Bank licence contender withdraws application
Mbongeni Mguni | Friday December 7, 2018 18:00
While the identity of the applicant has been cloaked in official secrecy, observers have read the move as a blow to the country’s aspirations to establish a citizen-owned or homegrown bank.
The two known institutions that have publicly declared their intent to pursue a banking licence are citizen-controlled BBS Limited and homegrown pan-African microlender, Letshego Holdings. This week, representatives from both entities washed their hands of the matter.
“We have not yet submitted an application, although we expect to do that very soon,” said BBS Limited head of marketing and communications, Sipho Showa. “Letshego’s application for a Botswana banking licence is with the Bank of Botswana, and we will update you with any developments, as appropriate,” a representative for the microlender said in an emailed response on Wednesday.
However, highly placed authorities told BusinessWeek that a financial institution, based in Botswana, had submitted then withdrawn its application to reconsider the key assumptions and proposals. “They took it back to go and rethink it,” one source said. Critics of the central bank’s licensing regime are expected to latch onto the development as more cannon fodder in the campaign to force the BoB to loosen its entry requirements, particularly for Botswana-based or citizen-owned corporates. Letshego, in particular, tried and failed to secure a banking licence in 2013, with some executives at the time saying a two-tiered banking entry system would foster the establishment of an indigenous bank.
For Letshego, a banking licence would reduce the costs of its funding, as it would become a deposit taking institution. The microlender has secured banking licences in some of the other countries it operates in, in Africa, including Namibia. Members of Parliament have also mounted an effort against the current licensing regime, taking Finance Minister, Kenneth Matambo to task last year during budget debates. The local banking industry is a cut-throat arena, with the big five banks controlling 90% of total assets, deposits and loans, leaving little room for the other five to thrive. During 2017, the central bank received nine enquiries for different types of banking licences, but none led to a formal submission of an application.
For most of the years before and after Independence, Barclays and Standard Chartered operated as the only two banks in Botswana, carving the market between themselves, before First National Bank Botswana arrived in 1991.
BoB executives say the minimum capital required to start a bank has been held at P5 million since 1995 and those applications that have floundered have been on the market strategy.
This week, BoB governor, Moses Pelaelo said the bank prioritised the public’s safety in assessing applications by institutions wishing to join the banking sector. “Ultimately any bank will take public deposits and the safety of that is what the licensing policy focuses on,” Pelaelo told BusinessWeek at a briefing on Tuesday. “You will have to produce evidence to show you can operate the institution in a sound, safe and prudent manner. “Where we have seen most of the deficiencies is quality of board and management issues as well as alignment of strategy to resources.
“You have someone who says I will run a bank with 50 branches and when you look at the assumptions being made, you realise that person cannot be talking about Botswana.
“The stress tests show that the bank would collapse from poor strategies and poor assumptions. We send back the application and often they don’t rectify it.” The governor said in assessing applications, the BoB typically looks at ownership structure, the people who are being proposed to run the entity, then strategy, solvency, capital, market products and finally the impact the institution will make in the market. “There’s no barrier to entry from funding, but whatever you want to do, can you do it in a safe and sound manner?” he said. “No one failed because they proposed insufficient capital. People have been coming and the lowest was P40 million from some years ago. But does your funding match your strategy?”
An executive with a local bank said the proposed two-tier banking licence regime could prove a threat to the industry.
“Remember that the funding for any new entity will at some point come from the public via deposits. Therefore, the strategy of how to enter a tight market and break even will ultimately determine how safe those deposits are.
“Many applications fail because they cannot convince the BoB that their proposed entry and survival strategy is sustainable or that the products and services they are proposing are of value to the economy.”