Bank liquidity crunch eases but...
Lewanika Timothy | Monday May 5, 2025 06:00
According to Bank of Botswana (BoB) data, average liquidity in March increased from a shortfall of P305 million to an excess of P764 million, providing a temporary respite to the tight liquidity conditions that have plagued the banking sector for months.
In its most recent monetary policy report, the central bank noted that liquidity pressures had eased down as foreign capital inflows pumped capital into the local banking sector.
“The increase in market liquidity during March 2025 was caused by an increase in net foreign exchange inflows, particularly due to the repatriation of funds by BPOPF, as well as a net redemption of a government bond thus stabilising market liquidity from the observed decline in February,” the BoB reported.
A liquidity crunch in banking is a situation where financial institutions face a shortage of readily available cash or liquid assets to meet their short-term obligations. This means they may struggle to fulfil commitments like customer withdrawals or loan payments.
The BoB released about P1.8 billion to banks in December, as liquidity dried up in the market because of a slowdown in government spending related to the prolonged diamond slump.
The situation has not abated this year and could intensify as government digs deeper into the capital market for debt to finance the P22.1 billion deficit expected in the 2025–2026 financial year.
In February BoB researchers noted that deposits at commercial banks were slowing, with a deceleration of -1.1 percent from January.
“Annual growth in commercial bank total deposits was -1.1 percent in February 2025, lower than 14.7% recorded in February 2024. “Over the one-month period, total deposits held by commercial banks decreased by P1.1 billion,” researchers revealed.
The slowing of deposits at banks is linked to the dampened revenue earning ability of government which has been affected by slow diamond sales. This has meant that government’s usual capital injection into the economy through spending has slowed, ultimately affecting banks liquidity.
Annual growth in commercial bank credit was 5.8 percent in February 2025, lower than 8.1 percent in February 2024, meaning that banks were also cutting down on their loan issuance to match the available capital at their disposal.
At its recent interim results presentation, the First National Bank Botswana chief financial officer, Mbako Mbo, described the liquidity squeeze as “unprecedented”. FNBB is the country’s largest bank by assets, customers, and physical footprint.
“We are seeing some unprecedented levels of liquidity squeeze. “The market is facing some headwinds and whilst we do not have a liquidity problem at FNBB, we have come up with very solid plans to manage that. “We will focus very diligently on our non-lending business whilst we continue to do our lending business on credit appetites that we will be adjusting as informed by economic realities,” he said.