Near monopoly in banking sector worries BoB

Brian Benza
Staff Writer | Friday September 3, 2010 00:00

 

According to the Banking Supervision Annual Report 2009 released by the Bank of Botswana last week, 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.' 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 despite the emergence of new players in the recent past.

 'Evidence drawn from the results of sector analysis based on the HHI index over a five-year period shows a modest decline in the index, from 0.25 in 2005 to 0.21 in 2009.

'The ratio, however, remains above the theoretical threshold of 0.18 for moderate concentration, denoting a highly concentrated industry despite the increase in the number of operational banks from six in 2005 to nine in 2009,' the report continues.  'However modest the actual movement in the index is, the HHI curve provides some reassurance that competitiveness in Botswana's banking industry is gradually improving.' The report goes on to say while the big banks still have the lion's share of the cake, the smaller banks are strongly improving in terms of competitiveness. Meanwhile, the report says private commercial banks held 94 percent and 97 percent of industry assets and loans in 2008 respectively. This had dropped to 91 percent and 88 percent, respectively in 2009.

'Within the category of privately owned commercial banks, the four large banks accounted for about 90 percent of total assets, total deposits and total loans in 2009,' says the report.

'In each case, that proportion was slightly lower than in the previous year, an indication that 'other banks' had made inroads, albeit marginally, into the dominant market share.

'This suggests that the entry of new banks into the local market and the introduction of new services, including electronic banking (which small banks also offer), improved the competitiveness of smaller banks in 2009.

'However, as a group, the 'other banks' category remains fairly small.' * More news from the banking sector is that FNBB, which currently holds 15 percent of the retail banking market, will embark on an aggressive programme to double its market share over the next coming years. 

Announcing its results for the year ended 30 June 2010 recently, FNBB, said its strategy would not be to increase its retail branches but to capture more customers in a bid to boost non-interest income through higher volume transactions. Said the bank's head of distribution and retail banking, Martin Knollys: 'Our plan is to first look after what we have. We are going to do that through refurbishing our branches and invest in our staff and other infrastructure.

'We have recently opened branches in Letlhakane and Molepolole, but we have no plans to open more branches at the moment. However, we are going to add 20 more ATMs to the 100 currently in use.'  New entrant in the commercial banking sector, BancABC, has also pledged to capture about three percent of the market.