One of the leading commercial banks in the country, First National Bank Botswana (FNBB) is expected to report lower financial results for the year that ended 30 June 2015. This would be the first time the bank report such in recent years which comes shortly after the recent reports on financial liquidity squeeze in the domestic banking sector.
Although the company’s financial performance remains strong, it has generally performed badly during the financial year that ended in 30 June 2015. The bank directors could not share the main contributors to this anticipated below par financial results but indicated that full details will be given at the time of release of the financial results. The Botswana Stock Exchange (BSE) quoted bank is expected to publish its financial results for the year that ended on 30 June 2015 at the end of this month.
Despite the anticipated below par performance in the upcoming results, FNBB delivered a fair set of results for the half year ended December 2014, considering the prevailing strenuous economic conditions.
In order to achieve its 16 percent growth in advances, The FNBB is said to have actively manage its liquidity position amid increasing liquidity pressures in the market which helped it to achieve a 1`6 percent growth in advances during the half year period.
SQUEEZED FINANCIAL LIQUIDITY
FNBB’s anticipated material change on its financial results comes at a time when liquidity in the banking sector has been on the fall, a move that forced the central bank to change some of its monetary instruments.
FNBB itself has previously admitted that liquidity remains a nagging problem in the banking sector while another top bank, Barclays Bank Botswana Barclays Bank also complained of suppressed liquidity when it announced its financial results in March this year.
On the government side, Solomon Sekwakwa, the Permanent Secretary in the Ministry of Finance and Development, who is also a board member of the central bank was later to reveal to the Public Accounts Committee that there has been a financial liquidity squeeze in the domestic banking sector.
“There was or is for some time now a problem of liquidity contributed by various variables, and what BoB did to reduce the reserve rate requirement was in part to inject liquidity into the banking sector and to advice banks on gaps that the Ministry saw with the way that they manage. Our hope is to see continual improvement,” he said.
The central bank however is of the view that the description of the condition as a “crisis” is not rightly placed given that it opted to define the situation in a lighter and softer tone. It asserts that the condition is a mere reduction and prospective drying up of excess liquidity, which the banking sector had become accustomed to in the years prior to the contraction of loanable funds.
SLOWER GROWTH IN DEPOSITS
By end of 2014, leading commercial banks tightened their credit lending schemes as the loan/deposit ratio in the banking sector rose to unprecedented levels. At the same time, deposits increased at a slower pace of 31.7 percent from P40.4 billion to P53.2 billion between 2010 and 2014.
While the local banking industry was squirming and pleading for some kind of relief, Bank of Botswana governor, Linah Mohohlo cast a relaxed demeanour of a Governor at ease, saying the slower growth in deposits was possibly due to sluggish growth in incomes, inadequate financial inclusion, more streamlined procedures for government funding of parastatals and very low interest rates paid by banks on deposits.
“It is indeed imperative that banks undertake measures to attract deposits and focus on productive use of more limited funds available for lending. More emphasis on deposit mobilisation and improved financial inclusion would be steps in the right direction towards a more mature banking sector,” Mohohlo said in March this year.
The BoB governor said recent economic and market developments have had no adverse impact on levels of capital in the banking industry, with the aggregate Capital Adequacy Ratio at 19 percent as at January 2015, and above the prudential limit of 15 percent. Still on Thursday, Mohohlo expressed confidence that commercial banks will welcome the PRR reduction as part of a bouquet of complementary initiatives that the Central Bank will undertake in support of banks. Although the reduction released a total of P2.3 billion to augment banks’ loanable funds, some analysts have expressed worries that the move could expose local households to further debt.
Available figures shows that despite low deposits growth, credit from banks continues to grow at a robust pace, as evidenced by the January 2015 annual growth rate of 13 percent, which was higher than nominal economic growth. After the Central Bank changed tactics on Thursday from absorbing liquidity to injecting liquidity into the banking system, it remains to be seen whether commercial banks will open up and issue more loans to households. Analysts have warned that should the available loanable funds be used for consumption and not productive purposes, the domestic economy will likely find itself in a financial trap.