The Bank of Botswana (BoB) has distanced itself from the downfall of an offshore bank, Kingdom Bank Africa Limited, which has strong links to Zimbabwe.
The central bank last week refuted allegations that the recent collapse of Kingdom Bank is indicative of its limited capacity to monitor and regulate commercial banks. The Reserve Bank has increasingly come under fire from financial industry players, who said it should have anticipated the collapse of Kingdom Bank and put in place measures to protect the interests of clients and stakeholders.
In an interview with Sunday Standard, Andrew Sesinyi-Head of Communications at BoB, said the Reserve Bank’s regulatory and supervisory standards and practices are consistent with international best practice. He explained that BoB has adopted supervisory approaches that entail on-site and off-site monitoring of banks as well as regular bilateral and trilateral meetings.
Kingdom Bank was placed under temporary management on 16th February in a move that resulted in suspension of withdrawals from deposit accounts held by the bank. At the time, BoB explained that the suspension was meant to enable it to perform its statutory obligations, which includes preparation of an inventory of assets vested in, belonging to or held by Kingdom Bank. After the collapse, industry players cast aspersions on BoB’s regulatory framework, saying the Reserve Bank should have detected the warning signs and acted timeously to protect clients and stakeholders.
“The reality is that BoB has failed clients, shareholders and employees of Kingdom Bank because they relied on it to keep an eye on the goings-on at the bank. They slept on the job, which shows that their regulatory framework is lacking,” they said.
However, Sesinyi maintained that BoB’s regulatory and supervisory framework is robust and sound. He added that BoB has well-established systems and procedures for regular collection of prudential data and monitoring of all licensed banks to ensure effective compliance with liquidity, solvency, governance and other prudential requirements.
“The BoB has a good track record of effective banking supervision and the measures currently in place are considered sound and robust; and continue to be improved,” he said.
Asked whether the recent collapse of Kingdom Bank was indicative of a liquidity crisis in Botswana, Sesinyi explained that Kingdom Bank was an off shore investment banks whose activities were ring-fenced as it dealt exclusively with non-resident persons.
“Kingdom Bank neither accepted Pula deposits nor made loans to persons and other entities resident in Botswana. In contrast, the domestic banks conduct business mainly with Botswana based entities, taking deposits and on-lending such funds to members of the public. The liquidity problems surrounding Kingdom Bank were totally unique and therefore unrelated to any economic events or circumstances in the domestic banking system,” he said.
He further said domestic banks were unlikely to go the same route as Kingdom Bank as they are all in compliance with the minimum prudential and other regulatory requirements of the BoB. The same sentiments were repeated by BoB Governor Linah Mohohlo at a press briefing on Thursday when she said Botswana’s banking sector is sound and profitable. However, industry players have said Mohohlo’s assurances are in conflict with sentiments raised by the banking industry which as repeatedly complained of diminished liquidity, huge impairments and a hostile trading environment.
“We all know what is happening in the banking industry, yet the Reserve Bank wants to give us an impression that all is rosy. They have just displayed blatant regulatory failure, yet they expect us to take their word as gospel,” they said.
For his part, Sesinyi explained that the Reserve Bank moved fast to assume temporary management of Kingdom Bank after satisfying itself that the bank was in unsound financial condition and that its board and management had failed to conduct business in a prudent, safe and sustainable manner.
“The inventory of assets compiled by the Temporary Management team confirmed that Kingdom Bank was illiquid and insolvent. The board and management of any bank has the responsibility to conduct the affairs of the bank in a prudent, safe, lawful and sustainable manner. The BoB’s regulatory and supervisory standards and practices are consistent with international best practice,” he said.
He further said BoB requires all banks under its supervisory ambit to have robust and effective risk management systems. He said it is the responsibility of the board and management of any bank to put in place effective risk management systems and adopt such risk management strategies to efficiently meet both expected and unexpected cash flows and other needs without adversely affecting their daily operations or the financial condition of the bank.