Letshego sheds reliance on Botswana market
Brian Benza | Wednesday April 23, 2014 12:22
In the group’s 16-year old history, Botswana has consistently contributed the majority of profits. An expansion into new markets, including the East African region has not diversified the group profit and asset mix but significantly cut down Botswana’s contribution to the stable.
In 2008, a mere eight percent of Letshego’s profits were generated from outside Botswana before increasing to 35 percent in 2012 and 40 percent in the year ended January 2013.
From its traditional three markets in Southern African, Letshego now operates in 10 African countries after an aggressive expansion in the past five years. The group now has branches in Mozambique, Lesotho, Kenya, Rwanda, South Sudan, Tanzania and Uganda.
In the expansion period, profit growth was flat year-on-year, increasing by one percent to P849 million on prior year.
The group says this was a result of pressure on margins, various strategic investments in technology and expansion initiatives. Earnings per share are lower due to the conversion of a loan to equity earlier in the financial year.
Net interest income rose by 15 percent on the back of a 43 percent decline in interest expense. Impairments surged by 84 percent to about P64 million. On the balance sheet, total advances soared by 33 percent to P4.43 billion contributing to a 16 percent increase in total assets. In the period, the board declared a 3.2 thebe to be payable on May 9, 2014.
“During a challenging year, a satisfactory performance was achieved in terms of growth in the advances book with the main contributions coming from our three largest markets, Botswana, Namibia and Mozambique.
“The quality of the advances book was within target levels with an impairment charge on the net portfolio of 1.7 percent for the year as compared to 1.3 percent in the prior year. The group remains well capitalised and has cash resources of over P300 million which are available to further grow the business,” said the company.
As a result of the success of its expansion, Moody’s Investors Service last December upgraded Letshego’s outlook on the back of reduced risk exposure due to improvement in the Botswana operating environment coupled with the micro-lender’s geographical diversification.
Letshego’s outlook and ratings was downgraded by Moody’s in 2011 when government indicated its intention to stop the company’s direct payroll deduction for public servants, a development that was certain to impact heavily on the company’s repayment recovery rate.
In de-risking the business through diversification, Letshego is also branching into commercial banking with steady progress already recorded in the strategy to acquire banking licences in its main operating markets. It has already acquired a banking licence in Mozambique, a deposit-taking licence in Rwanda, and is in the process of getting a banking licence in Namibia.
The group has however sold its business in Zambia, reducing its African footprint to 10 from 11 last year.
The company, which is currently trading under caution on the BSE, has in the past said plans are underway to set-up in three more African countries, Nigeria, Ghana and Zimbabwe.