increased by the rise in retail personal loans which in turn now carry a higher expected credit loss provisions at initial origination.

Furthermore, the Bank’s non-interest revenue grew surged by 10 percent over the period from increases in volumes of customer transactions, as well as, from merchant service revenue following improved connectivity in the point-of-sale machines and an increase in machines in use. Revenue from foreign exchange reduced by 3 percent on the prior year, during which exchange rate volatility increased demand above usual levels.

The improvement in the cost-to-income ratio from 48 percent to 47 percent is largely due to the strong growth in NIR and reduced funding costs. It also reflects continued cost management initiatives, with the overall expenditure remaining within an acceptable range. For the six months ended 31 December 2019, the Bank continued to operate above the regulatory minimum capital adequacy ratios. As at the end of the final year period, the total capital adequacy ratio was 20.77 percent and is above the regulatory minimum of 15 percent.

FNBB declared an interim dividend of 6 thebe per share for the half year ended 31 December 2019. This dividend is payable to all shareholders registered in the books of the company at close business on 31 March 2020. The dividend will be paid on or about 25 March 2020 less withholding tax at the rate of 7.5 percent. Meanwhile, FNBB reiterated its commitment to its social responsibility to the community and performs this function through its foundation. The Bank has committed to contributing up to 1 percent of each year’s profit after tax to the Foundation. Since its inception in 2001, the Bank has made grants of more than P57 Million to the Foundation, which has been invested appropriately in qualifying beneficiaries.

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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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