The new entrants in the Botswana banking market are failing to crack the oligopoly, as the big four continue to dominate proving that there isn’t ‘enough strong competition’.
According to the Banking Supervision Report released by the Bank of Botswana (BoB) the four largest banks, Stanchart, Barclays, FNBB and Stanbic, accounted for 90 percent of total assets, total deposits and total loans in 2015.
“The commercial banking sector continued to be characterised by oligopolistic market conditions, with the four largest banks accounting for approximately 79.2 percent (December 2014: 81 percent), 78.1 percent (December 2014: 79.4 percent) and 77.9 percent (December 2014: 80.1 percent) of total banking assets, total deposits and total loans and advances, respectively; a marginal decrease compared with the previous year,” the Bank stated.
The bank says the level of competitiveness, as measured by the Herfindahl-Hirschman Index (HHI), was moderate.
“Competition is expected to improve further once the two new banks, Bank of India (Botswana) Limited (BOI) and Bank SBI Botswana Limited (Bank SBI) 1, fully employ their capital and expand their operations,” the Bank said.
The central bank expects the associated market dynamics emanating from pressure on banks to develop and improve their products and services, in order to increase their profitability, should also contribute to enhancing competitiveness.
According to the report, the country’s financial depth and development indicators improved marginally with the ratios of Private Sector Credit and Banking Credit to Gross Domestic Product (GDP) increasing from 29.1 percent and 31.7 percent in 2014 to 31.6 percent and 32.4 percent in 2015, respectively.
The banking sector balance sheet as well as key prudential and statutory indicators showed some improvement. Total banking assets grew by 12.7 percent to P76.6 billion in 2015 from P68 billion in 2014.
The ratio of Non-Performing Loans (NPL’s) to Total Loans and Advances increased from 3.6 percent at the end of 2014 to 3.9 percent in December 2015. Most of the NPLs (52 percent) were attributable to the household sector.
Total customer deposits grew by 16.4 percent to P60 billion in 2015. Customer deposits constituted the largest part of liabilities and were the primary source of funding growth in banking assets.
The BoB stated that in 2015 banks were adequately capitalised, with the Capital Adequacy and Core Capital Ratios surpassing the minimum prudential and statutory requirements of 15 percent and 50 percent, respectively.
The reports highlights that the industry’s profitability decreased during the year as a result of a combination of narrowing interest margins and an increase in operating expenses. Consequently, Return on Average Total Assets (ROAA) and Return on Equity (ROE) were below historical trends for the Botswana banking sector, but comparable to international norms.
The BoB further stated that the aggregate commercial bank statement of financial position grew by 12.7 percent from P68 billion in 2014 to P76.6 billion in 2015. The growth rate was lower than that for 2014 at 13.4 percent.
“The main contributor to the asset growth was holdings of Bank of Botswana Certificates (BoBCs), which almost doubled in size to P8.2 billion. All banks had an increase in their asset base. On the liabilities side, total deposits, share capital and debt securities experienced significant growth,” the bank stated.
The bank attributed the slow credit growth rate in 2015 resulted from a combination of factors, including commercial banks’ adoption of a more cautious approach to lending in the context of lower business confidence, higher cost of funds and reduced market liquidity in early 2015.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”