Barclays Bank of Botswana Limited (BARC.bw) HY2019 Interim Report

We have extracted the Chairman’s Statement from the 2019 half year interim report for Barclays Bank of Botswana Limited (BARC.bw), listed on the Botswana Stock Exchange:

Economic outlook

Global and Sub- Saharan Africa outlook
Global growth is expected to ease to 3.2% in 2019 from 3.6% in 2018 before picking up moderately to 3.5% in 2020 according to IMF forecasts. Growth expectations were lowered on account of the prevailing weakness in business and consumer confidence, prolonged uncertainty on Brexit and heightened trade tensions between the United States of America and China, There are significant downside risks to the projected growth pickup in 2020 as it is presuming stabilisation in the currently stressed emerging markets and developing economies and progress toward resolving trade policy differences.

Economic recovery in Sub-Saharan Africa (SSA) remains on track despite some larger markets, notably South Africa and Nigeria continuing to experience headwinds. Undoubtedly, the recovery remains fragile as indicated by first quarter GDP data, which confirmed ongoing difficulties driven by factors such as low fiscal buffers, adverse weather conditions, weak business and consumer confidence levels, and the weaker global backdrop, among others. The Southern Africa region is experiencing drought, impacting agriculture output and putting upward pressure on food prices. Growth in SSA is expected at 3.4 % in 2019 and 3.6% in 2020 (IMF forecasts) as strong growth in many non-resource-intensive countries partially offsets the lacklustre performance of the region’s largest economies.

Domestic economic outlook

The local economy remained resilient in the first few months of the year, rising by 4.3% year-on- year in the first quarter of 2019 (Q1 – 2019). Despite the promising start to the year we expect real GDP growth to slow down to 3.9% this year from 4.5% in 2018 as both the mining and non-mining sectors experience a more challenging environment. Key risks to growth include a weaker global environment and continued US–China trade tensions. This has resulted in the global demand for diamonds softening significantly in 2019 due to higher polished inventories and as demand for high-end jewellery stagnates. Secondly, Southern African Customs Union (SACU) revenue pool projections are likely to disappoint over the medium term due to the fiscal risks facing the South African economy and continued weak GDP growth performance.

The outlook for the non-mining sector is also uncertain. The current drought is likely to negatively impact the agricultural sector where conditions are expected to deteriorate further looking at the prevailing grazing and water situation. The drought also poses a threat to water-dependent manufacturing industries.

Inflation and interest rate outlook

Headline inflation remained below the lower band of the Central Bank’s objective range of 3 – 6% in he second quarter (Q2 – 2019) mainly reflecting base effects associated with the increase in public transport fares and electricity tariffs in the second quarter of 2018. We expect inflation to remain at modest levels even as it moves above 3%. Upward inflation pressures will come from public servants salary and minimum wage increase, domestic currency weakness and drought in Southern Africa leading to an increase in food prices. However, this is counterweighed by lower global oil prices and weaker domestic demand. Therefore we expect inflation to remain within the Central Bank’s 3 – 6 % objective range in the medium term.

The central bank reduced the bank rate by 25 basis points from 5% to 4.75% in August 2019 responding to growth concerns amid weaker global and regional economic growth. On the back of the positive inflation outlook we expect the bank rate to remain unchanged at 4.75% but see an increased possibility of another 25 basis points cut due to expectations of looser global monetary policy.

Financial performance

Statement of comprehensive income
Despite the challenging environment we operate in, a steady growth in income across the business segments relative to the previous year has characterised our performance for the period under review. We achieved a profit before tax of P387 million on statutory basis representing growth of 49% year- on-year. This performance was influenced by growth in income, contained costs and favourable credit losses. Total income is up year-on-year by 9% translating to an increase of P67 million, propelled by balance sheet growth of 6% and an increase in our net fees and commission income by 5% year- on-year. We continued to drive momentum across all our key segments to negate the effects of compressed margins arising from an increase in cost of funding.

Net Interest income increased 8% year-on-year, mainly driven by balance sheet growth. The business remained resilient in its selected market segments and continued to drive credit growth. Operating costs were well contained with the business achieving a cost to income ratio of 53% for the period ended 30 June 2019. This is in line with our strategy to achieve cost to income ratio of lower 50’s. We incurred total costs of P431 million on a statutory basis representing an increase of 8% year-on-year on a normalised view costs grew by 4%. We continue to seek opportunities to realise cost efficiencies to ensure a sustainable business operation. On a year-on-year basis our credit losses decreased by 110% in comparison to the previous year with an overall net recovery of P8 million for the period ending 30 June 2019. Our year-to-date expected credit losses performance has benefited from a significant recovery from one of our corporate clients, our enhanced collections capability and conservative credit extension to high risk sectors.

Statement of financial position
Loans and advances to customers grew 12% year-on-year to P12.8 billion from P11.4 billion. The growth in loans was realised across all business segments as we continue to focus on client penetration and acquisition to drive up our volumes. Customer liabilities increased by 7% year-on-year to P13 billion from P12 billion driven by positive growth across our business segments. Our balance sheet position remains solid at a total financial position of P17.9 billion, with strong liquidity and capital adequacy levels. Our regulatory capital position stood at P2.5 billion representing a ratio of 18% against the regulatory limit of 15% and liquid assets ratio was well above the regulatory minimum of 10%.

Corporate and Investment Banking (CIB)

The first half of 2019 has seen restrained growth in the economy which is mirrored in the corporate segment financial performance with CIB revenue up 6% year-on-year. Much anticipated government spending has not emerged as a driver of the economy, although there is growth in other sectors. The sectors that have performed well in this period include wholesale and retail, hospitality, healthcare and telecommunications. Natural resource focus has shifted from diamonds as evidenced by lower production and sales in the first six months of 2019, although there is renewed interest in base metals and coal. Non-interest income was up by 8% driven by growth in transaction volumes in our Markets business.

There has been a recovery of a balance due from corporate during the period which has led to a positive variance on the expected credit losses line, and as a result of this, corporate segment profit is significantly up year-on-year.

Retail and Business Banking (RBB)

Retail and Business Banking has made significant progress towards the delivery of its strategy. Growth of 16% was registered in loans and advances to customers, which accounted for 9% growth in the net-interest-income. Deposits due to customer grew by 14% year-on-year. Net fee and commission Income increased year-on-year by 6%, on the backdrop of increased transactional volumes and increased uptake of our digital channels.

In order to provide instant benefits to our customers when they transact at various merchants outlets, we have signed new partnership agreements. Our customers can now enjoy discounts at merchants such as restaurants, hotels, clothing stores as well as health and beauty spas. One of the key components of our strategy is to offer convenience to our customers when transacting. There has been good growth in both the registrations and usage of Digital channels such as mobile, internet and the Barclays Application.

The branches remain pivotal to our distribution strategy. The Bank has undertaken refurbishment and relocation of some key branches across the country to improve the overall customer and employee experience in the branches.

Citizenship

In line with our new purpose statement “Bringing possibilities to life,” the Bank continues to make in-roads in providing education and skills to young people across Botswana. Through the continued implementation of the Ready to Work program and the Barclays F.G. Mogae Scholarship Fund, we are making steady progress in contributing positively towards building a Botswana future fit work force.

In March 2019, 32 scholarship recipients received training from Elevate Education, an international organization based in South Africa. Elevate Education is committed to enhancing the study skills of students so they can achieve excellent results. Our scholarship recipients were taken through research, writing and presentation skills mainly because they are currently focused on their dissertations. The Barclays Ready to Work program is focused on preparing young people for the world of work. Through our implementation partners, Project Concern International and Stepping Stones International, we continue to provide training in employability and entrepreneurship to youth. During the period we have trained 1 575 youth in Mochudi, Molepolole, Kanye, Mahalapye, Bobonong and Gaborone.

The Day of the African Child was commemorated by colleagues, with a focus on raising awareness on the rights of children. In addition, colleagues fundraising efforts have resulted in the donation of much needed personal care products and clothing to disadvantaged communities. The Bank remains committed to contributing to the development of Botswana and will demonstrate that commitment through the efficient implementation of relevant programs.

Outlook

As the journey towards re-branding to Absa continues, our commitment towards our employees, customers, communities and shareholders remains our highest priority. We remain Brave, Passionate and Ready as we bring the possibilities for our stakeholders to life.

Dividend

Notice is hereby given that an interim dividend of 12.908 thebe per share for the period ended 30 June 2019 was declared on 29 August 2019, and subject to regulatory approval, will be payable on 25 October 2019 to those shareholders registered at the close of business on 15 October 2019, with an ex-dividend date of 11 October 2019. In accordance with the Republic of Botswana Income Tax (Cap 52:01), as amended, applicable withholding tax will be deducted by the Bank from the gross dividend. This translates to 38% dividends growth compared to the previous period.

 

Oduetse A. Motshidisi
Chairman

Keabetswe Pheko- Moshagane
Managing Director