Thursday, October 22, 2020

Asset quality of Botswana banking sector weakens – BoB

The Bank of Botswana (BoB) says the asset quality of Botswana’s banking sector weakened marginally in 2015 as a result of slow global and domestic activity.

In a press statement released last week, BoB Governor Linah Mohohlo said the downturn in global demand for commodities in 2015 directly affected the performance of Botswana’s key mineral exports, including diamonds and copper/nickel products.

Internally, power outages and a debilitating drought situation constrained the economy and resulted in a 0.3 percent drop in the annual gross domestic product (GDP). She said the economic slowdown also subdued prospects of job creation while asset quality dropped as non-performing loans mounted across the banking sector.

“Against the backdrop of sluggish global and domestic economic activity, 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 3.9% in 2015. The Bank of Botswana reduced the primary reserve requirement (PRR) from 10% to 5% in April 2015 in order to help bolster liquidity in the banking system, thus releasing additional funding resources of up to P2.3-billion. Due to the weak macro-economic environment, the banks’ profitability remained on a downward trend during the year,” Mohohlo said.

However, she noted that despite the instability, local banks continued to be financially “safe and sound” as they met prescribed prudential thresholds for capital adequacy, credit concentration, liquidity and foreign currency exposures. Furthermore, all the financial soundness indicators of local banks compared favourably with the regional banking sector average.

According to the 2015 sectoral report, the number of licensed banks dropped to ten after the BoB revoked one licence. The commercial bank and Automated Teller Machine (ATM) network also decreased markedly as clients embraced the roll-out of new e-banking facilities and services. The moderate level of sectoral competitiveness was expected to improve with two more banks opening in 2016.

However, the financial depth and development of Botswana’s banking sector remained too shallow when compared to the size of the economy it sustained. By size, the local banking sector expanded only marginally from the 29.1% in 2014 to 31.7% in 2015.

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