Monday, June 24, 2024

Making it easier for Batswana to start banks is welcome, BUT……

Botswana’s commercial banks are some of the strongest in the sub-region.

That strength is not incidental.

Rather it is part of a deliberate and concerted regulatory framework implemented by Bank of Botswana.

Capital adequacy is one of the most formidable tools used by Bank of Botswana in its mandate to ensure banks are strong, safe and dependable.

This effectively means that a bank has to be sufficiently capitalized.

The tool helps the Central Bank to assess the levels of risk for each commercial bank under supervision.

A requirement by Bank of Botswana requires is that capital base be strong and also of good quality.

Additionally, Bank of Botswana requires that banks should meet a certain threshold of minimum cash available at any given time.

This helps to regulate just how much the banks can loan out, but also to measure exposure for each bank as a result of such loans.

It goes without saying that some banks would deem this threshold as unnecessarily too high.

But then generally, such are the standards set by Bank of Botswana.

A sizeable proportion of that cash is also deposited with Bank of Botswana for safe keeping and disbursement in case of a crisis such as a cash crunch.

Liquidity levels mean a lot to Bank of Botswana.

Accordingly, the Bank has what they call statutory liquid assets requirement also imposed on commercial banks.

We elaborate all these regulatory requirements to put into context just what is generally required to run a bank in Botswana.

The requirements are strict and stiff. And for a purpose.

Credit risks increased for example during the pandemic. This was mainly a result of many people losing employment. The pandemic was unforeseen. And could not have been prepared for – neither  by the Bank of Botswana nor the commercial banks.

The fact that all banks survived the headwinds associated with the covid pandemic is testimony of the fact that banks in Botswana are strong.

It is a sign that the depth of the financial sector has benefited from the rigours of the Bank of Botswana regulations.

So too has the customers, especially the depositors.

In Botswana a key concern has remained the size and growth of household debt.

Bank of Botswana is no doubt keeping is pulse on this matter.

The fear is that it might lead to too high impairments which might present problems of contagion across the sector.

Bank of Botswana regulations on banks are a result of the Act of Parliament.

The Minister of Finance has come up with a raft of changes to the law to make it easier for Batswana to own commercial banks.

We welcome the initiative. We however point out that we do not trust Botswana Government on its own to come up with guarantees needed to protect the finance sector.

Too many big banks have been collapsing recently – in the United States but also in Europe.

We do not want that to come to our shores.

The protections should remain in place, even for Batswana owned banks.

Starting banks by Batswana and getting those banks to collapse because they were not predicated on strong foundations would be counter-productive.

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