Wednesday, December 7, 2022

The Non-Banking sector’s resilience

The period spanning 2021/2022 has been characterized by the residual negative effects of COVID-19 at a global level. However, there are some signs of an economic rebound amid slow and uneven growth, high inflation, geo-political tensions, supply-chain disruptions, increased commodity and energy prices, the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) said this week when presenting highlights of its 2022 annual report.

Despite the challenging global and domestic environment, the sector remained relatively stable and sturdy without obvious vulnerabilities in the short to medium term, according to the report.

The regulator said as an indicator of resilience, licensed entities increased from 786 to 799 between 2020 and 2021, while the sector’s total asset base grew by 18.4 percent to P153 billion in 2021, accounting for 57 percent market share in the local financial services sector. The growth is significant when compared with the 2.5 percent growth in the prior year, with improvement largely attributed to the retirement funds industry which continued to dominate the non-banking financial institutions (NBFI) sector, accounting for 72 percent in 2021.

Lending activities, capital markets and insurance assets increased by 19 percent, 45 percent and four percent, respectively, though coming from lower bases after performance in the prior years was wrecked by the COVID-19 pandemic.

From the data, the sector’s capital position improved by 8 percent from to P8.8 billion in 2021, mainly on account of changes in the lending activities and insurance, while capital markets recorded a decline in liabilities. However, the NBFI sector’s profitability ratio decreased from seven percent to five percent reflecting a reduction in profit for both insurance and lending activities. Capital markets’ profitability ratio on the other hand, increased from 14 percent in 2020 to 29 percent in 2021.

NBFIRA’s chief executive office, Oduetse Motshidisi, said on a broader scale the key indicators are reflective of the soundness of the sector. “The worst effects of the COVID-19 pandemic have receded at home and abroad, however, economic recovery is yet to reach pre-pandemic levels across many parts of the world, including our country,” he said on Thursday during a media briefing.

Earlier this month, the Financial Stability Council (FSC) – comprising of the ministry of Finance, Bank of Botswana, NBFIRA, and the Financial Intelligence Agency (FIA) – which regularly meets to deliberate on domestic financial stability developments, said the system remains resilient and robust.

The sector continues to be safe and sound, unconstrained in providing and growing the range of financial services to support the economy. However, there are potential risks to the stability of the domestic financial system emanating from the negative effects of the Russia-Ukraine war and other geopolitical tensions, continued exposure to cyber threats due to increasing usage of technology, as well as climate-related financial risks,” the council said in a statement.

They added that the resilience and effectiveness of the financial system in providing financial services to the economy is anchored by strong capital and liquidity buffers, profitability, as well as an enabling and effective regulatory environment and conducive macroeconomic conditions.

“The Non-Bank Financial Institutions (NBFIs) sector remains financially sound and stable as attested by increase in assets and capital adequacy levels. The Council affirms commitment to policy and regulatory responses, where necessary, to address any risks to the financial system and to ensure smooth transition and implementation of new legislation and regulations, with a view to ensuring attainment of their desired objectives,” the statement said.

The FSC was officially launched in February 2019 through a Memorandum of Understanding (MoU), with the primary objective to identify, monitor and take proactive action to any emerging threats to the resilience and stability of the Botswana financial system as a whole.

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