Standard Bank upbeat despite headwinds
Standard Bank Namibia (SBN) remains upbeat despite a slight dip in deposits in the six months to 30 June 2016.
Deposits and current accounts from customers declined by 3.2 percent to N$17, 6 billion from N$18, 2 billion in the corresponding period last year, largely attributed to a sharp decline in call deposits.
Results announced this week shows that the banking group recorded a N$255 million profit after tax, a marginal increase compared to the same period last year.
“The 8.2 percent increase in profits may be below the norm achieved by the industry, but we should take into account that we registered a phenomenal 45 percent increase in 2015,” SBN Chief Executive Officer, Junius Mungunda, told the Windhoek Observer.
“However, we believe that we will register double digit growth on the N$525 million profit achieved in 2015. The first half of 2016 saw foundation being laid and we anticipate our performance to exceed 2015 financial year profits.”
Mungunda attributed the N$600 million decline in deposits to market fluctuations influenced by customer funds usage in the period under review.
“In Namibia, the bulk of the deposits come from large corporate and financial services institutions and their cash holding fluctuates at different times for various reasons such as paying of tax, etc.
“We did not see any structural reasons for the decrease in deposits in June 2016, especially noting that our average deposits in the first five months of the year were at their highest levels for most of the five months of the year,” he said.
The bank executive said stiff competition for limited deposits available, will increase the costs of funds paid by the banks to attract them, a position exacerbated by the lack of a savings culture in Namibia.
“Namibia’s savings culture is mostly contractual savings driven mainly by the tax benefits of unit trusts and pension savings. There is limited appetite by individuals to save voluntarily through banks. Savings in banks come handy when customers wish to apply for facilities or loans, as these savings can be used as collateral and the savings serve as evidence of discipline by the customer.
“The higher inflationary environment and the consequent increase in interest rates has increased the costs of funds that banks have to pay for deposits, which in turn also led to an increase in interest rates charged to customers borrowing from the banks,” he said.
SBN forecast its operating costs to remain on the upside after closing the half year 12.5 percent up at N$615 million compared to the same period last year.
The increase in expenses was largely due to the investments the bank made in its staff, which increased by 15.8 percent, while other operating expenses increased by 8.9 percent.
“This is also a function of the cycle in which a particular organisation finds themselves. We have been in an investment cycle in the last 2 – 3 years, which obviously mean that our costs will increase at a higher rate than inflation given our investments in the redesign of our processes, systems stability and new customer value propositions as well as the improvements to our physical infrastructure facilities.
“We believe that we will start to see stabilisation in our cost increases going into 2017 as we complete this investment phase of the business cycle. We are currently reviewing all of our processes to increase our use of technology for the benefit of our customers. This requires an initial investment with longer term benefit with respect to our cost base,” Mungunda said.
This comes as SBN has opened three branches this year at Henties Bay, Mondesa and recently at Ruacana.
There are also plans to add new branches in Eenhana, Far North, Okongo, Karibib, Okakarara and Katutura despite the bank’s drive towards cost containment.
“The branch expansion is informed by specific opportunities in specific locations and there is no contradiction at all. If anything, these are complimentary especially given the Namibian customer base where the full take on of digital services still need to develop further,” Mungunda said.
He, however, couldn’t give specifics of the bank’s plans to introduce new generation automated teller machines (ATM) onto the market.
“We are actively increasing the number of our ATMs across the country, and the costs are significant. We can’t be specific about the areas being targeted, but generally areas where we are opening new branches as well as areas where our current ATMs are fully utilized are the areas of focus,” he said.
On the licensing of more banks by the Bank of Namibia, Mungunda said the development was positive for the growth of the local banking sector and for the customers.
“Competition is good for the country and consumers, and brings about both challenges and opportunities for the industry and the regulator. We are focused on refining our strategies to generate sustainable growth and improve our customer experiences. We are of course working hard to stay ahead of competition and take lessons from all players, whilst remaining focused on our strategies and business,” he said.