LEADERSHIP REPORTS GROUP CHIEF EXECUTIVE OFFICER’S REPORT Reflecting on the 2019 financial year Our platform approach Our previous chairman, Koos Brandt, said a bank should be there for Capricorn Group identified eight platforms to implement customers in the good and bad times. Building on this philosophy, strategic choices through operational excellence: we have supported our customers in the past financial year during 5sometimes very difficult circumstances, and we can now see the 1. Digital platform positive impact it had. We anticipate the tough conditions to persist, 2. Core banking platform amplified by economic challenges and the widespread impact of 3. Process automation platform the drought, resulting in consumers, including our customers, remaining under pressure and in need of innovative solutions that 4. Information and analytics platform will address their unique challenges. This calls for finding ways to 5. Legal compliance and risk platform mitigate risk for all. 6. Human resources platform Despite challenging conditions, the group saw solid performance 7. Finance platform from Bank Windhoek and Bank Gaborone, an encouraging albeit 8. Infrastructure platform slow turnaround at Cavmont Bank and a stellar performance from newly acquired Entrepo. Capricorn Asset Management (CAM) The platform approach delivered the following benefits: continued growing market share and returned good results • Increased execution traction due to better focus on realistic notwithstanding lower rates of fee income. As a result, group outputs within properly planned timeframes operating profit increased by 13.5% compared to the previous year. • Higher levels of alignment between business and platforms with This can be ascribed to a few specific value drivers: improved communication • Significant progress has been made with the implementation • Changed behaviours: higher energy levels, higher engagement of the Agile methodology in technology change since the levels beginning of the 2019 financial year. We can now build a • Increased transparency about execution progress solution for one bank and roll it out quickly to others. • Satisfactory levels of adoption of the Agile methodology We are creating a culture of experimentation, quick decisions and fewer rollover projects. Concerns that are being addressed in terms of this approach relate to capacity, measuring the impact and retaining momentum. • Our ability to detect increased credit risk early and our efforts to proactively engage with customers showing signs of financial The platforms further contribute by improving the quality, distress helped us to manage non-performing loans (NPLs) – a predictability and visibility of project delivery, by increasing product pervasive and growing challenge across the region. By capabilities and enabling us to discover business opportunities. preventing loans from defaulting, we can improve the chances of recovery. Where accounts became non-performing despite our preventative measures, good collateral security ensured that we could contain impairment provisions. • Our leadership teams have managed their respective businesses well. Key appointments were made: a new chief information officer (CIO) joined the group executive leadership team, a new managing director was appointed for Cavmont Bank, and several other skilled and experienced employees joined the group. “Despite challenging conditions, the group saw solid performance from Bank Windhoek and Bank Gaborone, an encouraging albeit slow turnaround at Cavmont Bank and a stellar performance from newly acquired Entrepo.” 24 2019 Integrated Annual Report 2019 performance summary Bank Windhoek Bank Windhoek, our largest contributor to group profit after tax, returned a very solid performance with an increase of 1% to N$797.7 million (2018: N$796.8 million). As the largest lender in Namibia with a 32.4% market share, Bank Windhoek is exposed to local industry and economic conditions, but delivered better interest margins, improved liquidity and better cost management. Operating profit (excluding exceptional items of 2018) improved by 10.6% to N$1,124.5 million (2018: N$1,017.0 million). Through the acquisitions of new transactional accounts, especially in our corporate and Private Wealth segments, new solar plants, renewable energy initiatives and companies with resilient business models, Bank Windhoek achieved moderate growth despite the challenging economic environment. Bank Windhoek competes by providing outstanding client service at affordable levels, and by empowering branch managers to use their local knowledge and client relationships to enhance the client experience. Through our easy-to-use, convenient and highly reliable digital channels, clients are provided with 24/7/365 transactional banking services. Capricorn Private Wealth performed exceptionally well over the past year. The success of Capricorn Private Wealth, albeit growing off a small base, can be attributed to an offering that is flexible, THINUS PRINSLOO personalised and offers the highest service levels. Given the prolonged drought in Namibia, the agricultural sector Group chief executive officer remains under immense pressure. Bank Windhoek has joined efforts with clients and the agricultural sector to provide much- needed support. The bank contributed N$500,000 to the Dare to Care Fund in support of farmers and has also proactively established a focus group to assist and manage the bank’s clients operating in this sector. Following the revision of the customer value proposition in Bank Windhoek’s target segments and in response to the voice of the customer, a number of features, enhancements and new products have been introduced. Additional features on the Women in Business offering, the introduction of the HeyJude App, credit SMS notifications, an integrated point-of-sale solution and free life and legal cover on most personal transactional accounts are a few of the notable offerings introduced. LEADERSHIP REPORTS 25 GROUP CHIEF EXECUTIVE OFFICER’S REPORT continued The HeyJude App was successfully launched to market in May 2019. Our biggest challenge in Botswana remains continued downward This is a first-of-its-kind offering in the Namibian banking pressure on interest margins with the central bank continuing to environment where a unique, value-added digital service is being reduce the bank rate and cost of funding increasing. The upward coupled with our banking offering to try to cement our brand pressure on cost of funding was partly due to the uncertainty and promise of “Connectors of Positive Change”. The app is a volatility of liquidity levels in the market, as investors explored other digital personal assistant that sources products and services, investment opportunities yielding higher returns both inside and negotiates discounts and arranges payment and delivery on the outside Botswana. The bank also has relatively high exposure to customer’s behalf. price-sensitive treasury funding, limited retail depositor funding and is reliant on term deposits. To address this, term deposits have been repriced and our digital offering – including POS and bulk payment “Bank Windhoek shares the responsibility capabilities – has been used to grow current account deposits. to protect our country for future In the short term, Bank Gaborone’s focus remains on growing its generations by actively contributing to loan book, containing its cost of funding, optimising liquidity and and facilitating the transition to a stemming the rising trend in NPLs. We further explain our mitigation low-carbon and climate-resilient efforts in the risk report from page 86. economy.” – Baronice Hans, Bank Cavmont Bank Windhoek’s managing director Notwithstanding an increasingly difficult operating environment in Zambia, Cavmont Bank significantly reduced losses during the year. Bank Gaborone The business recorded a loss after tax of N$19.8 million (2018: loss after tax of N$46.6 million). Bank Gaborone delivered good results, with 15.7% growth in revenue (2018: 6.7%) and a 11.4% improvement in operating profit Group support and oversight for the turnaround plan continues, (2018: 17.3%). This follows significant growth in customer sales, with remediating actions driven by the executive management partly owing to the launch of a new unsecured lending product. team. Focus areas in the past year were: The new product requires customers to deposit their salaries into a • sourcing of cheaper deposits to reduce the funding gap and Bank Gaborone transactional account. improve cost of funds We also launched bulk payment services, which enabled us to start • increasing interest income through investment in government offering payroll services and capturing more employee accounts. securities or loans and advances depending on availability of Several enhancements to digital banking functionality and network liquidity stability increased Bank Gaborone’s online uptake. This is driving • continued cost management efforts transactional income growth and included: • increasing foreign exchange trading volumes and margins • the launch of point-of-sale (POS) devices Branch rationalisation and the streamlining of head office support • the fast-branch-of-the-future concept was built and launched at functions are key initiatives to reduce an unsustainable cost base. the new head office After engagements, the Bank of Zambia approved the restructure, • a state-of-the-art data centre was established and is being run which includes the closure or downsizing of a number of branches