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Lenders and Letshego loan book to fatten April 1st

Banks and micro-lenders like Letshego will be one of the big beneficiaries when government effects the second leg of the civil servants on April 1st, this was observed by Motswedi Securities experts recently.

Last year after trade unions and government sat down for salary negotiations, it was announced that for the financial year 2019/20 there be an increment of 10 percent for scales A  and B , 6  percent for scales C and D, effective 1st April 2019. It was also announced at the same time that there will be the same manner of increment for the financial year of 2020/21, civil servants are still waiting.  

When commenting on the recently released Letshego 2019 final financial results on Monday, Motswedi Securities experts said: “We are expecting the second leg of the Botswana civil servants salary increments to be effected on the 1st of April – this will likely play well into growing the retail loan book as is in line with the Group strategy. Otherwise, the group will maintain its core business of deduction at source while also looking to diversify its product offering.”

Letshego is a major lender of government and state owned companies employees who make a larger percentage of the working class in Botswana. Last year the micro-lender’s deduction code ensured that before salaries were credited into accounts of civil servants, instalments due to Letshego were collected by government workers and paid as a lump sum to the micro lender, which decreased or eliminated chances of defaults. Hence why the micro-lender has kept a fair loan book with few defaults as impairments were kept at bay according the 2019 financial results. Botswana’s Household Debt is currently standing at USD 3.6 billion.

However renowned rating agency, Moody’s Investor Service is very sceptical of this system of deduction of loan payments at source from the public sector employees because governments may change terms and regulations or impose restrictions on such platform of loan collection hence leading to a sharp rise in bad debts and impairment costs. Moody’s said this could lead to negative rating pressure being exerted on Letshego's rating if regional authorities in the company's main operating markets change the terms of loan collections from public servant.

According to Moody’s, as of June 2019 Letshego offered payroll loans to around 20 percent of Botswana’s civil servants which was less than the Namibian government workers’ 47 percent. Mozambique government employees who were offered payroll loans last year were around 23 percent. Letshego’s loan book is topped by Botswana being high at 29 percent, followed by Namibia contributing to the micro-lender’s lending by 23 percent. Rwanda does not contribute anything to Letshego’s loan book currently, while Nigeria only adds a percent.

Letshego has just woken up from a human resource fracas with exodus of top management, failing to keep a CEO for more than a year. Motswedi Securities highlighted the bright side was marked by some improvement from the prior year’s numbers, with Profit After Tax up 35 percent at P691 million from P510mn, driven by a 93 percent spike in non-interest income and a 53 percent cut in the expected credit losses. The Letshego EPS climbed to 29.2 thebe, while RoE went up 16 percent and RoA went up to 6 percent.

Letshego has 2,144,045,175 shares in offer and was trading at P0.90 with a market capitalization of 1,929,640,658. Last year just when this country was going for national polls, Letshego saw the biggest decline in its share price, losing 51.2 percent. Letshego’s 12 month low is P0.70 while its high is P1.62. “Letshego achieved growth in both income and profits in 2019, with profits after tax enjoying a strong resurgence on 2018. This is against a backdrop of a challenging year for Letshego following unexpected changes in the Group’s senior leadership team and new regulatory regimes in some of its markets.

The focus for the year was on embedding the strategy to deliver positive performance through maintaining stability, cost control, improving portfolio collection quality and stabilizing the effective tax rate," said Letshego directors. Letshego has declared final dividend of 7.7 thebe per share for the year ended 31 December 2019. The micro-lender shares go ex-dividend from 27 April 2020, while last date to register is 29 April 2020 before dividend payment date on 11 May 2020. Going forward, according to Motswedi Securities, the group maintains its stance on expansion and will not be increasing its footprint across Africa, it will remain present in 11 countries on the continent. One of the key deliverables noted by the incoming CEO Andrew Okai according to Motswedi, include a 10 percent growth in the top line while maintaining the cost to income; cost of credit to sit at around 2.5 percent, push RoE to 20 percent; and reduce the effective tax rate to a target rate of 35 percent (2019: 39%, 2018: 50%).

Letshego ratings

Respected rating agency Moody’s assigned a Ba2 Corporate Family Rating (CFR) and Ba3/Not Prime issuer ratings to Letshego two weeks ago. According to the rating agency, the outlook on Letshego is stable. “The Ba2 CFR captures the company's solid capitalisation and profitability, supported by its niche, low-cost, franchise. They also capture Letshego's growing diversification across regional countries, which makes the company more resilient to an adverse change in any of its operating markets,” said Moody’s.

According to Moody’s, Letshego’s strengths enabled it to overcome challenges such as narrow business models with high reliance on payroll deductions for loan repayment collections. Letshego also has high exposure to foreign exchange risk. The micro-lender has elevated asset quality risks. According to Moody’s, Letshego's expansion in other sub-Saharan markets, client segments and products, results in a material weakening of asset quality and profitability metrics. Letshego has a major challenge by its dependence on market-sensitive wholesale funding, Moody’s acknowledges that the micro-lender has put on action to address this weakness.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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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