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FNBB cashes in on digital innovations

Publishing Date : 10 September, 2018

Author : REARABILWE RAMAPHANE

First National Bank Botswana (FNBB) registered 23 percent increase in profit before tax for its financial year ended June 2018 and the banker credits part of this achievement to its rigorous venture into digital innovation.


When presenting audited consolidated summarized financial results on Friday, FNBB Chief Financial Officer Luke Woodford said the growth profit before tax is a results of digital migration, leadership renewal, bedding down of KYC as well reduction in the impairment charge and improved cost efficiencies.


Woodford also revealed another milestone to stakeholders, saying the bank closed the year on a total financial position of P25 billion, mirroring a 5 percent growth year-on-year. He added that FNBB has maintained its deposit market share of just over 30 percent
“Due to the Bank having adopted a cautious credit-risk appetite, total gross advances grew by 4 percent year-on-year, compared to market credit growth of 7 percent,” He said.


 FNBB chief financial officer explained that customer deposit growth of 7 percent year-on-year emanated predominantly from increases in current account as well as term and notice deposits. The ongoing tight market liquidity position throughout the year resulted in an increased cost of accessing professional funding, he said.


“The effect of this, combined with Bank lengthening the term structure of the funding portfolio resulted in the interest expense line increasing by 27 percent year-on-year, as well as the cost of funds for the Bank increasing from 1.4 percent to 1.7 percent year-on-year,” explained the bank’s finance chief. Woodford further shared that gross advances increase of 4 percent was largely driven via the growth in consumer lending group schemes, and with significant corporate lending transactions in the bank‘s subsidiary Rand Merchant Botswana.


However the WesBank vehicle asset finance portfolio remained flat, reflecting both reduced sales levels in the market and increased competition, said Woodford.  Also, according to Woodford, the business banking portfolio decreased materially due to the high percentage of term lending which amortizes in value. The shrink in the portfolio is also due to heightened competition on new transactions according to the chief financer.


When taking into consideration the scarcity of viable lending opportunities the Botswana Stock Exchange listed banking outfit placed additional deposits in the interbank market and extended the tenure of the investment portfolio, Woodford explained that the cash holdings were more efficiently managed with a decrease of 1 percent in cash holdings despite the 7 percent customer deposit grow.


 “Notwithstanding the 50bps rate cut during the year, interest income increased by 5% year-on-year largely due to the growth in the asset book and the optimization of the investment portfolio. The non-performing loans (NPL) to gross advances ratio decreased from 7.3 percent in June 2017 to 7.0 percent in June 2018, with the portfolio of P1, 13 billion remaining flat while gross advances increased, “he said.


THE CEO’S TAKE

FNB explained that the 24 percent improvement in the impairment charge on advances was largely driven through the base effect of June 2017 impairments including the impact of the BCL mine closure. When commenting on improvement in the charge, FNBB CEO Steven Bogatsu said that despite this improvement in the charge, management continued to apply prudent collateral haircuts in the current reporting period.


Bogatsu highlighted that the Bank’s customer base increased by 8 percent, closing the year with 502,000 customers. FNBB measures the level of penetration into a customer’s banking requirements through a vertical sales index (VSI), which denotes the number of products each customer uses.

CEO lauds bank performance on digital innovation

FNBB continues to leverage on digital migration and innovation to come up with the best products to better serve their over 500 000 customers, Bogatsu said. “We have connected WiFi in all our brunches to enable our customers to access our exciting products, we know one of the biggest challenges in our country is affordable internet connections,” he said.

FNBB boss on the bank’s milestone

FNBB realized a high increases in end figures than before taxation. The Profit after Tax growth of 29% outpaced the profit before tax growth of 23%, due to a lower effective tax rate. The bank declared an increase of 27% in the annual dividend from 11 Thebe to 14 Thebe per share, emanating from growth in Profits after tax.

Bogatsu noted that despite the positive business sentiments, boosted by the increased business confidence, growth in secured lending facilities will continue to be hampered by the current pressures on the high value retail property sector and commercial office properties.
 “However, we anticipate growth in targeted financing for some sectors of the economy such as agriculture, manufacturing and tourism, which will be supported by credit guarantees from development finance institutions. NDP 11 also provides an opportunity for the private sector to fund more government projects.” he said

Botswana’s economic outlook

According to Bogatsu, in 2017  Botswana‘s economic growth took a downturn due to negative performance in the base metals sector, with growth slowing to 2.4 percent against 4.3 percent in 2016. “Noting that the growth outlook has improved during the first quarter of 2018 gathering a rise of 4.8 percent quarter on quarter compared to 0.9% at the same time last year we continue to take the view that price growth will be suppressed while both employment creation continues to be restricted and wages growth remains subdued.” He said.


The disposable income of households is expected to remain under strain despite the prevailing low inflation, said FNBB CEO. Bogatsu also noted that the June CPI reading of 3.1 percent, suggests that inflationary pressures will emanate from the supply side of fuel and administered prices. He said headline inflation has averaged 3.2 percent in the twelve months to June, compared to 3.1% at the same time last year.

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