The country’s largest lender, First National Bank Botswana (FNBB) plans to maintain a cautious approach to credit extension, even as the recent reduction of the bank rate points to heightened demand in the local market.
The Bank of Botswana cut credit interest rates in the local market by 0.25% last week, citing the elbowroom created by months of low inflation and the need to boost the economy.
The rate cut was the first since October 2017 and marks the lowest the bank rate has fallen in recent history. A cut in the bank rate is associated with cheaper loans and repayments, the resultant credit uptake leading to improved economy activity amongst businesses and greater demand by households.
On Wednesday when presenting the bank’s full year results for the year ended June 2019, CEO, Steven Bogatsu said FNBB would stick with its caution approach to lending, given the “the stress that is evident in the credit portfolios”.
FNBB’s total impairments declined from P272.2 million in 2018, to P264.9 million in 2019, although those attributable to the retail banking sector rose marginally to P120.3 million in 2019 from P117.7 million the previous year. The bank’s retail sector is the biggest contributor to profitability and the loan book.
“During the financial year, focus was placed on improving credit discipline with concentrated efforts on the
“We forecast overall credit extension to remain below eight percent through to 2020.”
FNBB’s non-performing loans fell during the year to June 2019, closing the year at P1.14 billion, down from P1.3 billion. Bogatsu said the achievement showed success on the bank’s focus on credit discipline and accelerated collection processes.
FNBB’s cautious approach to credit was also evident in its gross customer advances growth of five percent year-on-year, which was behind the broader market’s seven percent growth for the 12-month period to May 2019.
FNBB’s loan growth for the year was largely driven by consumer term loans and asset-based finance, on the back of the government wage increase.
“While remaining positive, the growth profile faces downside risks emanating from a limited output and export-oriented approach, the likelihood of a dent on competitiveness as Botswana remains on the FATF grey listing, as well as an undiversified growth trajectory in the absence of robust private sector investments,” he said.