New era dawns in banking sector
Isaac Pinielo | Friday January 16, 2015 12:56
Mmegi: How was the financial performance and profitability of the Botswana banking industry during 2014?
Mabusa: The year 2014 has been an exciting and challenging year for banking industry performance and profitability. The positive commercial bank lending trajectory, which was observed in 2013 continued into the third quarter of 2014, demonstrating strong commercial bank optimism against the backdrop of subdued deposit growth. However, a definitive statement about industry performance and profitability trends for the year can only be made when industry aggregates have been consolidated post-end of year.
Mmegi: Would you describe 2014 as a good or bad year for the banking sector?
Mabusa: Current indications suggest a level year for industry growth and profitability.
Mmegi: How were the capital and liquidity ratios of the industry players?
Mabusa: At a basic level, these are regulatory parameters, which can be best assessed against statutory provisions. From this standpoint, I can confirm that the banking sector has maintained adequate levels of capital and liquid assets throughout the year to date. But while liquid asset ratios have remained adequate against statutory requirements, there has been a notable declining trend in absolute levels of commercial bank liquidity. This has further been compounded by the characteristically large volatile component of the deposit base and the fact that banks have almost exhausted their lending capacities.
Mmegi: What are the achievements, strategies and challenges in the banking sector?
Mabusa: A notable achievement is the fact that cooperative competition on common industry issues has strengthened during the year 2014. The banking sector has tackled some common industry problems through the Bankers’ Association, by engaging relevant stakeholders in government, regulators and the private sector. This collaborative effort has the effect of facilitative industry dialogue with stakeholders, resolving bottlenecks and easing business, as well as growing the business for all parties.
The industry has just completed a survey on bank tariffs. The results of the tariff study will inform industry about the necessary reform initiatives to be made towards improving the overall appeal and impact of the banking sector on the customer and the overall economy. A study on financial access, which has been co-sponsored by the Association, is underway and a report of the study will be released during the second quarter of 2015. The study aims to determine the nature and extent of access to banking and other financial access by Batswana.
Mmegi: Is there anything major we should expect this year?
Mabusa: During the first quarter of 2015, the Association will launch a new clearing system for interbank payments. A major characteristic of this project will be the introduction of cheque imaging and truncation and the adoption of images (and not physical cheques) as the basis for clearing cheques. But for the customer, the immediate impact will be a reduction in the clearing cycle for cheques from the current 4 days to 3 days, with a prospect for further reduction as the system settles.
Mmegi: How has been the overall asset quality as well as earnings growth?
Mabusa: As at the end of the first half of 2014, asset quality remained stable and within normal range. With regard to earnings, the interest income margin has been stable but non-interest income margins have particularly been constrained.
Mmegi: Any opportunity areas in 2015?
Mabusa: As the industry grappled with the challenges of balance sheet diversification in 2014, it identified the SMME and the agricultural sector as growth points whose potential is worth exploring. Banks have continued to innovate individually on ways to meaningfully integrate the SMME sector into mainstream banking.
With regard to the agricultural sector, the association has engaged the Ministry of Finance and Development Planning and the Ministry of Agriculture with a view to extending the Agricultural Credit Guarantee Scheme to private commercial banks. A breakthrough in these discussions may lead to an upsurge in the extension of credit to the agricultural sector by commercial banks.
Mmegi: What do you think should be improved in this sector?
Mabusa: Continuous innovation and improvement is mandatory for any business, particularly one that is operating in a competitive environment such as the banking sector. Therefore, much as the Association continues to pursue various initiatives, such as the ones already mentioned above, a lot of changes and improvements do take place within each individual bank.
Mmegi: Would you like to elaborate on issues of competitiveness in the industry?
Mabusa: The recent licensing of two additional banks by Bank of Botswana in 2013 increased the number of banks in operation. This is naturally followed by a re-alignment in market factors as customers begin to respond to a greater choice of service providers. A second point to note is the fact that the Botswana banking market is not only small but also the asset side of its balance sheet is dominated by the household sector. Effective competition in such a market is driven more by value-added product innovations as a complement to base services which revolve around the provision of credit.
Mmegi: What is your view about the high cost of banking services vis-à-vis the quality of financial services?
Mabusa: The Bankers’ Association has always believed that in aggregate, banking services in Botswana are not priced excessively. A look at the historical trends in the proportion of non-funded income to total income confirms this position. Trends also show that instead of preying on customers by relying on non-funded income, banks have also been aggressive in reducing their operating costs, a trend which continued in 2014. I must point out that banks recognise service quality as a competitive differentiator and are fully committed to service quality improvement at any price. Therefore, the premise upon which price is often related to service quality does not appear to be valid.
Mmegi: How has the two-year moratorium on an increase in bank charges, commissions and other non-interest fees that was imposed by the Bank of Botswana impacted on the banking sector?
Mabusa: The central bank’s moratorium on banking charges has had a dampening effect on bank revenues. Its full impact on the industry gross income and profitability will become apparent when the consolidated 2014 industry balance sheet released.