Udo Reinhold – Managing director
A unique financial institution in Namibia.
We are determined to be the leading commercial bank in Namibia in our chosen markets, through unwavering client focus and exceptional benefits for all stakeholders. We have made steady progress towards that goal.
The bank's financial year end changed from 30 September to 31 December. Consequently, the financial statements 1998/9 cover a 15-month period and are not directly comparable with results for the previous 12-month financial year. In this section, we mainly refer to year-on-year actual results. Pro forma results for 1997/8 can be found in the financial highlights section on page 4. Information based on comparison with previous year's pro forma results is given in brackets in this section.
The 15 months to 31 December 1999 were characterised by substantial profit growth for Commercial Bank of Namibia, reflecting the clear benefits of restructuring programmes implemented in previous periods. The bank recorded excellent results for the period, despite a subdued domestic economy, still high interest rates and a lack of international appetite for emerging markets.
Net income before tax rose 71,6% (37,3%) from N$33,1 million to N$56,7 million. During the review period, corporate tax rates were decreased, resulting in a deferred tax rate adjustment of N$4,3 million. Consequently, net income after tax rose even further by 114,0% (65,8%) from N$20,7 million to N$44,3 million. Capital and reserves increased 39,5% from N$88,0 million to N$122,7 million, giving the bank a capital adequacy ratio of 14,6%, well above the stipulated level of 8,0% and in line with international standards.
These pleasing results were underpinned by a 9,7% growth in total assets to N$1,7 billion, prudent asset and liability management and steady growth in income from commissions, fees and foreign exchange business, boosting the bank's non-interest revenue by 55,5% (24,4%). Expenses increased to N$83,4 million, translating into a satisfactory cost-to-income ratio of 53,5%.
The bank's performance at operating income level reflects a continuing conservative view on credit risks, with the income statement showing a charge of N$15,9 million for specific and general provisions, down by 7,4% (25,9%) compared to the previous year.
The directors have recommended an increased dividend of 15,00 cents per share for the year (1998: 7,00 cents per share), reflecting their confidence in the bank's prospects. In line with the policy of continually strengthening reserves, the directors have also recommended transferring N$34,6 million to general reserves.
Throughout the bank, our people are committed to providing superior benefits to all stakeholders. During the review period, we reinforced this commitment by establishing and staffing a dedicated customer service unit and by preparing and communicating a customer service strategy, building on previous service initiatives such as Service Plus and relationship management.
The primary focus of the customer service unit will be on retaining customers and increasing their levels of satisfaction and loyalty using appropriate methods and staff training. To earn the position of undisputed leader in the customer service field in our country, however, we acknowledge that the process is both dynamic and ongoing.
During the review period, the technology platform across the bank was standardised and upgraded, resulting in faster communication flow, productive information management and enhanced computer literacy among all our people. The training that accompanied this process focused on multi-skilling employees to maximise the benefits of the technology platform and further our aim of a paperless workplace.
In the current year, Commercial Bank of Namibia will take banking into a new generation with the installation of the Globus system. Globus is one of the most advanced banking systems in the world and will be customised and implemented in the second half of 2000. The introduction of this customer-focused system offers many benefits that will flow directly to the bottom line, including improved customer service, capitalising on cross-selling opportunities, reducing administrative procedures, heightening productivity and improving security.
The strategic decision to decentralise risk management to branches and relevant departments has resulted in important improvements to our service. Customers benefit from faster responses, while the bank benefits from the expertise of risk management specialists at each site. The net result of this strategy is a negative bad debt growth trend in 1999.
Training, in line with international standards, forms an integral part of this division's activities and covers the bank's different target markets.
The introduction of advanced technology in 2000 will further improve risk management service levels and procedures.
The restructuring activities completed in the previous reporting period contributed significantly to the results achieved in 1999, further increasing service levels by removing administrative processes and decentralising risk management to branch levels.
In line with our commitment to bring banking closer to our customers, the new Oshakati branch was opened in November 1999 by the Minister of Finance, the Honourable Nangolo Mbumba. At the opening ceremony, he commended the bank for its involvement in the transition that is occurring in that region. The branch features the most advanced technology available in banking, appropriate in a high-growth business sector.
Our Service Plus facility, a first when it was introduced four years ago to provide a means of monitoring our service levels, continued to provide valuable information on customer service. Used in conjunction with our new customer service council, trends are quickly identified and necessary measures implemented.
To accommodate the needs of smaller businesses, the division has implemented relationship management, a strategy that has been proven in the bank's corporate division. Personal bankers and business bankers provide a superior service and a single source of supply to a portfolio of individuals and businesses, supported by back-office and risk management teams.
The Corporate Banking division recorded satisfactory results in an extremely challenging period, marked by static business volumes and sluggish demand for credit. Given the slow, but steady, increase in new business volumes in the second half of the review period, demand for credit is expected to improve in 2000.
Following successful pilot projects in the personal banking division, a similar restructuring process was completed in this division during the year, whereby certain administrative processes were removed from corporate managers, freeing them to concentrate on providing even more personalised service to their portfolio of corporate clients. Risk management procedures were decentralised and allocated to specific portfolios, considerably reducing the time required for credit approval while ensuring stringent risk management on site. This strategy is already producing results and was reinforced by the launch of innovative money market instruments that offer corporate clients very competitive rates with complete flexibility.
The electronic banking service recorded significant growth during the review period. Clients, corporate and individual, enjoy the benefits of sophisticated services and facilities that enable them to conduct a broad range of domestic and South African banking transactions from their premises.
Although current infrastructural restraints limit the speed and geographic spread of electronic banking, state-planned improvements (such as satellite or microwave communications) will enable us to capitalise on the potential of extending electronic banking into the furthest corners of Namibia.
By nature, electronic banking is a fluid and dynamic market, and continued improvements and enhanced features will maximise the convenience for our clients and keep services affordable.
The International division experienced subdued trading volumes during the year, following reduced foreign investment into Namibia and widespread caution among investors ahead of the millennial changeover. However, the division's strong client relationships and its ability to develop specialised products that meet customer needs, combined with superior service, enabled it to record satisfactory results in a difficult market.
Valuable client partnerships continue to be supported by an appropriate network of banks and financial services groups to provide correspondent banking services.
During the review period, the division further enhanced its advisory services to customers using foreign currency accounts, introduced in 1998 following the lifting of certain foreign exchange control regulations. Other activities include short-term trade finance products, revolving trade finance, letters of credit and specialised international finance capabilities.
Through our international shareholders, we have strengthened our proficiency in global markets, reflected in the bank becoming the primary conduit for advice and services regarding the unified euro currency introduced in 1999. By drawing on the resources of European partners and continuously refining its products to meet and exceed the needs of customers, the division is well placed for further growth.
Local and international money markets
Treasury division recorded a period of satisfactory growth, given prevailing domestic and international economic conditions. Interest rate margins were maintained, despite a drop of some 9,0% in prime interest rates. This can be attributed to the ever-improving liquidity situation in the region, particularly in Namibia. Money market derivatives were successfully used to hedge the bank against adverse interest rate movements. Money and capital market dealing activities also contributed to better than forecast results.
Against the background of reduced foreign exchange volumes due to slower economic activity and the introduction of the euro and a stable Namibian dollar, trading activities for the period are considered satisfactory.
The focus on asset and liability management enabled the division to more effectively manage interest rate risk, liquidity and capital adequacy requirements within an approved risk profile. Extra precautions were taken to counter any possible negative events due to Y2K, like mass cash withdrawals, but this contingency was never utilised.
Money market dealings continued to be restricted to a limited number of instruments, although treasury bills again enjoyed strong demand from the investing public, despite falling yields.
The foreign exchange corporate desk, introduced in January 1999, has significantly improved the delivery of foreign exchange services to the bank's clients. Apart from better service levels enjoyed by importers and exporters, the desk has reinforced the bank's marketing activities by regularly identifying new business opportunities.
The year ahead will see a further commitment to improving service levels through better systems and controls, and further development of the corporate desk.
The Commercial Bank of Namibia Growth Fund returned 38% for the year to 31 December 1999. The fund, managed by Nedcor Investment Bank Asset Management, again reached its objective by achieving an inflation-beating return. The fund, albeit a comparatively small one, has consistently maintained a top quartile position in its market segment for periods of one, two and three years.
Despite the fund's excellent performance, new investment volumes have not met with expectations. The fund's positioning, its possible inclusion in investment suites, the fund type (general equity as opposed to managed fund) and its name will be re-evaluated during 2000. Until any or all of those changes are implemented, the fund's objective will remain to achieve a return that is in the upper quartile of the performance range of other Namibian unit trusts; to offer Namibian residents and the bank's clients the opportunity to invest in a professionally-managed equity-based fund; and to take advantage of investment opportunities in listed Namibian and South African shares, concentrating on well-run growth companies.
To take advantage of the view that equities should provide a return of 25% for the current year, the fund has been significantly restructured. The number of shares in the fund has been reduced by more than 20%, and the fund itself re-orientated to be more in line with performing shares and sectors. The objective is to outperform the financial and industrial indices by year end. Given past performance, we expect another year of sound returns.
Training initiatives throughout the bank are focused on meeting the needs of customers through superior service and detailed product knowledge. Our local and international training programmes continue to keep our people informed of domestic and international developments.
During the review period, an Employment Equity Commissioner was sworn in as part of the promulgation of the Affirmative Action Act of 1998. The bank has long had a proactive policy regarding equal employment opportunities and its current staff complement of 360 people includes 84% affirmative action candidates. At managerial level, that figure is 34%.
A particular focus for the review period was improving computer skills ahead of the implementation of Globus. Leadership development programmes and diversity management courses ran in tandem with our trainee/apprenticeship programme for school leavers from previously disadvantaged backgrounds. Together with bursaries for our own people, their children and capable previously disadvantaged students, we are building on the base of skills that will continually improve our customer service levels. To date, the bank has awarded eight study bursaries to gifted youths from previously disadvantaged backgrounds for studies at tertiary educational institutions.
The system of performance agreements that complements our performance appraisal system was further entrenched during the review period, with good results. The policy of bi-annual appraisals has reinforced the commitment to constant progress towards our goals.
The results of a comprehensive staff climate survey were instrumental in the formation of an employee representative forum, which meets monthly to address common concerns and share information. A detailed internal communication strategy was developed to ensure open and effective communication at all levels, again reinforcing our commitment to our people.
The bank's internal audit function conforms to accepted international standards of corporate governance, using the early warning system of control and risk self-assessment (CRSA). This proactive method augments traditional auditing methods of substantive testing and workflow-related controls by giving the responsibility for ongoing control of identified and potential bank exposures to functional management and staff. During the year, CRSA was implemented in most remaining business units, and audit coverage has been significantly increased.
A dedicated and proactive loss control unit was established during the review period, focused on crime-related and non-operational losses within the bank. This unit has enhanced fraud awareness among staff and has effectively countered crime while improving relationships with external security-related parties.
Commercial Bank of Namibia allocates a percentage of annual net after-tax income to selected social investment projects.
During the review period, the bank again supported Women's Action for Development (WAD), which facilitates various projects aimed at transferring job skills and creating self-sufficient communities. This support was a continuation of the 10-year pledge made in the previous period to commemorate the bank's 25th anniversary.
Support was also provided for the Bleks Foundation for bookbinding projects that transfer skills and encourage economic self-sufficiency.
The Social Investment Fund administers the unique Heini Blohm Benevolent Fund for staff members who face unexpected personal hardship, and a bursary scheme for previously disadvantaged students. During the review period, two initiatives were launched to assist needy staff members with secondary and tertiary education costs. In this way, seven deserving learners can be assisted each year to complete their education and become productive members of the private or public sectors.
The bank's social investment also supports cultural development by sponsoring or facilitating numerous events, ranging from theatre productions and musical recitals to awards for talented young playwrights.
Commercial Bank of Namibia has come a long way in the past five years. The bank has found its niche in Namibia as a strong, service-driven competitor with leading international shareholders, experienced management and dedicated staff.
A rolling three-year financial plan will see the bank attain ambitious targets in terms of key ratios, building on its consistent achievements of the past:
- Maximising return on equity
- Maintaining an adequate capital adequacy ratio
- Continuous growth in assets
- Further increasing non-interest revenue
- Reducing cost-to-income ratio further
- Reducing provisions still further
- Further reducing the dividend cover
Our thanks to our committed colleagues on the board. As a group, they contribute greatly to the bank's steady progress. We also thank our many loyal clients for their consistent support and constructive feedback. We will continue to reward your support with the service you have come to expect from your bank.
As expected, 1999 was an intensely challenging year for all our business units. The results achieved are a direct consequence of the hard work, commitment and enthusiasm of our people throughout the bank. We thank every one of them for their effort. Together, we will reach our goals.
Fanie du Plessis – Deputy managing director
Providing unrivalled service.
By providing unrivalled service to our corporate, international and retail markets, we meet their needs and deliver on our promise of absolute satisfaction. We do this through our competent people, our strong international ties and expertise and our constant commitment to make our clients the centre and attention of our business.
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| Stephanus C du Plessis | Udo H Reinhold |
| Deputy managing director | Managing director |
Windhoek, 28 March 2000