• Market Watch

Bank profits mask diverging risks

• 1 Day Ago

Standard Bank Namibia (SBN) Holdings was the only one of Namibia’s three listed banking groups to increase pre-provision profit in the first half of 2026, despite higher profit after tax across all three.

The results highlight different challenges… FirstRand Namibia must contain costs as credit charges normalise; SBN must balance rapid lending growth against capital and asset quality; and Capricorn Group must address losses in Botswana while assessing a proposed South African acquisition.

In the comparable January-to-June period, SBN’s pre-provision profit rose 5.1%, while FirstRand’s fell 1.4% and Capricorn’s declined 0.8%. Profit after tax increased by 4.1% at SBN, 9.3% at FirstRand and 1.6% at Capricorn, according to Simonis Storm Research.

Impairment charges help explain the divergence. They fell by about 71% at FirstRand, were broadly unchanged at SBN and rose by about 34% at Capricorn. The figures suggest that higher reported profits did not necessarily reflect stronger underlying operating performance.

FirstRand: lower impairments, rising costs

For the financial year to June, Simonis Storm estimated that lower impairment charges accounted for N$278 million, or about 80% of FirstRand’s N$349 million improvement in operating profit.

The bank wrote off N$683 million in loans that had already been fully provided for. Its stage 3 loan ratio fell to 3.83% from 5.20%, while coverage against those exposures increased to 49.8% from 48.6%.

However, the brokerage’s sensitivity analysis suggests earnings per share could fall to about 761 cents from the reported 802.5 cents if lower stage 2 coverage and increased recoveries were reversed.

Costs are another pressure point. Operating expenses rose 11.5% in the comparable six-month period, while non-interest revenue grew just 0.8%, contributing to the 1.4% decline in pre-provision profit.

Simonis Storm forecasts earnings per share of 780.2 cents for the year to June 2027 and a dividend of 600 cents, down from 668.3 cents. It rates the share a hold, with a target price of 6,200 cents and a forecast 12-month total return of 14%, including dividends.

SBN: growth versus capital

SBN delivered the strongest underlying performance, with income rising 4.2%, ahead of 3.5% cost growth.

Its loan book expanded 17.4% in the first half, or 9.3% excluding a N$2 billion ministry of finance facility. Current accounts grew 51%, and the loans-to-deposits ratio improved to 87.3% from 93.3% in December.

However, asset quality and capital weakened. The non-performing loan ratio rose to 5.04% from 4.34%, while the capital adequacy ratio fell to 16.6% from 17.25%. SBN did not disclose its June coverage of non-performing loans in its interim report.

Simonis Storm estimates the capital adequacy ratio could fall to 14.7% by 2028 if lending grows by about 15% annually. That would fall below the brokerage’s 15.5% monitoring trigger, which is not a regulatory threshold.

The group’s outlook therefore hinges on whether it can sustain loan growth without putting further pressure on credit quality and capital. Simonis Storm rates SBN a buy, with a target price of 1,620 cents and a forecast 12-month total return of 19.1%, including dividends.

Capricorn: Botswana weighs on earnings

Capricorn Group’s full-year headline earnings fell 6.7% to N$1.744 billion. Its Botswana operation was the main source of pressure: Bank Gaborone swung from an operating profit of N$223 million to a loss of N$105 million, while net interest income fell 36.6%.

Botswana accounted for 44% of the group’s non-performing loans but just 16% of its loan book. Across the group, stage 3 loans rose 16.6% to N$2.848 billion, while the allowance against them increased only 0.9%. Coverage fell to 43.1% from 49.8%.

Simonis Storm said restoring the previous coverage ratio would require higher impairment charges and lower earnings. Its Namibian banking operation was more stable, although operating profit fell 1.6% to N$1.92 billion.

Capricorn’s capital adequacy ratio increased to 19.4% from 18.1%, leaving N$2.571 billion above a 15% benchmark in the brokerage’s calculations. However, regulatory capital headroom is not the same as cash available for distribution to shareholders.

Capital allocation is also in focus following Capricorn’s 7 October offer to acquire an 81.6% stake in South African asset financier Centrafin, which has a loan book of about N$3 billion, at an enterprise value of N$788.3 million. The equity price and funding arrangements have not been disclosed, and the deal remains subject to approvals.

Simonis Storm has excluded the acquisition from its forecasts pending further information. It rates Capricorn a sell, with a target price of 2 680 cents against the 9 October closing price of 3 032 cents, and forecasts a negative 7.2% total return over 12 months, including dividends.

Rates bring both opportunity and risk

The Bank of Namibia’s repo rate stood at 6.75%, compared with South Africa’s 7.25% following its September increase. Simonis Storm expects Namibia to raise its rate to 7% on 28 October, taking prime lending rates to 10.5%.

Higher rates can boost interest income as loans and liquid assets reprice, although the benefit depends on funding costs. The brokerage estimates that a 25-basis-point increase could add about 2% to pre-tax profit at each group.

Borrowers face the opposite effect. Simonis Storm expects credit stress to become more visible in 2027, typically two to four quarters after rate increases, particularly in payroll lending, asset finance and vehicle finance.

The economic backdrop is mixed: GDP grew 4.8% year on year in the second quarter, but mining output contracted 3.1%. Inflation reached 5.4% in September, with fuel prices up 30.4%, according to figures cited in the report.

What to watch

Investors will be watching the Bank of Namibia’s 28 October rate decision, further details on Capricorn’s Centrafin offer and upcoming results from the three groups. FirstRand and Capricorn are due to report interim results in February, while SBN’s full-year results are expected in March.

The key tests will be whether FirstRand can control costs as impairments normalise, whether SBN can fund lending growth without weakening capital and asset quality, and whether Capricorn can contain credit losses in Botswana.