The Bank of Botswana has reported on its financial condition and performance. According to the Bank’s 2018 Annual report, total assets declined by P2.1 billion to P72.2 billion in December 2018 (P74.3 billion in December 2017), of which P71.4 billion was foreign exchange reserves.
In foreign currency terms (United States dollars (USD) and Special Drawing Rights), the foreign exchange reserves decreased from USD7.5 billion to USD6.7 billion and from SDR5.3 billion to SDR4.8 billion in the same period. At this level, the foreign exchange reserves were equivalent to 15 months of import cover of goods and services. The decrease reflects, among others, drawdowns of foreign exchange by government and significant adverse valuations, specifically global equity markets towards the end of the year.
Giving a report on the performance of the BoB, Governor, Moses Pelaelo wrote that the Bank’s net income for 2018 was P2.9 billion, compared to P739.5 million in 2017. After transferring nondistributable currency gains of P4 billion to the Currency Revaluation Reserve and market valuation losses of P5.9 billion to the Market Revaluation Reserve, the net distributable income to Government was P4.8 billion, higher than the P1.9 billion in 2017.
Commenting on the banking industry, Pelaelo pointed out that it was sound, prudently managed, solvent, liquid and profitable. All licensed banks met the minimum prudential requirements as set out in the Banking Act and Banking Regulations. “The banking sector’s statement of financial position (the balance sheet) increased by 9.3 percent, from P83.5 billion in December 2017 to P91.3 billion as at December 31, 2018.
The industry’s total deposits rose by 9 percent from P63.6 billion in 2017 to P69.3 billion in 2018, while loans and advances increased by 7.6 percent from P54.2 billion to P58.3 billion during the same period. Overall, annual credit growth accelerated from 5.6 percent in 2017 to 7.7 percent in 2018, with a faster expansion in credit to business, while growth in lending to households slowed in an environment of modest increase in personal incomes,” he wrote in his foreword.
According to Pelaelo, national and international payments were carried out efficiently through various platforms, including the Botswana Automated Clearing House (BACH). He said the Bank continued to embrace improvements in the payments and settlement landscape that were driven by developments in information and communications technology, competition and customer requirements. “The Bank also implemented related security and risk mitigation measures to avert any possible cyber-attacks, fraud and misuse of payments systems.”
During 2018, Moody’s Investors Service and Standard & Poor’s Global Ratings affirmed Botswana’s investment grade ratings of A2 and ‘A-/A-2’, respectively, for long and short-term bonds in domestic and foreign currency. “The outlook was reaffirmed to be stable by both the credit rating agencies. The strong external and fiscal balance sheet, a well-managed economy and low public debt, as well as the country’s robust public institutions and a stable political environment supported the ratings. However, both rating agencies reiterated the concerns relating to the narrow economic base and relatively slow progress in economic diversification,” continued Pelaelo.
In 2018, the Bank spearheaded the establishment of the Financial Stability Council (FSC), an inter-agency administrative body aimed at strengthening the implementation of the financial stability mandate. Pelaelo said the FSC’s primary focus is to foster coordinated macro-prudential analysis, monitoring and response to financial system imbalances or distress to ensure a sound and stable financial system, which is supportive of sustainable macroeconomic environment.
Supervision, Regulation of Banks, Bureaux de Change
During 2018, the Bank continued to monitor the performance of banks through a system of monthly and quarterly returns; risk-based supervision; on-site examinations; bilateral and trilateral meetings (the Bank, banks and their external auditors); ad hoc consultations as necessary. According to the 2018 report, most banks reported higher profit levels compared to the previous year, with the exception of one bank, which made a loss for the year ending December 31, 2018.
It states that the banking sector’s balance sheet increased by 9.3 percent from P83.5 billion in 2017 to P91.3 billion in 2018. Meanwhile, the industry’s total deposits rose by 9 percent from P63.6 billion in 2017 to P69.3 billion in 2018, while loans and advances increased by 7.6 percent from P54.2 billion to P58.3 billion in the same period. Consequently, the financial intermediation ratio4 fell from 85.2 percent as at December 31, 2017 to 84.2 percent at the end of 2018.
“All banks were adequately capitalised, liquid and complied with the minimum prudential and statutory capital and liquidity requirements. However, one bank had a capital adequacy ratio below 15 percent, which is the prudential limit, as at December 31, 2018. In addition to the prudential supervisory role, the Bank continued to monitor business conduct to ensure that banks treated their customers in a fair, professional and transparent manner.”
Statutory Report on the Operations and Financial Statements of the Bank, 2018
The noticeable blight in the report was the liquidation of the defunct Kingdom Bank Africa Limited and the subsequent litigation instituted by one of its major creditors against the Bank of Botswana, for alleged negligence in the performance of statutory duties, was in progress as at December 31, 2018.
Furthermore abandoned funds continued to be administered in accordance with the provision of Section 39 of the Banking Act. “As at December 31, 2018, the balance of abandoned funds was P15.1 million, up from P10.6 million in 2017. During the year, P423 292 was claimed, while P1.3 million was transferred to the Guardian Fund.”
In an effort to strengthen the implementation of the financial stability mandate, the Bank of Botswana spearheaded the establishment of the Financial Stability Council (FSC), an inter-agency administrative body comprising senior representatives of the Ministry of Finance and Economic Development, the Bank, Non-Bank Financial Institutions Regulatory Authority, and the Financial Intelligence Agency.
The FSC’s primary focus is to foster coordinated macro-prudential analysis, monitoring and response to financial system imbalances or distress to ensure a sound and stable financial system, which is supportive of sustainable economic development. According to the Bank of Botswana report, during 2018, five new bureaux de change were licensed, while nine licences of bureaux de change were revoked for two reasons. Four bureaux de change voluntarily surrendered their licences, while five contravened the Bank of Botswana (Bureaux de Change) Regulations of 2004. Therefore, 57 bureaux de change were in operation as at December 31, 2018.
“The Bank carried out full scope on-site prudential and anti-money laundering and combating financing of terrorism (AML/CFT) examinations at selected banks in 2018. In this regard, concerned banks are required to implement remedial and corrective supervisory actions, where deficiencies were found. In addition to adverse citings relating to governance and operational processes, a total of P299 160 in penalties was levied on some banks for legal and regulatory transgressions. Going forward, the combination of supervisory action and response by the banks should result in an improvement in implementation and compliance with respect to AML/CFT requirements and related governance and risk management.”
The 2018 Bank of Botswana report further notes that “The October 2018 meeting of the Financial Action Task Force (FATF) on AML/CFT, determined that progress made by Botswana was not adequate to address identified strategic deficiencies. Therefore, the country was placed under observation by the FATF and a public statement was issued on Botswana pointing out the strategic AML/CFT deficiencies for which an action plan was developed for the country to address.
The FATF will closely monitor the implementation of the action plan, and once a determination is made that Botswana has substantively addressed all the elements in the action plan, an on-site visit will be organised to confirm the implementation of the necessary legal, regulatory and/or operational reforms. If the on-site visit has a favourable outcome, the FATF may decide to remove the country from the ‘grey list.’”
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.