BBS banks on demutualisation as profits fall

Pauline Dikuelo | Tuesday August 5, 2014 13:52

According to the results, BBS recorded a four percent decline in profits from P71million in the previous year to P68 million. In a statement accompanying the results, BBS board Chairman Cross Kgosidiile attributed the decline in profits to the constraints placed on the Society by the restrictive Building Societies Act.

While BBS has been restricted by law to mortgage lending and deposit-taking activities only, it has faced stiff competition in the market from commercial banks, which can offer many other lines of products.

However, legislation enabling BBS to demutualise and make its entrance into commercial banking has recently been passed by Parliament making the 37–year old organisation bullish about its prospects.

Through demutualisation, BBS will convert into a shareholder owned company  allowing the organisation to apply for a commercial banking licence.

According to Kgosidiile, BBS has been pushing for demutualisation in order to better compete with commercial banks, which have aggressively encroached into its mortgage-lending mainstay.

 Commercial banks have in the past few years grown their mortgage-lending book, as they become more risk averse through reduction of exposure to unsecured lending. “The motivation for the transformation is precisely because of our current model which is becoming more increasingly unsustainable as the results have shown,” Kgosidiile noted. In the period total expenses rose by 13 percent to P120 million while personnel costs only increased by one percent.

Kgosidiile said the modest rise in human resource costs is an indication that the Society`s human resource are deployed optimally further supported by our salaries in wages bill which declined by one percent. “We have decided not to fill vacancies until we have fully understood the human capital requirements of a commercialised entity,” he said.

For his part, the Society’s Managing Director, Pius Molefe regarded demutualisation as a progressive step towards ensuring business is sustainable and there is improved shareholder value. He noted that despite their decline in profits, their asset base has remained strong as it grew by five percent, which he considers indicates that despite constraints imposed due to their current legislative framework, they have a strong asset base from which they can set up a commercial entity.

He added that Batswana have shown confidence in them through the customer saving and fixed deposit account increase by nine percent from the P591,698 million to P646,665 million in 2013/2014.

Demutualisation consultancy is conducted by PriceWaterHouse Coopers with the assistance of Armstrong legal advisors. Other prominent captains of the industry who are on board include Tsetsle Funtain, James Kamyaka, Gerald Thipe and Molefe.