BIHL keeps faith in Letshego despite profit knock
Mbongeni Mguni | Monday September 5, 2022 06:00
Botswana Insurance Holdings Limited (BIHL), the country’s largest diversified financial services entity, previously incurred running impairments from Letshego over two reporting periods between 2018 and 2019 amounting to P246 million.
In the half year to June 30, BIHL's share of profits from associates dropped to P117.5 million, more than 5.2 percent lower than the previous corresponding period.
Letshego was the main "culprit" in the lower profits from associates, with the microlender’s pretax profits for the half-year to June 30 falling to P446 million, down 18% from the previous corresponding period.
BIHL group chief executive, Catherine Lesetedi said despite the microlender’s downturn in profits, it enjoyed a presence in a segment of the market that needed its services.
“There’s an opportunity for that business to really turn around and in terms of margins, these will continue being under pressure but the management has to look for cheaper funding which does not just come around,” she told an analyst and media briefing on Wednesday. “What the (Letshego) management is trying to achieve is to drive retail deposits through digitisation which is underway and in the first half, we have seen these retail deposits rise and outperform corporate deposits. “While the retail deposits are still small, this is still right directionally.”
While Letshego’s troubles in the half-year were linked to a higher cost of funding as interest rates rose in the various markets in which it borrows to fund its lending activities, the performance also resuscitated persistent questions that have been raised about the expansion into West and East Africa.
Botswana, Namibia, and Mozambique have been carrying the group for some years and in the half-year to June, contributed a collective 83% to pretax profits, despite employing just 49% of the Letshego’s total staff.
Differences over the African growth strategy have periodically boiled over among shareholders, including this year when disagreements and tensions resulted in several board members, including the chair, quitting before the Annual General Meeting in June.
Lesetedi appeared to acknowledge the issues in the African expansion.
“There are some markets that have underperformed and there are commitments by management to say ‘we realise that we are in certain markets where we are underperforming, where we invested believing that there’s a plan’ and these must come to the party. “The contributions to profits over time should include territories other than Botswana, Namibia, and Mozambique,” she said. The BIHL group CEO, however, said Letshego’s balance sheet was growing despite the challenges and the expansions into Africa.
“The issue is the funding, which is both fixed and floating and those things are being addressed,” Lesetedi said. “We believe management is looking at these issues to put them in the right direction and we believe this needs a little bit more patience. “So, are we thinking of exiting Letshego? Not presently. I would not say we are but we want a good performance from them and those conversations are happening.”