Capricon Group delivers satisfactory financial results amid tough market conditions
Capricorn Group released its consolidated interim results for the period ending 31 December 2017 this week.
Considering the market conditions in the countries where it operates, the group delivered satisfactory results with profit after tax for the six months ended 31 December 2017 increasing by 6.4% compared to the prior year.
“During the period under review the group was faced with a number of challenges including reduced liquidity, reduction in interest rates by central banks, the increased cost of funding and the reduced appetite of clients interested in taking up loan facilities. Defaults on loan payments have also increased due to the financial pinch that all our clients are experiencing,” said Thinus Prinsloo, Group Managing Director.
“Notwithstanding the effect of the challenges mentioned above applying pressure on our interest revenue margins, amongst others, and after tax profit, we are proud of the fact that we have continued to fulfill our commitment of being a catalyst of sustainable opportunities to all of our stakeholders in all the regions we operate in. We have catalysed opportunities in moments as small as a reassuring smile from a branch employee to a client in financial turmoil or just having a bad day, to supporting the refurbishment of an entire hospital wing and time spent with our stakeholders to understand their views on our group’s strategic issues and direction,” he added.
According to the Namibia Statistics Agency (NSA) the economy remained in the grip of a recession during the second half of 2017. The NSA estimates that real GDP contracted by 1.9% year-on-year in the third quarter of this year, following year-on-year contractions of 2.1% and 0.7% in Q1 and Q2 respectively. The expectation is that the trend has improved slightly during the last quarter of 2017.
The contracting economy saw growth in credit extended to corporates slowing to 1.3% in November 2017, negatively impacting the Namibian banking sector.
The operating environment in Botswana also remained challenging, with a 50 bps decrease in the repo rate in October to 5% resulting in a decrease in market liquidity as investors search for higher yielding assets in other markets. The reduction in bank lending rates, combined with the increased cost of funding caused by the tightening liquidity, resulted in a further contraction in banks’ interest margins.
Although still experiencing some challenges, the Zambian economic environment has improved during the period under review due to currency stability, the reduction in the inflation rate, the improved copper price and a reduction by the Bank of Zambia of its bank rate by 525 bps as well as the statutory reserve ratio. These factors all contributed to increased market activity and a reduction in both lending rates and cost of funding.
Net interest income increased by 19.6% to N$896.7 million (Dec 2016: N$749.9 million) largely as a result of the acquisition of Capricorn Investment Holdings (Botswana) (CIHB) and Cavmont Capital Holdings Zambia (CCHZ) which contributed 21.8% to the year-on-year growth. The normalised net interest income shows a decrease of 0.7%, which is mainly due to the 25 bps interest rate cut in Namibia in August 2017 and 50 bps cut in Botswana in September 2017. Bank Windhoek (BW) also restructured its balance sheet with slower growth in loans and advances and strong growth in liquid assets to reduce liquidity risk. With the liquid asset investments yielding lower returns, it also reduced BW’s interest margin.
In the announcement, the term ‘normalised’ is used meaning that, for the sake of meaningful comparison, the following adjustments were made: Prior period results have been adjusted to include the results, assets and liabilities of the group’s Botswana and Zambia subsidiaries as if they were acquired at the beginning of the prior reporting period. Capital profit on the partial sale of the Visa Inc. shareholding, in line with the group strategy to realise non-core investments, has been excluded from the December 2017 results.
In light of the above, the group’s normalised operating expenses increased by 11.6% to N$840.7 million (Dec 2016: N$753.4 million). The above inflation increase is mainly due to: Three new branches opening in Namibia, including the private wealth suite which resulted in an increase in headcount; capacity building within our digital channels, marketing and strategic customer capabilities; and technology costs increasing by 17.3% as a result of the continued investment in IT infrastructure.
The normalised cost-to-income ratio for the period under review is 59.9% compared to the normalised cost-to-income ratio of 54.1% for the comparative period.
Income from the group’s associates increased by 39.7% to N$51.4 million (Dec 2016: N$36.8 million) and contributed 10.6% (Dec 2016: 8.0%) to profit after tax. The year-on-year increase is due to an increase in profit reported by both Santam Namibia Ltd and Sanlam Namibia Holdings (Pty) Ltd.
During the period under review, there was a deliberate strategic focus on improving the funding ratios of the group at all levels. Growth in BW funding well exceeded growth in loans and advances, thereby improving the group’s loans to funding ratio to 88.1% (normalised 2016: 93.9%). Total funding increased by 34.9% to N$37.2 billion (Dec 2016: N$27.6 billion), mainly due to the acquisition of CIHB and CCHZ. BW’s funding increased by 13.8%, largely due to positive growth in term deposits and senior debt.
“Our group strongly believes that in order for us to remain relevant, we need to continue delivering on the ever changing needs of our customers, keep pace with the explosion in new, often disruptive, technologies; and managing the increasing risks faced by the financial services sector”, said Prinsloo.
“This requires us to be innovative and to continuously explore opportunities presented by new investments, new technologies and new product and service offerings. In addition, we will continue our pursuit of operational excellence and a high-performance culture which will enable us to bring about positive change in the lives of our all our stakeholders, including our employees and the communities we operate in, our ‘home’. Through these strategic actions, we expect to improve efficiencies, realise cost savings, expand and diversify revenue streams and better manage risks. We remain positive that, notwithstanding the subdued economic and business outlook, the group will continue to deliver solid results and value to all stakeholders,” he concluded.