Thursday, December 3, 2020

Local banks assets up in smoke

Banking assets edged down slightly and default delinquencies were in sharp rise last year as the local economy came under pressure from the negative impact of the global economic crisis, Central Bank report has indicated.

In its recent┬áreport looking into the performance of the local banks, Bank of Botswana (BoB) said the asset base of┬áthe banks dropped┬áby three percent to┬áP44.1 billion ÔÇö┬áindicative of the unfavourable economic climate presented by the global economic downturn.

It said the fall in assets base was in contrast to 21 percent asset growth recorded in 2008.

“The underlying reason for the contraction in the asset base was not┬áso much linked┬áwith the restriction on credit extension because lending increased; it was linked more to portfolio adjustments┬áaimed at moderating the┬á impact of the┬á global financial crisis,” the Central Bank said.
The findings of the report are against┬áthe┬áearlier position that was taken by the Central Bank at the initial stages of the crisisÔÇöthe subprime mortgage crisisÔÇöwhen it┬ádismissed fear that the situation could eventually affect Botswana.

The Central Bank insisted by then that crisis were only restricted to the USA and other developed nations of Western Europe.

Its counterparty placements’┬áconfidence collapsed ÔÇô to the point of near mayhemÔÇöduring the year as banks were not willing to do business with others.

“Counterparty confidence dropped significantly as banks reduced┬átheir placements with other banks and credit institutions by 32 percent and other investments by 87 percent. One bank, in particular, reduced its other investments by 99 percent, from P 2.3 billion┬áto P 12 million,” the report said.
As interbank confidence hit the lowest levels most of the banks pumped cash into Bank of Botswana Certificate, which is a risk free and higher return investments, for the primary dealers who are the commercial banks.

The report further indicated that although loans and advances from the banks shot-up 11 percent to P 19.7 billion the growth was slower than the 28 percent registered in 2008.
The situation was made worse by sky-rocketing non performing debts which rose by 53 percent of the total loan book.

“In addition, but also not surprising┬ánon performing loans rose sharply (53 percent) thus reflecting a deteriorating industry loan book during┬á2009. This is indicative of the delayed crystallisation of the effects of the global financial crises,” it said.
The move resulted in local banks having to draw from their war chest to mitigate against the sharp rise in the default rate.

The banks were also faced with a difficult task of attracting deposit during 2009 as it deposits were marginally up by 0.7 percent to P 37.6 billion against a growth of 28 percent that was recorded in 2008 and in turn affecting the banking sectors ability to make profits.

The report was looking at the eight private commercial banks and statutory banks in the country.

The private commercial banks controlled 94 percent and 97 percent of industry assets and loans in 2008 but they slipped down to 91 and 88 percent in 2009.

However, the private commercial bank still controls 98 percent of the deposit market in the country.

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The Telegraph December 2

Digital edition of The Telegraph, December 2, 2020.