The FSC is a multi-agency body, which is responsible for assessing vulnerabilities that could affect the resilience and stability of the local financial system. The Council is chaired by the Bank of Botswana and also includes the Ministry of Finance, the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), the Financial Intelligence Agency (FIA), and the Deposit Insurance Scheme of Botswana (DISB). The Botswana Stock Exchange Limited sits as a non-voting observer. In its latest assessment, the Council warned against a concentrated banking market share in the Big Four.
The assessment showed that the majority of commercial bank deposits were concentrated amongst a few sources, which is a threat to the stability of the local banking market. First National Bank Botswana (FNBB), Standard Chartered Bank Botswana (SCBB), Absa Botswana and Stanbic have an overwhelming share of both assets and deposits.
“The banking sector remains vulnerable to funding risk arising from a concentrated deposit base. Commercial banks’ funding structure is concentrated in a few wholesale deposits as reflected in the top 20 deposits to total deposits ratio of 28.5% in August 2024 from 26.4% in August 2023,” the FSC revealed. “This position highlights the potential increase in funding costs due to the inherent volatility and expensive nature of wholesale deposits,” it added.
FSC noted that 74% of banking assets were in the hands of the Big Four. “Concentration risk remains a concern, with the four largest banks dominating the market (74% of total assets as at end of August 2024), the dominance of household borrowing and wholesale funding. “This necessitates continuous monitoring of systemic risk and policies to encourage greater competition within the sector and for the diversification of the banks’ funding and lending bases,” the FSC said.
The Big Four led the market’s profits in the first six months of last year, as the collective after-tax earnings of the banking sector looked set to break records. In the first six months of 2024, banks’ collective earnings hit about P2 billion, more than 30% higher than the same period in 2023. Other risks to the financial stability included the increase in Non-Performing Loans (NPLs). The Council observed that while NPLs were generally on a declining trend, they still required close monitoring, particularly in the household sector given the country’s ongoing fiscal strain. “This is critical as government employees are the biggest borrowers from banks according to the Household Indebtedness Survey Report of 2023/24,” the Council noted.
