Monday, March 8, 2021

Experts bet on consumption patterns to steer banking sector recovery

Global research is almost certain that the banking sector on average was found by the COVID 19 pandemic much stronger than they were after the 2008 financial crisis. Banks were shielded by strong capital and liquidity buffers. But the sheer scale of the economic crash has been beyond anything imagined in stress tests they have taken so far.

So the question become; to what extent are banks obliged to play a central role in steering businesses, consumers and states towards recovery?

Kgori Capital Portfolio Manager Kwabena Antwi says the function of commercial banks is to enable the course of business not steer it.

Consumption patterns, Kwabena says, are what will steer the recovery. He says in Botswana consumer spending patterns and Government spending plans, especially around the deployment of the Economic Recovery and Transformation Plan will guide Business investment plans. These Businesses will then engage the Banking sector for credit to fund their investments.

During this tough times of this invincible Covid-19, loan portfolios come under pressure and this is the time policy-makers and central banks are expected to do enough to minimise the threat of a new financial contagions.

During the third quarter of 2020, the Kgori Capital insights report shows that, the banking sector fared better than expected, supported by Bank of Botswana’s intervention. The total portfolio at risk, which we define as the total value of restructured loans, for listed companies was 10 percent to 15 percent of total loan book on average. Given the increased provisioning by Banks for this event risk, another Portfolio Manager-Equity, Tshegofatso Tlhong showed confidence that the sector will be able to absorb this shock. However, she added “we are still wary of an impending second wave economic impact which will be labour related as some businesses buckle under the pressure.”

Furthermore from Antwi’s response to this publications’ questions, he said “the fiscal and monetary policy support remains in place and we expect it to continue in the near to medium term. The question will always be, what do we define as ‘enough’?”

Globally Monetary and Fiscal policy makers- Antwi believes all have acted swiftly and decisively to curb the impact on financial markets via substantial policy interest rate cuts and financial support packages for businesses and households most affected by the pandemic.

Covid-19 has forced businesses to rethink on how they operate, and looking ahead, some critical measures need to be adopted to reshape for the emerging new normal from focusing on core competencies to accelerating digitalization.

Antwi concluded that, in some instances, behavior has changed, and in some instances, it has remained the same. According to Antwi, data analysis is key to determining what ‘normal’ now looks like; and only then will resources deployed actually deliver a high return on investment. An overarching theme is that an enabling environment and policy framework is key for that pivot to take place, he said.

A local banker – Absa Botswana says the COVID 19 pandemic came at a time when already the economy was fragile and the current impact has been felt at different phases.

Absa Botswana Managing Director – Keabetswe Pheko-Moshagane says this includes limited business activities, job losses low interest rates amongst the many.

Pheko-Moshagane is in support of the new normal to go digital as she explained: “ the future is in investing in technology and means not only competitive but reaching a wide transition agenda to make customers to continue feeling safe.”

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