BoB's interest expense falls 40%

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The Bank of Botswana (BoB) last year cut down its interest expenses by 40 percent to P552 million from P913 million in 2011 as the bank's decision to cap commercial banks investments in liquidity mopping instruments paid dividends.

The decrease in interest costs is a result of a decision taken by the bank, two years ago, to limit the investments in Bank of Botswana Certificates (BoBCs) to a maximum of P10 billion.Speaking at the launch of the bank's 2012 annual report, research director Kealeboga Masalila attributed the record low interest rates not only to the cap on Bank of Botswana Certificates (BoBCs) but also to the BoB's decision to increase commercial banks' primary reserve ratios in 2011."The Bank of Botswana certificates fell from P11.5 billion in 2011 to P9.7 billion. This is the reason why the expenses fell to P552 million," he said.

Interest costs have always been the biggest expense in the BoB's income statement and their rise over the years has drawn criticism from experts who questioned the bank's policies.The policy intervention was aimed at reducing the interest cost the BoB was paying on outstanding BoBCs by firstly limiting the liquidity held by banks, and secondly, reducing the amount of BoBCs available for auction.The BoB regularly auctions BoBCs to mop up excess liquidity in the money market, thus managing interest rates and other trends. For banks, the BoBCs represent regular, risk-free assets in which to invest deposits held and earn tidy returns.

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