Bank of Botswana (BoB) governor, Moses Pelaelo has played down reports of a looming liquidity crunch saying local commercial banks have about P19 billion available to lend out to customers.
Officially opening a Bank Gaborone branch in Maun yesterday, Pelaelo said the status and health of the banking system is sound.
“I can report that banks have sufficient liquidity, totalling approximately P19 billion, inclusive of Bank of Botswana Certificates and balances held abroad, both of which could be liquidated in case of need, with minimal capital loss, to finance any effective and viable demand for credit. However, it should be noted that the distribution of liquidity amongst banks will vary from time to time,” he said.
A bank’s liquidity refers to its ability to meet all anticipated obligations such as funding loans or debt payments using available funds without having to liquidate other assets. Pelaelo’s comments come as analysts have pointed out an emerging trend of tightening liquidity in the banking system over the past years, which has largely been blamed on banks’ inability to grow their depositor base.
Analysts believe that there are increasing signs of strain in the banking system with some banks running out of funds to lend as tightening liquidity and a thin depositor base have pulled credit growth to a 20-year low. A recent market report compiled by economic consultancy firm, Econsult says the banking system seems to be under pressure from a number of fronts with both demand and supply factors constraining the industry. “Banking liquidity has been falling steadily for some time, but the decline has been particularly sharp since the beginning of 2017. Excess liquidity fell to 2.6% of banking assets in April, the lowest since the ‘liquidity crisis’ of late 2014.
“The liquidity squeeze has been driven by stagnant deposits. There has been no growth in the deposit base of banks for at least two years. With little surplus liquidity, it is not surprising that bank lending has slowed. The banks (or some of them at least) are simply running out of loanable funds,” reads the report.
In his remarks yesterday, Pelaelo also addressed an issue relating to the conduct of banks in accepting foreign currency denominated deposits amid reports that some local banks may have been used as conduits for money laundering activities by some depositors from neighbouring Zimbabwe.
According to the governor, Botswana’s banking and other laws permit non-residents to open accounts in local banks, but there is a legal requirement to declare any cross-border transfers, including cash in any currency equivalent to P10,000 and above. “In opening accounts and accepting deposits by non-residents, the local banks are doing so in compliance with Botswana laws.
Banks are, however, required to consistently undertake effective due diligence, including strict application of the Know Your Customer procedures for any such transactions and/or customers. Banks also need to ensure that any cross-border cash deposits and similar inward transfers are supported by duly completed and valid documents, when processing such transactions,” he said.
Local banks are also required to routinely monitor accounts for suspicious activity and file Suspicious Transactions Reports (STR) with the Financial Intelligence Agency. While reporting suspicious transactions is not evident of illegality, Pelaelo said the report triggers appropriate steps, including follow up action by relevant authorities, such as the BoB, Non-Bank Financial Institutions Regulatory Authority and other law enforcement agencies.
“Having said that, I can confirm that both the Financial Intelligence Agency and the Bank of Botswana continue to monitor and enforce, in line with their respective mandate, local banks’ compliance with applicable laws, business conduct requirements, as well as the Anti-Money Laundering and Combatting the Financing of Terrorism protocols,” he added.