Thursday, May 23, 2024

Banks urged to look away from deposits for other sources of funding

The Bank of Botswana (BoB) has encouraged commercial banks to explore other sources of financing, in addition to deposits. The Central Bank said on the September edition of its 2015 monetary policy mid-term review statement that banks have of late adopted a cautious approach, as they have been wary of lending in liquidity thirsty 2015, despite the prime lending rate being at its lowest.


“Although the prime lending rate fell in response to policy easing, credit growth continued on a downward trend as commercial banks adopted a cautious approach to lending in the context of reduced liquidity and increasing costs of raising loanable funds, particularly through customer deposits,” BoB said on the bulletin.


However, the central bank said overall there is a need for banks to review their asset, liability and risk management practices so they reflect the changed market situation. The Bank of Botswana also urged banks to actively consider possible alternative sources of financing in addition to deposits. The once lucrative banking sector recently came under pressure because of numerous policy decisions by the Central Bank, among them unchanged borrowing rates, which led to banks adopting a cautious approach on their loan books. According to the midterm review, the average prime lending rate for commercial banks fell from nine percent to eight percent, while the 88-day deposit rate fell slightly from 2.67 percent in December 2014 to 2.62 percent in June 2015.

The reduction of the bank rate also sparked a decrease in money market interest rates. The yield on the 14-day BoBC fell from 3.07 percent at the end of December 2014 to 1.87 percent in June 2015. Additionally, the BOBC yield for the June to September three month period eased from 3.19 percent to 2.11 percent.  

Earlier in the year, temporary liquidity shortfalls for individual financial institutions, which to some extent reflected inefficiency of the interbank market, continued to be addressed through recourse to the banks’ credit facilities. Furthermore, the Central Bank reduced the primary reserve requirement on Pula-denominated deposits from 10 percent to five percent effective April 1, 2015, thus injecting liquidity into the banking system. As at the end of June 2015, overall excess liquidity in the banking system was P9.3 billion.

Stockbrokers Botswana said in an interview that during the course of the year the banking sector will continue to come under pressure, leading to investors drifting away from banking stocks and buying shares in other listed securities. Botswana has about 13 commercial banks. The entry of two banks in 2013; Bank of India (Botswana) Limited and State Bank of India (Botswana) Limited, is expected to enhance competition. The licensed banks in Botswana are amongst others BancABC, Bank Gaborone, Bank of India, Barclays Bank of Botswana, Bank of Baroda, Capital Bank, First National Bank of Botswana, State Bank of India, Standard Chartered and Stanbic.


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