We have extracted the Chairman’s Statement from the 2019 half year financial report for Standard Chartered Bank Botswana Limited (STANCH.bw), listed on the Botswana Stock Exchange:
Global economic growth has remained somewhat sluggish, with the International Monetary Fund (IMF) re-forecasting the 2019 growth rate down to 3.2%, although expecting an improved 3.5% in 2020. Euro-area headline inflation fell to 1.1% in July from 1.3% in June. This reflected lower price gains for energy and reduced services inflation, which fell to 1.2% from 1.6%. China Lending Prime Rate reduced to 4.25%, still above the 3.91% minimum that banks offer to clients, suggesting a sustained downwards trend in the near term. Downside risks to forecasts are quite pronounced; Brexit uncertainties persist while trends in energy prices carries substantial uncertainty. Pockets of geopolitical tensions will remain a pain point.
IMF forecasts a 3.5% economic growth in sub-Sahara for 2019, reflecting an improvement over the 3% recorded in 2018. There is an expectation of a generalised recovery which will see growth rates stabilising at just under 4% in the midterm. Inflation in the region is expected to average 8.1% in 2019, down from 8.5% recorded in 2018 (IMF). This reduction is largely attributable to declining energy prices, a trend expected to have a somewhat counter-effect on depreciation of currencies.
Gross Domestic Product (GDP) is projected to increase by 3.8 % in 2019. The significant influences on domestic economic performance include conducive financing conditions supported by an accommodative monetary policy and sound financial environment that facilitate policy transmission, intermediation and risk mitigation. It is anticipated that the increase in government spending, as well as implementation of initiatives, such as the doing business reforms, should also be supportive.
Overall, the economy is projected to operate close to, but below full capacity in the short to medium term, thus posing no upside risk to the inflation outlook. This position is likely to be cemented by the pass-through effects of reduced global energy prices, although the China-US trade war and Brexit present potential headwinds. Timing and effects of full scale implementation of the Africa Free Trade pact remains largely unknown, but could present important tailwinds. Although inflation has remained below the lower band of the objective range of 3 – 6% for three consecutive months, the medium-term outlook remains positive as inflation is forecast to be within the range. In the six months to June 2019, the Pula appreciated against the rand (0.98%); and Japanese yen (1.28%); but depreciated against the US dollar (1.06%); Chinese renminbi (0.85%); pound sterling (1.21%); and euro (1.69%).
Following the launch of refreshed strategic priorities in February this year, steady progress has been made in transforming the business. A lot has gone into reshaping our response to market, transforming client experience and further consolidating our market relevance.
We launched our digital bank during the period under review, and its proving to be a success. Prospective clients have the opportunity to open accounts from places of their convenience with no human interaction. Once on boarded, clients can instantly access over seventy services from their mobile devices via our “Sc Mobile”. As a first of its kind in the market, acceptance levels for the digital bank has been high, funding levels for accounts opened via this channel are impressive, with growing transaction levels set to surpass those on traditional means of banking. The business is recording increasing level of efficiencies out of the digital bank- costs to service are decreasing, with an increased speed to serve, client outreach is phenomenal and above all, Sc Mobile is truly redefining client experience.
In response to market realities, and in the full context of responsible lending, we adjusted our Personal Instalment Loans limits upwards to P600,000 – a first in the market. Uptake has been exceptional, with demonstrable positive outcomes of this elevated financial intermediation step.
During the past financial year, we announced some exciting innovations around our bancassurance offerings, which we deliver through strategic partnerships with key industry players. We have excelled in providing long term life insurance to our clientele, which is perfectly complimentary to the convenient lending products we extend to customers.
The business foundations have progressively been secured; capital adequacy is stable at 19.4%, with a healthy Asset to Deposit Ratio of 63%. The cost of liquidity has been contained to prior year levels despite an overall 6% growth in client deposits. This reflects an improving liquidity profile supporting the planned sustainable growth. Capitalising on this, Retail Banking, our largest segment registered a 5% growth for the half year driven by loans and advances to customers. Overall Bank balance sheet registered a healthy 8% growth over the last twelve months.
Financial Performance Review
Our interim consolidated Profit Before Tax grew 20% to P33.1 million as we continue to embed efficiencies across our business model. This is despite a 5% drop in top line, which come on the backdrop of our strategy to pursue high quality income. Our interest expense was maintained flat to prior year levels against an increased client deposit book. A marked improvement was registered in our current, call and savings account deposits, and this was complemented by a progressive and sustainable repricing of our term liabilities.
Our non-funded income registered a 1% increase, finally reversing a downward trend this line have been experiencing in the last few reporting periods. Leading this improvement are our innovative wealth products, while the digital platforms continue to pick up.
The growth in profitability was segment wide, with a great run on our Corporate, Commercial and Institutional Banking segment’s non-funded income which registered a 17% increase over the last period.
Our business momentum has been registering an impressive run, particularly from Q2 after a somewhat slow start in Q1. The positive run is expected to continue into H2 and beyond; we have re-established margins across segments and products, enhanced our product offerings and re-defined our digital approach to banking. Our costs are well controlled, a re-profiled liquidity structure is yielding reduced effective cost of funding, whilst technology driven costs are driving operational costs down. We expect a sustainable broad-based improvement in overall returns, driven by an uplift in income across all segments and products, complimented by a reducing cost base.
The Board of Standard Chartered Bank extends its appreciation to Management and staff for all the good work, and to shareholders and investors for the continued support. Approved by the Board of directors on 19 September 2019.