Through the dark, to the dawn
Mbongeni Mguni | Friday September 5, 2014 13:44
While he has only been in office for 14 years and at the helm for 10, Pius Molefe is the face of the Botswana Building Society (BBS), striking a stern if not intimidating glare out of the numerous newspaper pages that have chronicled his battles on behalf of the organisation over the years.
Indeed, in the last decade the Society has experienced the most trying times of its history, with legal tussles against government and key shareholders, only complicating the pressures inherent in attempting to extract profit from an anachronistic business model. While most famous for tackling government and, later, two powerful shareholders, Molefe’s real achievement is in sowing the seeds of an idea that blossomed with last Friday’s unanimous vote.
While he would be the last person to admit it, Molefe was among the first to suggest demutualisation as a sustainable avenue out of the morass the Society and its members had increasingly found themselves in, as growing commercial banks ate into the BBS’ mortgage lending flagship.
Established on December 13, 1976, the BBS rapidly expanded from assets of only P4.1 million, instantly proving popular with the expanding home-seeking urbanites eager to access the concessional rates on offer from the government-backed entity.
In the years from establishment, the BBS held its own as existing potential competitors, Standard Chartered and Barclays, focused on expanding their corporate and retail businesses.
The entry and subsequent failure of banks such as the Bank of Credit and Commerce International BCCI in 1991, Zimbank Botswana in 1993 and the government-backed Botswana Cooperative Bank in 1995, underlined the banking sector’s general impenetrability, further enhancing the Society’s niche mortgage market.
Indeed, which banks would tackle the capital intensive and BBS-dominated mortgage market when the simple retail sector was proving difficult?
The rigidity of the commercial banking sector was music to the BBS’ ears and the Society and its members enjoyed two rosy decades after establishment, consolidating and delivering on their vision of being “the premier provider of property finance”.
Keeping with the cyclical nature of commerce however, the winds of change were blowing over banking and between 1991 and 1994, First National Bank and Stanbic had quickly become the first real challenge to Barclays and Stanchart’s duopoly. The next decade up to 2008 would see the establishment of Baroda, Bank Gaborone and Capital Bank consecutively, ringing panic bells for the duopoly and also, in the distant, for the Society.
Molefe heard these bells on arrival at BBS in 2000 and four years later, as the new Managing Director, he ensured that the demutualisation agenda equally rang in the minds of shareholders.
In the last decade, the country’s commercial banks have rapidly expanded into mortgage finance, with an array of tempting products – including zero deposit schemes – and have thus effectively muscled into the BBS’ once stomping ground.
Latest Bank of Botswana figures indicate that between 2005 and May 2014, the Society grew its loan book from P726.1 million to P2.7 billion or nearly four-fold.
In 2005, the then five commercial banks held a collective mortgage lending book of P1.2 billion, and as at May 2014, the now seven banks’ book is pegged at P7 billion or a six-fold increase.
The younger banks, such as Bank Gaborone in particular, have been especially aggressive on BBS’ turf, offering a variety of products to tap into long-term profit sustainability associated with mortgage lending. Although the Society has managed to “bend” its mandate over the years to include rural lending, short-term loans and a variety of savings products, its ability to fend off the banks’ attack by venturing into their turf, has been curtailed by statutory straitjacket.
“Commercial banks and other financial institutions are enjoying a low cost of capital thus intensifying competition on our products,” lamented a high level official in a previous financial announcement.
“Their flexibility also allows them the latitude to be more innovative leading to more complementary products, an advantage which the building society model does not enjoy.”
Those days, however, could soon be over as the gentle nudgings Molefe first gave members in 2004 appear set to pay off. From his first suggestions, Molefe was able to secure the backing of key members such as the Motor Vehicle Accident Fund, whose confidence in him was reflected in the injection of an extra P40 million in Indefinite Period Shares in 2012.
“In fact, Molefe has brought many of the members around to the idea of demutualisation as being the Society’s future,” says one commentator close to the BBS.
“Over time, he has been able to secure buy-in and this was reflected in last Friday’s vote. Many members understand and realise that this is what the Society needs in this day and time.”
Society members, used to annual dividend payments and even bonuses over the years, are backing Molefe to take the Society into a new era and a new dawn after a decade of darkness.