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Banking sector is moving into uncharted territory – Jefferis


Subsequent to the drastic changes that the banking sector is experiencing at the moment, the sector is moving into ‘uncharted territory’, says Dr Keith Jefferis, Managing Director of Econsult Botswana.

Jefferis says the between 2010 and 2013, the banking environment was completely transformed, and many of the “received wisdoms” that had applied over the previous three decades have become less relevant. “The impact of these changes is only slowly being realised.”

He notes that from 2008 things took a turn and the bank’s excess liquidity has dropped sharply, to a minimal level; in contrast to 2006, when excess liquid assets made up 45% of bank assets, by the end of 2013 this had dropped to 6%; as a result, banks hold relatively few BoBCs in excess of regulatory requirements.

 In addition the BoBC issuance has dropped dramatically, from the peak of P17.5 billion in 2008 to P5.5 billion at the end of 2013 while the BoB’s annual interest expense has fallen from P2, 128 million to P369 million over the same period.

He observes that a notable change has been the bank profitability has dropped sharply, with the post tax return on equity falling from 55% in 2006 to 25% in2013. Now the banks are now almost fully lent, and there is an emerging shortage of deposits in the banking system the loan-to-deposit ratio rose from 47% in 2007 to 82%in 2013.

Jefferis said due to the deposit ratio approaching its highest level, banks are competing to bring in deposits, which is pushing up deposit interest rates. “There is some evidence that this in turn having an effect on bank lending, with banks becoming more selective in granting credit, and increasing the cost,” he said.

Consequently, the growth rate of credit has been steadily declining. “If the trend of declining liquidity continues, various changes can be expected. As is already happening, interest rates may rise independently of any change in monetary policy rates,” he added.

He added that the changing liquidity environment also changes the impact of certain policy or regulatory measures. “As excess liquidity diminishes, the high PRR becomes akin to a monetary policy tightening, because it contributes to a reduction into the funds available for lending. Hence it may be time to reduce the PRR to make it consistent with the general, more accommodating, monetary policy stance,” he said.

Jefferis observed that there is need for   measures to encourage more deposit inflows into the banking system as a whole, rather than just competition between banks to reshuffle existing deposits.

 “This could include encouraging deposits from non-residents, or stimulating the transfer of resident deposits from foreign currency accounts (FCAs) which account for around 15% of total deposits – to Pula accounts,” said Jefferis.

He added that higher deposit rates would help to encourage inflows of liquidity from outside of the country. Jefferis noted that another possibility would be to place some government deposits with the banks, rather than the BoB.

“The issuance of BoBCs may decline further, and could end up being held by banks simply to meet liquid asset requirements rather than excess liquidity. If so the BoB’s role at the margin would change from absorbing liquidity to providing liquidity to the banking system,” he said.
 

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China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

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Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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