- BancABC to leverage on strong loan book
- Strong partnership with Unions drive membership
- Bank looks to harness technology
Brokerage Firm, Motswedi Securities said it expects BancABC’s loan book to increase further as the bank leverages its partnership model to attract new schemes.
Motswedi Securities announced in a pre-listing note authored by Head of Research Garry Juma and Salome Makgatlhe. BancABC has created partnerships with some of the key institutions such as three of the largest public labour unions. The bank currently provides a range of banking services to over 60,000 customers through its growing distribution network of branches, VISA enabled ATMs access points, online and mobile banking platforms. It recently renewed its principal union contracts for a further 3 years with civil service unions, representing 76 percent of the loan book.
The agreements according to Motswedi, are important as they will ensure the continued growth of the loan book and credit pipeline. These agreements have been in place for over 7 years with the deductions done at source helping to minimise impairments. “Challenges will only arise if these agreements are renewed at less favourable terms or not renewed altogether. In addition, trade union clients may decide not to use the banks ancillary services, such as funeral insurance cover, and instead use a third party agents. This would lead to a decline in non-interest income to the bank,” said Motswedi researchers.
However, Juma and Makgatlhe said the continued growth of the balance sheet will have a direct impact on the bank’s net interest income and profitability. BancABC’s loan book has been growing at a Compound Annual Growth Rate (CAGR) of 10.5 percent over the past 4 years and is the 5th largest book in the market, after rivals First National Bank Botswana (FNBB), Barclays Bank Botswana, Stanbic Bank Botswana and Standard Chartered Bank Botswana. All these commercial banks are listed on the Botswana Stock Exchange Limited (BSEL) save for Stanbic Bank Botswana which has ruled out the possibility of listing several times.
In 2014, BancABC loan book was at P4.1 billion. By the end of 2017 full year, the bank’s loan book was at P5.9 billion. Banks make more money from a larger loan book, because the larger the loan book the more the interest income, which is income derived from interest on loans to customers. Interest Income has been the largest revenue driver for commercial banks and micro-lending companies.
However, a large loan book can prove to be a problem for the bank if the quality of the loan book is poor. It would lead to defaults by clients and consequently the bulk of it will be non-performing loans (NPLs) which leads to impairments and losses consequently.
BancABC maintains a high quality loan book. Non-Performing Loans have declined from 4.2 percent during the 2016 full year to just 3.6 percent during the 2017 reporting period.
Further, BancABC loan book has had an average NPL ratio of 3.7 percent between 2014 and 2017. The ratio, according to Juma is below the industry average of 5.3 percent as at December 2017. This means that BancABC has the lowest rate of NPL and also has potential to grow further.
The bank’s credit loss ratio has fallen to just 0.8 percent in 2017 from 1.3 percent in 2016 reflecting BancABC’s robust credit model and risk management framework as well as the ability to deduct loan repayments directly from customer salaries through the deduction code.
BancABC Botswana is a wholly owned subsidiary of ABC Holdings, a pan-African banking group with operations in 5 countries across the SADC region. BancABC Botswana is the largest subsidiary representing 34 percent of ABCH’s asset base as of December 2017 and is Botswana’s 4th most profitable bank. As at December 2017, the bank made P139 million in profit.