… As Bogatsu warns of impairment risks
FNB Botswana Chief Executive Officer Steven Bogatsu says impairments in the banking are currently at an all-time high due to Non- Performing Loans (NPL).
Bogatsu was speaking on Friday morning where his bank unveiled its financial results for the first six months of 2018.
The increase in impairments is linked to loss of jobs in the past few years together with closure of businesses mainly in the mining sector.
“The past couple of years have been challenging for the banking industry,” Bogatsu said, explaining that over these years it has become evident that borrowing has been in the retail sector of the banking industry where people borrow to augment their income and not going towards investment.
With the bank rate currently at its lowest in years – good news to borrowers who are servicing their loans – Bogatsu however fears that impairments are likely to go even high.
A good portion of the NPL is said to comprise secured lending which involves a time-consuming process to realise, thereby resulting in a “sticky” NPL base.
FNBB’s NPL for the period 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.
The bank says the 24 percent improvement in impairment charge on advances is largely driven through the impact of the BCL mine. Despite the improvement, it is reported that the bank management continued to apply prudent collateral haircuts in the current reporting period.
In recent Monetary Policy Committee (MPC) meetings, the central bank executives have maintained that the economic situation does not warrant a change in either direction for the bank rate which was last cut in October 2017 to 5 percent.
The banking sector faced serious liquidity challenges three years ago, but Bogatsu says the industry is still not out of the red just yet. “The situation is not at the level that we want it to be, we are not yet out of the red,” he said.
Despite the positive business sentiments boosted by increased business confidence, growth in secured lending facilities is expected to continue to be hampered by the current pressures on the high value retail property sector and commercial office properties.
Bogatsu says they 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.
It is believed that NDP 11 also provides an opportunity for the private sector to fund more government projects. During the period under review, FNBB recorded Profit Before Tax (PBT) of P838 million, from P680 million, a 23 percent increase.
The increase is said to be a culmination of the digital migration, leadership renewal, bedding down of know Your Customer (KYC), reduction in the impairment charge and improved cost efficiencies.