Total income for commercial banks (net-interest income and non-interest income) in Botswana decreased last year owning to a raft of factors including reductions in the benchmark rate over the course of 2015. Bank of Botswana’s Banking Supervision Annual Report 2015 says total income for the banks went down by 1.6% from P5.4 billion to P5.3 billion in December 2015. Net interest income declined by 7.6% from P3.3 billion to P3 billion.
The central bank said the decline in net interest income was caused by a combination of a cumulative 150 basis points reduction in the Bank Rate, and increased interest expenses from P1.7 billion to P2.1 billion owing to aggressive competition for deposits as the industry experienced some liquidity pressure during the year.
“However, non-interest income grew by 5.3 percent from P2.2 billion to P2.3 billion in December 2015 due to fees/charges levied on new banking services and products, as well as foreign exchange fees and commission,” the bank said. “Consequently, the share of non-interest income to total income increased to 42.7 percent in December 2015 (December 2014: 39.6 percent), while the ratio of Net Interest Income to Total Income decreased from 60.4 percent in December 2014 to 57.3 percent in December 2015.”
The slow growth in income, combined with increasing operating expenses, led to a higher Cost to Income Ratio of 61.2% in December 2015 (December 2014: 51.2 percent), which fell outside the international norm for retail banks of 55 – 60% range.
Most banks, with the exception of two banks, reported net profit for the period ended December 31, 2015. The banking sector net income after tax continued its downward trend and decreased by 26.4 percent from P1.5 billion to P1.1 billion in 2015. The decrease in profitability was due to the squeeze in margins, an increase in provisions for impaired assets and an increase in operating expenses. Chart 2.19 shows commercial banks’ pre-tax and after-tax profit growth rates.
As a result of the decrease in overall commercial banks profitability, key profitability indicators continued to decline (Chart 2.20). Return on Equity (ROE) decreased from 19.1 percent in December 2014 to 13.3 percent in 2015, while the Return on Average Assets (ROAA) declined from 2.3 percent to 1.5 percent. These ratios were below those of commercial banks of similar size in the region which recorded an average of 19.6 percent (ROE) and 2.6 percent (ROAA).
However, the central bank said the banking sector balance sheet as well as key prudential and statutory indicators showed some improvement. It said total banking assets grew by 12.7% to P76.6 billion in 2015 (December 2014: 13.4 percent increase to P68 billion). All banks reported an increase in their asset base. Loans and Advances also grew (7.1 percent) to P48.3 billion in December 2015, albeit at a much smaller rate compared to a year earlier.
On the other hand, the ratio of Non Perfoming Loans (NPLs) to Total Loans and Advances increased from 3.6 percent at the end of 2014 to 3.9 percent in December 2015. Most of the NPLs (52 percent) were attributable to the household sector. The ratio of aggregate Large Exposures to Unimpaired Capital declined from 229.9% in 2014 to 194% in 2015, thus remaining within the 800 percent maximum prudential limit.
Total customer deposits grew by 16.4 percent to P60 billion in 2015. Customer deposits constituted the largest part of liabilities (78.3 percent) and were the primary source of funding growth in banking assets. However, balances due to other banks and credit institutions declined as banks continued to mobilise funding from alternative sources, including debt securities.