Page 39 - Capricorn IAR 2020

Operating expenses increase limited to 3.4%
Costs were well managed given the nature of the economic shock caused by the pandemic. We target a cost-to-income ratio of less than 60% which means that we had to aggressively cut costs as income levels started decreasing during the last quarter of the financial year. We achieved a ratio of 59.4% (2019: 60.8%).
Operating expenses contain a large percentage of fixed costs that could not be adjusted in line with lower income. This mainly includes employee costs, other expenses related to branch and back-office functions and technology cost that mainly relate to licence fees. Additionally, expenses denominated in US dollar, such as software licensing expenses and systems support, increased following a significant weakening in the exchange rate.
Operating expenses increased by 3.4% to N$1.9 billion (2019: N$1.84 billion):
• Employee costs increased by 6.2% – a muted increase notwithstanding the fact that we increases our IT headcount by 29 with the increased focus on delivering more digital services
• Technology costs increased by 36.6% mainly due to the weakening of the operating currencies against the US dollar
• Operational banking expenses increased by 11.8% to
N$206.0 million (2019: N$184.2 million) mainly due to increased costs related to properties in possession as well as increased transaction volumes
• Travel and accommodation decreased by 28.1% as no travel was allowed during the last quarter of the financial year
How are we maintaining capital
We manage capital within regulatory requirements in a way that safeguards our ability to continue as a going concern, balanced with the Group’s needs in terms of growth ambitions and associated investments. A strong capital position is essential to support the Group through an economic shock such as COVID-19.
The Group remains well capitalised with a total risk-based capital adequacy ratio of 14.7% (2019: 14.9%), well above the minimum regulatory capital requirement of 10%. At the end of the financial year, Bank Windhoek and Bank Gaborone’s capital were also in strong positions:
Operating expenses breakdown
depth?
2020 INTEGRATED ANNUAL REPORT
7%
Technology costs
15%
Other
2020
10%
Operational banking expenses
56%
Employee costs
Property expenses (including depreciation)
11%
Operational banking expenses
57%
Employee costs
Property expenses (including depreciation)
Operating expenses breakdown
Bank Windhoek Bank Gaborone
12%
Actual Required ratio at the minimum end of the
ratio financial year
10% 14.9% 12.5% 16.4%
7%
Technology costs
14%
Other
2019
Based on the ICAAP assessment performed in September 2019, which includes a capital projection for the next five years, we expect the Group to maintain its capital ratios and to not require additional capital.
We have further capital support options via our two shareholders of reference, the GIPF and CIH who made available liquidity buffer and dedicated contingency funding facilities to mitigate financial risk and to provide sustainable and stable funding.
The regulators announced a relaxation of capital adequacy requirements as part of a stimulus package to counter the economic effects of the COVID-19 pandemic. The Bank of Namibia reduced the capital conservation buffer rate on 26 March 2020 to 0% for at least a 24-month period to support banking institutions to supply credit to the economy. The Bank of Botswana reduced the minimum capital adequacy ratio from 15% to 12.5% for the same reason. No relief in terms of capital requirements was available to Cavmont Bank.
11%
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