Statutory banks’ financial position grows

Botswana’s three statutory banks have grown their financial positions in 2015 according to latest Bank of Botswana (BoB) report. The apex bank’s Banking Supervision Annual Report 2015 notes that total assets for these state-owned banks increased (12%) from P6.7 billion in 2014 to P7.5 billion in 2015. The net profit of the three banks increased by 22.2% to P100 million (December 2014: P82 million) in the year ended December 31, 2015.

Bank of Botswana governor, Linah Mohohlo
Bank of Botswana governor, Linah Mohohlo

The three statutory banks are Botswana Savings Bank (BSB), Botswana Building Society (BBS) and National Development Bank (NDB).

“The asset growth was primarily funded by deposits and borrowings, which grew by 53 percent to P3.3 billion and by 10.4 percent to P2.1 billion in 2015, respectively. Credit growth for statutory banks was subdued at 5.7 percent in 2015; this was lower than that of commercial banks growth of 7.1 percent,” stated the BoB report.

Equally, liquid assets increased by more than 100% to P1.5 billion last December. The Liquid Assets to Customer Deposits Ratio was 45.9% at December 31, 2015 (December 2014: 33.7 percent).

The Cost to Income Ratio, which had been trending upwards, declined from 70% in December 2014 to 63.1% in December 2015. “This was mainly because of the increase in income. Going forward, it is likely that the Cost to Income Ratio might increase due to preparatory projects associated with the transition of these statutory banks to full-fledged commercial banks”.

On the other hand, the three banks’  gross loans and advances increased by 5.7% to P5.9 billion in December 2015 (December 2014: P5.6 billion). The total past due loans continued to increase and reached P1 billion as at December 31, 2015 (December 2014: P923 million) of which Non Performing Loans (NPLs) amounted to P372.9 million.

BoB said the NPLs to Total Loans and Advances Ratio was 15% in 2015 and was unchanged from the prior year. Specific provisions increased by 53.3% to P307.1 million in 2015, and the average Specific Provisions to NPLs Ratio increased to 33.7 percent in December 2015 (December 2014: 24.5 percent). The ratio was higher for one bank while the other two banks had most of their loans secured by the property or asset being financed.

Of the three, two statutory banks were largely funded by customer deposits (44.5%) followed by borrowings (27.7%) and shareholders’ funds (25.2%). However, the ratio of Loans to Deposits decreased from 175.4% to 128.1% in December 2015. The relatively high Loans to Deposit Ratio reflected the fact that statutory banks relied more on capital and other funding sources, unlike commercial banks, where lending was funded, in the main, by public deposits.

The statutory banks were adequately capitalised and complied with the minimum statutory and prudential capital adequacy requirements. Moreover, the capital was of high quality as the Core Capital to Unimpaired Capital was 92.8% in December 2015, and Unimpaired Capital to Risk-Weighted Assets ratio was 44.3%.

However, BoB warned that despite the positive growth levels, the market share of statutory banks in terms of total assets and related components remained lower than that of the smallest commercial banks. The unaudited financial statements were used in respect of one statutory bank.