Due to its heavy dependence on South Africa, Botswana has perennially suffered spillover effects of most negative events in Africa's biggest economy ranging from fuel, electricity and food shortages caused by labour unrests or other disruptions.
On Wednesday, three of Botswana's top four banks had viability ratings of their South African based parent companies downgraded, following last week's downgrading of that country's sovereign rating.
The banks involved are Absa, FirstRand and Standard Bank, which are the parent companies to Botswana's Barclays, FNB and Stanbic respectively.
In spite of the three holding majority shareholding in local banks, economist Keith Jefferis says local banks are independently capitalised and regulated so there is bound to be no spillover effect from the ratings downgrades.
"The banks' downgrading stems largely from last week's similar action on South Africa's sovereign ratings. So the factors are only concentrated in that country. It could obviously have an impact if those banks were to go bust, but this downgrading is not such a major issue, which will at most only increase their costs when they want to raise capital," he said.
Fitch said the downgrade of the banks' viability ratings reflected their concentration in South Africa, a high proportion of liquid assets invested in government securities and a weakening operating environment, as indicated by the downgrade of the sovereign rating.
"The sovereign rating is now effectively acting as a cap on these banks' viability ratings at this rating level because of their strong links with South Africa," Fitch said.
In cutting South
Africa's sovereign rating to BBB, the agency said social and political tension had increased. Subdued growth coupled with rising corruption had constrained the ability to raise living standards, reduce the unemployment rate and redress historical inequalities, Fitch said.
Botswana has five entities of the 11 South African finance groups operating in Africa, including Standard Bank, First Rand, Investec and Sanlam.
Local data indicates that by June 30, 2012, First Rand's local subsidiary held 25.4 percent of non-bank deposits in Botswana, while Standard Bank's subsidiary held 16.3 percent.
An executive with one of the three banks affected, who declined to be named, also echoed Jefferis sentiments, saying the local subsidiaries operate in a totally different environment, which is not affected by events in South Africa.
"The operating environment here is totally separated from that of the parent companies with different regulators and sources of capital. I do not expect any effect on us at all," he said.
In a recent research paper, the IMF noted that the direct spillover risk from South African banks is limited as most are funded from local deposits as opposed to cross-border loans. "Moreover, in the event of cross-border lending or deposit taking, the scale in Botswana is minimal when compared to the assets of the South African banking system," said the IMF.
In the research paper published last November, the IMF said the anticipated slowdown in the South African economy this year would restrain growth in Botswana through spillovers into trade, capital flows and remittances.