FNBB adopts cautious lending strategy

  • Fears impairment on loans
  • Non-performing loans on the rise
  • NPL exposure increases to P1.26 billion


When making his presentation at the bank’s interim financials for the fiscal period ending 31st December 2018, FNBB Chief Executive Officer (CEO) Steven Bogatsu said the Bank continued to adopt a cautious credit risk appetite over the period.
The gross advances increase of 5 percent was largely driven by growth in FNB Retail and RMB Corporate. The FNB Retail segment growth was aligned to the Bank’s cautious outlook on consumer lending, and experienced balanced growth in both property loans and personal loans, while the RMB Corporate segment growth was attributed to a small volume of large-value transactions.

Bogatsu said the FNB Business decline in advances was attributed to increased competition, the internally moderated risk appetite and the high amortisation of the portfolio due to the predominance of amortising term loans in the portfolio. FNBB’s loanbook stands at P15.4 billion after a marginal 3 percent uptick. It however remains the largest loanbook in the market.
Interest income increased by 6 percent, aligned to the growth in advances. However, this increase was largely due to the optimised investment portfolio while the change in the advances portfolio mix resulted in reduced average yields on advances. Bogatsu said customer deposit growth of 3 percent as at December 2018 emanated predominantly from increases in transactional balances.

The interest expense growth year-on-year of 13 percent was due to the rollover effect from the previous reporting period when market liquidity was tight. The position subsequently normalised and the Bank maintained its funding profile and careful management of liquidity risk and costs over the current period. The non-performing loans (NPL) to gross advances ratio increased from 6.6 percent to 7.6 percent year-on-year, with the NPL exposure increasing to P1.26 billion.

“This significant growth in NPLs is largely due to the deterioration of certain high-value FNB Business segment exposures, and the relegations that have been experienced in the FNB Retail and WesBank segments. The resolution of the NPL portfolio remains a top priority, and the Bank will continue to invest in the iterative refinement of processes and systems required to improve collections,” he said.

Impairments increased by 23 percent year on-year largely due to the FNB Business segment inflow into NPL. International Financial Reporting Standard (IFRS) 9 has been successfully implemented, with a retained earnings adjustment of P126 million accounted for in the financial statements. The Bank has not experienced any significant deterioration in the key variables that affect the IFRS 9 expected credit loss assumptions. Together with muted advances growth, these have resulted in a minimal income statement impact being experienced over the period since implementation. Non-Interest Revenue growth of 10 percent was driven by increases in both foreign exchange revenue and transactional revenue.

Bogatsu said the foreign exchange revenue growth was due to a significant increase in the value and volume of foreign exchange transactions as a result of the South African rand’s volatility. The growth in transactional revenue was largely due to increased merchant transactional turnover.

The Bank continued to invest in the improvement of the client experience, in line with its customer centricity strategy. The Profit After Tax growth of 9 percent to P378 million and return on equity of 24.7 percent (24.3 percent in December 2017) are a culmination of the aforementioned initiatives for the six months ended December 2018, according to Bogatsu.

Given the current positive outlook for the Botswana economy, the Bank anticipates increased business activity and commensurate growth in market advances. It further anticipates growth in targeted financing for some sectors of the economy such as agriculture, manufacturing and tourism, which are sectors expected to be supported by credit guarantees from development finance institutions.

Investment in digital capabilities, human capital and process re-engineering will continue. Consumer indebtedness in the market remains a concern and the Bank will continue its cautious approach in lending into this market.