- Says growing demand for diamonds should improve liquidity
Absa’s net interest income continued to be subdued during this reporting period, with margins squeezed by policy rate cuts in 2020 and thin market liquidity that pushed up the cost of funding by 12 percent compared to the previous period, the bank says in its 2021 financial statement.
The Bank of Botswana (BoB) maintained its accommodative stance in the past year, eager to support the recovery of an economy battered by the COVID-19 pandemic.
Against this background, Absa saw its net interest income remain subdued during this reporting period, with gross interest income growing by a measly 2 percent year-on-year and net interest income contracting by 1 percent over the same period. The group says net interest income remained dampened out of challenges that were seen from a funding perspective.
According to Country Treasurer, Salma Baduel, the market saw a combined effect of cyclical effects on liquidity as well as a drop in supply. “We also saw government raising funds in the market to fund its budget deficit and saw a bit of lag in money actual coming back into the market,” Baduel said in response to a question from Tshegofatso Tlhong, Portfolio Manager at Kgori Capital. The fund manager had observed that rates had risen higher, quizzing whether this liquidity issue was deeper than in previous cycles and how it was so from a pricing perspective.
In response, Baduel said the cyclical effects and drop in supply caused rates to flare up to where they were last year. However, looking forward, she is optimistic because of economic recovery, although growth is expected to taper off this year owing to base effects. One impetus Baduel noted for this year is demand for diamonds increasing and Debswana coming in with more liquidity. She also noted reforms with the government going to the market to provide the liquidity required. “Looking forward, we see an accommodative liquidity stance,” she said.
For the year ended 31 December 2021, Absa’s profit before tax has materially increased to P659 million, which is an 81 percent improvement from its closing position at the end of 2020. The bank’s pre-provision profit also substantially improved from P627 million to P739 million, and is ahead of 2019 recorded pre-provision profit. The bank has therefore managed to recover its pre-provision profit to pre-COVID levels, it says.
Retail and Business Banking growth was driven by lending and non-funded income mainly from scheme loans and Corporate and Investment Banking (CIB) value chain funding respectively. This led to Retail and Business Banking non-funded income growth of 14 percent year-on-year. CIB realised a revenue increase of 3 percent. The gross loans remained flat as corporates exercised caution and waited out the impact of the pandemic. Absa says it realised double digit growth of 11 percent on fee income.
