Indian bank sights Botswana

Staff Writer | Tuesday October 5, 2010 00:00

Indian media this week reported that public sector lender, Bank of India (BoI), has indicated it plans to set up subsidiaries overseas including in two African countries.

'We plan to set up subsidiaries in New Zealand, Uganda, Botswana and Canada,' a senior official of the bank told Press Trust India (PTI).

The official said that to meet capital requirements, the bank has the option to go for a follow-on public offer (FPO) as government holding was at 64 per cent.

'FPO is also an option. But nothing has been decided as of yet,' he said. The plans to enter the Botswana market by the bank follows last year's announcement by India's largest bank --- the State Bank of India --- to open shop in this country where Indian companies are involved in diamond cutting and polishing businesses.

'The company is busy with the regulatory process for opening its Botswana office,' M.G. Vaidyan, the regional head of India's largest bank said late last year.

'State Bank sees Africa as a continent of future opportunities and will target expansion in nations that are politically and economically stable,' Vaidyan said.

Yesterday's efforts to get a comment on the development from the Bank of Botswana  were fruitless. Public relations officer, Chepete Chepete last year however confirmed to Mmegi the interest by the Indian bank although he said at the time that developments were still at an early stage.

'I can confirm that there has been an enquiry from the bank but not much is there on the ground yet,' said Chepete. Trade between Botswana and India mainly consist of foodstuffs, apparel, electrical goods and Pharmaceuticals.

Four Indian diamond cutting and polishing companies have also set up shop in Botswana as DTC Botswana Sightholders with the latest one being Shrenuj Botswana which replaced DDA of Botswana that collapsed in the wake of the global credit crunch. State Bank of India has 131 offices in 82 countries across the globe while Bank of India has 24 foreign branches and five representative offices.

SBI's presence in Africa, apart from South Africa, extends to joint venture banks in Mauritius and Nigeria as well as a representative office in Cairo, Egypt, and Angola. The banks say that the increasing trade between Africa and India, excellent political equations and expanding potential for economic ties provides the necessary impetus for establishment of their presence in the continent.

If the two banks are granted licences to set up shop in Botswana, they would take the total tally of commercial banks in Botswana to eleven.

Since 2007, Bank Gaborone from Namibia, Capital Bank from Malawi, BancABC and ABM Amro have set up commercial banking  business in Botswana despite the country's small market size. A recent report by the bank of Botswana indicate the banking sector  remains largely oligopolistic --- dominated by a few major players --- despite the entrance of four new banks into the industry in the past five years.

According to the Banking Supervision Annual Report 2009 released by the Bank of Botswana (BoB) recently, the four largest banks, Stanchart, Barclays, FNBB and Stanbic, accounted for 90 percent of total assets, total deposits and total loans in 2009.

BoB says although not monopolistic in nature, the dominance by the four banks is still an unhealthy scenario in a sector that is supposed to be characterised by lower concentration in order for banks to price competitively, thus reducing the degree of market power and collusion among players.

'The Botswana banking industry is dominated by four large banks in terms of market share of the customer base, total assets, deposits and loans and advances,' says the report. 'Since these large banks have competitive advantage in terms of balance sheet size, market entrance by smaller banks has had little effect in diluting concentration,' it adds.

BoB says according to the Herfindahl-Hirschman Index (HHI), sale, a common method used to measure concentration in the banking sector, Botswana's industry is still highly concentrated.