Capricorn Group Limited, a proudly Namibian financial services group listed on the Namibian Stock Exchange, with diversified operations and business interests in Namibia and Botswana, released its interim financial results for the six months ended 31 December 2020 today.
Capricorn Group (“the Group") met the challenges of the COVID-19 pandemic head-on. The agility and quick decision-making within the Group allowed it to quickly sense and respond to ever changing challenges. During this time, the Group managed to provide financial relief to clients and job security to employees, while implementing strategies to ensure the sustainability of the Capricorn Group. The group's profit from continuing operations decreased by N$118.8 million, or 20.2%, relative to the pre-COVID-19 comparable period.
“This year-on-year decrease is mainly due to interest margin compression and increased impairment provisions. Lower interest margins are a result of unprecedented interest rate decreases enacted by central banks to counter the slowdown in the economy. Increased impairment provisions resulted from the extremely challenging economic and market conditions in the wake of imposed lockdowns and other responses to the pandemic", said Thinus Prinsloo, Group CEO.
As previously reported, the sale of the Group's banking operation in Zambia, Cavmont Bank Limited, was concluded on the 4th of January 2021. Consequently, the losses made by Cavmont Bank Limited in the current and prior reporting periods are disclosed under discontinued operations.
Financial performance highlights (based on the results of continuing operations)
Group financial performance
- Net interest income and interest margins 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. This was achieved mainly through effective management of cost of funding. Entrepo had seen a growth of 26.9% in net interest income. On a consolidated level, net interest income before impairment charges decreased by 6.8% year-on-year mainly as a result of reduced margins.
- Impairment charges increased to N$155.6 million. This is a direct result of the economic impact related to the COVID-19 pandemic, compared to the period before the pandemic. Given the current uncertainty the group applied a prudent forward-looking approach, consistent with the requirements of IFRS 9, in determining expected credit losses given the current economic conditions.
- 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. This achievement highlights the positive impact of the group's diversification strategy in cushioning the impact of the steep interest rate cuts experienced. Growth in income from electronic channels and asset management fees were offset by a decline of 22.7% in trading revenue.
- 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. In addition, a significant part of the group's technology costs, which increased by 21.5% year-on-year, are denominated in US Dollar and was severely impacted by a weakening of the Namibian Dollar against the US Dollar. Despite these shocks, 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.
- Income from associates increased by 34.5% year-on-year, mainly attributable to the additional contribution from the Paratus Group in the current year.
Statement of financial position - The Group managed liquidity prudently in line with the group's philosophy of liquidity taking preference over profit maximization. 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.
- Gross loans and advances increased by 1.8% to N$41.8 billion during the six months ended 31 December 2020. Bank Windhoek's gross advances increased by 4.8% to N$34.7 billion during the same period, exceeding annualised private sector credit extension growth of 2.0%. The growth was mainly attributable to commercial loans, overdrafts and mortgage loans reflecting how the bank supported the local economy. Bank Gaborone increased gross advances by 2.3% to BWP4.8 billion, but due to a deterioration of the Pula, its loans and advances decreased by 4.7% in Namibian dollar terms. Entrepo's loan book increased by 10.6%.
- Asset quality remained a key focus area for the group. However, the challenging economic environment, exacerbated by the impact of the pandemic, has had a negative impact on the Group's total non-performing loans (NPLs), which increased by 12.7% to N$2.2 billion during the current period. The group's NPL ratio increased from 4.7% to 5.2%. Due to the significant increase in provision for expected credit losses the NPL coverage ratio increased to 53.2% (Dec 2019: 44.8%).
- The group remains well capitalised with a total risk-based capital adequacy ratio of 14.1%, 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.
Dividends
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. The group believes that the interim dividend balances prudency, in preserving the group's capital and liquid asset position, with a fair dividend yield for shareholders, whose earnings came under severe pressure since the onslaught of the global pandemic and depressed economic conditions.
- Last day to trade cum dividend: 12 March 2021
- First day to trade ex-dividend: 15 March 2021
- Record date: 19 March 2021
- Payment date: 31 March 2021
“The forecasted contraction of the economies in Namibia and Botswana of 8.4% and 6.0% 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, we 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", said Jaco Esterhuyse, Financial Director, on the outlook for the Group.
“Our employees showed genuine commitment and passion through their continued service and support to clients during these strenuous circumstances. I am grateful to be in the same storm with passionate and hardworking employees who resiliently adapted to the impact of the pandemic. We would not have come this far without them. I also wish to thank our loyal clients, partners and suppliers. The significance and value we draw from our relationships, collaborations and partnerships with these stakeholders are immeasurable in exceptional times like these. As a group, we are inspired by our purpose of improving lives through leadership in financial services by being Connectors of Positive Change," concluded Thinus Prinsloo.
2021 Capricorn Group Interim Results downloads available here:
