Letshego tightens screws as impairments jump 52%

Mbongeni Mguni | Friday March 8, 2019 12:58

Letshego also said the adoption of the IFRS 9 reporting standards, with effect from January 2018, had had the effect of raising overall impairment provisions.

The microlender’s impairments rose to P361.5 million, up 52% from the previous year, while the loan book grew 12% to P8.7 billion. Besides Botswana, Letshego operates in Ghana, Kenya, Lesotho, Mozambique, Namibia, Nigeria, Rwanda, Swaziland, Tanzania and Uganda. According to the group’s annual results released on Tuesday, Tanzania had the highest proportion of impairments as a percentage of total outstanding loans, at about 17.4%, followed by the West African market at 16.6% and its East African presence at 16.4%. By comparison, Letshego’s Southern African operations had rates averaging 2.2 percent with Namibia at 0.54% and Mozambique at 1.3 percent.

Botswana, which has the biggest portion of Letshego’s loan book at P2.5 billion, had impairments of P148 million or about six percent of gross advances. “Increase in group cost of risk is reflective of a number of factors, namely a change in geographic and business risk and the application of IFRS 9,” directors wrote in the annual statements. “Asset quality in East and West Africa is weaker than in Southern Africa although margin performance is better.” Letshego said, going forward, it was strengthening its risk management and reviewing its impairment methodology.

The group’s return on average assets declined to 5.2 percent for the year to December 2018, from 8.1 percent while another key indicator, the cost to income ratio, rose to 41.4% from 39.7%. Letshego reported after-tax profits of P510.5 million, a figure 25% down from the 2017 level. Besides impairments, the group’s performance was badly affected by an effective 50% tax rate across the countries its operates in.  “(This was) the result of three main factors being the partial write-down of the carrying value of deferred tax assets at Letshego Holdings, higher withholding tax charge on dividends from subsidiaries and tax provisions in respect of two subsidiaries. “The group effective tax rate is expected to improve in 2019,” directors said.