Banks relish stellar earnings season

Mbongeni Mguni | Monday April 3, 2023 06:00

Companies listed on the Botswana Stock Exchange’s (BSE) main Domestic Companies Index have until March 31 to file their full year and interim financials for the period to December 2022, under a listing rule that requires financials to be published within three months of the end of the reporting period.

Ahead of that date, four of the commercial banks listed on the BSE have notified the market that their pretax profits for the reporting period to December 2022, will be higher than the corresponding period in 2021.

The country’s largest bank by balance sheet and customers, First National Bank Botswana (FNBB) already released full-year 2022 results showing a P106 million or 18% increase in pretax profits, compared to 2021.

According to notices filed on the BSE last week and this week, Access Bank expects the highest percentage increase in pretax profits of up to 250%, while Standard Chartered Bank Botswana, Stanbic and Absa Botswana expect increases of up to 234%, 120%, and 40% respectively.

In terms of absolute figures, Stanbic leads the pack with its expected pretax profits due to increase by as much as P337 million, followed by Absa with as much as P264 million, Stanchart with up to P180 million and Access which expects as much as P20.8 million.

The strong performances of the listed banks are also reflected in recent Bank of Botswana (BoB) data showing that the country’s broader commercial bank sector, which includes unlisted entities, recorded collective after-tax profits of P2.7 billion in 2022, comfortably their highest profits ever on record.

Previously, the highest after-tax profits the banks enjoyed was in 2018 at P2.02 billion. Powering the profits was net interest income which rose to P5 billion last year from P4.4 billion in 2021.

For the listed banks, the performance of their profits has also been mirrored in the strong gains of their share prices last year and into 2023. By Wednesday, Stanchart was up 13.6% in the year to date, while Absa Botswana was up 8.5 percent, Access 1.5 percent and FNBB 0.9 percent. Stanbic does not have an equity listing on the BSE, but recently successfully closed a P150 million debt listing via a private placement.

“Share prices of banks have been on the rise due to several factors (such as) improved investor sentiment,” Kgori Capital investment analyst, Pelotelele Motshidisi told BusinessWeek. “This has been driven by the increases in interest rates by the BoB, which has improved the net interest income of banks. “As interest rates rise, banks can earn more on their loans and other interest-bearing assets, thereby boosting their profits.”

Motshidisi said banks were enjoying a reduction in impairments and non-performing loans, as a result of improved economic conditions, which has led to a decrease in loan defaults, thus boosting their profitability.

Banks’ profits were also helped by growth in their non-interest income.

“Banks have been diversifying their revenue streams by offering a wider range of financial products and services,” Motshidisi said. “This has helped them generate more income from sources other than traditional banking activities, such as lending and deposits.”

He continued: “Overall, the combination of improved investor sentiment driven by increases in interest rates, reduced impairments and non-performing loans, as well as growth in non-interest income has led to an increase in bank share prices. “We anticipate this trend will continue in the medium term, as the banking sector normalises and economic activity increases.'