Mohohlo dispels liquidity crisis concerns

Boniface Keakabetse | Thursday November 27, 2014 14:51

 

Mohohlo said contrary to perceptions, the liquidity in the banking system is not tight, adding that there is excess liquidity in the banking system which currently stands at approximately P3billion Pula.  Mohohlo said this means banks continue to hold excess investable funds over and above the statutory liquid assets requirement. Economists recently pointed out that a new era is dawning in Botswana’s banking sector with an emerging shortage of deposits and liquidity coupled with reduced profitability looking set to bring back the balance of power to the feeble depositors and savers.

Before 2010, the banking sector has been characterised by excess liquidity, super normal profits and low deposits rates, making savings unattractive.

But in the last three years, a mixture of regulatory changes, macroeconomic development and a mismatch between deposits and credit growth has seen the banking sector experience an unprecedented structural shift with analysts agreeing that the industry has reached a turning point  Mohohlo however  admitted  there has been significant decrease in excess liquidity in the last two to three years. She said excess liquidity declined as banks increased their lending while at the same time the Bank of Botswana decreased the amount of Bank of Botswana Certificates (BoBCs). 

She said, moreover the government’s decision to streamline the disbursement of funds to parastatals and local authorities also helped to reduce excess liquidity.  Mohohlo further explained that in the past funds disbursed by the central government to parastatals and local authorities could remain unspent for some time.

The funds were passively held as deposit at banks earning low interest rates and ultimately finding their way into BoBCs. Mohohlo further explained that the efficiency achieved in remitting tax revenues though the Real Time Gross Settlement (RTGS) system and Electronic Funds Transfer (EFT) have also reduced the period of time funds stayed in customer deposit accounts before being credited to government accounts at BoB.

Mohohlo said these factors contributed to the overall reduction of BoBCs from the peak of P20 billion in October 2010 to the current level of P 6 billion. Also, the proportion of deposits that were lent increased reflected by the intermediate ratio which increased from 46% in 2007 to about 80% at the moment.

Mohohlo said given the P3 billion in the banking system, any temporary liquidity shortages experienced by individual banks should be initially dealt with through interbank borrowing or through BoBcs facilities.

Mohohlo further revealed that the Botswana banks are now at a transitional phase towards a more normal banking environment where they can no longer afford to turn away deposits as was the case before the introduction of BoBCs in 1991.

She said banks will need to be more innovative in attracting and approximately remunerating deposits. Further more. she added that banks are also transiting from a high interests rate, rapid balance sheet growth and relatively high profits on the back of high interest rate spreads, to a period of low interest rate environment and a more competitive environment.

According to Mohohlo during the transitional phase, it is normal to expect credit growth to slow down as banks consolidate their balance sheets, review their business strategies and seek remedies to some unforeseen challenges.

 In a recent economic review report, Consultancy firm E-Consult said that liquidty has considerably dried up in the banking sector, dropping sharply from 2006 when excess liquid assets made up 45 percent of bank assets to just six percent by the end of 2013.

In the report,  E-Consult  suggestted that  the central bank will have to abandon its past role of mopping up liquidity through various open market operations and become a provider of liquidity.