First National Bank Botswana (FNBB) has raised P238 million from the debt market through tapping into its P1 billion-listed bond on the Botswana Stock Exchange (BSE).
In a statement, the bank said the funds would be used to finance its loan book and ensure compliance with Basel ll requirements, which kick in from January 2016.
The bank’s chief executive officer, Steven Bogatsu said the proceeds would be used to extend the term profile of the funding book as well as grow loans and advances.
“The issuance of the notes demonstrates the issuer’s strategy of diversifying its funding sources and its intention to become regular issuer of medium to long term debt,” he said. “This issuance also forms part of the issuer’s plan to put necessary measures in place to prepare for Basel funding and liquidity requirements.” Basel is a set of banking regulations put forth by the Basel Committee on Bank Supervision, which regulates finance and banking internationally. As the liquidity dearth heightened in the past year, commercial banks found themselves paying astronomical interest rates to attract funds, a cost that chomped into their profit figures.
For the full year to June 2015, FNBB saw its interest expenses rise by 43 percent, largely due to high deposits rates paid to professional funders.
While the bank’s top line interest earnings registered a modest four percent rise to P1.29 billion, a mammoth 43 percent rise in interest expenses induced by the tight liquidity effected a P415 million dent on net interest income.
“The liquidity challenges experienced in the market called for all banks to increase the rates being paid on deposits in a bid to attract much needed funding.
“Deposits growth posted a 20 percent year on year increase leading to an interest expense increase of 43 percent which is reflective of the prevailing market conditions,” Bogatsu said.
In a bid to attract cheaper deposits, FNBB launched flexi-fixed, a product which offers depositors ‘attractive’ rates but priced below the levels of professional funding.
The Flexi Fixed deposit account offers two investment term options being the 6-months and 12-months where the interest rate on any given day is directly linked to the prevailing prime rate.