Barclays raises P500m from bond market
Brian Benza | Friday April 10, 2015 12:41
In a bid to meet corporate funding requirements, Barclays listed the P2 billion bond programme in July last year before liquidity tightened in the market.
In an interview with the BusinessWeek, Barclays managing director, Reinette van der Merwe said the bank issued some of the notes at the opportune moment before temporarily freezing the process, when liquidity situation tightened and the market started paying relatively higher deposits rates for short term money. “We issued notes amounting to about P250m to take our total to half a billion Pula last year from our Medium Term Note. We chose to halt the process to take on more issuances as deposits rates rose higher due to the transitory tight liquidity in the market,” she said.
The second half of 2014 was characterised by tight liquidity in the industry due to, among other factors, a prolonged period of credit extension outpacing deposit growth.
This led to wholesale deposits rates increasing up to as much as 11 percent for 3 months deposits from around seven percent as banks competed for new sources of funds to meet not only lending needs, but also regulatory liquid asset requirements.
“It was trend that our team picked up in 2013 that loans were rising much faster than deposits so we immediately put a plan in place to ensure we can continue to support our customers despite the reduction in liquidity. So we have been deliberate in managing our cost of funding and reducing wholesale funding to a minimum as required. “We have been able to grow our asset book and remain well capitalised and ready to lend to our customers in need,” she added.
To ease the shortage of loanable funds, which has manifested through dwindling of excess liquidity from P17 billion in 2010 to P4.7 billion in February this year, the Bank of Botswana recently unlocked P2.3 billion into the banking industry through the halving of the Primary Reserve Ratio (PRR) to five percent.
According to van der Merwe, the market has already responded to the P2.3 billion injections as wholesale deposits rates have already softened since the beginning of April. “We have already experienced a reduction in wholesale deposits rates from over 10 percent in some cases to below prime rate in response to the cut in the PRR. It was a decisive move and very positive action from the Bank of Botswana,” she said.
She further said that market conditions are back to normal levels and allayed fears about the banking industry being unable to finance economic activity.
van Der Merwe asserted that this reduction in excess liquidity was normal for a banking system that is maturing.
In the full year to December 2014, the drawdown on the MTN helped Barclays support a 10.8 percent growth in loans and advances to customers to P8.1 billion.
In the period, deposits from customers reduced by P317.3million from P9.28 billion to P8.96 billion as the bank focused on optimising their balance sheet, which saw a 19.3 percent decline in interest expense.
Barclays total advances to customers stood at P8.1 billion in 2014 while deposits from customers total P8.9 billion translating to the Loan to Deposit Ratio (LDR) of 90 percent.
While the Bank of Botswana recommends for banks to have a LDR of between 60 to 80 percent, van der Merwe says that the Barclays’ ratio is still within comfortable levels as the bank utilises a much broader source of funding available within the regulatory framework, other than just deposits.
According to Bank of Botswana figures, since December 2010 deposits for all commercial banks have grown by a much slower rate of 37 percent to P53 billion while credit has grown by 104 percent to P45.2 billion. Due to the lack of a corresponding growth in deposits, the industry’s loan to deposit ratio has risen from 47 percent in 2007 to 88 percent in 2014, leaving some banks near fully lent.
The liquidity challenges faced by banks is part of sweeping changes in the sector that was previous characterised by excess liquidity, super normal profits and low deposits rates. In 2014, Barclays was the only bank among the top four to register a profit after tax growth.Barclays recorded a 16 percent jump in profit after tax with Standard Chartered’s profit after tax flat at P320 million. FNBB’s profits dropped five percent to P343 million in the half-year to December 2014 while Stanbic full year profits dropped 63 percent to P91 million.