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Home » Columns » FNBB report card

FNBB report card

Publishing Date : 10 October, 2017

STEVEN LEFENTSE BOGATSU


It has been a challenging year for First National Bank of Botswana, and the tough trading conditions were exacerbated by the closure of major mines and associated business failures which placed a large number of consumers under considerable pressure and negatively impacted their disposable incomes.



The consequence to the Bank was a sharp increase in nonperforming loans (NPLs), particularly in the Retail consumer segment, which rose to unprecedented levels. Downstream businesses in the transport, hospitality, accommodation and associated service industries that supported the mines were likewise severely impacted, affecting the Business segment’s performance. Employees of theses support industries were in turn impacted, compounding the knock-on effect on the Bank’s overall performance.


An Uncertain Global Outlook: The global economy has been somewhat stagnant during the year, with uncertainties on many fronts. The US economy has not performed as well as expected in the wake of the new administration’s failure to deliver on key election promises that were to rejuvenate the American economy, and while there have been some minor improvements, these have not yet gained the anticipated momentum.
 

Brexit, with its many unresolved issues, has also had a negative impact on the world economy as countries wait to see the shape of a post-Brexit Europe and whether, and on what terms, the UK will re-invent itself as an independent economy. China’s reduction in infrastructure spending impacted commodity demand and this resulted in a price collapse. The political and economic landscape in South Africa is having a negative effect on the rand-pula exchange rate and the downturn in that country has had an adverse impact on the local market.


A Slow Recovery at Home: The local economy presents a somewhat mixed picture, with some positive developments offset against a number of challenges. Business confidence showed an improvement in the first half of 2017 and there has been some recovery in the commodity space. There was no growth in diamond production, but diamond sales, which are mostly exports, were significantly higher than in the previous year.


These developments had only a slight impact on the capital intensive local economy and did not translate into short-term employment growth. On the negative side, mining revenues which feed into government coffers were stable or declining during the year, resulting in small businesses not being paid on time; and this had a knock-on effect on the cash flows of most of their downstream clients. The negative impact of the closure of the BCL and Letlhakane mines is likely to be aggravated by looming retrenchments recently announced by some organisations.


Liquidity: The liquidity situation in the market remained stable and appears to have recovered from the considerable pressure it experienced during the liquidity crisis of late 2014.

Risks: As alluded to earlier, increasing impairments constitute the most significant risk the Bank is facing. Impairments have grown exponentially during the year under review, owing to the increased pressure on the consumer, and this has particularly affected the Retail and lower end Business segments.

Inflation: Annual inflation in June 2017 was 3.5%, 0.5% above the lower limit of the Bank of Botswana’s target 3% to 6% range. Inflation is expected to gradually increase in the second half of 2017 before falling back towards 3% in the first half of next year.There were no interest rate adjustments during the financial year.

Performance: Overall performance was relatively flat, with profit before tax increasing by 3% to P680.3 million and profit after tax marginally down on the previous year at P500.5 million. The balance sheet grew by 8% with 4% increase in net advances. Leadership renewal and the Bank’s Productivity Project led to increased employee benefit costs which rose by 17% to P514.8 million. Continued investment in infrastructure, including the opening of two new branches, also impacted on costs.

Credit Extension: Market credit extension grew 4% year on year. Growth in advances to businesses remained flat at 1%, a slight improvement on the 0.2% decline recorded in the previous year. This is a welcome development as the pendulum has swung from the consumer to the business segment. Consumer segment credit extension declined from 13% to 7% during the financial year, reflecting the pressure that the consumer is under at the moment. The decrease in household credit extension illustrates slower growth across all the main loan categories.

There is continued pressure in the property finance space, particularly for properties above P2 million, while the value and rental prospects of properties below P1.5 million have remained resilient.

The Regulatory Environment : The heightened regulatory environment, which has resulted in the need for increased anti-money laundering (AML) awareness, has guided the Bank’s efforts to meet the Know your Customer (KYC) requirements as stipulated by the Bank of Botswana, the South African Reserve Bank and the Financial Intelligence Agency (FIA). I acknowledge that the KYC process has been arduous and sometimes inconvenient for our customers and would like to take this opportunity to thank them for their patience and endurance. With the KYC process nearing completion and staff able to resume their core duties, customers can expect a return to service excellence.

Our Customers: FNBB’s underpinning strategy is Customer Centricity; placing the customer at the centre of everything we do. We continue to innovate and avail new channels such as our enhanced call centre services and broadened e-solutions, illustrating our commitment to enriching the customer experience.

Our People: The Bank continues to invest heavily in staff training, ensuring that it has both the critical skills and succession capacity to maintain its best bank status. During the year, FNBB started a new international secondment and attachment programme that places top performers from various universities to undergo a year’s rigorous training within the Group in South Africa, after which they are redeployed to Botswana. The Bank also awarded five full employee scholarships to ensure the development of the high-level skillsets essential for Botswana. At any one time a number of our employees are on attachment at various divisions within the Group in South Africa for periods of between six months and two years.

Looking Ahead: Indications are that the diamond industry is recovering, and the tourism and agricultural sectors are performing well. We expect the economy to start showing positive signs of recovery in the short- to medium-term and are encouraged that the Bank of Botswana perception index indicates that the business community is buoyant about future prospects for the country. The improvement to business credit extension is further evidence that the economy is on the road to recovery, and we believe that we can confidently look forward to a better 2018.


Steven Lefentse Bogatsu is the Chief Executive Officer of FNBB

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