Certain happenings in the financial sector in recent months has brought to fore some of the key issues which have been with us for quite some time now. Some of them could have long been resolved urgently by the central bank if we had not turned a blind eye on them.
Few would dispute that the heyday for commercial banks almost went-by, given the recent downward trend in profitability of leading banks. In our view, the recent struggle by commercial banks to make huge profits is, in part, understandable, but their opportunistic behaviour ? cashing-in on the Bank of Botswana’s rather ‘cold’ regulatory stance ? deserves harsh criticism.
When updating financial journalists on the issue of liquidity in the financial sector this week, BoB governor, Linah Mohohlo did not hide her disappointment at the failure by the foreign owned commercial banks to re-invest part of the money into the local economy.
She gave an example of some banks which have built huge stadia elsewhere in and no single infrastructural investment in Botswana apart from their offices/branches. As if that is not enough, the banks have also been accused of lack of investment in human capital. Perhaps that explains the failure by some of the banks to appoint locals to top management positions.
The concerns raised over years about the country’s interest rates spreadÔÇöthe difference between rates charged on loans and that paid out on deposits ÔÇô continue to spark outrage from analysts and consumers alike. For so many years depositors have accused banks of reducing deposit rates at a faster pace than the lending price, allowing them to enjoy higher margins.
Like Mohohlo said on Thursday, it is indeed imperative that banks undertake measures to attract deposits, and focus on productive use of more limited funds available for lending. There is no single doubt that banks need to focus on deposit mobilisation as well as improved financial inclusion as steps in the right direction towards a more mature banking sector.
But of course we cannot blame these banks alone for the reap-off that depositors continue to face. The central bank’s monetary policy is partly to be blamed for the customer rip-off. This is so because we believe that as a regulator the bank has allowed the huge lending interest rates while at the same time allowing the milking of billions of pula from the country through BoBcs. In our view tolls that are employed by the central bank in setting the monetary policy have enabled commercial banks to profit from unbelievable interest rates.
At the same time, it is quite evident that BoBcs have had the effect of dampening commercial bank lending to both households and business in that banks were making more money from BoBcs than from the interest they earned from loaned out funds.
A deep look into the BoB figures shows that until 2010, commercial banks were heavily reliant on the BoBcs as a strong driver of interest income. As a result, in July 2011, the Reserve Bank increased commercial banks’ primary reserve ratios and also capped BoBcs at P10 billion, as part of measures to restrain runaway interest costs.
Also to blame is the government which seems to be content with the public relations gimmicks by these banks that they have Corporate and Social Investments such that it ends up not demanding serious reinvestments.
The #Bottom-Line however remains that the central bank has been set up to regulate banks thus stop ‘greedy’ banking practices. This will go a long way in ensuring an equitable growth in the financial sector and minimise exploitation of hapless savers by commercial banks.
