Wednesday, January 19, 2022

Banks liquidity stirs debate between Mohohlo and Jefferies

MAUN ÔÇô Excess liquidity of domestic commercial banks has come out to be latest topical issue of debate between the central bank governor, Linah Mohohlo and her former deputy, now managing director at Econsult, Dr Keith Jefferies.

At a cocktail dinner marking the beginning of the BOCCIM bi-annual national business conference, Mohohlo could not stop talking about matters relating to excess liquidity in the domestic banking sector.

““By the way, in respect of the banking sector, I would like to take this opportunity to dispel one apparent perception that the banking system is experiencing an overall tight liquidity situation. In particular, I would like to correct the misconception that, in order to alleviate the perceived liquidity shortage, the Bank of Botswana needs to inject liquidity into the banking system.”

Mohohlo said that local commercial banks have abundant liquidity and the central bank will provide liquidity support when needed.

The bank governor further stressed that liquidity in the banking system is not tight. “On the contrary, there is excess liquidity in the banking system which currently stands at approximately P3 billion. This means that banks continue to hold excess investable funds over and above the statutory liquid assets requirement.”

On the other hand, Dr Keith Jefferies late last month noted in his quarterly economic review that the banking sector is moving into uncharted territory.
His assertions are supported by markets figures which show that since 2009, the deposit base of the banking system has contracted falling from 52 percent of GDP in 2009 to only 38 percent by 2013.
As a result the renowned independent economist said that he has observed a trend in which some banks are finding that their ability to lend is being constrained by the availability of deposits.

Jefferies says if the trend of declining liquidity continues various changes can be expected which entail an independent rise in interest rates as well as change in impact of certain policy and regulatory measures.

Meanwhile Jefferies also noted that as a result of the problem of excess liquidity, BoBC issuance has dropped dramatically from the peak of P17.5 billion in 2008 to P5.5 billion at the end of 2013.

However, Mohohlo on Sunday said that the sluggish growth in personal incomes in the last few years contributed to the muted expansion in bank deposits which, when matched against the faster increase in credit, resulted in a decline in excess liquidity.

“There has also been a substantial externalisation of funds by institutional investors, such as fund managers and pension funds; this could be an indication that there may be limited opportunities in the domestic market for such entities to achieve their investment (return) objectives. All told, these factors have contributed to the overall reduction of BoBCs from a peak of P20 billion in October 2010 to the current level of about P6 billion. “

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