Capricorn Group profit from continuing operations drops by N$118.8 million
Capricorn Group’s profit from continuing operations decreased by N$118.8 million, or 20.2%, relative to the pre-COVID-19 comparable period, according to the Group’s interim results for the six months ended 31 December 2020 released this week.
The group’s net interest income and interest margins for the six months were negatively impacted during 2020 following significant interest rate cuts of 275 basis points by Bank of Namibia and 100 basis points by Bank of Botswana.
Despite the interest rate cuts, net interest margin reductions of Bank Windhoek and Bank Gaborone were well contained at only 0.53% and 0.38% year-on-year respectively.
Thinus Prinsloo, Group CEO attributed the decrease to interest margin compression and increased impairment provisions. He noted that lower interest margins are a result of unprecedented interest rate decreases enacted by central banks to counter the slowdown in the economy.
Meanwhile, impairment charges increased to N$155.6 million.
“Increased impairment provisions resulted from the extremely challenging economic and market conditions in the wake of imposed lockdowns and other responses to the pandemic,” Prinsloo said.
The group’s non-interest income increased by 3.2% year-on-year despite the difficult operating environment and the material impact of the COVID-19 preventative regulations on financial activities across the regions where we operate. Growth was mainly attributable to a 5.6% increase in income from electronic channels and asset management fee income increasing by 13.0% to N$77.4 million.
Roughly 80% of the group’s operating expenses are fixed and could not be adjusted in line with lower expected income since the onset of the pandemic. The group contained the increase in operating expenses to 2.4%. This bears testimony to the group’s ability to contain costs during adverse economic conditions such as the COVID-19 pandemic.
Capricorn Group’s liquidity position remained healthy since the outbreak of the global pandemic, as reflected by a 7.1% increase in the Group’s liquid assets year-on-year.
The Group declared an interim dividend of 22 cents per ordinary share. The interim dividend per share for the period under review is 10% higher than the final dividend per share of 20 cents declared during September 2020.
Capricorn’s Financial Director, Jaco Esterhuyse, said the forecasted contraction of the economies in Namibia and Botswana of 8.4% and 6% for 2020 effectively puts GDP’s of these countries back to levels reported for 2015.
Notwithstanding the forecast of modest economic growth for 2021 from this reduced base, the Group’s economic outlook remains fairly bleak. As a result, Esterhuyse added, they expect the increase in customer defaults to continue, with impairment charges remaining high and interest rates remaining at the current all-time lows.
“The negative financial impact of these factors is expected to be offset by the growth in non-interest income, largely from our non-banking subsidiaries and associates which were not as negatively impacted by the pandemic. The disposal of our loss-making operations in Zambia is expected to have a material positive impact on the profitability of the Group going forward,” Esterhuyse said.
