Brian Benza
25 August 2008
Gaborone — The recent double increase in the bank rate by the Bank of Botswana is not expected to have a huge dent in First National Bank of Botswana's (FNBB) loan book, Chief Executive Danny Zandamela has said.
Speaking at the presentation of his bank's financial results for the year ended 30 June 2008, Zandamela said the elasticity of the domestic market to changes in interest rates was high and therefore very little, if any, effect on their business was anticipated.
"The local market is quite resistant in terms of reacting to interest rate increases," he said, "and Botswana has a long history of high interest rates."
In reaction to rising inflation, BoB increased the bank rate by 0.5 percent twice in as many months as, May and June.
FNBB says it has increased focus on the collection process of loans and advances and that it continuously monitors non-performing loans.
For the year under review, FNBB's profit after tax rose by 21 percent to P374 million while its net interest income increased by 16 percent compared to the previous period. This has been attributed to the growth in the bank's core business.
"The impact of this growth was not fully felt as draw downs were experienced in the latter part of the year," the FNB CEO said. "Margin squeeze was experienced as a result of competition as well as lower returns from the Bank of Botswana Certificates (BoBCs), which grew by 30 percent."
Elaborating on the bank's financial performance, FNB's Chief Financial Officer Steven Bogatsu said foreign currency trading profits and banking commission income had also ensured that non-interest revenue grew by 43 percent in the corresponding period.
"This growth was largely attributed to new customer accounts and increased product offerings," Bogatsu said. "Service delivery channels, particularly electronic banking points of sale and breakthrough channels such as cell-phone banking are performing above expectations."
Also contributing to non-interest income was P35 million worth of shares the bank received from New York Stock Exchange-listed VISA Incorporated in respect of FNBB's existing membership of the Visa Association.
Under its expansion programme, the bank opened two new branches in the period under review - one in Selebi-Phikwe, another in Serowe.
"This expansion programme, together with the full impact of planned prior year initiatives and continued rises in costs as a result of inflation, resulted in (rising) operating expenses during the period," CEO Zandamela explained.
"However, this growth in operating expenses is in line with management's expectations as it provides access to new revenue streams."
But despite the increase in expenses, the bank has maintained its cost-to-income ratio at 38 percent, which it says is the lowest in the industry.
Bogatsu also explained that due to the persistent excess liquidity in the market, FNBB had invested P3 billion in BoBCs; but contrary to widespread expectations, the returns from the certificates had not been a windfall, coming in at only P10 million for the year.
Total assets in the period grew by 37 percent as a result of a 29-percent rise in advances, a 32-percent increase in BoBCs and a 98-percent increase in cash and short-term funds.
The bank said its retail network, WesBank and Card Divisions, which have performed exceptionally well as a result of various initiatives to improve processes and service to customers, mainly drove the growth in advances.
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