BBS commercial transition affects profitability

• P25m loss made in 2021 financial year
• Commercial bank to begin operations in second half of 2022
• BBS poised to become a successful indigenous commercial bank

The bank says it has identified some issues as key contributors to the negative performance. According to the Managing Director of BBS Limited, Pius Molefe, continued impact of the change of the capital structure upon demutualisation continues to have a negative impact on profitability. The change, which Molefe says was deliberate and necessary to transition the company to a commercial bank, had an impact on the profitability of the company which was envisaged at the time and remains acceptable, considering the company’s strategic objectives that will unfold and bear fruit once the company starts operating as a commercial bank.

“As you are aware, the turnaround strategy has a high dependency on the commercial banking licence which has been delayed due to unforeseen circumstances,” Molefe explained in the company’s audited financial statements for the year ended 31 December 2021. “It was anticipated that the negative impact would subsist for a period of at least three years following demutualisation.

“Considering the delayed banking licence and progress to-date, this is likely to be longer and is profoundly regretted. However, management is confident that the long-term benefits which will be derived from ‘BBS Bank’ will pay off.”

In addition, Molefe highlighted the economic pressures due to the effects of the COVID-19 pandemic and retrenchments by some companies whose employees are BBSL customers, resulting in the increased level of cash withdrawals as customers used their savings to sustain their livelihoods/businesses. He revealed that the prioritisation of liquidity preservation resulted in management considering prudent lending measures to guard against the continued impact of the pandemic and the significant deposit withdrawals, which had an impact on the business performance.

Due to the need to fund the accelerated repayments of the International Finance Corporation (IFC) and Access Bank Botswana Limited facilities, BBS Limited management worked tirelessly to raise funding in the form of short to long-term deposits. The cost of this funding was not offset by the amount of business the company was generating from mortgage loans and advances, thereby negatively impacting margins. Molefe added that the incurred anticipated operational losses due to the withdrawal of the IFC facility, which resulted in the company sustaining unexpected costs of P3.9 million relating to a prepayment premium and P2.7 million to make whole amount, “contributed to increased losses recorded for the year.”

The bank also had to contend with stagnant mortgage loans and its advances book, which contributed to the negative financial performance as the prudent lending measures/mitigations implemented by BBS Limited to manage the liquidity challenges resulted in the company experiencing reduced uptake of mortgage loans and advances and increased level of attrition. This resulted in a significant decline of the mortgage book, which is the bank’s core product, and consequently loss of interest income and related non-interest income.

The company realised a 14.6 percent decrease in operating income from P131.815 million for the year ended 31 December 2020 to P112.598 million for the year ended 31 December 2021. A loss of P25.347 million was realised during the year ended 31 December 2021 compared to a loss of P14.652 million for the year ended 31 December 2020.

BBS Limited’s total balance sheet reduced by 6 percent from P4.088 billion recorded as at 31 December 2020 to P3.829 billion as at 31 December 2021 while mortgage loans and advances reduced by 8 percent from P3.408 billion recorded as at 31 December 2020 to P3.127 billion as at 31 December 2021.

The bank’s total customer savings and deposits, including paid up and subscription savings, increased slightly by 1 percent  from P2.494 billion recorded as at 31 December 2020 to P2.511 billion as at 31 December 2021 and borrowings (including bonds) reduced by 27 percent  from P915 million as at 31 December 2020 to P668 million as at 31 December 2021. The balance as at the reporting date includes the BBS012 bond that was issued during the year at P64.470 million

The company continues to maintain a strong capital base. As at 31 December 2021, the capital adequacy ratio stood at 28.49 percent compared to 26.32 percent as at 31 December 2020. The company recorded cost to income ratio of 139 percent compared to 116 percent achieved for the year ended 31 December 2020.

While the company spent the better half of 2021 battling corporate governance issues, the Chairman Mzizi Bernard assured the bank’s shareholders that the challenges had been resolved with the support of shareholders at an Annual General Meeting held on 30 April 2021. Bernard stated that the board is working hard to ensure that there is no recurrence of such incidents.

BBS Limited says its commercialisation process is back on track and it is working overtime to satisfy Bank of Botswana conditions that will enable it to be issued with a commercial banking licence with the intention being that BBS Limited will operate as a commercial bank by the second half of 2022. BBS Limited is poised to become a successful indigenous commercial bank.