Bank of Botswana governor, Linah Mohohlo says the banking sector in Botswana is sound and profitable. However, she said profitability has declined as expenses increased faster than income.
The governor added that the recent economic and market developments have had no adverse impact on levels of capital in the banking industry, with the aggregate Capital Adequacy Ratio at 19 percent as at January 2015, and above the prudential limit of 15 percent.
Issuance of loans by local commercial banks has continued to grow at a robust pace, according to Mohohlo, as evidenced by the January 2015 annual growth rate of 13 percent, which is higher than nominal economic growth.
The governor said in the last 12 months up to January, the aggregate industry balance sheet grew healthily by 11 percent, with deposits growing by 7 percent and credit growing by 13 percent.
Moholo says while a tightening of bank liquidity has been observed, all banks continue to have the liquid asset required.
She, however, acknowledged that excess liquidity in the banking system declined from P17.7 billion to P4.6 billion in the last five years due to the Bank of Botswana’s phased reduction of the excess money that is continuously mopped by way of auctioning of BoBCs.
“The cap for this excess money is currently P5 billion and it was put in place to encourage productive lending by banks as well as to moderate the cost of mopping up excess liquidity”.
Mohohlo further explained that this resulted in a period of rapid credit growth by commercial banks, compared to a slower increase in deposits. “The slower growth in deposits is possibly due to, among others, sluggish growth in incomes, inadequate financial inclusion, more streamlined procedures for government funding of parastatals and very low interest rates paid by banks on deposits”.
She advised banks to undertake measures to attract deposits, and focus on productive use of more limited funds available for lending. “More emphasis on deposit mobilisation and improved financial inclusion would be steps in the right direction towards a more mature banking sector”. The Bank of Botswana also announced complimentary measures they will be undertaking from April 1 in support of banks as they review their operations in an environment of reduced liquidity.
The Central Bank will reduce the Primary Reserve Requirement from 10 to 5 percent to release a total of P2.3 billion to augment the banks’ loanable funds.