The chairman of Botswana Building Society (BBS) Cross Kgosidiile says declining profits over the last couple of years are proof it is time the society took the commercial route and diversify its clients offerings.
In his notes in this year’s financials, the chairman said while BBS delivered a good performance (P54.9 million profit), despite challenging economic conditions, the results indicate the timing is appropriate for the business to change direction.
Kgosidiile says since inception in 1976 BBS had played a pivotal role in inculcating a culture of savings and assisting Batswana to acquire houses through affordable mortgages, however today customers demand more products and services, while BBS is no longer the sole player in mortgage financing.
The chairman also noted that profits this year did not only decline by 24%, but in the last few years they had been increasing at a declining rate.
While the chairman noted that dividends of P59,847 million were paid out this year to BBS members, he warned against the practice of augmenting the pay-out with the reserves as was done in the prior year, adding the practice was unsustainable and that it only adds to strong indications that it was time BBS converted to a commercial bank.
Waxing lyrical about the impending demutualisation of BBS, Kgosidiile said the change would enable BBS to be more sustainable as they diversify income streams and the balance sheet through the introduction of additional products and services.
Kgosidiile says currently commercial banks have the advantage of encroaching onto BBS turf while they cannot do the same, a situation that continues to put the bank at
Kgosidiile further said once they have commercialised, BBS will be more competitive, thanks to its wide range of products and service offering. It will also become part of the clearing system and therefore no longer rely on commercial banks to collect payments on its behalf.
BBS will also be able to introduce either Visa or MasterCard services to enable customers to use the BBS ATM card on ATMs of other commercial banks unlike in the present case where this is not possible.
Meanwhile the BBS managing director, Pius Molefe was buoyant commenting in the same report, describing the BBS as a resilient entity that performed fairly well against most of its competitors, the commercial banks, despite them having a wide range of products and services. “While its profit declined compared to the previous year, BBS performed a lot better than some of its competitors”.
Molefe also noted that BBS’s low interest rate environment, which is admired by customers, had negatively impacted on the organisation’s profit margins.
However the managing director says the low interest rate on mortgages will continue for the long haul.
Molefe also observed that a not so good economic performance that affected the mining sector, and led to unemployment issues and retrenchments affected some customers’ ability to service their loans, resulting in BBS registering loan defaults of P11.1 million this financial year, up from P4.8 million.