First National Bank of Botswana : AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 2023

AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT

FOR THE YEAR ENDED 30 JUNE 2023

The Directors take pleasure in presenting the audited summarised consolidated financial statements and dividend announcement of First National Bank of Botswana Limited and its subsidiaries (referred to as "FNBB" or "the bank") for the year ended 30 June 2023.

FINANCIAL HIGHLIGHTS

BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The audited summarised consolidated financial statements contained in this analysis of the financial results have been prepared in accordance with the framework concepts and the recognition and measurement requirements of International Financial Reporting Standards ("IFRS"), including interpretations issued by the IFRS Interpretations Committee ("IFRIC") and as a minimum contain the information required by International Accounting Standard 34 ("IAS 34") - Interim Financial Reporting.

The bank's underlying audited consolidated financial statements from which the summarised consolidated financial statements have been extracted have been prepared in accordance with IFRS and all interpretations issued by the IFRS Interpretations Committee effective for annual periods commencing on or after 1 July 2022, and in compliance with the Banking Act (Cap 46:04).The principal accounting policies and the methods of computation are consistent in all material aspects with those adopted in the previous year. The new or amended IFRS that became effective for the period under review had no impact on the bank's reported earnings, financial position, reserves, or accounting policies.

In the preparation of the consolidated financial statements, the bank has applied sound business principles with key assumptions concerning any inherent uncertainties in recording various assets and liabilities. These assumptions were applied consistently to the audited summarised consolidated financial statements for the financial year ended 30 June 2023 and have been thoroughly assessed by management to ensure the appropriateness thereof. The critical accounting estimates and areas of judgements are:

• Impairment of financial assets;
• Impairment of goodwill;
• Application and interpretation of tax regulations;
• Provisions, contingent liabilities, and contingent assets;
• Fair value of financial instruments.

The Directors confirm that this information has been correctly extracted from the audited consolidated financial statements.

The Directors have reviewed and approved the budget for the next financial year. The Directors have also reviewed the bank's funding position and available sources of funding and conclude that these are adequate to support the bank's funding requirements. The Directors

are confident that the bank's operations will continue to remain uninterrupted. Based on this review and considering the current financial position and profitable trading history, the directors are satisfied that the bank has adequate resources to continue in business for the foreseeable future. The going concern basis, therefore, continues to apply and has been adopted in the preparation of the annual financial statements.

AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS - INDEPENDENT AUDITOR'S OPINION

Deloitte & Touche, First National Bank of Botswana Limited's independent auditors, have audited the consolidated financial statements of First National Bank of Botswana Limited from which the summarised consolidated financial statements have been derived, and have expressed an unmodified audit opinion on the consolidated financial statements. The summarised consolidated financial statements comprise the summarised consolidated statement

of financial position at 30 June 2023, summarised consolidated income statement, summarised consolidated statement of other comprehensive income, summarised consolidated statement of changes in equity and summarised consolidated statement of cash flows for the year ended 30 June 2023, and related notes. The audited consolidated financial statements and audit report thereon are available for inspection at First National Bank of Botswana Limited's registered office. The audited consolidated financial statements do not necessarily report on all the information contained in this announcement. For a better understanding of the bank's financial position and the statements of its operations for the year and the scope of the audit engagement, these audited summarised consolidated financial statements should be read in conjunction with the audited consolidated financial statements from which the summarised consolidated financial statements were derived, and the audit report thereon. The audit of the summarised consolidated financial statements was conducted in accordance with International Standards on Auditing.

FORWARD-LOOKING STATEMENTS

Any reference to future financial performance included in this announcement has not been audited or reported on by the bank's auditors.

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AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT

FOR THE YEAR ENDED 30 JUNE 2023

ECONOMIC UPDATE

BOTSWANA

ECONOMY

Base effects wearing away

GLOBAL ECONOMIC OVERVIEW

Price pressures and tighter policy cap growth in 2023

The global economic backdrop is expected to be positive in 2023 and continues to improve, albeit at a much slower pace relative to trend. Global inflation is slowing across a range of measures, and this is allowing central banks to begin signalling the end of their hiking cycles. Although the rate hiking cycle is now expected to come to an end, based on indications of inflationary pressures easing, the current high interest rates in developed markets are likely to result in real policy rates not seen over the last decade. This has exposed weaknesses among corporates and governments with fragile or poorly managed balance sheets. Our baseline view assumes that the global banking system is sufficiently well capitalised to prevent a financial crisis, and central banks are likely

to provide ongoing liquidity support to the financial sector to limit the risk that rate rises translate into systemic financial problems.

Although there are signs that inflation is easing, it is expected to remain above target. Despite lower price pressures over the second and third quarters, compared to last year, global inflation is considered likely to settle above pre-pandemic levels. A significant increase in unemployment in the US could see inflation fall faster than anticipated, but for now, the US labour market remains robust, contributing to stubborn inflation. In the UK, inflation is also falling, but at a slower pace than anticipated. Eurozone consumer prices are on a clear softening trend, but core inflation is proving stickier, aided by rising nominal wages on the back of an all-time low unemployment rate in the bloc.

The US Fed paused its interest rate hiking cycle, leaving the Fed funds target band at 5.25%- 5.50%, citing the need to assess additional information and its implications for monetary policy. We anticipate that macroeconomic data will, by the fourth quarter of 2023, be supportive of no further hikes this year in

the US economy. The European Central Bank increased rates for the ninth consecutive month at its July meeting, raising the main refinancing operation rate by 25bp to 4.25% on account of persistently high inflation outcomes. The Bank of England hiked its policy

rate by 25bp at its August meeting, lifting the policy rate to a 15-year high of 5.25%. The Fed cited growing inflation risks, mainly stemming from the tight labour market and continued resilience in demand. The Fed warned of growing evidence of second-round effects, which could prompt more interest rate increases to curb entrenched inflation. All central banks have reiterated that policy decisions remain data-dependant. As such, the start of any interest rate cuts will depend on inflation outcomes, as well as the extent of the slowdown in economic activity in individual economies.

REGIONAL

ECONOMY

Climate risk and a stalling Chinese recovery limit upside prospect for growth

Growth is expected to be heavily dependent on commodity price movements throughout the year. Chinese growth, which was expected to be robust following the lifting of movement restrictions, is anticipated to be tepid, weighing on commodity prices as well as emerging and developing markets growth. Investment in key sectors such as mining, agriculture, logistics and energy will continue, but will be challenged by higher costs of funding (as a result of tighter financial conditions) and the lacklustre global backdrop.

In Southern Africa, South Africa's growth forecast is expected to slow meaningfully this year as global economic activity slows, coupled with high domestic interest rates that will constrain household consumption. South Africa's growth outlook also faces downside risk from political volatility, that will likely limit investment confidence, as well as electricity supply shortages that are currently restricting domestic activity. Loadshedding remains a significant headwind for the economy due to the consequent volatility and uncertainty, heightened over the winter months. We anticipate a gradual decline in loadshedding from the second half of 2025, as more private power generation begins to come online.

Fiscal policy will remain constrained across sub-Saharan Africa, partly due to elevated costs of funding. The elevated interest rates globally have the potential to result in debt distress owing to higher debt costs. Nevertheless, we expect further reliance on multilateral and domestic funding to support the various country deficits. Similarly, the impact of debt sustainability will remain a theme as was seen during the pandemic. The focus in 2023 will be on debt restructuring in markets like Ghana and Zambia, as well as observing vulnerabilities in other markets.

In our view, currency volatility is expected to continue in 2023, with a general bias toward further depreciation for many currencies, relative to the USD. We expect to see broad dollar strength, associated with a tepid global environment, thus raising the costs of servicing dollar-based government debt.

Botswana's GDP growth slowed marginally from 5.9% year-on-year in the fourth quarter of 2022 to 5.4% in the first quarter of 2023, with all sectors of the economy recording positive growth. The utilities sector registered the largest growth rate (19.3%), and mining activity recorded the second highest growth rate (10.8%) and an overall contribution of 19.6% to total growth. The utilities sector was spurred on by improved coal supply to both Morupule A and B, in part due to the Motheo coal expansion project, leading to improved local electricity generation. The tertiary sector continues to dominate growth, accounting for 56.6% of total output in the first quarter, supported by a sustained recovery across the non-mining private sector. Diamond trading, however, cooled to 0.4% as diamond demand and sales moderated over the period. Within the secondary sector, manufacturing registered 2.3% growth in the first quarter, owing primarily to the improved production of dairy (14.3%) and downstream diamond activity (8.5%).

We maintain our view that over the coming 3-5 years the mining sector will remain Botswana's key growth driver. This should be supported by the expansion of local copper mining activity, with additional copper mines expected to come onstream during 2023. On the diamond mining front, both Jwaneng and Karowe mines are expected to transition from open cast

to underground mining through to 2026, prolonging the life of both mines. Underground mining activity is anticipated to extend operations to 2035 in the case of Jwaneng and to 2040 for Karowe.

Prospects for growth within the agricultural sector remain precarious, owing to climate risk concerns. Recently, the Government declared 2022/23 as a drought year due to sporadic rainfall, excessive heat and low agricultural yield over the fiscal year. These factors, and the drought status, have resulted in relief measures being instituted with immediate effect until 30 June 2024; livestock feed subsidies will only be in place until 31 January 2024. The support measures encompass financial assistance from the Ministry of Finance towards servicing seasonal loans, along with subsidies from the Ministry of Agriculture to ensure animal health and irrigation of field crops.

Growth opportunities across other sectors of the economy are expected to be presented by the transitional National Development Plan (NDP) which commenced in the 2023/24 fiscal year. The transitional NDP seeks to foster growth

across a host of sectors with citizen participation at its core. Over the transitional period, the government has implemented reforms to rationalise and consolidate government ministries, along with legislative changes aimed at improving citizen economic inclusion and SME development. Over the two-year transitional period, the government intends to roll-out the rationalisation exercise to parastatals.

Furthermore, the planned development spending over the medium term could be supportive of local businesses and result in more robust growth in gross fixed capital formation than we have factored in, depending on Botswana's rate of key project implementation. The successful execution of these projects would support the construction sector's recovery and improve Botswana's operating environment through improved connectivity as well as stable and reliable utilities supply.

Inflationfallswithinrange-and expectedtostaywithinrange

Botswana's inflation reduced significantly over the course of 2023, following the 14.6% year-on-year peak observed in August 2022, and owing to reduced fuel prices. Local price growth has also been driven down as the effect of earlier increases in administered prices continued to recede. With this in mind, we expect inflation to average 4.9% in 2023 (down from 12.2% registered in 2022).

The pace of disinflation, however, could be challenged by potentially higher food prices owing to heightened climate risk, and its potentially negative impact on agricultural yield. Additionally, Botswana's restriction on the importation of certain fresh produce will likely present upside risk to price growth as local production continues to fall short of demand. The recent declaration of drought adds to the possibility of further price pressure owing to lower-than-expected agricultural produce in 2023. Furthermore, entrenched expectations for higher inflation (noted in the June 2023 Bank of Botswana Business Expectations Survey) present upside risk to price growth.

At its June 2023 meeting, the Monetary Policy Committee (MPC) decided to maintain the MoPR at 2.65% with inflation remaining within the Bank of Botswana (BoB) 3-6% range objective for the second consecutive month. The Central Bank adjusted its inflation expectations lower, anticipating an annual average of 5.8% this year with inflation remaining below 6.0%. Barring any significant price changes and upward pressure from base effects in the fourth quarter of 2023, we project that the MoPR will remain unchanged through to 2024.

As part of its commitment to strengthen monetary policy transmission, the BoB has instituted significant reforms since 2022, which include switching its main monetary policy tool to the MoPR and allowing commercial banks to set their own prime lending rates. Over the medium term, our expectation is for the BoB to effect changes according to the revised BoB Act (2022). These changes include adding four additional non-BoB staff members to the MPC, with two new members having been added to the MPC to date. Additionally, setting of the inflation objective is expected to be implemented by the Ministry of Finance, with the BoB responding with an appropriate monetary policy stance. The MPC will also be mandated to make changes to the constitution of the Pula basket to influence the exchange rate, depending on prevailing market conditions.

The BWP remains supportive

The weights in the Pula basket have been maintained at ZAR: 45% and SDR 55%. These weights, effected in 2017, remained unchanged in 2023 as they continue to reflect Botswana's external trading patterns with its major trading partners. With the weights in the Pula basket remaining unchanged, we expect the Rand

to continue being the dominant factor in the outlook of the Pula against major currencies. Pula movements will continue to be driven mainly by pass-through effects from the political and economic events in the US and South African markets.

STATEMENT

OF FINANCIAL

POSITION

The bank's balance sheet grew 9% year-on- year, driven mainly by growth in advances to customers across all segments. Corporate advances are 11% up, while commercial and retail advances are at 8% and 7% respectively. The growth in corporate advances was driven by working capital support to State Owned Enterprises (SOE) and Fast Moving Consumer Goods (FMCG) sectors, as well as leverage finance deals in the financial services sector. Key deals in the tourism, fuel and agriculture sectors supported growth in the commercial advances book, while personal loans in the retail book grew on the back of extended tenures and ticket size limits to individuals within Group Schemes. At gross level, the bank advances grew by 8%.

Non-Performing Loans (NPLs) increased by

8% year-on-year from P802m to P863m, with the NPL/gross advances remaining flat at 5% year-on-year. Contributing to the somewhat significant growth in NPLs is a low base effect, i.e. prior year NPLs included impact of accelerated write-offs.

Investment securities grew 12% year-on-year following a successful implementation of

an overall yield optimisation strategy, which saw increased allocation to instruments of enhanced yields within approved risk appetites.

Deposits from customers increased by 9% year-on-year, broadly in line with the growth in advances, which ensured a sustainably funded growth in assets. The growth in the deposit base was led by an overall growth in retail and commercial current accounts. Retail deposits grew 11% year-on-year mainly reflective of better yields offered by the bank to retail customers on personal savings accounts.

The commercial segment deposit base also increased by 11%, mostly on current and call accounts, reflective of both a sustained improvement on the trading environment and the bank's client retention strategy. Corporate and Treasury deposits increased by 6% as the bank slowed down on term deposits amid heightened market cost of funds.

The loan-to-deposit ratio remained relatively flat year-on-year at 70%, reflecting a well- funded position supported by additional funding lines available from the market.

INCOME

STATEMENT

Total bank income grew 15% year-on-year, with net interest income prior to impairments increased by 27% through a combination of volume and rate. Policy rates went up by 151 bps during the 2022 calendar year, while customer advances grew by 8% during the financial year. Gross interest income increased 36%, diluting the growth in interest expense which increased by 75% year-on-year, driven by a higher cost of funding as a result of an increasing MoPR. Notwithstanding, the bank produced a solid 25% growth in net interest income after impairment.

The increase in impairments (86%) is reflective of a low base effect, i.e. there were significant impairment releases in the prior year as Covid

related pressures abated. Despite this increase, the Credit Loss Ratio remains low at 58bps.

Non-interest revenue increased by 7% year-on-year. This was driven primarily by increased transactional volumes in service and other fees. The growth in service fee and card commissions followed increased uptake and utilisation across the bank's digital and electronic channels, most noticeably in convenience channels.

Net card commissions grew by a modest 6% through increased volumes despite softer blended margins. The bank continues to broaden its financial inclusion with further expansion of its Agency Banking (CashPlus) footprint, thereby bringing services to more remote locations and enhancing customer convenience. Foreign exchange and trading income grew 13% year-on-year reflecting

a sustained recovery of the tourism sector, mostly for the retail and commercial segments, while the corporate segment registered both a growth in client base and an increase in volumes within the existing base.

Total expenses grew 12% reflecting increased investments in human capital and technology. Total employee costs were up 16% year-on-year, while IT support and development costs grew 36%. A further spike on operational costs came with the rebranding journey the bank undertook, which saw marketing and advertising expenses growing 31% year-on-year.

The bank delivered an 18% growth in Profit Before Tax for the year, which closed the year at P1,42 billion. Although PBT growth achieved in 2023 is softer compared to the prior year (33%), the growth in 2022 was reflective of a low base effect, i.e., economy emerging from Covid-19 pandemic, of which impact was reflected in 2021 results.

The Cost to Income ratio for the year reduced by 2% from 51% to 49% driven mainly by growth across all income lines, with total income growing faster than costs.

Return on equity (ROE) for the year is 32%, up from the 26% reported in 2022. This improvement is reflective of both improved profitability and optimal capital management. 

LOOKING AHEAD

The 2023 financial year was characterised by intermittent shocks in the global macroeconomic environment. Locally, the policy rate was increased as the MPC of the BoB aimed to contain inflation, price growth remained significantly higher than the upper limit of the objective range between May 2021 and May 2023. By June 2023, there were visible signs of inflation abating into the new financial year, closing off June 2023 at 4.6%, all the way down from a peak of 14.6% reported for the month of August 2022. Although the increase in the policy rate came with some tail winds to top line performance, heightened inflation levels created some pronounced uncertainty on credit capacity for clients and lending appetite for the bank.

The year ahead will be marked by inflation rate outcomes and the resultant policies on interest rates impacting global trade. Geopolitical tensions should persist, exacerbated by the conflict in the Ukraine that shows no immediate signs of ending and which further disrupts supply chains and food supply desperately needed in Africa and Asia. This presents a level of uncertainty which undermines confidence and the outlook of world populations being encumbered by increased borrowing interest rates.

The bank will continue to deploy its financial resources appropriately and prudently, maintaining conservative capital and provisioning levels. Investments in operational efficiencies will maintain focus on increasing delivery of digitalisation and Artificial Intelligence (AI), specifically aimed at further enhancing customer experience through innovations around products and services. A forward-thinking approach to technology and innovation has been, and remains a top priority for FNBB, including the attendant need to continually enhance measures to guard against cybercrime.

The bank holds employees high on its agenda, investment in development and training

to improve the welfare of the FNBB family. Our platforms will be enhanced to redefine employee experience, and how they interact with the world.

In line with global business practice, FNBB will be making visible strides in supporting green and sustainable economic growth. Our policies have been reviewed to ensure this, and the texture of our balance sheet will begin to reflect our resolve to contribute to safer environments.

Shared prosperity is a core belief of the bank, and specific targets have been rolled out for the ensuing year to ensure that the outcomes of our day-to-day operations are increasingly reflected in the wellbeing of the society. We have made significant progress over the years in this regard, particularly on inclusive banking where our eWallet and CashPlus offerings continue to shrink the unbanked segments of the population.

The Capital and Liquidity positions of the bank ended the 2023 financial year at levels in line with thresholds set by the Board, and optimally ahead of regulatory prescripts. This positions the bank for uninterrupted and sustainable growth into the future.

EVENTS AFTER REPORTING DATE

There were no conditions after the reporting period that require disclosure or adjustment to the financial statements. The impact of events that occur after the reporting period will be accounted for in future reporting periods.

AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT

FOR THE YEAR ENDED 30 JUNE 2023

CORPORATE GOVERNANCE

CAPITAL MANAGEMENT

FNBB maintains sound capital ratios to maintain confidence in the solvency and the quality of its capital during both calm and turbulent periods in the economy and in financial markets. The bank aims to maintain capital ratios in line with its risk appetite, thereby appropriately safeguarding its operations and stakeholder interests.

Furthermore, FNBB's capital management strategy is to ensure an optimal level and composition of capital, effective allocation of financial resources including capital and risk capacity, with a view to achieving a sound return on equity and a sustainable dividend distribution to shareholders. The capital planning process is conducted on a forward-looking basis and considers, inter alia, the organic growth requirements and a safety margin for unexpected fluctuations in business plans and earnings volatility. Through this approach, compliance with both internal and regulatory capital adequacy requirements can be achieved, shareholders' returns can be safeguarded, and the bank can ensure that it remains a sound going concern even under severe stress conditions.

The capital focus has been directed to the composition of the capital structure and efficiency of the risk-weighted assets. The Directors' review and approve macroeconomic scenarios quarterly in a year due to the rapidly changing world economic environment for regulatory and business purposes. Additionally, the Directors' review the Capital Management Framework annually, and this together with the approval of the economic scenarios forms the basis of the Internal Capital Adequacy Assessment Process (ICAAP) which provides a sound basis for managing our capital in a constantly dynamic world. For the financial year ended 30 June 2023, FNBB continued to operate above both the internal and regulatory minimum capital adequacy ratios.

DECLARATION OF DIVIDEND

Notice is hereby given that a final dividend of 20 thebe per share has been declared for the year ended 30 June 2023. The dividend will be paid on or about 11 October 2023 to shareholders registered at the close of business on 29 September 2023. The ex- dividend date is 27 September 2023.

In terms of the Income Tax Act (Cap 52.01) as amended, withholding tax at the rate of 10% will be deducted by the bank from gross dividends. If a change of addressor dividend instructions is to apply to this dividend, notification should reach the Transfer Secretaries by 04 October 2023.

For and on behalf of the Board.

B M Bonyongo

Chairperson

S L Bogatsu

Chief Executive Officer Gaborone, 08 September 2023

Transfer secretaries Central Securities Depository Company of Botswana,

Plot 70667, 4th Floor, Fairscape Precinct, Fairgrounds

Private Bag 00417, Gaborone

The Board and management are responsible for ensuring that FNBB's operations are conducted in accordance with all applicable laws and regulations, including the responsibility for ensuring the following:

1. Adequate and effective management of corporate governance and risk in accordance with current best practice;
2. Maintenance of appropriate internal controls including the reporting of material malfunctions;
3. The bank's continued ability to operate as a going concern; and
4. The bank's consideration of the environmental and social impact of conducting business.

The Board is comprised of a majority of independent, non-executive Directors and meets regularly, reviews executive management's performance, and retains effective control over the bank. The Board is assisted by sub-committees, which are responsible for various aspects of governance. The sub-committees include

Audit, Credit, Directors Affairs & Governance, Remuneration,and Risk, Capital Management and Compliance Committees. The Board has recently set up a Compliance and Conduct Committee separate from the Risk Committee.

SHARED

PROSPERITY

In line with global trends, the outcome of the bank's operations will increasingly be more evident within communities. In this regard the bank focuses on the following key thematic areas;

• Development of Small, Medium and Micro Enterprises (SMME's)
• Human and Social Development
• Elevation of Creative Industries
• Sustainable Environment.

Regarding SMMEs, the bank has reviewed its procurement policy to give more prominence to local procurement with clear intentions to increase spend on locally owned businesses.

Memorandum of agreements have been signed with large corporates in the mining sector to provide working capital to local enterprises who participate in the supply value chain. Under the Human and Social Development focal area, FNBB has taken an early lead in financial inclusion with eWallet volumes reaching

12.5 million transactions annually in 2023, supported by a CashPlus agent network which increased to 1,099 outlets in 2023, these are spread throughout the country. The bank remains committed to its social responsibility to the community, the FNBB Kazungula Bridge Marathon surpassed the inaugural instalment in the prior year. The marathon is an event accredited by World Athletics, the international governing body of athletics. Also in sports, the bank through the FNBB Foundation sponsored the FNB Botswana Golden Grand Prix bringing it to Botswana for the first time. This in an internationally recognised athletics competition known for attracting the world's best athletes.

Going into the next year, the bank set ambitious targets to contribute meaningfully to the sustainable environment agenda.