Domestic banks continue to be financially safe and sound as they have satisfied the prescribed prudential thresholds for capital adequacy, credit concentration, liquidity and foreign currency exposures despite challenges bedevilling the sector, a report has revealed.
Bank of Botswana Governor, Linah Mohohlo, said in 2015 domestic banks’ financial soundness indicators compared favourably with other regional banking sectors. “Overall, in 2015, banks were compliant with key prudential requirements as expected and were resilient. Where incidences of non-compliance occurred, corrective action was instituted, not least through consultation and engagement with the banks concerned,” she said in a statement made in the Banking Supervision Annual Report 2015 released recently.
Last year, Mohlolo said the central bank reduced the Primary Reserve Requirement from 10 percent to 5 percent in April 2015, in order to bolster liquidity in the banking system, thus releasing additional funding resources of about P2.3 billion. She however said, due to the weak macroeconomic environment, the banks’ profitability was on a downward trend during the year. The governor also highlighted that the banking sector was dominated by five banks, which accounted for 90 percent of total banking assets.
The commercial banking sector has 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.
“‘When one of the small banks is included, given its rapid growth, total banking assets, deposits and loans for the five banks account for approximately 90 percent,” the report said. 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 to P68 billion in 2014. All banks reported an increase in their asset base. Loans and Advances also grew (7.1 percent) to P48.3 billion in December 2015, albeit at a much smaller rate compared to a year earlier.
According to the report, the total customer deposits grew by 16.4 percent to P60 billion in 2015. Customer deposits constituted the largest part of liabilities (78.3 percent) and were the primary source of funding growth in banking assets. However, balances due to other banks and credit institutions declined as banks continued to mobilise funding from alternative sources, including debt securities.
Banks were adequately capitalised in the period under review, with the Capital Adequacy and Core Capital Ratios surpassing the minimum prudential and statutory requirements of 15 percent and 50 percent, respectively. 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, the Bank said 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 and met the minimum statutory requirements.