Page 34 - Capricorn IAR 2020

GROUP CEO’S REPORT
FINANCIAL DIRECTOR’S REVIEW STRATEGY AND MATERIAL MATTERS
Capricorn Group remains profitable and sustainable in the hands of a board and executive management team that have demonstrated a strong governance culture, entrepreneurial spirit and commitment to transparency.
Investors want to know: How is COVID-19 impacting financial performance?
Concern 1: liquidity position
Concern 2: credit quality
Concern 3: earnings quality Concern 4: capital depth
How are we ensuring sufficient liquidity?
The Group’s approach to liquidity management is unchanged with liquidity always taking preference over the optimisation of profits. Namibia experienced significant liquidity constraints from the end of 2018 resulting in some of the lowest levels of market liquidity in a decade last year.
Following the declaration of a global pandemic, liquidity received increased focus. With no major outflows or drawdowns, Capricorn Group’s liquidity position remained healthy throughout the COVID-19 period, and even improved to some of the best levels the Group has ever had.
A high loan-to-funding ratio increases profitability, but at a higher risk to the Group. Our approach is to balance profitability and liquidity risk by maintaining the loan-to-funding ratio below 90%. The Group’s treasury and credit teams worked closely together to achieve a rate of 87.9% this year.
Bank Windhoek increased funding by 7% to N$37 billion. In line with the bank’s strategy to grow operating account balances, current and savings account balances increased by 22.4% and 21.3% respectively. Resulting from this focus to grow cheaper funding, the average cost of funding, excluding the impact of rate cuts, improved by 47 basis points. The funding growth was used to grow loans and advances by 4.9% and liquid assets by 24.4%.
Bank Gaborone increased funding by 5.2% to BWP5.2 billion and focused on optimally managing and balancing liquidity and cost of funding. Cost of funding reduced from 3.74% to 3.27% year-on-year.
As at 30 June 2020, Bank Windhoek experienced healthy liquidity levels with N$2.8 billion in excess liquid assets, including its buffer portfolio, above Bank of Namibia requirements, while Bank Gaborone, experienced a lower surplus of BWP390 million above Bank of Botswana requirements.
Bank Windhoek liquid assets (N$’million)
8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000
Bank Gaborone liquid assets (BWP’million)
1,400 1,200 1,000
800 600 400 200
00
June 2018 June 2019 June 2020 June 2018
Regulatory requirement Actual liquid assets
June 2019
June 2020
Over and above the liquidity buffers the banks have in place, the Group has N$1 billion in liquid assets in South Africa on the back of which we issued committed facilities to the respective three banks. When this committed facilities are taken into account, Bank Windhoek and Bank Gaborone have N$3.5 billion and BWP527 million liquidity buffers available respectively. This represents a buffer above the respective minimum requirement of 94% and 59% respectively.
32
Financial highlights
Group profit from continuing operations of
N$1.01 billion
despite the economic impact related to COVID-19
Bank Windhoek grew liquid
24.4%
assets by
during the year to ensure a healthy liquidity buffer and loan to funding ratio improved from
92.1%
to
91.3%
Market share of loans and advances increased to
33.2%(2019: 32.2%) Bank Gaborone increased
gross advances by
11.5%
while also improving the funding mix to increase net interest margin to
4.6%
from 4.1% in the prior year, despite a 75 bps rate cut during the year
5,627 3,190
6,029 3,490
6,495 3,715
808 396
882 393
910 520