Banks set for mega-profit earnings season
Mbongeni Mguni | Monday September 11, 2023 06:00
Listed and unlisted banks are due to unveil their annual and interim financials in the coming weeks, with several estimates already indicating that profits will be elevated.
Bank of Botswana data shows that cumulative after-tax commercial bank profits in the first six months of the year reached P1.5 billion, compared to P1.2 billion over the same period last year, putting the sector on a path to break historic records when the year is complete.
Amongst those banks reporting interims, Standard Chartered Bank Botswana expects the highest percentage increase in its earnings, with estimates that its pretax profits for the six months ended June 30, 2023, could be as much as 244% higher than the corresponding period last year. This would translate to as much as P173 million higher than the P71 million reported for the six months ended June 30, 2022. Stanchart is due to release its results before September 30.
Amongst those banks reporting year-end results, First National Bank Botswana, the country’s largest bank by balance sheet and customer numbers, leads the pack as it expects its pretax profits for the year ended June 30 to be as much as P250 million higher than the P1.2 billion recorded last year.
The strong profits are also evident in the smaller banks, with First Capital Bank Botswana reporting that its after-tax profits for the first half of the year were up 17% to $7.7 million. Stanbic Bank Botswana, the largest unlisted bank in the country, expects its pretax profits for the half year to be as much as 50% higher than last year, or a figure of up to P103 million higher.
Kgori Capital investment analyst, Godfrey Matale, told BusinessWeek that several factors were driving the higher bank profits.
“Most notable is the high-interest rate environment that has persisted since 2022 on the back of the central bank increasing policy rates in efforts to tame domestic inflation,” he said. “This high-interest rate environment has translated to higher Net Interest Income margins for banks and has positively affected the sector’s profitability. “Furthermore, the sector has seen impairments decrease from the high levels seen during COVID-19 which has translated into higher numbers at the bottom line.”
He added: “Another factor which has contributed to this performance is the increase in credit growth which was up 9.9 percent year on year as at May 2023.”
The Ministry of Finance and Bank of Botswana have both confirmed a warming credit appetite in the economy amongst both businesses and households, as the effects of the pandemic slowly wear off borrowers.
Matale said another supportive element for earnings has been banks’ intensified push towards digitisation which is expected to further reduce costs as well as boost non-interest income revenues for the sector.
He, however, said the pattern of above-trend profits amongst banks was expected to taper off or normalise, with interest rates and inflation becoming sustainably range-bound around the first quarter of next year.
“Banks from this point forth should see downward pressure on Net Interest Income margins which are the major profitability drivers for banks tied to their loan book growth. “However, this reduction in top-line growth should be somewhat offset by the cost containments borne out of the digitisation drive that most banks have embarked on. “As a result, profitability margins would decrease at a similar pace or magnitude in line with the anticipated drop in interest rates throughout 2024 and subsequent years,” he said.
Most analysts in the local market expect the central bank to effect an interest rate cut next year, most likely in the first quarter, should inflation continue at its current low levels.