A report on Botswana’s economic outlook, prepared by the Afdb, OECD and UNDP states that the country operates a small but thriving financial industry, with commercial banks and pension funds being the most dominant institutions by asset size. The sector’s robustness, said the report, is demonstrated by a number of prudential indicators pertaining to asset composition and portfolio quality.
The report’s positive sentiments about the financial sector were expressed earlier this year by Minister of Finance, Ken Matambo when he delivered the 2014 budget speech. He credited the high performance of the non-mining sector, including finance and business services, for offsetting the dip in performance of the mining sector. Collectively, the non-mining sectors registered a positive real growth rate of 6.2 percent in 2012, with the finance and business services sector growing by 11percent.
“This shows progress in economic diversification. The finance and business sector showed resilience even during the 2008/09 economic down-turn. Despite a subdued global environment, real GDP growth in Botswana was expected to grow by 5.1 percent in 2014 partly driven by the finance and business sector. Government will devise strategies to promote inclusive growth in this sector because it has potential for growth and employment creation,” said Matambo.
The report said Botswana’s banking system is profitable and well-capitalized with a relatively low level of non-performing loans .The ratio of non-performing loans to gross loans declined marginally from 2.9percent in 2011 to 2.6percent in 2012. However, concerns were raised about Botswana’s unsecured household debt which increased by 30percent in 2013 and resulted in household credit, mainly unsecured debt, becoming the largest share of total commercial bank lending. The report stated that escalating household debt and accelerated growth of unsecured lending in Botswana’s banks are potential vulnerabilities.
“This underscores the need for the authorities to enhance surveillance to temper the rate of growth of household borrowing,” read the report.
With its adequate capital levels, good asset quality and sufficient liquidity, Botswana’s banking sector is the backbone of the financial and business services industry. As at September 2013, local banks’ total assets stood at P60.4 billion compared to P57.8 billion in the previous year. The number of commercial banks in Botswana also increased from 11 to 13 following the licensing of two banks in 2013. In the same year, banks increased their distribution channels such as branch networks, automated teller machines, points of sale machines, mobile-phone as well as internet-based banking services. They also bolstered their strategic partnerships with mobile network operators to provide financial services to the unbanked population.
Botswana’s capital market operations are largely conducted through BSE which plays the role of operating and regulating equities and fixed interest securities markets. While market capitalization is reasonable at about 28percent of GDP, the report bemoaned a dearth of long-term private assets, with government as the main issuer. However, said the report, the issuance is limited to only twice a year and currently the longest loan issued has a 5-year term.
“Thus, while institutional investors are very keen on long-dated Botswana pula assets, the market does not currently provide these. The low liquidity in the stock and bond markets undermines their ability to provide price signals to savers and investors,” read the report.
Matambo also promised that government will continue to promote development of the domestic bond market in recognition of the critical role of a well-functioning capital market. He said the BSE has facilitated registration of the Botswana Bond Market Association in September 2013 to promote standardized and competitive bond market conventions and enhance awareness of the importance of savings and investment. The Association would begin formal implementation of its mandate in 2014 to promote efficiency and liquidity of the bond market by resolving structural issues impeding bond market development.
“A liquid bond market provides a conducive environment where the private sector can raise capital for investment spending, and where investors can participate in economic development,” said Matambo.
However, Matambo said the sector is still faced with some challenges, as identified in the Financial Sector Development Strategy (2012-2016). He said government is working with relevant stakeholders to continue implementing some of the recommendations of the study which will address issues of financial inclusion and result in improved access to financial services, as well as enhanced service delivery by the banking system.
