Big Five lose ground in banking sector

The BoB wants greater competition. PIC: MBONGENI MGUNI
The BoB wants greater competition. PIC: MBONGENI MGUNI

The smaller players in the country’s commercial banking sector gained ground on the Big Five last year, aggressively competing for deposits and loans, the Bank of Botswana (BoB) has noted.

Lack of commercial banking sector competitiveness has long been a thorn in the side for regulators, as the dominance of a group of established players has meant market access issues for new entrants and the potential for ‘cartel’ type behaviour in costs of services and products.

First National Bank, Barclays, Standard Chartered and Stanbic have traditionally dominated the country’s banking sector in terms of balance sheets and numbers of customers, although in recent years, BancABC also joined their ranks.

The Small Five are led by Bank Gaborone and First Capital Bank. In its Bank Supervisory Report for 2018 released on Monday, the central bank said the Big Five accounted for 88.7%, 87.9% and 87.8% of total assets, total deposits, and total loans and advances respectively, in 2018, which was slightly lower than the respective proportions of 89.5%, 88.5% and 88.7% reported in 2017.

The Herfindahl-Hirschman Index (HHI), a widely applied measure of market concentration, used by the BoB to assess the degree of competition in the local banking industry, declined to 0.1732 in 2018 from 0.1800 indicating improved competition.

Ten years ago, the local banking sector’s HHI was 0.21 with the Big Five holding more than 90% of total loans and advances in the commercial banking sector. 

The central bank also noted improved competition in 2018 in the net interest margin as well as the lending-deposit spread across the commercial banks.

“The lending-deposit spread for the banking sector decreased from 6.1 percent in 2017 to 5.2 percent in 2018, showing consistency with other measures that indicate improvement in the banking sector competition,” the bank said in its report.

“The net interest margin for the banking industry decreased from 5.4 percent in 2017 to 4.8 percent in 2018, signalling enhanced competition and efficiency of the banking system in 2018.”

The central bank said while reductions in the net interest margin could also be influenced by factors such as operating costs, loan quality and the macroeconomic environment, including interest rates and demand, some aspects of these were also “indirect facets of competition”.

The BoB’s numbers show that the space between the last placed bank in the Big Five and the frontrunner in the Small Five is also narrowing.

According to the supervisory report, Bank Gaborone surpassed BancABC’s ATM footprint for the first time in 2018, with 16 machines countrywide, compared to 15.

Bank Gaborone also surpassed BancABC’s branch network in 2018, growing to 12 outlets, compared to BancABC’s nine. BancABC, however, added 30 jobs in 2018 growing its workforce to 344, while Bank Gaborone shed four jobs ending 2018 at a workforce of 272.

According to their own figures, Bank Gaborone’s loan book for the year to June 30, 2019 was P4 billion with deposits of P4.9 billion while BancABC had a loan book of about P6 billion and customer deposits of P6.2 billion.

Bank Gaborone, however, has its eyes on the Big Five and has set a target of growing its market share from 7.5 percent to 10% in the medium term.

From decades when the local banking sector only had two players under a conservative policy outlook, the BoB around 1989 changed tack to encourage greater competition.

The bank says while it has the authority to determine the level of service fees and commissions charged by banks, it prefers to monitor these through encouraging effective competition amongst the banks, including through encouraging new banks to enter the market.

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