Banks reap fruits of forex framework changes
Mbongeni Mguni | Monday December 1, 2025 06:00
Following the July changes to the exchange rate framework made by the Bank of Botswana (BoB), commercial banks have had greater room in the margins they charge both buyers and sellers of foreign currency (forex).
In July, the BoB increased its margins for foreign currency trade with the banks from +/-0.5 percent to +/-7.5 percent, as a way of protecting further erosion of the official foreign exchange reserves managed by the BoB. The move, amongst other measures, made it more expensive for banks to resort to the BoB for forex and was also designed to encourage greater inter-bank trading of forex.
Since the changes, however, complaints have swelled that banks have excessively widened the margin between what they buy and sell foreign currency for, whilst they deal with ordinary retail customers.
According to the latest figures from the BoB, local commercial banks raked in non-interest income of P2.1 billion from January to June 30 this year, before earning P1.2 billion in July and August alone. Average monthly non-interest incomes for the banks rose from P353 million in the first six months of the year, rising to P588 million from July to August.
By comparison, over the same eight months last year, banks’ non-interest incomes averaged P318 million. Prominent economist Keith Jefferis recently told a Bifm seminar that the commercial banks were primed to benefit from the exchange rate framework changes.
“There's going to be a massive increase in forex trading profits of the banks,” he said. “Remember, if a bank can manage to buy forex from an exporter, let's say it buys at the mid-rate, not even at the edge of the band, and still sells that forex to an importer, probably with a 10% margin, that's free money. “That's free money for the banks, and that's going to show up in the profits.”
Jefferis added that not only the banks stood to benefit from the changes. “Not just the banks, the BoB makes 7.5 percent on forex itself,” he said. “It buys from government at mid-rate, but it sells to the banks at a 7.5 percent margin. “So the BoB is going to have a huge increase in trading profits, and that eventually goes to government. “What does that make it? It makes it a tax, and so there's a de facto big tax on forex trading, and that's fed through to the market and to prices and others.”
In September, senior First National Bank Botswana (FNBB) officials said they were monitoring the revenue impact of the July changes. At the bank’s full-year results presentation, a senior official said the bank was still gauging whether the changes would be a 'contribution to the non-interest revenue line.'
“The inter-bank trading activity has gone up quite significantly, and it has created opportunities for us to also refine our pricing for certain trades that come in the market,” the official said. “It is still an evolving and developing area that we are looking into reporting on, assessing, and testing in all ways, but it is a real positive for us that there has been increased activity.”
Whilst ordinary bank customers have complained of the higher expenses they are incurring in accessing forex and the lower returns they get when they sell it, the BoB has maintained its advice that customers should negotiate rates with their banks.
“It is normal that there can be a difference between what we publish and what you get when you go to a commercial bank or a commodity exchange to trade forex,” BoB deputy governor Kealeboga Masalila told BusinessWeek recently. “However, we can see that the rates remain anchored on the central parity as determined in accordance with our exchange rate framework. “Indeed, such differences in prices are encouraged in terms of competition and also encourage individuals and businesses to use their own negotiating power to get the best in terms of forex.”
Masalila added: “That widening of margins was indeed intended to enable that encouragement, that type of competition and that ability to negotiate rates. “That is why indeed they differ for each trade or transaction because of commercial terms and regulatory changes.”
Ordinary consumers have said that whilst major corporates as well as private banking clients are able to speak to their bankers on forex rates, the typical bank customer either takes the rates offered or has to incur the inconvenience of bouncing from one bank to another.