Business

Bank profits reach yet another historic high

Mbongeni Mguni | Monday March 18, 2024 06:00

Lion’s share: Retail customers make up the bulk of banks’ interest earnings and they also attract higher interest charges than other categories of clients PIC: MORERI SEJAKGOMO
 
Lion’s share: Retail customers make up the bulk of banks’ interest earnings and they also attract higher interest charges than other categories of clients PIC: MORERI SEJAKGOMO



Figures made available by the Bank of Botswana (BoB) show that local commercial bank’s continued to enjoy the post-COVID rebound first seen in 2021 when their collective after-tax profits were more than P100 million above the pre-pandemic year of 2019.

For 2023, banks powered to P1.5 billion in the first six months of the year, before wrapping up the calendar at P3.2 billion or nearly 17 percent higher than 2022.

The figures for 2023 mean that local banks’ collective profits have broken historic records in two of the three years since the pandemic year of 2020.

According to the figures, the banks’ profits last year were powered by net interest income which rose to P6.4 billion or about 27 percent higher than the level in 2022.

Analysts have said the explosion in net interest income is the result of cumulatively higher interest rates since the pandemic, as well as warming economic climate which has increased credit appetites amongst borrowers.

“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,” Kgori Capital investment analyst, Godfrey Matale previously told BusinessWeek. “This high-interest rate environment has translated to higher net Interest Income margins for banks and has positively affected the sector’s profitability.”

The BoB shaved 25 basis points off interest rates last December and in February said it was leaning towards a looser monetary policy stance where it would seek room to relax rates due to a benign inflation forecast. However, nearly all local analysts and banks have said they do not expect the central bank to cut rates this year, but rather maintain its traditional conservative approach to monetary policy.

Banks’ strong net interest incomes were able to overcome a jump in the provisions for bad debts, which rose to P262.7 million last year, from P88.4 million in 2022. The banks also posted their record-breaking profits last year despite a 17 percent increase in non-interest expenses to P5.7 billion.

Despite the increase in overall non-interest expenses, analysts have noted that local banks have generally been able to restrain the growth in costs since the pandemic, due to greater digitisation.

Matale said the pattern of above-trend profits amongst banks was expected to taper off or normalise this year, with interest rates and inflation becoming sustainably range-bound.

“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,” he previously told BusinessWeek.