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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.

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Matsheka seeks raise bond program ceiling to P30 billion

14th September 2020
Dr Matsheka

This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.

“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.

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Lucara sits clutching onto its gigantic stones with bear claws in a dark pit

14th September 2020
Lesedi La Rona

Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.

A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.

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Botswana Diamonds issues 50 000 000 shares to raise capital

14th September 2020
Diamonds

Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.

A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.

Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.

In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.

The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.

In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.

Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.

The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”

In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.

Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.

The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.

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