First National Bank Botswana, the country ‘s largest commercial bank registered a slight drop in profits after tax for the financial year ended June 2021, mainly attributable to the ongoing sluggish trading environment presented by the COVID-19 pandemic.
The bank which trades on Botswana Stock Exchange reported post tax profit of P685, 175, 000 for the year a 2 percent drop from P695,806,000 recorded inthe financial year ended June 2020.
This emerged on Thursday when FNBB Directors presented the bank ‘s audited summarised consolidated financial statements for the financial year ended 30 June 2021 as well as dividend payout for the year.
The Bank’s balance sheet reduced by 6% year-on-year primarily due to the decline in gross advances to customers. Credit risk remains heightened amid the prevalent economic uncertainty.
FNBB Acting Chief Executive Officer Luke Woodford said the bank continues to apply a prudent approach to lending to ensure responsible and manageable consumer exposure.
This resulted in a decline in gross customer advances by 7%, while market gross advances increased by 4%. Retail advances experienced a sharp decline of 7% while the Botswana retail market increased by 9%.
The decline was driven by competitive pressures, with the market extending loan tenures, resulting in increased market debt. The bank maintained its existing affordability criteria and a selective approach to retail exposure.
The corporate segment experienced excellent growth of 19% year-on-year, while the commercial advances portfolio reduced 19% because of a cautious lending risk appetite, a reduction in the Non-Performing Loans (NPL) and the overall lack of growth in the market.
The combined result of FNBB’s commercial and corporate advances was a decline of 7% against the overall comparable decline of 3% in the market.
While actively looking for the opportunities arising out of the anticipated recovery pattern, the bank will continue to be cautious in maintaining the quality of its credit book.
The NPLs declined by 11% year-on-year from P1.2bn to P1.09bn, resulting in a NPL/gross advances ratio of 7.3% as at 30 June 2021 (7.6% as at 30 June 2020).
This reduction in NPLs was primarily due to a recoverability assessment of long-outstanding NPL loans resulting in the write-off of irrecoverable loans.
The closing provision levels remain appropriate. The June 2020 deposit portfolio experienced significant growth following the reduced spending commensurate with the lockdown restrictions as well as deferred capital expenditure cycles by corporates.
In the June 2021 results, deposits declined from P23.2bn to P21.4bn (8% decline) driven by an increase in activity following the lifting of COVID-19 restrictions and the normalisation of the market liquidity.
The market priced up for fixed and notice deposits, in contrast to the reducing Bank Rate, in order to protect deposit franchises.
FNBB directors said the bank remains well-funded with a loan-to-deposit ratio of 62% and has access and options to raise additional funding from the market.
Investment securities declined by 17% year-on-year following the normalisation of market liquidity to pre COVID-19 levels. The decline was driven by the drop in short term assets at the back of the decline in demand deposits.
Woodford boasted that the bank demonstrated a resilient performance amid COVID-19 uncertainty demonstrated by maintaining the profit before tax in spite of the significant reduction in the Bank Rate.
This was underpinned by a normalisation of credit losses, as well as, a resilient non-interest revenue (NIR) base. Return on equity of 18.2% (2020: 20.1%) has declined due ot the conservative level of capital held over the financial year, as well as the 2% reduction in profit after tax.
“The past year has presented itself as a real and severe economic test, and FNBB has shown that its income streams are resilient while a key focus has been on strengthening the balance sheet” he said.
A decrease of 15% in interest income was driven by the reduction in the Bank Rate, the decline in the advances book, as well as by a change in the advances portfolio mix.
This was further driven by the fall in the cash and investment portfolio interest income due to the reduction in risk free rates as well as lower yields across investment securities for a portion of the year.
Interest expense decreased 22% following an 8% decrease in deposits and the Bank Rate reduction.
The deposit mix shifted from overnight deposits to term deposits as clients sought higher yields.
Impairments declined by 43% year-on-year driven by a 49% reduction in both Stage 1 and 2 impairments, as well as, a 40% reduction in Stage 3 impairments.
The stage 1 and 2 impairment decline followed a reduction in the gross advances exposure, as well as, the normalisation of impairments in June 2021.
The Stage 3 impairments decline is attributed to a reduction in defaults over the period, with the bank having partnered with clients to help their businesses through the pandemic.
The P180m reduction in impairments results in areduction in the credit loss ratio to 1.6% (2020: 2.6%).
Non-interest revenue remained flat with a 1% increase year-on-year. The increase was driven by service fee and card commission income growth of 7% offset by a 30% reduction in foreign exchange revenue.
The growth in service fee and card commission was supported by increased volumes across the bank’s digital and electronic channels, but most noticeably in merchant transactions.
Improved connectivity on our digital channels generated growth in both transactional volumes and values.
The bank broadened its financial inclusion by continuing to expand its CashPlus channel and thereby bringing services to more remote locations while offering further convenience to our customers.
The cost-to-income ratio of 51.9% (2020: 47.9%) reflects FNBB’s success in balancing cost management initiatives with strategic investments and as affirmed by the minimal increase in operating costs.
Going forward Luke Woodford said FNBB will continue to invest in a forward-thinking approach to technology and innovation.
Growth has been witnessed in registrations across all digital platforms, with customers appreciating the ease of digital transactability, and the options to serve themselves in the form of convenient, value-added services with minimum added exposure to COVID-19.
“Investment in infrastructure and especially in the bank’s robust cyber security measures remain key objectives, so as to facilitate self-service initiatives which are both efficient and secure for customers” he said.