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Credit grows as depositors retreat

The recently released financial statistics from Bank of Botswana reflect the continued decrease of lending to households, indicating restrained growth in personal incomes. Furthermore, the latest data shows that deposits held by banks also continue to decline due to the prevailing lower interest rates.

Total deposits held by commercial banks decreased by P2.3 billion (3.7 percent) from P62.4 billion in December to P60.1 billion in January 2017. This is after deposits of residents businesses decreased by 5.1 percent to P43.2 billion. The resident business category, made up of private businesses and parastatals, registered declines in deposits from private businesses and parastatals which fell by P2.2 billion (5.5%) and P190 million (3.1%) respectively. Furthermore, total deposits took a dip when deposits held by the local government tanked by 17.1 percent to P2.1 billion.

The decline in total deposits held by commercial banks was cushioned by slight increases in deposits held by households which advanced by 1.8 percent to P14.2 billion. Non-residents businesses’ deposits spiked by 63.7 percent to P495.2 million, while deposits held by central increased by 20.4 percent to P206.3 million. The latest data shows that businesses continue to hold the most deposits as they account for 72.7 percent of total deposits compared to 23.5 percent for households.

By type of deposits, there was a decrease in current deposits by P998 million or 7.1 percent to P13.1 billion. Current deposit accounts refers to bank accounts that have no specified maturity date, that is the, the owner can withdraw the funds at any time and without an early withdrawal penalty. Funds are typically made immediately available to the owner.

Deposits held in call accounts fell by 3.2 percent to P20 billion. A call deposit refers to a kind of deposit transactions where the owner of account does not specify savings term and cannot withdraw the money without notifying the bank in advance. The call deposit account combines the convenience of current deposit and higher interest rate than that of current deposit account.

The broader decline in deposits was also recorded in the savings accounts which reduced by 2.4 percent to P4.4 billion. Moreover, deposits fixed up to 1 month reduced by 38.1 percent to P1.1 billion while those fixed up to 6 months decreased by 3.2 percent to P11.8 billion.

As it can be expected, deposits held for longer periods recorded increased as commercial banks offer higher savings interest rates for them. The 3 month fixed deposit account increased by 18.3 percent to P2.4 billion. Deposits held to maturity for 12 months slightly increased by 0.7 percent to P5.5 billion while those held for more than 12 months grew by 6.1 percent to P2 billion.

There has been concern that despite Bank of Botswana’s accommodative monetary stance there has been a low uptake of credit. The recent data reveals credit growth in the beginning of the year on the back of business borrowings. Total credit extended by commercial banks increased by P260 million (0.5 percent) from P51.3 billion in December to P51.6 billion in January 2017. Loans to resident businesses increased by 1.3 percent to P20.6 billion. This was despite a 2.2 percent fall in credit held by parastatals. There was an uptake of credit in the non-resident businesses, advancing by 14.1 percent to P97.4 million. The biggest holder of debts, households, eased on credit as it shed of 0.1 percent to bring its debts to P30.8 billion.

Year on Year, commercial banks credit growth for January 2017 was 5.9 percent, lower than 6.2 percent registered in the previous month. The share of credit to the household sector was 59.8 percent, a decrease from 60.1 percent in the previous month. Outstanding bank of Botswana certificates (BoBCs) at market value decreased by 5.6 percent from P7.9 billion in December 2016 to P7.5 billion in January 2017, potentially reflecting diminishing liquidity in the banking sector.

The central bank uses bank of Botswana certificates to control money supply. If there is too much money supply, the bank sells interest bearing certificates to commercial banks to hold in exchange for the excess money. If money supply falls, the bank redeems its certificates, hence releasing the money bank to commercial banks plus the interest earned, this is reflected by decreases in outstanding BoBCs. The central bank says between December and January it injected liquidity in the banking sector through repurchase operations (repos) of P150 million compared to liquidity absorption of P1.3 billion.

The financial statistics for February reveal that during December 2016, the foreign exchange reserves decreased by 4.5 percent from P80.4 billion in November to P76.8 billion. Based on changes in the reserves, adjusted for unrealized gains and losses, the balance of payments was in an overall deficit by P3.2 billion in December while for the fourth quarter of 2016 the deficit was P873 million. For the year to date, the cumulative surplus was P2.8 billion.

At the end of February 2017, the pula appreciated against the euro by 2.7 percent, while firming against the pound by 2.2 percent. The pula continued to strengthen against US dollar by 1.8 percent while appreciating against the yen by 0.7 percent. The pula lost ground against the rand as it depreciated against it by 2.3 percent. In the twelve months to February, the pula appreciated against the pound (23.4 percent), euro (14.2 percent), US dollar (10.7 percent) and the yean (10.2 percent) but depreciated against the rand (11.4 percent).

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New study reveals why youth entrepreneurs are failing

21st July 2022

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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BHC yearend financial results impressive

18th July 2022

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Commercial banks to cash big on high interest rates on loans

18th July 2022

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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