Capricorn Group Limited, a proudly Namibian financial services group listed on the Namibian Stock Exchange, with diversified operations and business interests in Namibia, Botswana and Zambia, released its annual financial results for the period ending 30 June 2020 today.
“Capricorn Group started the 2020 financial year with confidence and delivered positive half year results, despite continuing difficult economic conditions in Namibia and Zambia. Capricorn Group's operating profits were significantly impacted by the Covid-19 pandemic during the last quarter of the financial year, with full-year profit after tax contracting by 15.6% to N$856.4 million. The Group's profit after tax from continuing operations, excluding our Zambian banking operation, amounts to N$1,01 billion, which is 2.2% lower than the prior year", said Thinus Prinsloo, Group CEO.
Explaining the exclusion of Cavmont Bank from its continuing operations, Jaco Esterhuyse, Financial Director of the Group said: “Following three years of losses reported by the Bank in deteriorating market conditions in Zambia, Capricorn Group accepted the offer by Access Bank Zambia to acquire Cavmont Bank. Agreements for the sale and subsequent merger of the two banks has been concluded subject to the requisite regulatory approvals.
“Overall, Capricorn Group's response to a challenging year showed resilience and sustainability in our operations and people. We are proud of the performance delivered by our business units and associates. By ensuring the well-being of the business, our employees and clients as a priority during the pandemic, Capricorn Group endured and performed well under extremely challenging conditions. Bank Windhoek, our flagship brand, delivered strong results. Profitability was under pressure in the last three months of the financial year. The significant reduction in Namibia's repo rate by 225 basis points impacted Bank Windhoek's profits directly, declining by 9.8% compared to last year", commented Thinus Prinsloo on the results.
Financial performance highlights (based on the results of continuing operations)
- Net interest income and interest margins came under significant pressure during the last quarter of the financial year with aggressive interest rate cuts of 225bps and 50bps by the central banks of Namibia and Botswana respectively. Interest rates on loans and advances reduced immediately while there was a lag in repricing liabilities. It was also not possible to further reduce rates on a substantial part of the two banks' deposit books. As a consequence, the net interest margin of Bank Windhoek decreased by 0.3%. The margin squeeze was contained to some extent by active and very effective management of the cost of funding. Notwithstanding the aforementioned and thanks to growth in the banks' interest earning assets, the Group's net interest income before impairment increased by 2.3% year-on-year to N$2.08 billion.
- Impairment charges increased by 146.1% to N$ 304.3 million for the year under review. Almost half of the increased charges is a direct result of stressed and prudent economic overlays, reflective of a severely depressed economic outlook, applied to the expected credit loss models. The balance of the increase is mainly due to the prudent approach applied by the group in determining expected credit losses given the current economic circumstances where many customers are experiencing financial distress.
- Despite the difficult operating environment and the material impact the Covid-19 lockdown measures had on financial activities across the region where we operate, the group's non-interest income increased by 11.7% year-on-year, largely due to lower volumes of transactions.
- The bulk of the group's operating expenses are fixed costs that could not be adjusted in line with lower income in the wake of the pandemic. The Group nevertheless contained the increase in operating expenses to 3.4%. This bears testimony to the group's ability to contain costs during adverse economic conditions and shocks such as the Covid-19 pandemic.
Our Balance Sheet Position
- The Group maintained its prudent approach to liquidity management with liquidity continuing to take preference over maximising profits. Following the declaration of the global pandemic, liquidity received increased focus and Capricorn Group's liquidity position remained healthy throughout the year as reflected by the 16.2% increase in the Group's liquid assets.
- Gross loans and advances increased by 5.6% to N$41.1 billion. Bank Windhoek's gross advances increased by 4.9% to N$33.4 billion, well above the growth in private sector credit extension of 2.8%. The growth was mainly in commercial loans. Bank Gaborone increased gross advances by 11.5% to P4.7 billion as the bank continued to grow its market share, mainly in commercial and mortgage loans
- Asset quality has always been a key focus of the Group. As a consequence of the challenging economic environment, exacerbated by the impact of Covid-19, the Group's total non-performing loans increased by 19.0% to N$1.9 billion during the financial year. The group's non-performing loans (NPL) ratio increased from 4.1% to 4.7%. Due to the significant increase in provision for expected credit losses the NPL coverage ratio increased from 47.3% to 49.0%.
- The group remains well capitalised with a total risk-based capital adequacy ratio of 14.8% (June 2019: 14.9%). This is well above the minimum regulatory capital requirement of 10.0%. The strong capital position will stand the group in good stead whilst navigating the perfect storm brought about by the Covid-19 economic shock.
The Group declared a final dividend of 20 cents per ordinary share. Considering the interim dividend of 30 cents per ordinary share, this represents a total dividend of 50 cents per ordinary share (2019: 66 cents per ordinary share). The total dividend per share for the year under review is 24.2% lower than the total dividend per share declared for the previous financial year. We believe that the total dividend balances prudency with a fair dividend yield for shareholders.
In determining the final dividend, the group has taken a number of factors into account, which include:
a) preservation of capital and liquid asset positions given, not only the current economic environment, but more importantly the negative future economic outlook;
b) the call by bank regulators to restrict dividend payments. As a consequence, Bank Windhoek's final dividend to the group was 45% lower than the previous year; and
c) the need of our investors for cash returns in a low interest rate environment and a depressed economy where income and earnings are under severe pressure.
“The global economic outlook is bleak with most economies projecting significant contraction. Namibia and Botswana have revised their forecasted contraction in GDP for the current fiscal year to 8.5% and 8.9% respectively. Unemployment rates are reaching new highs and business closures continue unabatedly, increasing the financial distress of individuals and businesses alike. As a result, we expect an increase in customer defaults with impairment charges remaining high. Net interest revenue, especially in the case of Bank Windhoek will be significantly lower in the next year following the aggressive cuts in interest rates. Bank Gaborone is expected to be less impacted and the expected appreciation of the Pula against the Namibia dollar will also contribute positively to earnings. Non-banking subsidiaries are not expected to be negatively impacted and should cushion the overall negative impact on the group's results", said Jaco Esterhuyse on the outlook for the Group.
“I want to extend my sincere thanks to our passionate and hardworking employees who remained resilient and focused in very difficult circumstances, embracing changes brought on by the pandemic. By adopting to new ways of working, our employees continued to service and support our clients. I also wish to thank our loyal clients, partners and suppliers. It is in unprecedented times like these, that the value of relationships, collaboration and partnerships comes through. As a Group we remain committed to improving lives through leadership in financial services by being connectors of positive change", concluded Thinus Prinsloo.
Enquiries can be directed to Marlize Horn, Group Executive: Brand & Corporate Affairs at +264811296241 or firstname.lastname@example.org
Downloads available here:
Capricorn Group Integrated Annual Report
Capricorn Group Value Creation Summary
Notice of AGM
Financial Results Advert 2020
2020 Capricorn Group Integrated Report Infographic