First National Bank of Botswana (FNBB) is pinning hopes on transaction fees from its large customer base to drive growth in revenues as the squeeze in interest income continues to eat into the bank’s profitability.
Due to prevailing low interest rate environment coupled with reduced deposits and tight liquidity, the bank recorded a two percent drop in net interest income for its half-year results to 31 December 2014.
On the other hand, the bank strategy of shifting from ‘bricks to clicks’ produced success as non-interest income rose by 11 percent year on year.
Speaking at the bank’s financial results briefing last Friday, FNBB acting chief executive officer, Richard Wright acknowledged that liquidity in the banking sector was slowly drying out, but stated that cross sales amongst the bank’s 400,000 client base would allow it to continue reporting good revenue figures in difficult trading conditions.
He noted that within the current difficult economic climate, the bank’s fundamentals remain strong, adding that opportunity lies in the customer centric strategy that the bank had embarked on--which is on the back of a refined segmentation model.
The bank had seen a significant increase in transaction volumes, which translated into an 11 percent increase in non-interest income from P377 million to P419 million.
The increase in volumes was attributed to the introduction of automated deposit taking machines (ADT’s), rand dispensing ATMs, pre-paid electricity via the cellphone banking channel and the recently launched *174# payment solution.
The bank recorded a five percent decline in profit before tax on a year-on-year from P464 million in six months to December 2013 to P440 million in the period to December 2014. Cost to income ratio over the same period grew from 39.9 percent in 2013 to 41.25 percent in 2014.
The return on average assets dropped from 4.6 percent to 4 percent year-on- year.
Although liquidity is drying up in the market, with the loan to deposits ration nearing 90 percent in the industry FNNB revealed that its advances grew by 16 percent in the period largely on growth in property, WesBank and RMB’s loan books.
Boitumelo Mogopa, FNBB’s chief financial officer said they were looking to improve system on collections, adding that they have introduced two new investment products to further draw liquidity to the bank.
The bank’s capital adequacy ratio, which excludes the dividend reserve, has been maintained at 19.28 percent as at 31 December 2014, and is above the bank’s internal limit, as well as the Bank of Botswana (BoB) required ratio of 15 percent.
The central bank figures show that excess liquidity, which refers to excess cash that banks hold above regulatory requirements, had dropped sharply from 2006 when excess liquid assets made up 45 percent of bank assets to just six percent by the end of 2013.
Due to monetary policy interventions, the amount of BoBCs issuance has dropped dramatically from the peak of P17.5 billion in 2008 to P5.5 billion at the end of 2013.