15 Dec 2025

Bank of Botswana has introduced measures to respond to low excess liquidity challenges.

One of the measures include reducing the primary reserve requirement to zero, extending the maturity of repurchase agreements (repo) to 30 days and adjusting foreign currency trading margins.

“These interventions have helped to stabilise liquidity conditions, evidenced by increased uptake of longer-term repos, improved interbank activity and a pause in prime lending rate hikes,” the Bank notes.

According to the central bank’s Financial Stability Report, the country has experienced a historically low excess liquidity in the banking sector at P764 million in March 2025, while average daily market liquidity increased to P1.557 billion in the second quarter of 2025, driven by mainly by government expenditure financed by Southern African Customs Union (SACU) receipts.

The bank further states that banks continue to meet minimum liquidity requirements, with a ratio of 17.8 per cent in June 2025, although structural vulnerabilities such as high deposit concentration and elevated funding costs persist.

It says that the foreign exchange risk exposure remains minimal, and exchange rate volatility has declined, contributing to overall financial system stability

“However, the underlying structural features of the economy and market, such as asset and funding concentration and deep interconnections, pose contagion risk that could be triggered by liquidity, leverage or external sector shocks,” notes the Bank.

The report notes that the financial stability indicators suggest that banks, non-banking financial institutions and financial market infrastructures remain resilient and robust.

The banking sector remains healthy, characterised by strong capital adequacy position, stable liquidity buffers, and low levels of non-performing loans (NPLs), the report notes.

The report further states that the bank’s profitability has improved, underpinned by several drivers such as non-interest income or service fees and cost containment measures.

It further says the pension funds, insurance firms and asset managers, continue to grow in scale and influence, though they face operational and market risks linked to digital transformation, product concentration, and valuation pressures.

Interconnectedness across sectors has increased, underscoring the need for enhanced supervisory coordination. Financial Market Infrastructures (FMIs) continue to be robust and ably support large volumes of electronic payments and clearing, says the report.

The central bank however warns that despite the prevailing resilience, the financial system faces a constellation of risks that warrant close and continuous monitoring.

The bank says financial institutions remain vulnerable to weak economic growth, constrained fiscal space, and low export revenues due to low sales of diamonds and persistent structural bottlenecks that could dampen investment and worsen the external position.

“Financial sector-specific vulnerabilities pertain to funding risk driven by tightening liquidity conditions and elevated refinancing pressures among financial institutions, as well as elevated contagion risk, considering concentrated exposures and interlinkages across banking, non-bank financial institutions, and public sector entities,” reads the report.

The report further says although household credit risk is contained, it remains sensitive to shifts in employment dynamics and debt servicing capacity.

“Risks from crypto assets, climate-related exposures, and cybersecurity threats are currently assessed as low-impact and low-likelihood, though their latent potential to escalate remains non-negligible,” states the Financial Stability Report. ENDS