Management told a story of First National Bank Botswana (FNBB) in facilitating transactions within communities, particularly the underbanked communities
The decision by First National Bank Botswana (FNBB) to zero-rate certain services and fees has the potential to influence the bank’s non-interest income margins, an Investment Analyst has cautioned. Pelotelele Motshidisi of Kgori Capital argues that the magnitude of this impact will depend on various factors. These according to Motshidisi include the composition of the fees that have been zero-rated, their contribution to the overall non-interest income, and how FNBB adapts its business strategies to address potential changes in revenue streams.
FNBB, the largest domestically listed counter on the Botswana Stock Exchange (BSE) says it aims to cover 90% of its costs using non-interest revenue (NIR). The bank, worth more than P10 billion in market capitalisation says it is mindful that interest income is vulnerable to economic conditions beyond the control of the country’s most profitable bank.
It is capital-light income which its CFO Dr. Mbako Mbo emphasises “is good for business”. Dr. Mbo was responding to a question at the end of the group’s results presentation for the full year ended 30 June 2023. The question, posed by Motshidisi sought to establish where FNBB has its target composition for NIR versus its net interest income (NII). The bank’s non-interest income was outpaced by the interest income.
The latter which is its main business line and a cash cow grew by 36% to a staggering P1.950 billion. Two variables influenced this surge. The first, as per the CFO’s explanation is the fact that advances grew 8 percent. The second reason is that the bank carries the duty to transmit the Monetary Policy Rate (MoPR) as and when it rises. During the bank’s reporting period, there was a total of 151 basis points rise in the MoPR as the country’s central bank sought to arrest the second round effects of inflation. As the bank transmitted the rate change to clients, it culminated in interest income rising by more than half a billion, earning the group P2.875 in income for the year, a 15% rise from the past period.
Even so, non-interest income accounted for 51% of the bank’s income. NIR grew by 7% to P1.486 billion driven by increased transactional volumes in service and other fees. “We currently cover our cost base with our NIR, that is our baseline,” Dr. Mbo answered as he disclosed that 50 percent of this cost is staff costs; during the reporting period, costs grew 9% influenced by IT and innovation.
While the bank’s aim is to cover costs with NIR, Dr. Mbo was cognisant that growing this line of business is delicate because of the clientele that the bank is looking for. “We drive volumes but in terms of fees we look at affordability,” Dr. Mbo was quick to point out.
CEO Steven Bogatsu had earlier spoken about some of the zero-rated services and fees implemented during the year. Bogatsu told his audience that the bank had taken the opportunity to revise some of the service fee prices downwards. “We have taken the initiative to cancel out some of the prices,” Bogatsu said. After computing what this means for the year, Dr. Mbo estimates that “it’s P40 million given back to the customers annually”.
To offset this, Motshidisi argued that FNBB could look at several strategic alternatives. “These would include, but are not limited to rethinking pricing on certain products, diversifying their product and service offerings, streamlining operations, adopting new digital banking technologies, refining risk management strategies, and considering possible expansion strategies,” she wrote in response to media questions.
Going forward, Mogorosi Badisang, an analyst at Imara Capital says the concept of price elasticity of demand should be considered. “If they can stimulate more transactions by lowering in such a way that the pricing still grows revenues then both the end user and the bank benefit,” he responded to the Investor Mail. Additionally, Motshidisi argued that the customer-centric move of zero-rating fees might have a favourable influence on customer retention and volumes.
In driving volumes, the bank continued to grow its client base. In 2022, FNBB grew customers by 2,100. For the year under review, Dr Mbo said they had added 2,500 customers. “Obviously they come with accounts and volumes and it is what drives the growth of our non-interest income. The growth in our non-interest income is derived from initiatives around inclusive banking,” Dr. Mbo said praising the story of FNBB in facilitating transactions within communities, particularly the underbanked communities.
Motshidisi argued that customer onboarding could serve as a potential means for FNBB to minimise the effects of zero-rating. Nevertheless, she said the success of these endeavours should be evaluated objectively, taking into account factors such as market receptiveness, competitive dynamics, cost-efficiency, risk elements, and alignment with FNBB’s overarching business objectives. When presenting, Bogatsu cautioned about heightened competition in the banking industry; if one bank launches a product, another bank launches a similar one. Banks have been aggressively digitising giving customers convenience in terms of transfer of funds, purchase of electricity or airtime to name a few.
According to Dr Mbo’s slides, FNBB facilitated close to 12.5 million e-wallet transactions during the reporting period. This, he estimated, translates to P7.5 billion worth of transactions between communities. “Again, I emphasise that this is mainly within communities seen as under-banked.” The 12.5 million is a 1.5 million increase from what the bank reported in 2022.
FNBB said it facilitated 24 million airtime purchases among communities through its popular USSD platform and the banking app. The 24 million is an increase of a million from the previous period. The bank also facilitated 3.5 million electricity purchases. “These volumes are really what drives the P1.486 billion that we earned during the year for non-interest income,” Dr. Mbo said.
As at 30 June 2023, FNBB had 1100 agencies that allowed its customers where it does not have branches to interact with these agencies in order to access some of the services and products the bank provides. The lender revealed that it facilitated 4.7 million transactions with its cash-plus agencies in 2023, an increase of 2.1 million over and above 2022. This translated to transactional values to the tune of P3.8 billion going through these cash-plus agencies. This is one product management is proud of. It was started in Zambia and adopted by other subsidiaries.
In Botswana, FNB now operates 25 branches across the country. Despite the digitisation, the bank has also been increasing the number of branches. “We will continue identifying opportunities for increase,” Bogatsu told attendees. “It may not be the branches we have had in the past which were about 1000sqm. But more portable and cost-effective branches that still serve the purpose of representation around the country.” The bank has 163 ATMs and 78 ADTs throughout its network.
Comments