Botswana’s banking sector remains shallow relative to global benchmarks of financial depth, a report compiled by the central bank has shown.
The 2015 Supervisory report of the Bank of Botswana published recently further suggests that Botswana’s banking sector remains small relative to the size of the economy.
In its analysis, the bank states that the financial depth and development, as approximated by the ratio of Private Sector Credit to GDP, increased from 29.1 percent in 2014 to 31.6 percent in 2015.
“When benchmarked against the 51.2 percent average Private Sector Credit to GDP ratios across countries (as reported by the World Bank’s 2015/2016 Global Financial Development Report), the Botswana banking system was shallow. However, the ratio was higher than the Sub- Saharan average of 22.2 percent,” the bank said.
In 2014, Bank deposits to GDP ratio declined from 39 percent in 2013 to 36 percent in 2014 while banking assets to GDP ratio remained constant at 48 percent. On the other hand, the Cash to M2 ratio, which is a measure of liquidity preference, increased from 25 percent in 2013 to 27 percent in 2014, thus implying that the public continued to have an increased preference to hold cash as opposed to savings at banks.
However fast forward to 2015, the BoB data shows that banking Assets to GDP Ratio increased by almost 4 percent to 51.4 percent. Similarly, the ratio of Household Credit and Banking Deposits relative to GDP increased by 1.5 percent and 4.1 percent to 19.2 percent and 40.2 percent, respectively, between 2014 and 2015.
On Credit, the 2014 supervisory report shows that the ratio of Banking Credit to the domestic economy, which is the other proxy variable that determines the ability of banks to mobilise savings in the economy, increased slightly from 31 percent in 2013 to 32 percent in 2014.
The upward movement translates into marginal improvement of the sector’s financial depth. On the other hand, the measure of the degree of intermediation-money supply-relative to the size of the economy decreased marginally from 40 percent in 2013 to 39 percent in 2014.
A quick look at the same chapter in the 2015 report shows that banking Credit relative to GDP recorded a marginal increase (0.7 percent) to 32.4 percent as at December 31, 2015 (December 2014: 31.7 percent).