Bank Gaborone’s non-interest income accelerated 33.3%

The Group delivered strong results through the solid performances of all its subsidiaries, with profit after tax increasing by 16.6 percent to N$1.15 billion. The group says its agility and quick decision-making allowed it to swiftly sense and respond to ever-changing challenges.

COVID-19 continued to impact businesses across all sectors, although a recovery was noticed in the last few months of the 2022 financial year.  The outlook is for improved economic conditions in Namibia and Botswana, albeit from a lower base. The Russia-Ukraine war and resulting sanctions have accelerated inflation, placing additional pressure on the local environment.  Yet, the Capricorn says its results demonstrate how it used advantage of being local, agile, and responsive.

“This year, we celebrated two important milestones: Bank Gaborone’s 15th and Bank Windhoek’s 40th anniversaries. These milestones would not have been possible without our talented employees’ hard work and dedication.  I am proud of these sustainable businesses and look forward to many more years of growth.  All our subsidiaries performed well this financial year, giving the Group a strong foundation to continue growing and expanding its leadership in the various markets”, said Thinus Prinsloo, Group CEO.

“The Group delivered strong results, despite the economic pressures exacerbated by rising inflation on the back of increased global oil and food prices.  Our region, fortunately, witnessed increased economic activity as COVID-19-related restrictions were eased,” said Johan Maass, Group Chief Financial Officer.

Group financial performance highlights

Net interest income

The Group’s net interest income before impairments increased by 3.6 percent to N$2.34 billion (2021: N$2.26 billion). Bank Windhoek’s net interest income increased by 7.4 percent in 2022 thanks to a year-on-year growth of 7.6 percent in interest earning assets.  Notwithstanding repo rate increases of 100 basis points between February and June 2022 by the Bank of Namibia, the bank’s average net interest margin remained relatively flat at 4.37 percent (2021: 4.36 percent) as average cost of funding increased over the period.

The Bank of Botswana increased rates by 51 basis points in April 2022 and 50 basis points in June 2022. Despite these increases, Bank Gaborone experienced a 7.6 percent decline in net interest income.  While interest income grew by 6.6 percent in 2022, interest expenses increased 23.2 percent as Bank Gaborone’s interest margin deteriorated to 2.91 percent (2021: 3.79 percent), due to poor market liquidity driving higher cost of funding.

Growing non-interest income

Non-interest income increased by 13.1 percent to N$1.67 billion (2021: N$1.48 billion).  Bank Windhoek increased its non-interest income by 10.3 percent and Bank Gaborone’s non-interest income grew 33.3 percent to P106.2 million.  The increases in this revenue line were a direct consequence of increased transaction volumes and an increase in foreign exchange trading income on the back of higher transaction volumes, increased foreign exchange rate volatility and higher trading margins.  Non-interest income is supported by the Group’s diversified income streams, including a contribution from CAM of asset management fee income of N$164.6 million (2021: N$158.7 million).  Entrepo’s net premium income decreased marginally from N$163.3 million in 2021 to N$161.3 million.

Managing operating expenses

About 87.8 percent of the group’s total operating expenses incurred was paid to suppliers and employees located within the regions in which the group operates in. Increases in operating expense lines were mostly contained to below inflation rate.  Notable exceptions were staff cost and operational banking expenses. Operating expenses increased by 6.7 percent compared to the prior year’s 5.1 percent increase. The group says the above inflation increase in staff cost of 7.7 percent is largely due to increasing capacity in information technology and cyber security to deliver on  strategic objectives on data and digitisation and to manage general IT and cyber security risk.  “Containing cost to only essential and value-adding spend will remain a focus area for 2023.  We were able to contain our cost-to-income ratio at 51.1 percent (2021: 51.7 percent), below our target of 52 percent.

Improved Credit quality

Despite the challenging economic conditions, the Group’s non-performing loans decreased marginally to N$2.44 billion (2021: N$2.46 billion). This resulted in the non-performing loan ratio (excluding interest in suspense) decreasing to 4.8 percent (2021: 5.2 percent).  Loan loss rate decreased from 1.07 percent to 0.85 percent and remains low against current industry norms.  Impairment charges decreased by 17.2 percent (N$76.4 million) to N$367.3 million, mainly as a result of pro-active approach to credit risk management and an improved operating environment for customers as COVID-19 restrictions were eased.  Gross loans and advances increased by 6.1 percent to N$44.7 billion this year. The group says this is well above annualised Namibian private sector credit extension growth of 3.4 percent and confirms our ability and intention to continue extending financing to support clients during difficult times.  This growth was mainly attributable to increases in commercial loans, mortgage loans and article finance.

Sound Liquidity position

COVID-19 underlined the importance of having sufficient liquidity to withstand a crisis.  The Group maintained a sound liquidity position with liquid assets increasing by 14.3 percent year-on- year.  Liquid assets exceeded regulatory requirements in Namibia and Botswana by 107.5 percent and 121.1 percent, respectively.  Additionally, the Group’s loan to funding ratio improved to 87.2 percent (2021: 88.6 percent). Notwithstanding these surpluses, the Group maintains N$1.0 billion contingency funding, which is available to the two banking subsidiaries within three to seven days.

Strong Capital depth

The Group remains well capitalised, with a total risk-based capital adequacy ratio of 15.8 percent (2021: 15.0 percent).  This is well above the minimum regulatory capital requirement of 10 percent.  This strong capital position has supported the Group through the difficulties brought about by the pandemic.

Dividend declaration

The Group declared a final dividend of 40 cents per ordinary share which will be paid to shareholders on 26 October 2022.  Considering the interim dividend of 32 cents per ordinary share, this represents a total dividend of 72 cents per ordinary share, 20.0 percent higher than the total dividend for 2021 of 60 cents per ordinary share.  The Group believes that the dividend offers our investors solid cash returns in difficult economic conditions where earnings and income are under pressure, while also preserving the capital and liquid asset position of the Group during these uncertain economic times.

“Despite difficult conditions, Capricorn Group delivered strong shareholder returns.  We will maintain this position by building on the strength of our diversified operations and revenue streams while investing in our digital customer experience.”, said Johan Maass.

“I also thank our loyal clients, partners, and suppliers for the value they add to our business.  As a Group, we remain committed to our purpose of improving lives through leadership in financial services by being Connectors of Positive Change.”, concluded Thinus Prinsloo.