Wednesday, June 23, 2021

Fears mount on commercial banking sector saturation

Fears are mounting that the commercial banking sector offering same products could be heading for saturation.

Commenting on the recent licensing of two Indian-owned commercial banks by the central bank, former Bank of Botswana (BoB) deputy governor and independent economist, Dr Keith Jefferis, expressed fears that the local commercial banking sector offering same products may get saturated.

Commercial banks regulator and licensing authority, BoB, last month issued two more banking licenses to Indian-owned commercial banks, raising the number in the local market to three.

A press release issued by the central bank’s head of communications, Andrew Sesinyi, notifies the general public that in accordance with Section 3 (1) of the Banking Act, Bank of India (Botswana) Limited (BOI) has been granted a licence to transact banking business with effect from July 29th, 2013.

Another press release issued by the same office further notifies the general public that yet another banking license has been issued to State Bank of India (Botswana) Limited (SBI) on the same date.
The licensing brings to three the number of Indian-owned banks in the local commercial banking sector. The first Indian bank to open shop in Botswana was Bank of Baroda.

BoB is understood to be saddled with a number of commercial banking licensing due for consideration.
In an interview with Sunday Standard on whether the local commercial banking sector was not yet saturated given the country’s small banking market, Dr Jefferis said it’s quite likely saturated in terms of same products offering.

“There is scope for banks to take a different approach such as introduction of branchless banking through the use of new technology as the interface with customers and agents (retail stores). Cash-in and cash-out banks are still needed. Branch-based model doesn’t have much future, especially for new entrants in the commercial banking sector market,” said Dr Jefferis.

Asked whether it was prudent for the central bank as the licensing authority to continue granting commercial banking licences given the country’s small banking sector, Jefferis said the decision to establish a commercial bank does not rest with BoB.

“It is a business decision for the investor. The regulator’s role is to make sure that the new bank meets regulatory requirements such as capital adequacy and risk management. The decision to grant a licence is based on whether the applicant for banking licence has sufficient capital, adequate management and governance as well as a credible business plan,” said the independent economist, adding that the new applicant should further be able to show how it intends to compete.

While fearing that same banking products offering has potential for market saturation, Jefferis welcomed competition in the commercial banking sector as, in his view, it is good for the consumer.
“Generally more competition and choice is a good thing. That is the advantage the consumer will enjoy as he will have a wider choice of banking services. A larger and more efficient banking sector is a positive development to economic growth,” he explained.

A market analyst who did not want to be named echoed similar sentiments to those proffered by Jefferis, fearing that on the back of the small banking sector, new entrants “may find it hard to survive as Batswana are conservative and likely not to be influenced to switch to the new banks”.
“The new banks must be in a position to offer new attractive products. If they are unable to, they may find the going too tough. As for the consumer, the competition in the banking sector is a welcome development. This proves that the Botswana economy is steadily growing hence it is able to attract banks from outside to set up shop here. It is a positive development,” said the analyst.

The granting of the two banking licenses comes at a time when the Botswana Building Society is gearing up to demutualise and start a commercial banking operation, if granted permission.

The Building Societies Act Transition Draft Bill is understood to have been completed and due for presentation to the National Assembly for approval. Once approved, BBS will be able to commence commercial banking transactions which it currently is inhibited from undertaking.

The granting of the two new licences increases the number of commercial banks in the country from eight to 10.

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