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BoB assets declined by P3.3 billion

Publishing Date : 11 June, 2018


Financial results released by Bank of Botswana and presented before President Mokgweetsi Masisi and his cabinet last week revealed that the Central Bank’s total assets declined by P3.3 billion for the twelve months period ended 31st December 2017.

In the financial year ended December 2016 BOB‘s total assets were sitting at P77.6 billion, while by the end of December 2017 the bank’s asset had degraded   to P74.3 billion. This includes the foreign exchange reserves which were registered as P73.7 billion by December 2017 compared to P76.8 billion in December 2016.

However in United States dollar terms, the level of reserves increased by 4.2 percent from USD7.2 to USD7.5 billion, while the SDR amount remained unchanged at SDR5.3 billion. Bank of Botswana executives told journalists on Friday that the reserves were equivalent to 18 months of import cover of goods and services. BOB Head of Finance, Daniel Loeto explained that the decrease in foreign exchange reserves in Pula terms reflects the net foreign exchange outflows and net foreign currency revaluation losses, mainly arising from the appreciation of the Pula against the US dollar.

Another notable decline was in the Bank’s net income of which over half a billion contraction was registered. In the period under review the BoB realized net income of 739.5 million pula compared to P1.4 billion in 2016, mirroring a massive depreciation of 660.5 million pula. The BoB Finance Chief deliberated that a total of 1.1 billion pula was transferred from the Currency Revaluation Reserve to cover the distributable currency revaluation losses. “After this transfer the distributable net income for 2017 was P1.9 billion in comparison to the P3.6 billion in 2016,” he said

BoB also explained that the monetary policy was implemented through Open Market Operations (OMO) to absorb excess liquidity in turn ensuring that levels of interest rates remain consistent with the policy stance. In that regard, the Bank introduced measures to improve market efficiency and effectiveness of monetary operations, in particular to better align market interest rates to the policy stance. Two of the key measures were the relaxation on the amount of Bank of Botswana Certificates used to mop up excess liquidity, which helped to alleviate downward pressure on short-term interest rates and correct the misalignment with the policy stance.

In addition, the range of securities eligible for use by commercial banks as collateral when accessing the Bank’s credit facility were broadened to include all government securities, regardless of maturity and Pula denominated bonds issued by the International Finance Corporation in the Botswana market. Commercial banks were, therefore, able to manage liquid assets more efficiently, with less reliance on BoBCs for collateral purposes.

According to the BoB Finance Head, this is viewed as a good move to potentially reduce the cost of monetary policy implementation. Further, financial figures from BOB state that outstanding value of Bank of Botswana Certificates (BoBCs) also realized a decline in the period ended December 2017.

As of December 2016 outstanding value of BoBCs was sitting at P7.9 billion while P6.3 billion was registered in the same period ended December 2017. Loeto explained that Repurchase Agreements (repos) and reverse repos were used during the year to manage liquidity between auctions, and P54 million worth of reverse repos was outstanding at the end of 2017 compared to P1.3 billion in December 2016. “There were no outstanding repos as at the end of 2017,” he said.

Following the measures that were implemented to improve on the efficiency and effectiveness of monetary operations, the 14-day BoBC weighted average yield increased from 0.84 percent in December 2016 to 1.45 percent in December 2017, while the yield on the 91-day BoBC increased from 1.01 percent to 1.41 percent in the same period. In line with the Bank’s commitment to encouraging savings, commercial banks continued to offer and advertise the 91-day deposit facility or equivalent deposit product which pays an interest rate that, at a minimum, is the prevailing Bank Rate less 3.5 percentage points, 2 with higher interest rates for longer-dated deposits.

BoB also reports that the P15 billion Government Bond Programme remains in place, with a focus on the development of the capital market, as well as providing an alternative source of government funding. Outstanding bonds of various maturities and Treasury Bills increased from P9.3 billion at the end of 2016 to P10.2 billion in December 2017. Primary Dealers and their customers held P3.9 billion,37.7% and P6.3 billion 62.1 %, respectively, of the government securities outstanding at the end of 2017, while, the Bank held P20 million (0.2 percent) of the total outstanding securities for possible repo transactions.

During 2017, Bank of Botswana also embarked on the design of a new polymer P10 banknote, which was subsequently launched in February 2018. Polymer banknotes generally last longer than the conventional cotton-based banknotes, are not easy to counterfeit and are more resistant to dirt and moisture.

On Friday BoB revealed that its administration and operations expenses registered a 15 million pula hike due to reprinting and reproduction of some bank notes. In the period under review the annual rate of growth of banknotes in circulation increased from 6.2 percent in 2016 to 10 percent in 2017. “Notably, the rate of increase in net issuance of the P20 banknote denomination increased from 5.1 percent in 2016 to 18.6 percent in 2017, while for the P10 banknotes, the rate of increase fell from 6.5 percent to 1.3 percent in the same period.”

BoB also highlighted that the increase in the net issuance of P20 banknotes during the period under review was largely driven by the need to compensate for the reduced demand for both the P50 and P10 banknotes. The P200 denomination continued to have the highest share of total issuance and quantity of banknotes at 29.6 percent in 2017.

Bank of Botswana Governor Moses Pelaelo observed that during the period under review Botswana continued to attain good ratings from international finance & economic organization as well as global fiscal policy analysis bodies. Both Moody’s Investors Service and S&P Global Ratings retained Botswana’s investment grade credit ratings of A2 and A-, respectively.

Pelaelo explained that the ratings affirmed Botswana Government’s strong financial position as underpinned by well-established prudent macroeconomic policies, the net external creditor position, low public debt and a well-managed economy. “The rating agencies also recognize the existence of robust institutional frameworks that facilitate prudent policy making and continuing political stability,” he said. Pelaelo however underscored that both rating agencies reiterated the concerns about the country’s narrow economic base, specifically heavy reliance on the diamond industry and the slow pace of economic diversification.



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