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Migration of P8bn special funds sparks bank liquidity fears

The Bank Of Botswana now houses all special funds
The Finance Ministry’s plan to move an estimated P8.2 billion in Special Fund balances to the Bank of Botswana (BoB) has sparked fears of a possible liquidity crunch in the commercial banking space reminiscent of the crisis that rocked the sector four years ago.

Early last month, Finance Minister, Kenneth Matambo announced that balances in the country’s 34 Special Funds would be transferred into the Government Remittance Account to be managed as part of the government cash balances held at the BoB.

The move is part of a slew of interventions designed to clean up suspected corruption, abuse and general mis-governance of government’s Special Funds, a decision triggered by the criminal case involving the disappearance of P230 million from the National Petroleum Fund.

Special Funds, which include the Tourism Industry Training Fund, Cattle Export Levy Fund and many others, were established by orders passed through the Finance Ministry as public revenues for specific purposes.

With many of the funds dating back decades, public officers have battled to properly account for the revenues and expenditure, as more funds have been requested by ministries and passed through the Finance Ministry.

However, experts believe Matambo’s planned clean-up could fall victim to the law of unintended consequences.

“One adverse side effect of the reforms is a potential squeeze on bank liquidity, depending on the magnitude of funds to be moved from the commercial banks to the BoB,” reads an analysis by a team of Econsult researchers, led by prominent economist, Keith Jefferis.

Figures shared by Matambo last month suggest commercial banks could find themselves in a spot of bother, when the migration of Special Funds begins. Econsult figures show that bank liquidity

is generally trending tighter this year, with growth in lending outstripping growth in deposits. Excess liquidity, or the liquidity available in the banking system that exceeds the needs of banks, was recorded at 5.2 percent of total bank assets in April compared to 5.8 percent in January. By May, this figure was 4.8 percent.

In absolute figures, the latest BoB figures show that excess liquidity fell to P4.1 billion in May, having opened the year at P4.8 billion. At the height of the liquidity crunch in 2014, excess liquidity dropped to P825 million forcing the central bank to intervene and reduce the primary reserve requirement for banks, a move that released P2.3 billion into the banking system.

One of the local banking sector’s major players, Standard Chartered Bank Botswana, is scheduled to hold an extraordinary general meeting on August 28, where shareholders will vote on raising P400 million required to shore up the bank’s regulatory capital requirements.

The central bank’s figures also indicate that local and central government balances within commercial banks were approximately P3 billion by May. The funds held by asset managers still holding onto Special Funds could not be ascertained as they fall within the general ‘resident business’ category.

Matambo has said a review of the Funds has started and is expected to take four months, possibly resulting in the scrapping of some of the Special Funds.




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