Friday, February 23, 2024

Bank of Botswana is a ‘toothless dog’ ÔÇô IMF report

Botswana’s current legislation for central and commercial banking is still lagging behind in the evolving financial sector and best international practices, the International Monetary Fund (IMF) says. 

In a special visit report published this past week, the Washington-based developmental bank says that the Bank of Botswana (BoB) lacks some of the legal powers required for implementing corrective action for commercial banks that are in breach of prudential requirements. 

The IMF team that visited Botswana in the first quarter of 2016 (Q1:2016) at the request of the former BoB governor Linah Mohohlo has come out to say that Botswana banks which are conducting their business in an unsound or unsafe manner can easily “get away” with it as the central bank BoB lacks “legal power” to correct them. 

“In particular, existing corrective action powers are too dependent on the BoB having exercised examination powers, while others are constrained by a linkage to de-licensing powers. Key elements for a corrective action framework, including a contingency plan for dealing with weak banks and guidance on indicative remedial measures based on well defined triggers, are also lacking,” reads part of the executive summary of the report compiled by the IMF team on its BoB assessment. 

According to the IMF team, once a commercial bank has become acutely distressed, the BoB has insufficient legal powers to resolve it effectively. 

“The powers are not sufficiently certain or wide enough in scope to provide an effective legal framework for resolution”, reads the executive summary of the report.

The IMF findings come hardly two years after the BoB battled with Kingdom Bank at the High Court that ended up with de-licensing with the latter. 

A few months before that, Kingdom Bank was placed under temporary management on February 16, 2015 in a move that resulted in suspension of withdrawals from deposit accounts held by the bank. 

At the time, BoB explained that the suspension was meant to enable it to perform its statutory obligations, which includes preparation of an inventory of assets vested in, belonging to or held by Kingdom Bank. 

After the collapse, industry players cast aspersions on BoB’s regulatory framework, saying the reserve bank should have detected the warning signs and acted timeously to protect clients and stakeholders.

Following the Kingdom Bank saga, BoB increasingly came under fire from financial industry players, who said it should have anticipated the collapse of Kingdom Bank and put in place measures to protect the interests of clients and stakeholders.

The IMF team is of the view that BoB’s current powers are largely limited to the ability to issue directives to a bank, to place a bank into temporary management, and to apply to the court for the winding up of a bank or commencement of judicial management. 

As a result, IMF says that there is need for major amendments to the legal framework. 

“Revisions to the existing Bank of Botswana Act (BoBA) and Banking Act (BA) are needed to remedy the deficiencies in the Emergency Liquidity Assistance (ELA) capabilities, corrective action framework and bank resolution powers,” the reports says. 


Read this week's paper