Bank Gaborone parent anticipates high funding costs
Capricon Group Financial Director, Jaco Esterhuyse anticipates high costs to funding to continue this year as the market liquidity remains low in Botswana.
The group, which is a parent company to Bank Gaborone, reported in its 2021 annual report that Bank Gaborone increased funding by 11 percent to P5.8 billion compared to P5.2 billion in 2020. This was a deliberate strategy to improve its loan to funding ratio which improved from 90.8 percent to 86 percent year on year.
Esterhuyse said a high loan to funding ratio increases profitability but at a higher risk to the group. “Our approach is to balance profitability and liquidity risk by maintaining the loan to funding ratio below 90 percent. The ratio increased from 87.9 percent in 2020 to 88.6 percent as good growth in gross advances outpaced total funding.” Bank Gaborone granted loan deferments on exposures of P461.5 million during the year ended 30 June 2021, of which P272.1 million remains deferred. Hospitality and entertainment makes up 43.6 percent ( P118.6 million) of the outstanding deferments, while farming and micro- loans contribute 20.4 percent ( P55.6 million) and 16.2 percent ( P43.9 million) respectively.
He said the cost of funding is expected to remain high due to low market liquidity in Namibia and Botswana following these countries’ governments’ continued borrowing in the capital market, which increases market pricing.
After reaching a low of 3.26 percent in December 2020, average cost of funding increased to 3.72 percent in June 2021 compared to 3.27 percent in the prior year. This is mainly attributable to competitive pricing for wholesale deposits in Botswana on the back of lower liquidity, as pension funds increased their fund allocations to off- shore markets. Esterhuyse explained that the increase in inflation from 2.3 percent in January 2021 to 8.2 percent in June 2021 ( highest levels since February 2012) had put more pressure on deposit yields as investors demand better rates. Gross advances increased by a lower 4.8 percent compared to 11.7 percent in 2020 as the bank focused on improving its loan- to- funding ratio in the current year.
To cushion commercial banks from negative impact of Covid 19, Bank of Botswana announced that the cost of accessing overnight funding by licensed commercial banks from the Bank of Botswana Credit Facility is now provided at the prevailing bank rate, without the previous punitive six percentage points above the bank rate. The central bank also extended the collateral pool for borrowing by licensed commercial banks from the Bank of Botswana to include all corporate bonds listed and traded on the Botswana Stock Exchange. Capricon Group CEO, Thinus Prinsloo said Bank Gaborone continues to gain market share by building on the good service ethos the bank is known for and by leveraging their distinct relationship model, which is also well recognised in the market. He highlighted that new customer growth was slow due to the pandemic and economic impact in sectors such as manufacturing, mining and tourism. Credit growth also slowed down. This was offset by lower impairment charges following good recoveries on some of their clients. “Investments in branches and ATMs positioned the bank well for a fresh and improved customer experience. The Francistown and Palapye branches were relocated and seven new NCR deposit- taking ATMs were deployed.”
The bank also enhanced its SureSave product to offer 24 and 36 months at attractive interest rates and launched a contactless card for ‘ Tap and Pay’ convenience and secure one- time password payments for ecommerce.
Prinsloo said they anticipate further concessions where assessments indicate a high probability of recovering post COVID- 19 and where they can mitigate credit risk sufficiently in the interim. “We expect that we will see more defaults as the impact of COVID- 19 continues to be felt but this will not materially change our financial performance. This is based on our limited portfolio exposure to the tourism, agriculture and mining sectors.”
The bank partnered with Debswana Diamond Company Ltd to launch the citizen economic empowerment policy by setting up a supplier development programme. The programme availed P200 million in financing on a centralised basis and is managed through the wholesale banking division of Bank Gaborone.