Low credit demand in mining sector cripples FNBB
Pauline Dikuelo | Tuesday September 5, 2017 18:00
According to FNBB’s financial results for the year ended June 30, 2017, the bank’s loan book amounted to P15 million during the period.
The bank’s chief executive officer, Steven Bogatsu said although credit demand from the mining sector has been low, at just 0.6% of total loans as at February 2017, the sector’s health feeds into the manufacturing, transport and trade sectors, which, combined, account for 16.6% of loans.
“Credit to all four sectors was weak in a downtrend over the last year, but viable credit demand should improve as these sectors benefit from the improvement in mining activity,” he said.
Bogatsu said consumer credit demand could also benefit from subdued inflation and low interest rates although growth will be restricted by limited household income.
Despite a more selective and cautious approach to lending risk, Bogatsu said the bank experienced increased impairments, attributable predominantly to the liquidation of the BCL Mine group, which increased the impairment charge to levels of 2.3% of gross advances.
Total advances grew by four percent year-on-year outpacing market credit growth of two percent.
At the back of this, he said deposit growth was at three percent emanating predominately from good growth in short term funding over the year with current and call accounts posting growth of 28% and nine percent respectively as well as the improvement in the market liquidity over the period leading to a decline of 27% in interest expense.
“The bank also continues with efforts to improve and lengthen the tenure book which will see the bank enjoy benefits under the Basel III framework, which requites enhance capital and liquidity sustainability,” he said.
According to Bogatsu, the growth in total advances emanated mainly from the retail term loans but with mild growth also posted in the then Wesbank book.
“This plus repricing of new businesses to align with risk resulted in growth in interest income of nine percent. RMB and FNBB business segments posted regression in their respective books attributable to the market conditions and specifically muted demand in business credit,” he said.
In addition, Bogatsu said avenues to invest excess funds improved with increases in the investment securities availed by the Central Bank over the year.
The bank also took advantage of investment vehicles available offshore. As consequence and following the bank’s initiative to improve efficiencies, investment securities posted good growth of 35% which contributed to the growth in gross interest income whilst non-interest bearing assets in the form of cash grew by 20%.
Further he said the bank has been prudent around its property portfolio where additional provisions have been taken to cater for the ailing property values.
He said the bank seeks to establish and manage a portfolio of businesses and associated risks that will deliver sustainable returns to its shareholders within appropriate levels of earnings volatility.
The group’s profit before tax declined by one percent recording P500 million, compared to P503 million that was recorded in the prior year on the corresponding period.