‘Banks in temporary liquidity squeeze’

Bank of Botswana (BoB), the regulator of commercial banks this week allayed fears that the multibillion Pula sector is headed for a second liquidity squeeze in a period of less than two years.

Botswana Guardian understands that between December and January this year, there has been a notable increased activity within the interbank lending market, a clear sign that some commercial banks were short of liquidity to keep their respective operations running. Two years ago, the central bank was forced to devise a rescue plan to bailout the then embattled banking industry which was experiencing liquidity challenges, which limited their ability to generate fresh loans.

At the time, BoB injected P2, 3billion in the industry, after relaxation of Primary Reserve Requirement (PRR) to keep the industry alive. However, there are signs that the sector, which accounts for half the country’s Gross Domestic Product (GDP) might fall into a similar crisis. However, BoB said there is no need to press panic buttons, as the industry is sound.

At a Press conference to announce the Monetary Policy Committee decision on lending rate this week, central bank executives admitted that there have been increased lending activities among banks in the past months. “We are not denying it (liquidity squeeze). This is coming from temporary factors such as reduced government spending and increased demand for funds during the said months (January and December),” newly promoted Head of Financial Markets department, Matthew Wright told Botswana Guardian.

“Some banks might have been short of funds, but they never came to us,” he said. Wright told the Press that, some temporary factors that could have resulted in limited funds in the market include increased demand for foreign currencies, especially during the holiday period when most locals were travelling to foreign countries.  “This explains why some banks borrowed funds from each other,” he stressed. During the 2014/15 liquidity squeeze that was experienced within the local banking market, some banks turned away clients under the pretext that they did not meet their lending criteria. However, this time around, there have not been instances where clients are turned down purely because of limited funding.

“We have not come across an instance where a productive project is turned down because of limited funds within the banking industry,” disclosed BoB Governor, Moses Pelaelo. Pelaelo, who succeeded Linah Mohohlo last year, said they are keeping a close eye on developments related to a possible liquidity squeeze before they can act. Despite fresh information suggesting that the local bank might be teetering on the brink of a credit squeeze, some commercial banks’ profits are picking.
Listed commercial bank, First National Bank Botswana has reported a 9 percent increase in profits.

Barclays Bank Botswana, is also expecting improved results in the year that ended December 2016. Meanwhile, BoB’s Monetary Policy Statement (MPS) released this week shows that, banks extended less money to clients in the past year. Annual growth in commercial banks’ credit decreased from 7.1 percent in December 2015 to 6, 2 percent in December 2016. 

“The slowdown in annual credit expansion was mostly associated with the decrease in growth in lending to households,” said the report. The bank attributed the fall in households to restrained growth in personal incomes. Property loans declined in the past year. Bank executives attributed the decline to a ‘weak property market’.

Annual growth in mortgages declined from 7, 2 percent to 6, 3 percent. Meanwhile, the central bank reported in the same MPS that credit to the mining sector declined mainly because of BCL loan repayment in December 2016. BCL which has been placed on voluntary liquidation received a loan of about P1billion from Barclays Bank Botswana early last year. The loan, which was guaranteed by government, has since been repaid in full.