The banking industry is likely to see an explosion in impairments in the next coming months once the bank rate begins to go up. This was said by Steven Bogatsu, FNBB CEO during the bank presentation of financial results on Thursday morning. Bogatsu said the bank rate, which was recently reduced by 50 basis points by Bank of Botswana (BoB), is at the bottom of the bank rate cycle and it would probably pick up soon, perhaps in the next 12 months or so. And to that effect, Bogatsu predicts impairments to the level never seen before for the banking industry. He said credit is mostly extended to individuals who use it commonly for expenditure as opposed to making investments.
While individuals are said to be borrowing at a higher rate, businesses on the hand are reportedly reluctant to borrow due lack of growth and limited opportunities. According to the recently released Banking Supervision Report by BoB, impaired loans stood at P1.9 billion as at December 2015 which was an increase of 18.1 percent from the previous year. The increase is mainly linked to business closures and job losses in the mining and manufacturing sectors and the household sector accounted for 52 percent Non-Performing Loans (NPLs). The impairments are likely to soar uncontrollably as Bogatsu believes the bank rate will soon go up and the rate at which individuals are borrowing.
For the just ended financial year, FNBB impairments grew by 14 percent year-on-year, said to be driven mainly by specific impairments from business and a difficult business environment. The increase is however considered a significant improvement from the impairments growth of 64 percent experienced the year before. The bank says it introduced a more conservative approach to portfolio provisioning as a prudent precaution, and focus on collection remains. FNBB results
Profit down 13%; non-interest income up 7%; customer base up 5.8%
Meanwhile FNBB has seen its profit for the year go down by 13 percent and has registered a pre-tax profit of P659 million from P756.5 million made last year. The cumulative rate cut of 100 bps in February 2015 and a further 50 bps in August of the same year is said to have put a strain on the top line and contributed to the low growth in interest income from advances. Despite the moratorium which was imposed barring adjustments of bank charges, FNBB non-interest income grew by 7 percent, seemingly entirely due to increasing the volume of transactions and the range of products on offer. The bank says it was also able to grow its customer base by 5.8 percent in customer numbers and 8.1 percent in account numbers.