Botswana shines, as impairments cloud BancABC
Mbongeni Mguni | Thursday March 27, 2014 12:19
BancABC Botswana is one of the banking group’s subsidiaries along with Zambia, Zimbabwe, Mozambique and Tanzania.
The group’s results for the year ended December 31, 2013, unveiled on Tuesday, revealed that while Botswana led the stable in contributions to attributable profits, income and loan book size, bad debts overshadowed ABC Holdings’ sterling results.
According to the results, ABC Holdings’ impairments were pegged at P328 million in 2013 up from P138.2 million the previous year, with executives quick to attribute this to a few troublesome clients in the corporate sector.
ABC Holdings’ executives told media and analysts that while consumer banking is traditionally the source of impairments, in this case, the group’s troubles stemmed from a few corporate clients in Tanzania, Zimbabwe and Mozambique.
“We had approximately five accounts that accounted for most of these impairments,” ABC Holdings’ group chief financial officer, Beki Moyo said.
“Of the total impairments, five accounts made up 72 percent and most of them were from just three countries, Tanzania, Mozambique and Zimbabwe.
“These three countries accounted for 82 percent of impairments.
“After year-end, we believe there will be a resolution to these and we will recover a significant part of them and over time we will get all the provision back.
“Instead of riting back based on security, we will write it back based on whether we recover it.”
Gross Non-Performing Loans (NPLs) rose to 9.8 percent of the total loans of P10.6 billion in 2013, from 9.2 in 2012, reflecting the higher incidence of bad debts within the banking group’s books.
“Our consumer loan book has an NPL ratio of three percent and corporate banking has 17.1 percent,” Moyo said.
“It is in corporate banking where we have the few accounts with problems and this space was actually our traditional forte.”
Moyo explained that hidden behind the actual amount of impairments, was the loss of profits expected from the original loan that is now in impairment.
“This is an area we are taking very seriously,” he said.
ABC Holdings CEO, Douglas Munatsi said the impairments had revealed underlying risks of expanding credit in certain areas within Africa, even to borrowers with government backing.
“In Tanzania, we had an agricultural client with government backing which ran into difficulties with the collapse of petroleum prices in 2008,” he said.
“Our risk appetite was way too high at the time. We called up the government guarantee and they said ‘come let’s talk.’
“We have been talking for five years! These are things that no one can plan for even if your approach is good.
“Now our approach is to look at what could go wrong and assess what our loss will be.”
Munatsi said the implosion in impairments had taught the group lessons about the differences in credit culture across Africa. According to the CEO, in some parts of Africa, the bank’s clients have defaulted and run to challenge asset repossessions in the courts. In other countries, borrowers are reluctant to pay even when they are able to.
“We have to look at the individual markets now,” he said.
“We can say countries such as Botswana and even Zimbabwe, have a very good credit culture. If they don’t pay back, they will try.
“In Tanzania, if they borrow and they don’t hear from you, they won’t pay you.
“Our risk appetite has to be informed by idiosyncrasies of the market and we have to look at what appetite we can have for each market as well as how to mitigate for each.”
Going forward ABC Holdings is tightening its management from granting credit to collections and will also reduce its single obligor limits to avoid being exposed to a single creditor or a single group of creditors.
“We will also improve on documentation so that when we sue, we can recover and we will also improve our security requirements,” Moyo said.
ABC Holdings has also set up a “Special Ops” unit at group level staffed by ExCO members whose objective is to recover impairments and tighten future lending.