In mid-March it was revealed that FirstRand, the parent company to First National Bank, was planning to reduce its bank branches by as much as 10 percent, a process that will see the bank shutting down 40 branches and reducing staff in other 31 branches.
As much as 600 jobs are expected to be in limbo, although the bank has said that more than 500 of the affected staff will have to apply for other roles. The latest decision by the continent’s biggest lender comes hot on the heels of Stanbic Bank Botswana’s decision to shut down its Molepolole branch. These developments provide a sobering glimpse in the future of traditional banking as bank branches are replaced by alternative bank channels.
The future of the bank branch appears uncertain as customers are increasingly turning to digital banking channels. The preference for digital banking channels provides customers with convenience as they do not have to physically visit their bank branches but more importantly it has been the banks themselves that have been urging their customers to embrace the use of technology in banking. The online banking channels have become a competitive ground for local banks as they to stay ahead of competition by coming with products that give their customers ease of access and convenience at a cheaper cost.
It all started with advent of mobile and internet banking that signalled the new normal. Almost local banks have a mobile banking platform that offers a plethora of options that allow customers to transfer money between accounts, pay utility bills and other transactions. In addition, banks added other popular services such as e-wallet (FNB) and cash send (Barclays) that allow account holders of those respective banks to send money to recipients who do not have accounts.
At the moment, leading banks like FNB and Barclays are expanding on the ATM deposit taking machines. Just recently, Stanbic bank has broken new grounds with the first of its kind mobile bank that is expected to travel to the remotest areas to deliver banking solutions.
The relatively low costs associated with mobile and internet banking as well as long queues often experienced at bank branches has given the customer the needed nudge to avoid the bank branch at all cost. The preference for digital banking channels is threatening the future of bank tellers and other back room operations as their jobs are now replaced by machines. Yet banks cannot scale back on innovative products that leverage on modern technologies, doing so will result in loss of competitive edge as well as the existing and potential customers. Bank customers have become more discerning, demanding products that offer them convenience at the tip of the fingers.
Another threat to the banking branch comes in the form of non-banking parties that offer mobile payment solutions. The network service providers, particularly Mascom and Orange have venture in a field that has been traditionally reserved for the banking sector. For example, Mascom through its popular My-Zaka allows its customers to send each other money throughout the country, equally Orange money does the same and even offers a card that functions like a visa card allowing for international online shopping. This has added pressure to the banks to change the way they do things, and as things appear the bank branch might be the first to fall.
With mobile penetration standing at 170 percent, Botswana has one of the world’s highest mobile penetrations as such opportunities are abound. It is precisely because of this high mobile penetration that mobile banking remains popular as it does not require internet connection.
But Banks are not content with only mobile banking; they are now pushing towards growing internet banking as it offers more services like card requests and renewals, services which are normally offered at the bank branch. FNB has launched a smart device loan that allows their customers to buy smart phones at affordable rates.
FNBB is not being benevolent; they are hoping to ride on the popularity of the Smart phone that threatens to be the foundational banking channel. Smart phones have become an integral part of our lives; we carry them everywhere and use them to connect to the internet. Banks are hoping to leverage on these to deliver banking solutions that are optimised for the smart phone and its user.
The bank branch will not die an immediate death but FirstRand and Stanbic’s closure of branches as well as introduction of mobile banks points to a future of limited bank branches. Most importantly technological advances have kept banks on their edge, forcing them to adapt fast or lose out and adapting means expanding and improving on the digital banking channels much to the detriment of the bank branch which will surely go down with existing and potential jobs.
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”