Wednesday, June 7, 2023

BoB at logger-heads with pension funds

Last week, the Bank of Botswana came under a furious attack from the pension industry which accused it of methods tantamount to encouraging capital flight by restricting the sale of Bobcs to banks which are largely foreign owned.

“The sad thing about Bobcs is that they have now been driven to commercial banks,” said Paul Masie, head of Alexander Forbes Botswana, which is also the administrator of Botswana Public Officers Fund. “Now they are held by six banks and the concern is that most of these banks are foreign owned. The major shareholders of those banks do not even know where Botswana is on the map.”

Bobcs, which were originally introduced as a measure to control inflation, are now an investment vehicle which saw the banks balance-sheets bulging immediately after stock-broking firms and fund management firms struck-out. The central bank took the decision in May and by mid this year all the commercial bank reported strong results, with deposits rising by nearly 100 percent.
The results indicated that they were strongly powered by treasury departments which collect commissions from the deposits.

“Under these circumstances, the people who benefit are the bank’s shareholders who are either seating in London or somewhere in South Africa. And some of them do not know where Botswana is.
“I am sorry for all the banks, you have been given the money on the silver platter,” Masie said.
His comments were echoed by stock broking firms, fund managers and some of Batswana bank managers, who felt that Batswana should get the lion’s share of money generated within the country.
Bobcs are risk free 90-day financial instruments available in the market and attracts high interest to the tune of 13 percent as against eight to 10 percent per annum offered by the commercial banks.

“What we are seeing is a question of bad money leaving the country while smart money is coming in. It’s disheartening that at a time when everybody is looking at Africa as the next growth point the Bank of Botswana is giving away money to people seating in London,” one source said.

“The only arrangement is that we can only enter that market as bank linked Bobcs holders which comes at a price and Batswana are loosing,” he said, adding that the sad thing was that “we do not have any short term financial instrument that can match Bobcs.”

At the time when Bobcs started to be restricted to the commercial banks, they were valued at P 13 billion and the central bank was paying an annual interest of about P 1 billion.

Part of the reason why they were restricted was that they were said to be draining the central bank coffers but now the fund management are stuck with a swath of money which is now being held by the banks in cash.

The mood within the city is that municipalities should be encouraged to issue some financial instruments in the form of bondsÔÇöpartly guaranteed by government ÔÇô so that pension money could develop the country. But the tricky part of it is that councils would have to take credit rating which most of them would automatically not fare well because their systems are not up to scratch. However, if they do so, they would become accountable and deliver on the development projects because they would be transformed from semi-political organizations to be run more like businesses. Attempts to get a comment failed on Friday as business closed before they could give a response.

Meanwhile, Charles De Kock, of Coronation Asset Management, defended the current structure where pension funds are allowed to invest up to 70 percent of their portfolio saying that there are more investment opportunities out there.

“There is huge amount of potential out there. And the returns are very good,” he said. “There is a greater choice of fund managers and hedge funds in the global market.”

His company has offices in Gaborone, Cape Town, London, US and Asia.


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