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Banks defied hostile trading conditions in 2017

Publishing Date : 11 June, 2018

Author : REARABILWE RAMAPHANE

The 2017 Financial year was very difficult for the Banking Sector as most commercial banks battled with harsh trading circumstances as well as sluggish economic growth which deterred any potential business expansions.


The August 2016 and October 2017 interest rate deductions resulted in margin compressions, consequently resulting in low earning for most banks. Still in the 2017 financial year, the retail banking sector realized suppressed personal incomes due to closure of a number of businesses in 2016  and early 2017, this constrained and shrunk people’s ability to access banking services and facilities. For Major Banks, their Corporate and Investment Banking (CIB) divisions had to wrestle with liquidation of some of their major corporate clients resulting in CIB asset balance sheet decline.


Last week, Bank of Botswana (BoB) which regulates and oversees all commercial banks released the 2017 financial year report. At a press conference last Friday the Central Bank underscored that the banking sector’s asset quality had deteriorated. The ratio of non-performing loans to gross loans and advances, it was highlighted, increased from 4.9 percent in 2016 to 5.3 percent in 2017. According to the Central Bank the deterioration in asset quality was against the background of closure of some mining operations in the country, rationalization by some parastatals resulting in loss of employment and defaults by some companies in the diamond industry.


However, the banking industry, which plays an integral role in Botswana’s economic make up as the nucleus of the financial services sector was against these aforementioned circumstances sound, prudently managed, solvent, liquid and satisfactorily profitable in the 12 months period ended 31st December 2017. Bank of Botswana says all licensed banks met the minimum requirements as set out in the Banking Act and Banking regulations. According to the Central Bank report, the financial position defied unfavorable trading circumstances registering a 3.5 percent hike.


“The banking sector financial position increased from 80.6 billion pula as of 31st December 2016 to register 83.5 billion 12 months later in December 31st 2017,” reads the report in part. The industry’s total deposits increased by 1.8 percent from P62.4 billion in 2016 to P63.6 billion in 2017, compared to an increase of 5.6 percent in loans and advances from P51.3 billion in 2016 to P54.2 billion in 2017. As a result, the financial intermediation ratio increased marginally from 0.82 in 2016 to 0.85 in 2017.


Further, the reports says, the annual credit growth declined from 6.2 percent in 2016 to 5.6 percent in 2017, reflecting the slower rate of increase in mortgage lending and early repayment of loans by some statutory corporations. Bank of Botswana monitors the performance of banks through a system of monthly and quarterly returns, risk-based supervision, on-site examinations, regular consultative meetings with each bank and trilateral meetings with banks as well as their external auditors.  


Another key instrument which BoB uses to cordially oversee the Banking industry is the biannual meetings of the Banking Committee which facilitates detailed discussions of industry-wide matters. BoB Head of Banking Supervision, Dr Lesedi Senatla observed that despite sluggish economic conditions and against all odds, the sector was adequately capitalized, profitable and liquid as at December 31, 2017. “The industry’s compliance with the regulatory, prudential, capital and liquidity requirements was satisfactory,” he said.


BoB reports that most banks registered higher levels of profit in 2017 compared to 2016. However three banks registered losses for the year ending December 31, 2017. BoB Head of Finance Daniel N Loeto noted that losses recorded by some banks would, in the absence of additional capital injection, reduce capital adequacy ratios as losses are deducted from Tier I capital.


On other key events during the period under review Kingdom Bank Africa Limited (KBAL) got liquidated resulting in litigation instituted by one of its major creditors against the Bank of Botswana for alleged negligence in the performance of statutory duties. Abandoned funds continued to be administered in accordance with Section 39 of the Banking Act (CAP 46.04).


As at December 31, 2017, the total abandoned funds balance was P10.6 million, up from P6.9 million as at December 31, 2016. During the year, an amount of P2.9 million was claimed, while P445 962 was transferred to the Guardian Fund. For the period under review in the twelve months to September 2017 the banking sector grew by 5.4 percent contributing significantly to the finance and business services sector which expanded by 4.6 percent in the same twelve months compared to 4.1 percent in the year ended September 2016.


The growth cut across the entire financial and business services subsectors led by business services at 7.6 percent, real estate at 6.4 percent, insurance at 3.7 percent while business prospecting increased by 3.2 percent with owner-occupied dwellings growing by 1.8 percent.

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