Executive summary
Sub Saharan Africa economic recovery slowed for the second year in a row, recording an estimated growth of 2.9% in 2023 relative to 3.6% in 2022. Growth is still and will remain uneven across the region. Monetary and fiscal policies varied materially across our presence markets as Sovereigns responded variously to local economic challenges and prevailing headwinds during the year. Economic outlook for the region is positive; GDP is projected to accelerate to 3.8% in 2024 and 4.1% in 2025. Ripples from the geopolitical tensions, rising risk of debt distress, and climate related shocks are the main risk vulnerabilities to the region’s economic prospects in the near term.
Strong underlying business performance
Policy tightening continued during the year with monetary policy rates increasing in 7 out of our 11 presence markets. Currencies were under pressure throughout the year; Nigeria and Kenya recorded material currency depreciation in 2023. Currencies across our markets are projected to remain under pressure in 2024 through to 2025 potentially setting back the inflationary dampening experienced in 2023.
Our business fundamentals stayed strong despite these challenges with 7% growth in net advances year on year. This strong balance sheet momentum stemmed from our core Government Deduction at Source (“DAS”) product growth which has been our mainstay over the years. Our Southern African markets, specifically Mozambique, Botswana, Namibia, and Lesotho supported the pleasing Deduction at Source performance with year-on-year net book growth of 7%. Deposit growth was strong at 37% year on year, albeit off a low base.
Together with DAS, positive mobile lending and insurance arrangements momentum continued to contribute positively to business performance. Non funded income was buoyed by income from insurance arrangements which increased by 46% year-on-year to P363 million. The Group’s Mobile lending income increased by 307% year-on-year, with strong performance recorded in Ghana. The Group recorded strong top- line growth of 9% year on year, but due to continued interest rate pressure, a marginal 2% decline was observed on operating income on a year-on-year basis.
However, certain one-offs affected the Group’s results during the year. The Group’s auditors determined that loans in the Stage 3 maturity bucket should not be discounted in the calculation of Expected Credit Losses (“ECLs”). While this is an area of judgement and subject to different interpretations, the Group agreed to accept the auditor’s view of this estimate, to be more prudent in the calculation of ECLs. This was re-worked for 2023 and prior years and applied retrospectively as required by accounting standards, resulting in a P128 million ECL adjustment in the current year and a restatement of prior year financials. Further to this, in 2023, EY Global and other firms, determined Ghana to be a hyperinflationary economy, although this is disputed by the Institute of Chartered Accountants of Ghana (“ICAG”). EY required the Group to adjust for this, resulting in a net monetary loss of P149.9 million being included in the Group’s performance. Moreover, foreign exchange volatility remained a concern, particularly in Nigeria where there was a sharp devaluation of the official exchange rate from 1USD:NGN463 to 1USD: NGN523 by June last year. The Naira lost further value in H2 2023, hovering between NGN 800–1 000 to the United States dollar and further movement has been seen in the current year. With the continued exchange rate volatility across our markets, foreign exchange losses moved by P143 million year on year from a gain of P91 million last year, to a loss of P52 million in the current year.
Against this backdrop, the Group achieved a profit before tax of P121 million, compared to a restated profit of P684 million in 2022. While the Group’s strategy implementation to 2025 has been somewhat delayed by the headwinds that started during the Covid era, strong progress continues to be made on the 6-2-5 strategy. We are consolidating the business and transitioning to optimise structures, including digital self-service to further our sales growth and strengthen our collection and recoveries capabilities.
Regional Performance
(Southern Africa/East and West)
In early 2023, we restructured subsidiaries into two units: “Fit for Growth” (F4G) and “Turnaround Markets” (TAM). Fit for Growth markets include Botswana, Namibia, Mozambique, Uganda, Lesotho, and Eswatini. TAM countries encompass Ghana, Tanzania, Kenya, Nigeria, and Rwanda. This restructure aimed to prioritise resources for TAM markets to unlock their potential. Last year, the Group focused on revitalising its East and West Markets with a reset strategy for the MSE segment, streamlined operations, and growth in the Mobile lending portfolio and DAS business. Despite challenging economic conditions in some markets, often driven by increased food and energy prices, we achieved a marginal year on year net book growth of 2% to P3 billion (2022: P2.8 billion).
The Mobile lending product was a key growth driver, increasing the net loan book by 92% to P692 million. The MSE segment faced challenges due to high inflation levels, prompting the implementation of a strategic reset strategy with shorter loan tenors. This led to a 38% decrease in net loan book values for the MSE segment. However, we anticipate that this adjustment will pave the way for a more sustainable business in these markets in the coming year.
Southern African markets maintained steady 7% net loan book growth. In these markets, Mobile lending grew by 81% to P110 million, while the DAS loan portfolio increased by 3% to P10 billion. Mozambique’s loan book grew by 24% to P2.5 billion, and Botswana’s net loan book increased by 7% to P3.5 billion. Southern African markets also expanded the customer base by 14% to 967 522, driven by strong growth in Botswana’s Mobile lending segment.
In our largest market, Botswana, strong underlying business performance led to a 15% growth in Gross Loans and Advances, driven mainly by Government Deduction at Source. However, this was offset by increased Expected Credit Losses for a newly introduced “test and learn” Individual Non-DAS loan portfolio, which experienced challenges in collections. Additionally, system migration at the central deductions clearing partner resulted in technical defaults on some loans, leading to increased impairments in the Government Deduction at Source portfolio. Key lessons were learnt from this portfolio, from which we expect to leverage going forward.
The business is leveraging lessons to enhance overall Group collection capability and technology, aiming for improved performance in this portfolio in full year 2024. Anticipated improvements are expected to deliver continuing business value. Botswana restructured its banking debt profile to support competitiveness in our core DAS product and diversified business growth with Mobile lending and Affordable Housing product lines. We are pleased to note improved local market liquidity due to changes in offshore investing regulations.
Looking Ahead
Baseline outlook for regional economic prospects for 2024/25 is positive. The Regional GDP is projected to accelerate to 3.8% and 4.1% respectively for 2024 and 2025. Risks are to the downside. The region remains vulnerable to climate related shocks while a number of countries carry increasing risk of debt distress. Continuing geo-economic fragmentation and risk of escalation of geopolitical tensions and regional conflicts pose severe headwinds to the region. Five of our presence countries will hold their national elections this year. Social political risks from these elections are assessed as low. Policy continuity is rated high.
Business fundamentals remain sound despite the downside impact of adjustments to expected credit loss (ECL) that arose from material professional judgments in the year, and other once offs.
In 2023, our operations were affected by, once offs as well as foreign exchange fluctuations and inflation-induced volatility, especially in Nigeria and Ghana. We anticipate these challenges to persist in the first half of 2024 and expect it to taper off in the second half, contingent on macroeconomic conditions. We will navigate the macroeconomic landscape by executing our commercial strategy and improving our collections, including accelerated portfolio remediations.
Our core deduction at source product and insurance offerings remain steadfast in providing financial security to underserved customers. We are dedicated to offering accessible, competitive Mobile lending products, empowering individuals financially. We are enhancing our product portfolio leveraging insights from our test and learn programs of 2022/2023.
Despite headwinds in FY 2023, we are confident they are behind us, equipping us to navigate 2024’s opportunities while managing ongoing challenges. We will continue to build on our digitalisation strategy to scale sales growth. Our goal remains to drive sustainable growth and deliver value to all stakeholders.
From a product focus perspective, our mobile lending portfolio is set for growth, supported by strong partnerships with mobile service providers. We are committed to providing accessible and competitive mobile lending products to empower individuals and businesses. Additionally, our core deduction product and insurance offerings will continue to provide financial security to underserved customers.
We aim to leverage lessons from our test and learn program to strengthen collections and recoveries, allowing us to write back adjusted amounts identified from the recalculation of ECL in 2023. Furthermore, we anticipate accelerating payment capabilities on our digital platform and continued momentum in our deposit services, meeting customers’ digital needs for reliable and secure financial management.
With a focus on customer-centric innovation and digitalization, we strive to enhance the accessibility and convenience of basic financial services, reinforcing our position as a trusted financial partner that improves lives. Overall, we are confident in our ability to navigate the opportunities and challenges of 2024, leveraging a positive economic environment and the strength of our core product proposition to drive sustainable growth and deliver value to all stakeholders.
FINANCIAL OVERVIEW AND HIGHLIGHTS DECEMBER 2023
- Net interest income down 2% to P1.72 million (FY 2022: P1.76 billion)
- Non-funded income down 3% to P514 million (FY 2022: P529 million)
- Profit before tax down 82% to P121 million (FY 2022 Restated: P684 million)
- Loss after tax of P149 million down 142% (FY 2022 Restated: Profit P352 million)
- Net advances up 7% to P13.5 billion (FY 2022 Restated: P12.7 billion)
- Total assets up 8% to P18.11 billion (FY 2022 Restated: P16.7 billion)
- Customer deposits up 37% P1.5 billion (FY 2022 Restated: P1.1 billion)
- Loan loss ratio (LLR) of 3.3% (FY 2022 Restated: 0.2%)
- Cost-to-income ratio of 74% (FY 2022 Restated: 61%)
- Effective tax rate (ETR) of 223% (FY 2022 Restated: 49%
- Basic loss per share (9.3) thebe (FY 2022 Restated: Basic Earnings per Share 13.4 thebe)
- Loss on Equity (ROE) of (3%) (FY 2022 Restated: Return on Equity of 6%)
- Capitalisation ratio 24% (FY 2022 Restated: 30%)
- Debt-to-equity ratio of 183% (FY 2022 Restated: 144%)
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About Letshego Africa Holdings Limited
The Letshego Group is an African multinational, first opening its doors in Botswana in 1998 by offering loans to government employees.
Today, the Group has over 3,000 employees comprising more than 21 nationalities, and supports public and private sector individual customers, as well as micro and small entrepreneurs. Letshego has operations in 11 sub-Saharan African markets, including Eswatini, Ghana, Kenya, Lesotho, Mozambique, Namibia, Nigeria, Rwanda, Tanzania and Uganda.
Letshego Africa Holdings Limited (the Group holding company) is listed on the Botswana Stock Exchange, with additional listings including a subsidiary listing on the Namibian Stock Exchange, and bond listings on both the Ghana and Johannesburg Stock Exchanges.