FIN Hypotheses…………………………………………………………………………………….9 Justification of Study…………………………………………………………….…………10 Scope of Study……………………………………………………………………………..10

FIN 444 RESEARCH PROJECTSTATE OWNED vs. PRIVATELY OWNED: A CASE STUDY OF BOTSWANA BANKSBYTUMELO MAKOBOID NO: 201401594SUPERVISOR: MR M.MPHOENGPROGRAM: BAF 200YEAR: 2017/18TABLE OF CONTENTSABSTRACT………………………………………………………………………………..

.3CHAPTER 1- THEORETICAL FOUNDATION………………………………………..4Background Information…………………………………………………………………..

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…4Problem Statement…………………………………………………………………………..5Objectives…………………………………………………………………………………..

.6Literature Review………………………………………………….………………………

6Hypotheses……………………………………………………………………………….

……

9Justification of Study…………………………………………………………….…………10Scope of Study……………………………………………………………………………..10Concepts Clarifications……………………………………………………………….

……11CHAPTER 2- METHODOLOGY………………………………………………………..12Study design………………………………………………………………………………..12Variables………………………………………………………………………………….

..12Procedure of Data Collection………………………………………………………….

……13Source of Information……………………………………………………………………..

.14Sampling Scheme………………………………………………………………………….14Period Covered…………………………………………………………………………….15Data Processing and Analysis……………………………………………………………..

15Limitations of the study……………………………………………………………………15Chapterisation………………………………………………………………………………15CHAPTER 3- ANALYSIS OF DATA, DISCUSSIONS AND FINDINGS……………17Instruments of Data Analysis………………………………………………………………17Results and findings……………………………………………………………………….

17Discussion of Findings………………………………………………………………….…21CHAPTER 4- CONCLUSION AND RECOMMENDATIONS………………………..24Conclusion…………………………………………………………………………………

.24Recommendations………………………………………………………………………….25REFERENCES……………………………………………………………………………..27APPENDIX………………………………………………………………………………..

.29 ABSTRACTThis study compares the performance in terms of profitability of privately owned and state owned banks using Botswana as a case study. The study uses financial statement data covering a five year period from 2012 to 2016. Annual reports were derived from reputable bank websites and relevant variables from financial statements were extracted with the aim of conducting a bank profitability ratio analysis. Data on profitability ratio analysis such as net income, total assets, total equity and net interest income were collected, three profitability ratios namely; return on equity, return on assets and net interest margin were calculated and analysed accordingly. The ratios indicated a significant difference between the performances of state owned banks and privately owned banks. Privately owned showed high and consistent performance levels and as opposed to their state owned counterparts.

The difference in the performance of the two categories was brought about by several factors such as; deposit making capabilities of the banks, net profits and net losses experienced by the banks as well as reduced lending by the banks just to name a few. These factors contributed significantly in explaining the turnout out of the ratio analysis and as thus, the study concluded that privately owned banks are more profitable than state owned banks. CHAPTER ONE IntroductionBackground InformationFollowing independence, most African nations played a role of providing public sector services in their respective nations.

This development saw a rapid expansion in the public sector of most nations coupled with large scale development of the private sector. As is the case with Africa, Botswana followed the same pursuit of economic developed when it gained its independence in 1966. In the aftermath of independence, the need to fill in different gaps that existed in Botswana so as to promote economic growth became apparent. This need facilitated the development of quite a number of state owned entities. Public enterprises like Botswana Power Corporation and Water Utilities Corporation were considered essential as these were to provide public utilities. Since there was a nonexistent private sector at the time, the Government also decided to initiate the development of commercial and industrial activities.

As a result financial service enterprises such as National Development Bank, Botswana Building Society and Botswana Savings Bank were created to induce or facilitate private enterprise.Botswana currently has a more developed private sector capable of supplying services, both in competition with and in place of several Government departments. Furthermore, the Government recognises that in some respects the public sector has grown too large and has become cumbersome to manage effectively. This brought forward the question of the performance of state owned entities as opposed to privately owned entities, considering the proposed privatisation of some of the state owned banks National Development Bank and Botswana Building Society.The case of the banking industry in Botswana is as follows; banks have a two form ownership structure; state owned and privately owned. Currently there are ten privately owned banks, three of which namely; First National Bank, Barclays Bank of Botswana and Standard Chartered are listed in the Botswana Stock Exchange and three banks namely; National Development Bank, Botswana Savings Bank and Botswana Building Society fall under the state owned category.

Of recent print and electronic media has been bombarding the public with news of eminent privatization of some state owned entities, the most recent being that of the National Development Bank and Botswana Building Society. As thus, the performance of these two categories of banks in Botswana becomes of interest.Privatisation Policy for Botswana (Government paper no.

1 of 2000)To achieve sustainable economic growth, the government of Botswana in the year 2000 implemented a privatization policy directed towards obtaining a balance between the private and the public sector CITATION Min06 l 7177 (Ministry of Finance and Development Planning, 2006). According to the Privatisation Policy of Botswana, Government paper no.1 CITATION Min09
l 7177 (2000), improving the performance of public entities is an important objective in economic regime programmes. The increasing interest of many Governments in privatising their enterprises has rendered privatisation an important instrument.

The paper defines privatisation broadly as, “an instrument that encompasses all the measures and policies aimed at strengthening the role of the private sector in the economy”. Since independence 51 years ago, the private sector of Botswana is now fully developed to reduce the financial burden on the government by undertaking entities that can sustain themselves without government intervention. The financial sector is also more developed. Privatisation changes the distribution of power in an economy by diminishing the role of the state in the control of entities. This implies that privatisation is mainly associated with the change of the ownership structure of an entity from being state owned to being privately owned. The objectives of privatisation as suggested by the policy include but are not limited to; Promoting competition, improving efficiency and increasing productivity of enterprises,Withdrawing from commercial activities which no longer need to be undertaken by the public sector,Relieving the financial and administrative burden of Government in undertaking and maintaining a constantly expanding network.Through privatisation, the main objective of firms which is to maximise shareholder wealth by means of growth, financial efficiency and adequate management can be achieved. Unfortunately though, privatisation is not a silver bullet solution for all, it comes with its own share of demises.

Privatisation can be a potential contributor to a significant loss of jobs following the restructuring and reorganisations of public enterprises undergoing privatisation. The privatisation in Zambia in the 1990s speaks to the dangers of privatisation. Some of the negative outcomes identified in the Zambian privatisation drive were, the massive job losses, poorer provision in basic services, violations in the realisation of social, economic & cultural rights, collapse of several privatized companies, increase in poverty levels, closure of some existing companies due to their inability to compete and asset stripping.Bearing in mind all of the above mentioned, the bottom line becomes whether or not privatisation is a necessary instrument to be carried out for state owned banks. This is in consideration of the reasons for and against privatisation in general. The question brings about the necessity of privatisation which ultimately leads us into the inquiry of the performance of state owned and privately owned banks. The performance of these two categories of banks will establish whether state owned banks are performing at par with privately owned banks and if so, perhaps they do not need to be privatised.

Problem StatementThe purpose of this study is to examine the performance in terms of profitability of privately owned banks as opposed to state owned banks in Botswana and if privatization is the right suggested action based on the performance of these banks. The study has been influenced by a number of conflicting privatisation outcomes, laid out by the Privatisation Master Plan of Botswana and literature on countries that have already underwent privatisation. The Master Plan presents privatisation of state owned entities as a model programme, with a number of benefits to be enjoyed in the long run. Whereas for others, it is a deeply flawed process which has a fair share of dangers. The latter has been supported by literature on past experiences of countries such as Zambia.ObjectivesThe underlying goal of this research is to achieve the following objectives; To examine the performance in terms of profitability of state owned and privately owned banks in Botswana.To examine if being state owned hampers the operations and hence performance of banks in Botswana. Literature reviewAs defined by Etukudo CITATION Etu97
l 7177 (1997), privatisation is the transfer of rights of ownership or services provision from the public sector to the private sector.

Since the process of privatisation mainly involves the change of ownership structure of a firm in order to better a firm or a country’s performance and efficiency, this raises the question of the differences in performance and efficiency of state owned entities, which are subjected to the process of privatisation and privately owned firms.The matter of privatization evolves from the basic idea of ownership structure being a basic determinant of a firm’s performance (Cornett, Guo, Khaksari and Tehranian, 2009); an important dimension of ownership structure is state ownership versus private ownership structure. In order to achieve financial stability, greater economic growth and to move toward a market based economic system, privatisation was often advanced the most relevant solution. The notion was quite compelling as it was argued that privatisation would renounce the centrality of the public sector in leading economies in favour of the private sector; hence reducing inefficiency and misallocation of resources (Kamaly, EL-Ezaby and El-Hinawy, 2010).According to Andrews CITATION And05
l 7177 (2011), proponents of state?ownership justify government control as a way to ensure a balance between social and economic objectives rather than focusing solely on profit maximisation. This point is emphasised mainly on the legislation governing the Acts of most of the state owned enterprises, which clearly state that profits should not be of first priority in the objectives of state owned enterprises but rather they should focus more on serving the needs of those they are accountable to, the case does not apply to privately owned firms whose main objective is maximising shareholder wealth through profit maximisation and achieving the highest level of efficiency they can attain CITATION Chr13 l 7177 (Christiansen, 2013).

A vouch for state owned entities is dependent upon the capability of state owned banks to fund projects that can actually boost the economy that would otherwise not be funded by the private sector. The reason behind this being that public banks are not as financially contrived and they are significantly guaranteed against failure by the government, making them effectively less risk averse compared to private banks (Coleman and Feler, 2014). Despite the above motions in support of state ownership, the argument that state owned enterprises are less profitable and less efficient than privately owned enterprises even under the best circumstances in an economy and under the best governance of that particular country still stands. “Managers in private firms are disciplined by a number of external control mechanisms, such as the market for managers, and also by internal control mechanisms, such as compensation and rewards incentives” CITATION Cue00 l 7177 (Cuervo & Villalonga, 2000). This has been supported by Megginson (2006), he explains that the management of state owned enterprises have weaker incentives to maximize revenues than managers of private enterprises.

Managers in privately owned entities are retained and rewarded based on what they deliver (performance based rewards), unlike public service employees who are allowed to keep their jobs and maintain their salaries regardless of the performance of an entity. State owned enterprises are usually subject to less monitoring as opposed to the stringent monitoring of every resource, every policy and every decision in privately owned firms CITATION Klo14 l 7177 (Kloviene & Gimzauskiene, 2014).Shleifer and Vishny CITATION Shl97
l 7177 (1986) suggest that, inefficiency in government banks can also be attributed to political interest, which influences every policy implemented and the use of state resources to support them and as thus the poor performance of state owned entities was best explained by political interference. In support of the preceding motion Mennozzi, Vanonni and Urtiaga CITATION Men10
l 7177 (2010) explain that, state owned enterprises are usually used by politicians to benefit their supporters, which is the most compelling critique of state ownership.There is clear evidence that the structure of company ownership can significantly influence the financial performance of the company through, for example, its impact on incentive mechanism, decision-making procedures as well as performance-monitoring system CITATION Zhe03 l 7177 (Zheka, 2003).HypothesesH1 Privately owned banks are more profitable in their operations than their state owned counterparts in Botswana.H2 Privatization can significantly improve the performance of the Banking industry in Botswana.Justification of the studyThe recent privatization drive has raised the issue of whether privatization in a necessary instrument to be implemented in Botswana.

Under normal circumstances privatization comes as an obligation to a country from international financial institutions to enter into any economic stabilization or structural agreements. These agreements include embarking on a privatization program and public enterprise reform. Botswana’s position with respect to privatisation is somewhat different from that of most countries in sub-Saharan Africa, since the Government has not been requested by any international institution to embark on privatisation. Since the Botswana Government is pursuing such a strategy the area of inquiry for this study becomes, whether or not banks are more profitable if they state owned or privately owned. Such a study has never been carried out in the context of Botswana banks.

Scope of StudyThe analysis of data in this research was limited to a period from 2012 to 2016 due to limited resources. Some of key financial indicators that were studied are return on equity, return on assets and net interest margin. Data from these indicators was manipulated and any existing correlations between the ratios was established and noted. Data was collected from Gaborone mainly from the University of Botswana library thus my research area covered Gaborone.Conceptual ClarificationsPrivatization: can be defined in two distinctly different ways-either as a narrow term referring to a change in ownership, or as a broad term reflecting a change in the control of an economic unit CITATION Kin92 l 7177 (King, 1992).

State owned enterprise: a legal entity that undertakes commercial activities on behalf of the state, its owner. The legal status of a state-owned enterprise varies from being a part of the government to being stock companies with the state as a regular stockholder.Privately owned enterprise: a privately held company whereby in most cases, the company is owned by the company’s founders, management or a group of private investors. The owners are non-government.Bank Profitability: Bank profitability is an important indicator of bank performance, it represents the rate of return a bank has been able to generate from using the resources at its command in order to produce and sell services CITATION Por85 l 7177 (Porter, 1985). CHAPTER 2 METHODOLOGYStudy DesignThis research followed the hypothetico-deductive paradigm (a research approach that starts with a general idea about how things work and derives test- able hypotheses from it). For the above mentioned reason the research was based on a quantitative study approach.

The choice for this method was influenced by the nature of the data that the scholar used (numerical financial statement data). Quantitative studies usually verify or falsify pre-existing relationships or hypothesis. They do so by placing emphasis on measuring variables or hypothesis testing, hence why this approach was deemed appropriate for this research.VariablesDependant variablesThe scholar used as the dependent variable three measures of profitability widely employed in the banking literature. The use of profitability ratios was employed.

Profitability ratios reflect a company’s overall efficiency and financial standing. Profitability ratios are divided into two types: margins and returns. Ratios that show margins represent the firm’s ability to translate revenue dollars into profits at various stages of measurement. Ratios that show returns represent the firm’s ability to measure the overall efficiency of the firm in generating returns for its shareholders. For the purpose of this analysis the scholar adopted the use of two returns ratio and one margins ratio.

The return on equity ratio (RoE) is a measure of how efficiently shareholder capital is being used to generate profit and is the most widely used metric to assess banks’ profitability. RoE is determined by both the underlying profitability of a bank’s assets and the extent to which these are leveraged. Net income is typically measured by net profits after tax. The book value of equity is taken from accounting statements and reflects the difference between assets and liabilities as measured under accounting standards.Return on equity = (Profit for the year / Total equity attributable to equity holders) * 100The return on assets ratio (RoA) indicates how profitable a bank is and how good management is at utilising its assets into generating profits. To calculate a bank’s return on assets, the scholar made use of two pieces of information. Firstly, the scholar used profit for the year after tax, which was found on the income statement of the banks.

Next, the researcher used the bank’s assets (loans, securities, cash, etc.), which can be found on the bank’s balance sheet.Return on assets = (Profit for the year / Total assets )* 100The net interest margin (NIM) is a measure of the difference between the interest income generated by banks and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their (interest-earning) assets. To calculate the net interest margin, the scholar determined the bank’s net interest income by subtracting the bank’s interest expense from its interest income, then divided this by the bank’s assets Net interest margin = (Interest Income- Interest Expenses) / Total assets * 100 Independent VariableThe aim of the study is to analyse ownership structure as a determining factor of bank profitability in Botswana during the period previously defined.

Procedure of Data CollectionData on financial performance indicators of interest was obtained through the use of secondary sources of data. Access into the official websites of the banks under study was established, by so doing the scholar aimed to obtain annual reports for the specified research time frame. From these annual reports, data that had relevance in the profitability ratio analysis was extracted. Data on financial performance indicators such the numerical value of profit after tax, total equity attributable to shareholders, total assets, interest income and interest expenses was captured and recorded. Reliability, correctness and accuracy of data collected was insured by retrieving data from reputable sources like the official bank websites, the Bank of Botswana website and the World Bank website. Since the data the researcher used was published for public use, no permission to use the data was required. Data was secured through password encryption and stored as both soft copy and hard copy for reference and back up purposes. Source of InformationSecondary data was retrieved from annual reports of the banks under study.

The scholar made use of financial statements contained within the annual reports, bank publications and the banks’ respective official websites. Sampling PopulationThe population of the study included all entities licensed to conduct banking business in the country (all ten commercial banks) as well as the three state owned banks of Botswana.SampleThis research made use of non-probability sampling and the sampling technique which the scholar selected for the research was the purposive sampling technique.

This sampling method enabled the researcher to use her own judgment in selecting the banks that are most relevant in meeting the research objectives. The sample therefore consisted of the three commercial banks listed in the Botswana Stock Exchange, which are First National Bank, Standard Chartered Bank and Barclays Bank of Botswana, as well as two of the state owned banks, namely National Development Bank and Botswana Building Society.Period CoveredThe period covered for this research was five years thus data collected was from the year 2012 to 2016.

The scholar chose to cover this period because it availed valid data to carry out the research.Data processing and analysisUnorganized data collected on key ratio analysis indicators was extracted from financial statements and organized into tabular form to represent a time series of performance in banks. Organisation of data and statistical computations was carried out using Microsoft Excel and any existing trends were highlighted accordingly. To examine the performance of the banks under study the ratio analysis was graphically presented for clear visibility of trends and a narrative interpretation of data was also included. Limitation of the studyThe major limitation of the study was the unavailability of published annual report data for certain years of some banks in their official websites. The time frame allocated towards data collection was inadequate because data has to be collected within a short period of time to allow more time for data analysis, conclusion and recommendations of the study. Further constraints included, limited funding and unavailability of data on some ratio analysis indicators of interest. All of these factors therefore contributed to the limited methodology of the scholar.

ChapterisationThis report will be chapterised according to the following four chapters; Theoretical Foundation which covers abstract of the research, background information, statement problem, objectives and literature review among others. Chapter two is Methodology which covers sampling scheme, procedure of data collection and limitations of the study. Chapter three is Analysis of data, discussion and findings which covers examining collected data to derive findings addressing the set objectives. The fourth chapter is Conclusions and recommendations which close the research by drawing conclusions from analysed data and giving recommendations in terms of implications of the findings. CHAPTER 3ANALYSIS OF DATA, DISCUSSIONS AND FINDINGSData AnalysisInstruments of profitability ratio analysisThe researcher adopted the use of three profitability ratios, return on assets (RoA), return on equity (RoE) and net interest margin (NIM) to assess the performance of the five banks under study.

These ratios are regarded as the most frequently used tools of financial ratio analysis for banks.Due to the extensive use of comparative data in this study, financial ratio analysis was adopted as the most appropriate method of analysis. The ratios will be compared to both historical data for the individual banks as well as industry data. Results and FindingsReturn on equityChart 1: Return on equityThe graph above shows the return on equity ratios for the five banks throughout the five year period (2012-2016). From the data analysis the three privately owned banks; First National Bank, Standard Chartered Bank and Barclay’s Bank have performed better in terms of return on equity because their ratios range from 6.

1% to 40% for the five year period. Despite the large range, for the most part the ratios of the banks were significantly high (20% and above) with the exception of Standard Chartered in 2015 and 2016. Profitability among commercial banks sank to a new low in 2015 as the sector suffered the effects of low interest rates, a freeze in bank charges hike and negative economic growth CITATION Placeholder1 l 7177 (Bank of Botswana, 2009). FNB, Barclays and Standard Chartered recorded ratios of 24.

3%, 17.0% and 6.1% respectively in 2015.

It can be noted that Standard Chartered recorded a significantly lower ratio than other private banks in 2015. This is because of its bold decision to focus more on creating a liquid balance sheet rather than short term performance. On average FNB is the best performing amongst the three banks for the most of the period of study according to the return on equity ratio. State owned banks on the other hand did not experience good performance in terms of return on shareholder wealth compared to privately owned banks. National Development Bank and Botswana Building Society RoE’s fell within the -8.4% to 13.

6% range, which is a noticeably lower range compared to their privately owned counter parts. The main reason explaining the large disparity between the performances of state owned banks and privately owned ones could be the decline in revenue suffered by the state owned banks owing to their limited product offering compared to their privately owned counterparts, as well as their rising expenses. Financial management problems associated with NDB and BBS resulted in lower profits, net losses and ultimately lower returns on equity than privately owned banks CITATION Ban161 l 7177 (Banking Supervision Department, 2016).It is imperative to note a general declining trend for the return on equity in all the banks throughout the five year period with state owned banks ultimately dipping into negative ratios in 2015 and 2016. The declining trend can be attributed to the decline in the profit after tax for the banks, constituted by a decrease in the core business of banks (lending). This was as a result of the slower credit uptake by businesses as the years progressed, the most significant of all being the one in 2015 which was as a result of banks imposing stricter lending conditions on its customers and the volatility of the customer’s deposit base.Return on assetsChart 2: Return on assets per bank for the years 2012 to 2016The graph above displays the return on assets ratios for the five banks throughout the five year period (2012-2016).

It is observed from Chart 2 that the return on assets ratios for all the five banks more or less depict relative closeness to one another regardless of the ownership structure of the banks for a large portion of the study. Privately owned banks being FNB, Barclays and Standard Chartered recorded a range of 0.5% to 4.

4% for the five year period. The state owned entities NDB and BBS recorded a range from 3.5% to -5.

5%. The slightly broad range of privately owned banks is attributed to Standard Chartered taking the largest hit in their profits by going down with close to 85% in 2015. However the ratio remained above 2.5% for a significant part of the five year period for majority of the private banks.

State owned banks on the other hand recorded ratios less than 2.5% for the most part of the analysis and NDB stretched out the range by registering ratios as low as -5.5%.

This was due to the net losses suffered by the bank in 2014, 2015 and 2016 following an array of liquidity problems and its inability to pay out loan funds – which is the core mandate of the bank CITATION Ban161 l 7177 (Banking Supervision Department, 2016).A general declining trend for the ratio across the banks can be noted for the study period. The downward movement for the ratio of private banks is associated with the continued the trend of dwindling profits. This trend has since plagued commercial banks in Botswana in the midst of a challenging trading environment, resulting in a substantial growth in the cost of funding and ultimately eroding profits.The declining ratios are attributed to net income increasing at a lower rate than the increase in total assets for the state owned NDB and BBS. The banks are extracting fewer profits from their assets meaning their assets are not fully and properly utilised. The drastic downward movement of return on assets for NDB in 2015 was attributed to the significant increase in the bank’s operating expenses, as already mentioned above.

When a company has a negative ROA, it means that the company is investing a high amount of capital into its production while simultaneously receiving little income. It gives an indication that the assets of the bank could not generate sufficient income to be profitable, as is the case with NDB. Net interest marginChart 3: Graph depicting net interest margin per bank for the years 2012 to 2016.The graph above displays the net interest margin ratios for the five banks throughout the five year period (2012-2016).

The analysis shows that in terms of the net interest margin privately owned banks recorded a range from 3.6% to 8.3% for the five year period and their state owned counterparts recorded NIM ranging from 3.

7% to 11.8%. The narrow range of the net interest margin experienced by privately owned banks depicts a standard level of NIM to be expected in the commercial banking industry.

The slightly larger range of the state owned banks across the years is attributed to the significantly larger net interest margins recorded by NDB. The legislative act governing the operations of the bank (NDB Act) limits the bank’s scope of operations as it does not take deposits while its operations are restricted by a very narrow product range. As thus, the bank does not need to pay large amounts of interest expenses to depositors like other banks which offer depository functions, hence the high ratios and the disparity of its NIM from others. The ratios of the individual banks show a steady decline throughout the years with the exception of FNB in 2013, BBS in 2013, and all but one (BBS) in 2016. The increase in most of the ratios in 2016 could be attributed to the banks either choosing to charge higher interest rates to people it loans money to or pay less interest to depositors who have bank accounts at the banks. Discussion of FindingsCollectively the above ratios indicate a gap that exists between the performance of privately owned banks and state owned banks. This gap arises because of several factors mentioned above such as net losses, financial management and liquidity problems just to name a few.

The data analysis suggests that privately owned banks, FNB, Standard Chartered and Barclays recorded ratios of the same magnitude and implications despite the declining trend over the years. State owned banks; NDB and BBS recorded somewhat ratios that are closer together and relatively lower than those of private banks for most of the analysis.The analysis also pointed out major implications for the state owned banks. For the most part, one of the banks recorded negative ratios (large capital injections by the government while simultaneously receiving less net income) which were not the case with any of the privately owned banks. This finding indicates that state owned entities run the risk of making losses which further translate into negative ratios and a poor financial standing for the state owned banks.Privately owned banks showed levels of consistency for all the ratios throughout the five year period. This is because their mandate is to maximise shareholder wealth and investor returns above all.

As for the state owned entities extreme variations in ratios were observed. Inconsistency in the performance of state owned banks imposed by their little emphasis to profit maximisation but rather place relative importance to service delivery limits NDB and BBS of their profit making capabilities. An overall finding from collective ratio analysis indicates that privately owned banks are more profitable and are more consistent in their performance than state owned banks, this in turn points out that perhaps state owned banks could be privatised to enhance their profitability levels and consistency in performance. CHAPTER 4 CONCLUSION AND RECOMMENDATIONSConclusionThe evaluation and analysis of profitability ratios has been undertaken with the view to measure the levels of profitability of privately owned banks against the levels profitability of state owned banks.

The aim was to ascertain the need for privatisation as imposed by the Government of Botswana on some state owned banks. The study implemented the use of the return on equity, return on assets and net interest margin ratios on the population sample. This was to determine whether NDB and Botswana BBS would be likely to perform better or with equivalence to the performance of the listed privately owned banks of Botswana if they were to be privatised. In conclusion the general performance of privately owned banks: FNB, Barclays and Standard Chartered in terms of the above mentioned ratios exceed the performance of state owned banks, NDB and BBS. The reason behind this conclusion being, the legislative acts that hinder or limit state owned banks’ functions. This in turn limits their abilities to make profits and experience consistent high positive returns like their privately owned counterparts The observation of negative ratios is associated mainly with state owned banks.

National Development Bank recorded losses for three consecutive years under study which resulted in negative ratios. Negative ratios portray a picture of ineffectiveness in utilising the company’s or shareholder’s resources to maximise profits. The ratios of most banks throughout the study are declining. Banks whether privately owned or state owned are showing levels of decreased performance as the years progress, however privately owned banks still maintained their positive ratios unlike one of the state owned banks.An overall general outlook given by the analysis throughout the study period indicated a far much better profitability level on the part of privately owned banks, FNB, Barclays and Standard Chartered than state owned banks NDB and BBS. For that reason, this study concludes that privately owned banks are more profitable than their state owned counterparts.

RecommendationsThe government of Botswana should take measures to remove NDB and BBS from its balance sheets and focus more on offering public services that cannot be sustained by the private sector. This will be carried out to allow entities such as National Development and Botswana Building Society to function privately with adequate management who will prioritise profit maximisation as well as function effectively outside the constrictions of legislative acts and government ownership.The sale of NDB and Botswana BBS to private owners may increase Government revenue coffers and even free up funds that could be diverted to areas that cannot sustain themselves i.

e. building of public infrastructures. The private sector of Botswana is now developed enough to undertake the functions of these two banks.If not privatisation, the government could rather review the legislation which did not require these banks to prioritize profit.

Profit maximisation should be the first and core most priority in the running of these banks. The reviewed legislation could also eliminate the restrictions imposed on state owned bank operations for instance, National Development Bank could be allowed to take deposits and operate as other banks.An overall general declining trend was noted for most banks throughout the analysis; increasing costs and decreasing revenue have resulted in the decline of gross profits and the net profits.

Therefore, the banks should try to increase the revenue volume by reducing their interest expenses and operating expenses with the aim of increasing the profits and ultimately improving the profitability positions of the banks.REFERENCES BIBLIOGRAPHY Andrews, M. A.

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A case study of Ukraine. Kiev: National University of Kyiv-Mohyla Academy. APPENDIXAppendix 1: Audited financial statement data per bank (2012-2016) 2012 2013 2014 2015 2016Net Income P’000 Total EquityP’000 Net IncomeP’000 Total EquityP’000 Net IncomeP’000 Total EquityP’000 Net IncomeP’000 Total EquityP’000 Net IncomeP’000 Total EquityP’000FNB 566 167 1 498 623 696 095 1 888 710 701 085 2 205 846 576 085 2 372 454 470 809 2 425 176Barclays Bank 422 279 1 256 236 370 864 1 389 534 319638 1 526 839 263 829 1 549 558 378 433 1 737 525SCB 274 893 935 194 304 226 1 057 453 310 887 1 147 733 63 083 1 036 676 86 633 1 020 292NDB 40 429 696 636 45 656 717 136 (86 443) 637 827 (48 409) 574 939 (21 218) 553 721BBS 68 068 687 224 71 132 834 645 68 035 951 237 71 949 1 045 315 54 906 1 078 199Source: Audited Annual ReportsAppendix 2: Audited financial statement data per bank (2012-2016) 2012 2013 2014 2015 2016Net IncomeP’000 Total AssetsP’000 Net IncomeP’000 Total AssetsP’000 Net IncomeP’000 Total AssetsP’000 Net IncomeP’000 Total AssetsP’000 Net IncomeP’000 Total AssetsP’000FNB 566 167 14 206 247 696 095 15 806 688 701 085 17 625 992 576 085 20 960 184 470 809 21 868 100Barclays Bank 422 279 11 569 834 370 864 11 708 451 319638 12 223 416 263 829 14 645 705 378 433 15 379 131SCB 274 893 9 357 863 304 226 10 032 235 310 887 12 798 292 63 083 13 075 497 86 633 13 830 926NDB 40 429 1 162 657 45 656 1 415 895 (86 443) 1 579 383 (48 409) 1 545 768 (21 218) 1 364 028BBS 68 068 2 458 771 71 132 2 896 933 68 035 3 044 521 71 949 3 496 451 54 906 4 087 441Source: Audited Annual ReportsAppendix 3: Audited financial statement data per bank (2012-2016) 2012 2013 2014 2015 2016Net Interest IncomeP’000 Total AssetsP’000 Net Interest IncomeP’000 Total AssetsP’000 Net Interest IncomeP’000 Total AssetsP’000 Net Interest IncomeP’000 Total AssetsP’000 Net Interest IncomeP’000Total AssetsP’000FNB 769 063 14 206 247 898 186 15 806 688 955 792 17 625 992 875 299 20 960 184 946 371 21 868 100Barclays Bank 961 088 11 569 834 906 999 11 708 451 890 902 12 223 416 909 904 14 645 705 994 100 15 379 131SCB 577 272 9 357 863 613 254 10 032 235 595 352 12 798 292 471 266 13 075 497 539 170 13 830 926NDB 137 508 1 162 657 158 546 1 415 895 157 925 1 579 383 158 021 1 545 768 149 155 1 364 028BBS 125 376 2 458 771 150 829 2 896 933 158 297 3 044 521 164 447 3 496 451 150 757 4 087 441Source: Audited Annual Reports635571500