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Banking stocks facing the heat with nose down

Banking-stocks-facing-the-heat-with-nose-down

The once MVP of the local bourse, and the leader in the banking sector in terms of market performance First National Bank Botswana(FNBB) has been going downwards on the slide amid 48-day national lockdown at a time when customers were not traditionally queueing for services or banking was practiced via social distancing.

When statistically studying the FNBB price, things started to change for the worse a week before lockdown when it saw a drastic fall of 20 thebe or -6. 78 percent as the stock rolled down from a solid price of 295 thebe to 275 thebe.

But the signs of tough times ahead also came when Motswedi Securities researchers signalled that FNBB is looking down the swing as on 25 March the share price tumbled down from 290 thebe to 288 thebe.

This sudden drop in the FNBB stock was discovered just three days before Botswana announced her first three cases of coronavirus. Government declared an initial 28-day lockdown, when the FNBB stock was already feeling the temperature.

On February, before March fall of its price, FNBB posted their half year 2020 financial results according most experts expectations the bank profit before direct tax went up by 13 percent while its non-interest income pumped up 10 percent.

But the 20 thebe downward move by the bank stock on 27 March overlooked this FNBB financial performance. A market expert engaged for the stock reaction during corona strike and the subsequent lockdown said: ‘‘Banks will get the heat because of possible impairments and bankruptcies and loan defaults which are their main revenue.”

A study of the FNBB stock from 20th March 2020 to 19th June 2020 shows that from 295 thebe when many expected the stock to go up in reaction to the half year positive financial results, the FNBB share price went the opposite direction of the expectations.

But after the 20 thebe fall on 27 March the stock slowed in gliding down and remained at 275 thebe beginning of April. However, it fell down by 5 thebe on 9 April, a price it maintained for the whole month till May before encountering another slip to 265 thebe or -1.9 percent on 15 May. The FNBB price is currently selling at 240 thebe.

In an interview with BusinessPost, Stockbrokers Botswana research analyst Donald Motsomi put it to thought that FNBB is not the only banking stock getting shocks of the pandemic’s effects, there has been a downfall in the share price of another listed bank, Stanchart.

Motsomi said, but it is only a matter of time till ABSA and BancABC stock looks down. “It is likely only a matter of time before ABSA and BancABC share prices come under pressure as well,” he said in an interview.

The Stockbrokers Botswana researcher noted his concerns on the banking sector, going as far to state that the dire economic situation of coronavirus bound failures is a generic issue. He said a repricing of all the banking stocks is warranted.

One of the corona response to come to the banking sector during the pandemic was the 50 basis points rate cut by Bank of Botswana in April, Motsomi saw this as the positive side for the sector.

“The support measures initiated by the Bank of Botswana such as the easing of the capital adequacy requirements, regulatory forbearance and liquidity support initiatives should help banks face this extreme stress event,” said Motsomi.

Motsomi further stated that measures including government wage subsidies, tax deferrals, the recent 50 basis points rate cut, restructuring of loans and payment holidays by the banks will provide some relief to households and businesses.

He talked of the rate cut to the relief of inevitable retrenchments, contractions in income, and declines in business profitability and closure of some businesses. Motsomi said anything worse than the mentioned could cause impairments to rise across the banking industry.

“Furthermore, the recent rate cut will result in pressures on banks’ margins with little to no pass on effect on already low deposit rates. The quality and composition of the banks’ loan books differ and thus will be affected to differing extents,” emphasized Motsomi.

However, central bank’s recent decision to maintain the rate at 4.25 percent was not fully welcomed by FNBB in its analysis.  “While we anticipated rates to go down by between 25bp and 50bp at today’s meeting, Bank of Botswana’s (BoB) MPC decided to leave rates unchanged at 4.25 percent today (Thursday).

The BoB reiterated that with the advent of Covid-19, domestic inflation will be restrained due to slow growth in personal incomes as well as low foreign inflation which provides scope for rates to remain accommodative.

The economy will also undergo significant growth pressures due to the anticipated recession and the impact of the pandemic on economic activity,” said Rand Merchant Bank (FNBB) researchers just after the central bank decision.

Rand Merchant Bank experts also explained that unlike the 2009 economic recession, when the economy underwent a current and capital account crisis, the effects of Covid-19 are expected to be broad-based as the pandemic is expected to impact both the supply-push and demand-pull pressures.

Business

Gambling Authority tender dangles as a jittery lottery quandary

30th November 2020
SEFALANA MD: CHANDRA CHAUHAN

Lucrative and highly anticipated national lottery tender that saw several Batswana businessmen partnering to form a gambling consortium to pit against their South African counterparts, culminates into a big power gamble.

WeekendPost has had a chance to watch lottery showcase even before the anticipated and impending national lottery set-up launches. A lot has been a big gamble from the bidding process which is now set for the courts next year January following a marathon legal brawl involving the interest of the gambling fraternity in Botswana and South Africa.

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Business

The uncertainty of getting the next meal in Botswana

30th November 2020
uncertainty of getting the next meal

Households representing more than half of Botswana’s population-mostly residing in rural areas- do not know where their next meal will come from, but neither do they take into consideration the quality and/or quantity of the food they consume.

This is according to the latest Prevalence of Food Insecurity in Botswana report which was done for the 2018/19 period and represents the state of food insecurity data even to this time.
The Prevalence of Food Insecurity was released by Statistics Botswana and it released results with findings that the results show that at national level 50.8 percent of the population in Botswana was affected by moderate to severe food insecurity in 2018/19, while 22.2 percent of the population was affected by severe food insecurity only.

According to the report, this translates to 27 percent of the population being food secure that is to say having adequate access to food in both quality and quantity. According to Statistician General, Burton Mguni, when explaining how the food data was compiled, Food and Agriculture Organization of the United Nations (FAO), is custodian of the “Prevalence of Undernourishment (PoU)” and “Prevalence of moderate or severe food insecurity in the population based on the Food Insecurity Experience Scale (FIES)” SDG indicators, for leading FIES data analysis and the resultant capacity building.

“The FIES measures the extent of food insecurity at the household or individual level. The indicator provides internationally comparable estimates of the proportion of the population facing moderate to severe difficulties in accessing food. The FIES consists of eight brief questions regarding access to adequate food, and the questions are answered directly with a yes/no response. It (FIES) complements the existing food and nutrition security indicators such as Prevalence of Undernourishment.

According to the FIES, with increasing severity, the quantity of food consumed decreases as portion sizes are reduced and meals are skipped. At its most severe level, people are forced to go without eating for a day or more. The scale further reveals that the household’s experience of food insecurity may be characterized by uncertainty and anxiety regarding food access and compromising the quality of the diet and having a less balanced and more monotonous diet,” says Mguni.

The 50.8 percent of the population in Botswana which was affected by moderate to severe food insecurity are characterized as people experiencing moderate food insecurity and face uncertainties about their ability to obtain food. These people have been forced to compromise on the quality and/or quantity of the food they consume according to the report on food insecurity.

Those who experience severe food insecurity, the 22.2 percent of the population, are people who have typically run out of food and, at worst, gone a day (or days) without eating. According to the statistics, rural area population experienced moderate to severe food insecurity at 65 percent while urban villages were at 46.60 percent and cities/town were at 31.70 percent. Those experiencing the most extreme and severe insecurity were at rural areas making 33.10 percent while urban villages and towns were at 11.90 percent and 17.50 respectively.

According to a paper compiled by Sirak Bahta, Francis Wanyoike, Hikuepi Katjiuongua and Davis Marumo and published in December 2017, titled ‘Characterization of food security and consumption patterns among smallholder livestock farmers in Botswana,’ over 70 percent of Botswana’s population reside in rural areas, and majority (70%) relies on traditional/subsistence agriculture for their livelihoods.

The study set out to characterize the food security situation and food consumption patterns among livestock keepers in Botswana. “Despite the policy change, challenges still remain in ensuring that all persons and households have access to food at all times. For example, during an analysis of the impacts of rising international food prices for Botswana, BIDPA reported that food prices tended to be highest in the rural areas already disadvantaged by relatively low levels of income and high rates of unemployment,” said the study.

According to the paper, about 9 percent of households were found to be food insecure and this category of households included 6 percent of households that ranked poorly and 3 percent that were on the borderline according to the World Food Programme’s (WFP) definition of food security.

Media reports state that the World Bank has warned that disruption to production and supply chains could ‘spark a food security crisis’ in Africa, forecasting a fall in farm production of up to 7 percent, if there are restrictions to trade, and a 25 percent decline in food imports.

Food security in Botswana or food production was also attacked by the locust pandemic which swept out this country’s vegetation and plants. The locust is said to have contributed to 25 percent loss in production.

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Business

Solid demand for diamonds towards the ‘gift’ season

30th November 2020
Diamonds

Global lockdown have been a thorn in diamonds having shiny sales, but a lot of optimism shows with the easing of Covid-19 restrictions, the precious stones will be bought with high volumes towards festive season. The diamond market is however warned of the resurgence of Covid-19 in key markets presents ongoing risks amid the presence and optimist about the new Covid-29 vaccines.

The latest findings published as De Beers Group’s latest Diamond Insight ‘Flash’ Report, which looks at the impact of the pandemic on relationships and engagements, has revealed that in the US that more couples than ever are buying diamond engagement rings. Bridal sales is mostly the primary source of diamond jewellery demand in recent months, De Beers said.

According to De Beers, interviews with independent jewellers around the US revealed that the rate of couples getting engaged has increased compared with the period when Covid-19 first had an impact in the US in the spring.

“In addition, despite challenging economic times, consumers were spending more than ever on diamond engagement rings – often upgrading in colour, cut and clarity, rather than size. Several jewellers speculated that with consumers spending less on elaborate weddings and/or honeymoons in the current environment, they had more to spend on choosing the perfect ring,” said De Beers.

According to De Beers, a national survey of 360 US women in serious relationships, undertaken in late October in collaboration with engagement and wedding website, The Knot. This survey is said to have found that the majority of respondents (54%) were thinking more about their engagement ring than the wedding itself (32%) or the honeymoon (15%), supporting jewellers’ hypothesis that engagement ring sales were benefiting from reduced wedding and travel budgets in light of Covid-19 restrictions.

When it came to researching engagement rings, online was by far the predominant channel for gaining ideas/inspiration at 86% of consumers surveyed, with 85% saying they had saved examples of styles they liked, according to De Beers. According to the survey, only a uarter of respondents said they had looked in-store at a physical location for design inspiration.

“For many couples, the pandemic has brought them even closer together, in some instances speeding up the path to engagement after forming a deeper connection while experiencing lockdown and its associated ups and downs as a partnership. Engagement rings are taking on even greater symbolism in this environment, with retailers reporting couples are prepared to invest more than usual, particularly due to budget reductions in other areas,” De Beers CEO Cleaver said.

According to De Beers Group, its Diamond Insight Flash Report series is focused on understanding the US consumer perspective in light of Covid-19 and monitoring how it evolves as the crisis evolves. Also, the company said, it is augmenting its existing research programme with additional consumer, retailer and supply chain touch-basis to understand the pain points and the opportunities for stakeholders across the diamond pipeline.

Demand for diamonds is as hard and resilient as the precious stone itself. De Beers pocketed US$ 450 million in its recently held ninth rough diamond sales cycle, and the company says it is more flexible approach to rough diamond sales during the ninth sales cycle of 2020, with the Sight event extended beyond its normal week-long duration.

“Steady demand for De Beers Group’s rough diamonds continued in the ninth sales cycle of the year, reflecting stable consumer demand for diamond jewellery at the retail level in the US and China, and expectations for reasonable demand to continue throughout the holiday season. However, the resurgence of Covid-19 infections in several consumer markets presents ongoing risks,” said De Beers CEO Bruce Cleaver recently.

High expectations are on diamonds being a sentimental gift for holiday season or as the most fetished gift. However the ninth cycle was lower than the eighth which registered US$ 467 million. For the last year period which corresponds with the current one, De Beers managed to raise US$ 400.

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