- But impairment charges up 111% to P457 million
- Expected Credit Losses in Non-Deduction at Source loans noted
- Reports forex fluctuations, inflation-induced volatility in Nigeria and Ghana
- But core Deduction At Source continues with Low Loan Ratio
GAZETTE REPORTER
Letshego Holdings Africa Limited has reported a notable 15 percent growth in Gross Loans and Advances for its Botswana market, driven primarily by Government Deduction at Source (DAS).
However, the company faced setbacks due to increased Expected Credit Losses (ECL) from a newly introduced Individual Non-Deduction at Source (DAS) loan portfolio, as detailed in the company’s audited full-year results for 2023.
“However, this was offset by increased Expected Credit Losses for a newly introduced ‘test and learn’ Individual Non-Deduction at Source (DAS) loan portfolio, which experienced challenges in collections,” the report states.
Technical defaults
Additionally, system migration issues at the central deductions clearing partner led to technical defaults on some loans, increasing impairments within the Government DAS portfolio.
However, despite these setbacks, the report notes that valuable lessons were learned, which are expected to enhance the Group’s overall collection capability and technology in 2024.
“Key lessons were learnt from this portfolio, from which we expect to leverage going forward,” it reads. “Anticipated improvements are expected to deliver continuing business value.”
Core DAS product
In response to these challenges, Botswana restructured its banking debt profile to support the competitiveness of its core DAS product.
The company also diversified its growth with mobile lending and affordable housing product lines. Improved local market liquidity is noted, attributed to changes in offshore investing regulations.
The report highlights a significant increase in impairments, with charges rising by 111 percent to P457 million.
Low LLRs
The loan loss ratio (LLR) climbed to 3.3 percent, driven by defaults in the open market test and learn portfolio and a correction of the IFRS 9 stage 3 discounting error, which increased coverage on new and mature businesses, particularly in the Non-Deduction at Source portfolios.
“This was deteriorated further by the change in treatment of long-dated defaults, especially in the MSE space which are impacted by long foreclosure processes,” the report states. “These are secured portfolios.
“The core business (85% government DAS) continues with low LLRs reflecting growth and high quality of the portfolio across all our businesses despite external operational pressures such as change/upgrades of central registries.”
Sound fundamentals
Looking ahead, Letshego maintains a positive outlook, asserting that business fundamentals remain sound despite the impact of ECL adjustments arising from material professional judgments and other one-offs in the year.
“In 2023, our operations were affected by one-offs as well as foreign exchange fluctuations and inflation-induced volatility, especially in Nigeria and Ghana,” the Group states in the report.
“We anticipate these challenges to persist in the first half of 2024 and expect it to taper off in the second half, contingent on macroeconomic conditions.”
The company plans to navigate the macroeconomic landscape by executing its commercial strategy and improving collections, including accelerated portfolio remediations.
Digitalisation
Letshego’s core deduction at source product and insurance offerings remain central to its mission of providing financial security to underserved customers.
The Group is committed to offering accessible, competitive mobile lending products to empower individuals financially. “We are enhancing our product portfolio leveraging insights from our test and learn programs of 2022/2023,” the report states.
“Despite headwinds in FY 2023, we are confident they are behind us, equipping us to navigate 2024’s opportunities while managing ongoing challenges.”
The company also emphasises its focus on digitalisation to scale sales growth. “Our goal remains to drive sustainable growth and deliver value to all stakeholders,” says the report.