Sunday, June 16, 2024

Another hard pill to swallow for Banks as BoB slashes bank rate

GABORONE – The Monetary Policy Committee (MPC) of the central Bank on Thursday said it has decided to cut the bank rate by half a percentage point to 5.5 percent. This is the first cut in 2016 following the last cut done almost a year ago in August 2015. 

The bank said in a statement that the current state of the economy and both the domestic and external economic outlook as well as the inflation forecast provide scope for easing monetary policy to support economic activity. 

Botswana’s real GDP is estimated to have contracted by 0.2 percent in the twelve months to March 2016, compared to growth of 3.2 percent in March 2015, thus reflecting the decline of 21.4 percent in mining production. Non-mining output increased by 3.8 percent. Inflation on the other side fell from 2.8 percent in May to 2.7 percent in June 2016. Low domestic demand pressures and subdued foreign price developments contribute to the positive inflation outlook in the medium term.

“This outlook is subject to downside risks emanating from sluggish global economic activity and the consequent low commodity prices. It could, however, be adversely affected by any unanticipated large increase in administered prices and government levies as well as international oil and food prices beyond current forecasts.”, the bank said Thursday. 

Commenting on the reduction, financial analyst at local stock brokering company, Motswedi Securities Garry Juma said Friday that the cut in the bank rate will reduce banks interest margins further. 

“Since the Bank of Botswana loosed its monetary policy local banks interest income and profitability has been falling. Last year all listed commercial banks released ‘profit warning statements’ due to the decline in profitability.” Juma said Friday. 

Official statistics shows that Botswana’s banking sector weakened marginally in 2015 as a result of slow global and domestic activity. Due to the weak macro-economic environment, the banks’ profitability remained on a downward trend for the past two years. 

The Bank of Botswana data shows that asset quality in the banking sector weakened, albeit marginally, with the non-performing loans (NPLs) to total loans and advances ratio rising from 3.6% in December 2014 to 3 percent in 2015. 

In April 2015, the central Bank  reduced the primary reserve requirement (PRR) from 10 to 5 percent in a bid to help bolster liquidity in the banking system. The bank released additional funding resources of up to P2.3-billion. 

Meanwhile Juma further said that the reduction will come out as good news for mortgage holders whose premium payment will also go down. 

“Mortgages holders also have a reason to smile. Their monthly repayments will certainly reduce,” Juma said. 


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