As Botswana's listed banks released their financial results last month, it became clear that 2024 had been a good year for the banking sector. Bank after bank posted record profits before tax (PBT), begging the question of why the banks performed well amid a shrinking economy impacted by a muted mining sector performance.
First National Bank Botswana (FNBB) hit a half year PBT of P1 billion, and also joining the P1 billion profit club was Absa Bank Botswana in its full year performance. Stanbic Bank posted P950 million followed by Standard Chartered Bank with P477 million, but the most impressive performance came from the smaller banks.
Access Bank Botswana recorded an impressive 160% growth in PBT to P135 million while BBS Bank, Botswana's first indigenous bank, posted a dramatic turnaround from a loss of P21 million to a profit of P38 million.
According to several banking professionals who spoke to BW TechZone on condition of anonymity so they can speak freely, one contributing factor to the banks' good performance was accelerated retail banking performance.
"Most banks have seen growth in their customer base, customer deposits and debt extended to customers," one expert said. "Furthermore, they have also leveraged from their digital platforms to drive non-interest income."
In its results, Absa Bank Botswana for example said that retail banking was the largest contributor to income, generating P1.6 billion. Customer deposits also grew by 3.7% to P19.39 billion while fee and commission income saw a 11.6% increase, reaching P532.3 million from P476.9 million in 2023, driven by higher transaction volumes and new-to-bank customers.
FNBB also saw the same trend, with deposits increasing by 12% to P29.3 billion and advances to customers by 9% to P20.6 billion. Access Bank Botswana's non-interest revenue saw a 45% increase year-on-year in 2024, driven by higher fees and commissions from digital banking activities.
The good performance of most banks' retail segments brings into the spotlight the decision by Standard Chartered Bank Botswana's parent company to sell the retail operations in Botswana. With retail banking taking a foothold, it will be interesting to see which buyer will snap up the operations.
Another expert who spoke to BW TechZone alluded to the fact that Botswana's interest rate enviroment over the course of 2024 also contributed positively to banks' bottomline. Throughout 2024, the Bank of Botswana (BoB) reduced interest rates, and has now kept them the same for four consecutive sittings, as it looked to jumpstart the country's economy by boosting borrowing.
This has played to the advantage of banks, according to the expert.
"Reduced interest rates environment benefits banks in terms of the net interest income that they make from deposits from customers. That’s the main driver of most banks’ growth this year."
"That and reduced cost of raising deposits which they then pass to customers as loans."
Despite being magnitudes smaller than those of peers like South Africa, Botswana's banking sector is proving to have a good bottomline for banks, which is music to the ears of investors. A combination of adoption of banking services, favourable macroeconomic environment, and a competitive landscape which boosts innovation has worked out well for the sector.
Heading into the future, it will be interesting to see how the banks adapt to Botswana's projected sluggish economic growth and increasing competition. For now though, the banks and their investors are sure laughing all the way to, well, the bank.
Image source: The Voice
