The 2013/14 Global Competitiveness Report (GCR) says that Botswana’s banking sector is among the most sound in Africa. To the question of “how would you assess the soundness of banks”, the response from Botswana respondents yielded a score of 5.5 out of a possible 7, placing the country at position 46, the fourth highest on the continent.
The “soundness of banks” measure considers whether banks may require recapitalisation or whether they are generally healthy with sound balance sheets. The best-performer in the Africa is South Africa which is ranked third among the 148 countries surveyed. It is followed by Mauritius (16) and Namibia (23) and the worst performer in the region is Zimbabwe which is ranked 123rd.
The task of ensuring the soundness of banks falls to the Bank of Botswana (BoB) which assesses capital adequacy, asset quality, management, earnings and liquidity and market risk sensitivity as well as adherence to statutory and prudential limits in each of these areas. As other institutions of its kind around the world, BoB uses Financial Soundness Indicators (a set of statistical measures for monitoring the financial health and soundness of a country’s financial sector, and its corporate and household counterparts) which were developed by the International Monetary Fund.
“In order to ascertain the soundness and prudence of a bank, an assessment is made of the bank’s risk management policies and systems. The practices and procedures adopted would reveal the extent to which the financial institution is employing adequate measures to protect depositors’ funds, shareholders’ interests, deployment of resources and effective measurement and control of risks that are inherent in any banking operation,” the bank says in its 2012 Banking Supervision Report.
According to this report, profitability of the banking industry improved in 2012, as pre-tax profits increased by 12.9 percent (9 percent in 2011) to P2.2 billion in 2012. This growth is attributed to the 9.6 percent decline in interest expenses and the much slower growth rate of 13.2 percent in operating expenses.
In the CGR Report, Botswana does not perform as well for the “regulation of securities exchanges” indicator which measures the effectiveness of the regulation and supervision of securities exchanges. Topping the list for all the 144 countries that were surveyed is South Africa; Mauritius comes in at position 22, scoring above the Netherlands, United Kingdom, the United States, Belgium, France and Japan; Namibia is ranked 43rd; Zambia 49th while Botswana is 62nd.