29 Mar 2015

Commercial banking system of Botswana is one of the most profitable and its liquidity conditions remain moderate compared to the rest of Africa, says Bank of Botswana governor, Ms Linah Mohohlo.

Briefing the media on March 26, Ms Mohohlo said the banking system had been characterised by excess liquidity but over time it was reduced that rendered commercial banking system profitable contrary to reports that suggested that banks in Botswana face financial difficulties hence banking clients face credit crunch.



However, she said, while the banking sector was profitable, “profitability has declined as expenses increased faster than income and the situation varies from bank to bank,” reasoning that the “aggregate industry balance sheet grew by 11 per cent, with deposits growing by 7 per cent and credit growing by 13 per cent.”



In the past five years, Bank governor noted that, “excess liquidity in the banking system, as represented by outstanding Bank of Botswana Certificates has declined from P17.7 billion as at end-2010 to P4.6 billion in February 2015,” adding that this occurred as a result of central bank having phased “reduction of the excess money that is continuously mopped by way of auctioning of certificates.

The cap for this excess money is currently P5 billion and it was put in place to encourage productive lending by banks and to moderate the cost of mopping up excess liquidity.”

 Ms Mohohlo said, as a result, loans increased when compared to deposits by a ratio of 87.6 per cent in 2014 when compared to 53.1 per cent as at the end of 2010.

“In essence, funds previously held in BoB certificates have been diverted to loans by banks and more than doubled, growing by 104.3 per cent, from P22.1 billion in December 2010 to P45.2 billion in January 2015,” she said. 



These funds, she said, have been effectively absorbed by the economy, to the benefit of businesses and households. She said deposits increased at a slower pace of 31.7 percent from P40.4 billion to P53.2 billion in the same four-year period.

“The slower growth in deposits is possibly due to, among others, sluggish growth in incomes, inadequate financial inclusion, more streamlined procedures for government funding of parastatals and very low interest rates paid by banks on deposits” she said.



Ms Mohohlo said credit continues to grow at a robust pace, as evidenced by the January 2015 annual growth rate of 13 percent, which is higher than nominal economic growth, adding that in situations of tighter liquidity, banks tend to tighten lending criteria, while taking measures to boost deposits. She observed that the current developments do not suggest that new lending will cease completely as growth in deposits remains positive.



She said as a measure to minimise risks and boost the banking sector, with effect from April 1, 2015, the central bank has reduced the Primary Reserve Requirement for banks from 10 per cent to 5 per cent which will release a total of P2.3 billion to augment the banks’ loanable funds.

Quizzed on the rapid increase of number of commercial banks competing within a small population and how that affects regulation of banking charges and loan interest rates on the side-lines of the press briefing, Bank of Botswana Deputy Governor Mr Moses Pelaelo confirmed that there has been increase of players in the banking sector from four commercial banks to 13 to date operating in the same market which he said was good for competition.



He said the central bank works on monitoring interest rates to ensure that banks remain on steady growth path and at the same time customers benefit and should not endure high interest rates on loans while on the other hand customer’s deposits accumulate low interest rates. ENDS