2020 Bank profit margins expected to squeeze
Commercial banks margins are expected to squeeze in the next financial period due to the economic effects of Covid-19.
Listed lender, Standard Chartered Bank Botswana’s Managing Director, Mpho Masupe, in a statement accompanying the bank’s financial results for the year ended December 31, 2019, noted that new challenges are emerging bought about by the Covid-19 scourge.
“The spread of the Coronavirus has been described as an epidemic, crossing over from the epicentre in China to Europe, East Asia, America and now Africa in a matter of weeks,” highlighted Masupe.
As human movement has been heavily restricted, Masupe says businesses and trade will slow down as value chains take a knock from wide-ranging bottlenecks.
For Botswana in particular, the country’s main revenue earners, being diamonds and tourism, will not be spared.
Already De Beers has delayed its third sight due to the lockdown locally and across the world. Indeed the result of its second sight, held at the start of March, were less than expected, the early effects of Covid-19 playing a part.
Masupe says this, as and when it crystallizes, will have an obvious impact on the banking industry.
Before the outbreak of the virus, Masupe notes that early in the first quarter of 2020, performance was encouraging, transitioning well from an impressive momentum run in the last quarter of 2019.
“Sales of primary products, in particular, reflect a positive trajectory for the rest of the year, supported by increased disposable incomes for public sector employees and general positivity in the economic outlook,” said Masupe.
He revealed a number of key investments have been bedded down and are expected to support a rapid rollout of key enablers during the year.
“These enablers will not only improve client experience but contribute quite positively to the Bank’s revenue profile, particularly the non-funded income lines,” he added.
However, Masupe warned that the full effects of the virus broadly remain a guess, especially as the spread of Covid-19 appears far from over.
According to the Managing Director, financial performance could suffer as the bank continues to take appropriate steps to protect its staff, clients and contribute to efforts of curbing the spread.
Meanwhile, Bank of Botswana (BoB) has recently announced capital relief and liquidity support for commercial banks in order to enable them to satisfy capital requirements and liquidity challenges.
This was in view of supporting the banks so that they can continue to sustain economic activity under conditions of a possible increase in credit defaults and need for additional lending.
Subsequently, the capital adequacy ratio for commercial banks operating in Botswana was reduced from 15 percent to 1.5 percent while commercial bank liquidity is reportedly currently adequate.
Commercial banks have availed loan repayment breaks for customers with good track records of payment. Against this background, the central bank says it will generally exercise regulatory tolerance in relation to the assessment of non-performing loans and determination of expected credit losses, for regulatory and compliance purposes.