Battling to rise from the ashes

Jo-Maré Duddy – Namibia’s prolonged recession, exacerbated by the impact of the Covid-19 pandemic, continues to shave millions off the bottom-lines of local financial institutions: the latest interim results show drops of between N$76 million and N$188 million compared to 2019.Highly indebted consumers and struggling business keep taking its toll on credit impairments charges as well as loan book growth, while historically low interest rates imposed by the Bank of Namibia (BoN) to mitigate the impact of Covid-19, plague the income of banks. The BoN reduced the repo rate by a total of 25 basis points in February 2020 for normal economic reasons, but it cut it stepwise by a further 250 basis points in the months following the onset of the pandemic, reaching a historical low of 3.75% in August 2020. The repo has remained at this level and so has the prime lending rate of 7.5% of commercial banks.PRIME EXAMPLECase in point: In 2019, locally-listed SBN Holdings (with Standard Bank Namibia as its flagship brand) reported net interest income of nearly N$658.8 million for the six months ended 30 June. A year later - and three months into the Covid-19 pandemic in Namibia - net interest income dropped by around N$28 million or 4.3% to about N$630.4 million. In its recently released half-year results, SBN Holdings reported net interest income of some N$600.6 million, a fall of about N$29.8 million or 4.7% year-on-year (y/y).In the latest six months under review, SBN Holdings, listed on the Local Index of the Namibian Stock Exchange (NSX), made a profit after tax of about N$189.6 million, down N$37.3 million or 16.5% y/y. In the comparative period in 2019, the group reported a profit after tax of some N$282.4 million.WILTING GREEN SHOOTSReleasing its first half-year results on the NSX earlier this month, SBN Holdings attributed its poorer performance to the “continued weak operating environment coupled with a low interest rate environment”.“The last quarter of 2020 confirmed a breakthrough in Covid-19 vaccines globally and pointed to green shoots of recovery in trading activity in the domestic economy. We started out by re-imagining the future in a country filled with the promise of economic growth projected at 2.7%, an uplift for the first time since 2016. Disappointingly, economic activity remained weak, recording a contraction of 6.5% during the first quarter of 2021,” SBN Holdings said.“The poor first quarter performance was exacerbated by the third wave of Covid-19, vaccination hesitancy and slow vaccination rates in Namibia. Hence, a revised economic outlook of 1.4% is projected for 2021,” the group continued.The projected positive growth will come off Namibia’s biggest contraction ever, with annual economic growth of -8.5% registered in 2020.LOAN BOOK, DEPOSITSSBN Holdings’ loans and advances totalled about N$23.8 billion at the end of June 2021, nearly N$950.5 million or 3.8% less y/y. The negative growth in the loan book was also cited by the group as contributing to the tumble in net interest income.Commenting on SBN Holdings’ latest set of results, Cirrus Capital said the group’s loans and advances have been decreasing since the end of 2019. “Loans and advances are now only 5.5% higher than the figure reported at 30 June 2019,” the analysts said.The overall contraction in the advances book was mostly due to a 46.1% decline in interbank lending and a 25.9% drop in sovereign lending, IJG Securities noted.Deposit and current accounts from customers decreased by 10.2% to N$23.7 billion for the period ending 30 June 2021.According to Cirrus: “Total deposits are now 2.4% below June 2019 and 6.1% below June 2020. The consistent decrease in deposits is worrying, especially in the low interest rate environment. This will continue to make it difficult for SBN Holdings to manage their net interest margin.”IMPAIRMENTSIn 2016, the first year of the current recessionary cycle, SBN Holdings reported a credit impairment charge of about N$57.5 million for the six months ended 30 June. In its latest half-year, the figure is nearly N$123.2 million. Prior to 2019, SBN Holdings’ interim credit impairment charges varied between N$43 million and N$59 million from 2015 to 2018. In 2019, it spiked to nearly N$178.5 million, followed by N$151.2 million the next year and N$123.2 million in 2021.The latest figure represents 1% of gross advances.According to IJG, the bank’s non-performing loans (NPLs) have increased from 7.8% to 8.3% of total gross advances since the end of the 2020 financial year.Cirrus said SBN Holdings (SNO) currently has a twelve-month rolling credit loss ratio of 93 basis points (bps), an improvement from the 102 bps at the end of last year. “However, the credit impairment charge is higher than what was reported in the second half of the 2020 financial year (NS102.7 million). There is a contrast between SNO and the other banks with regards to earnings up to end June 2021. We believe this is mainly due to the (poorer) quality of its book and that SNO will continue to impair loans and advances, whereas the other banks may be in a position to decrease impairments,” the analysts said.‘DISAPPOINTED’Simonis Storm (SS) said they were “disappointed” with SBN Holdings’ latest results, citing the growth in advances not materialising, non-interest revenue (NIR) stalling, as well as “sticky cost containment”.The group’s NIR fell by nearly N$15.7 million or 2.7% y/y to around N$570.9 million, while expenses increase by some 4% y/y to about N$773.1 million.SS said “the jury is still out on how conservative/aggressive the group was in terms of credit impairments - likely on par with peers. We are still keeping our eyes/ears wide open in terms of moratoriums continuing/performance masking effect”.Also expressing their disappointment, IJG noted that SBN Holdings’ return on equity (ROE) dropped for a fifth consecutive year from the 11.1% recorded in the first half of 2020 to 9% in the latest half-year.The group’s earnings (EPS) and headline earnings per share (HEPS) – the latter a profitability gauge – fell by 18.2% y/y to 36c. HEPS has been declining since the first half-year of 2018, when it was 253c.SBN Holdings declared an interim dividend of 16c per share compared to 21c per share in the comparative period in 2020.Both Cirrus and IJG has a “sell” recommendation on SBN Holdings.LETSHEGOLetshego Holdings Namibia (LHN), also listed on the Local Index of the NSX, reported a profit after tax of N$159.6 million for the six months ended 30 June 2021. This is about N$33.1 million or 26.2% more than the same half-year in 2020, but still nearly N$75 million or 32% below the interim profit after tax in June 2019.The group attributes its better performance to its growth in revenue and its loan book. Net interest income rose by about N$13.8 million or 5.4% y/y to N$271.2 million but is still below the N$295.3 million recorded in June 2019.The group’s loans and advances totalled around N$3.9 billion, up some N$800 million or 25.8% y/y.Credit impairment charges, however, surged by nearly N$10.7 million or 93% y/y to N$22.1 million, translating to a loan loss ratio (against average gross advances) of 0.6%. In last year’s interims, the figure was 0.4%.“The increase is in line with the current deterioration of the economic environment as a result of Covid-19,” Letshego said.Despite the spike, IJG said credit impairment charges were “still well within tolerable levels”.According to Cirrus, impairment charges resulted in a rolling credit loss ratio of 145 bps. “While the credit loss ratio is the highest in our time series, the dollar amount impaired during the period is 31.7% lower than what was reported for the second half of the 2020 financial year,” the analysts said.COSTSStaff and operational expenses increased by N$46.1 million or 44% y/y to about N$151.7 million as a result of insuring the micro-lending book for credit default, Letshego said. In the 2020 interims, the y/y increase was a mere 3%.Although the group’s HEPS increased by 28% y/y to 32c, it remains well below the 47c for the comparable interims of 2019.Letshego declared an interim dividend for the first time. The amount per share and date of payment is expected by the end of September.“The change in dividend payment frequency is a welcome relief to shareholders and should bode well for LHN going forward, if management commits to this strategy,” Cirrus said.Both Cirrus and IJG has a “buy” recommendation on LHN.NEDBANK NAMIBIANedbank Namibia, not listed on the NSX, recorded a profit after tax of N$162 million for the six months ended 30 June 2021, down around N$70 million or 30% y/y and N$188 million or nearly 54% lower than the same interims in 2019.“Management stated that Covid-19 impacted the banking industry negatively, and that credit appetite is lower especially for home loans and vehicle financing. Further comments read that the decline in loans and advances remains a challenge due to the unfavourable economic environment,” Cirrus said.“We believe that the slowdown in credit throughout the economy is due to a combination of supply and demand constraints,” the analysts added.Loans and advances for the period under review came in at about N$11.6 billion, nearly 4% down y/y and 5% compared to 2019.Net interest income decreased by some 10% y/y to N$729 million and was nearly 15% less than in 2019.NIR also fell y/y; by 3.2% to N$360 million. Cirrus described the trend as “worrying” and said it was back at June 2018 levels. “As a percent of total income, non-interest revenue is slightly above the level reported in June 2018 at 28.8%. Management stated that this is mainly due to the continued impact of Covid-19 and the resultant impact of it on forex related income due to low volumes,” Cirrus said.According to Cirrus, the main contributor to Nedbank Namibia’s ‘better’ performance in the first half of the 2021 book-year was the improvement in the credit impairment line. “On a rolling twelve-month basis, credit impairments decreased 25% from N$200.8 million to N$150.7 million. This resulted in the (twelve-month) credit loss ratio improving from 166 bps at 30 Jun 2020 to 126 bps at 30 June 2021. We believe that this is a continuation of the trend set by South African banks and the cautiousness shown at June 2020,” the analysts said.Nedbank Namibia’s latest set of results “truly highlights the impact of the deteriorating economy and Covid-19 on the Namibian banking sector”, Cirrus concluded.

Battling to rise from the ashes

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