The Bank of Botswana (BoB) released about P1.8 billion to banks in December, as liquidity dried up in the market because of a slowdown in government spending related to the prolonged diamond slump.
The situation has not abated this year and could intensify as government digs deeper into the capital market for debt to finance the P22.1 billion deficit expected in the 2025–2026 financial year.
First National Bank Botswana CEO, Steven Bogatsu, whilst stressing that the bank itself had no liquidity issues, warned that the sector in general was facing tightening conditions going forward. FNBB is comfortably the country’s largest bank by balance sheet and footprint, with a customer base of more than 730,000.
“We are beginning to see liquidity constraints in the market and I must emphasise that we ourselves do not have liquidity challenges, but we are seeing tightness which will impact many other things going forward unless the situation is arrested,” he said at a briefing last week on the bank’s results for the half-year ended December 2024.
“We have seen the BoB responding to alleviate that through the Primary Reserve Requirement," Bogatsu added. “As an industry we should look at this and say it is an opportunity for us to develop and bring products that the market has not seen before.”
FNBB chief financial officer, Mbako Mbo, described the latest liquidity squeeze as “unprecedented”.
“We are seeing some unprecedented levels of liquidity squeeze. “The market is facing some headwinds and whilst we do not have a liquidity problem at FNBB, we have come up with very solid plans to manage that. “We will focus very diligently on our non-lending business whilst we continue to do our lending business on credit appetites that we will be adjusting as informed by economic realities,” he said.
The market has witnessed an increase in deposit rates as banks step up their competition to attract and retain funding.
An FNBB Treasury official said the “natural laws” of demand and supply were at work in the pricing of deposits in the market.
“As the law of demand and supply dictates, if there are constraints in terms of supply of liquidity, then naturally the demand will be heightened and there will be an uptick in pricing. “I believe we have also experienced this and it is demonstrated by what we are seeing in terms of the government yield curve. “From an investor perspective, the government yield curve is the first benchmark for any investment and then anything over that, there is a spread. “If the government yield curve continues to rise, then definitely there will be an upward trajectory from an interest expense as well,” the official stated.
Banking sector insiders told BusinessWeek that traditionally, the first quarter of the new year is associated with higher liquidity in the market due to government ministries and departments rushing to spend their allocations before the end of the financial year on March 31.
This year, however, all eyes are on whether this spending will at least ease the liquidity crunch and foster stability in the banking sector.
In 2014 and 2015, a similar liquidity hit the local banking sector due to years of unsustainably high credit growth set against stagnant deposit growth.
That time, the central bank was forced to release P2.3 billion into the banking system, as banks began breaching minimum liquid asset thresholds, whilst rates soared in the scramble for deposits.
The central bank has described the current situation as a “structural decline in liquidity” to reflect the fact that rather than being a temporary affair, the liquidity crunch has deeper roots.
“There has been a consistent decline and that is why we call it a structural liquidity shortage,” then-deputy governor, Tshokologo Kganetsano, told BusinessWeek in December. “This is a signal to say what are the sources of liquidity in our banks or economy? One is government spending and the other is Debswana sales. “To the extent that we have a downturn in the market and the government does not have the same buying power, we are seeing this situation. “This is the extent to which our economy is too dependent on an export commodity and on government, hence the gospel of economic diversification should be spread across.”
