Botswana biggest commercial bank by market capitalisation, First National Bank of Botswana Limited, is unfazed by the central bank’s decision to reduce the amount of the 91-day Bank of Botswana Certificates (BoBCs) in the market.
The Bank of Botswana (BoB) move leaves the commercial banks with over P3.5 billion excess cash which they will have to invest in other products and seek alternative lending opportunities.
Responding to Sunday Standard enquiries on the central bank’s move, First National Bank of Botswana Limited Marketing and Communications director, Bomolemo Selaledi, said the bank has many other products on offer and continues to find lending opportunities which resulted in the growth of its loan book of 24 percent as at June 2011.
On the impact of the central bank move, with particular reference to possible reduction of profit margins, Selaledi said the impact would be minimal as the balances as well as the returns.
As regards the interest that First National Bank has earned in the past five years from the BoBCs, she said the interest has been negligible as the bank has been more or less breaking even and taking the deposit only as service to customers.
Contrary to FNBB assertions that the interest has been negligible, in taking the decision to reduce the amount of the BoBCs, the Central Bank said it continued to incur rising costs by issuing more BoBCs to mop-up increased levels of excess liquidity.
The central bank underscored that access to the certificates could impede the commercial banks’ initiative to seek alternative bankable projects.
“After a careful review of the current market and economic conditions, the Bank has acted to encourage banks to look more towards financing viable projects that would support economic development and diversification, and reduce the level of outstanding BoBCs,” said BoB Head of Communications, Andrew Sesinyi.
BoB, which introduced the certificates as a measure of mopping-up excess liquidity, said excess liquidity could be absorbed through government treasury bills and bonds as well as availing the general public opportunity to invest in government paper as well as distributing the income interest more widely.
Investec Asset Management Botswana analyst Carol-Jean Harward is apprehensive that the central bank move could fuel up inflation as the banks lend out the excess cash and the resultant upward growth in commercial credit.
To that extent the analysts forecasts that inflation for December will stand at nine percent, way above the central bank target range of between three and six percent.
Independent economist and Econsult managing director, Dr Keith Jefferis, holds a similar view to that of Harward that the central bank decision could put pressure on the commercial banks to lend out more or put the excess cash in different assets.
Some economic observers view the central bank’s move in a negative light especially that there are limited assets locally that the commercial banks could invest the P3.5 billion (excess cash ) in.
There are further fears that the move could affect deposit rates and bond yields as more money scrambles for the few available assets.
It has been suggested from some quarters that the central bank should also implore the possibility of increasing auctions and reducing trading sizes.
