International Monetary Fund (IMF) has revealed that Bank of Botswana (BoB) is incapacitated to facilitate effective corrective actions or resolutions of banks.
According to IMF the powers available to the local central bank are very limited, such that it faces severe impediments to the capacity to respond quickly, effectively and with legal capability to bank distress or failure situations. The report states that this has been recognised by the BoB and draft proposed amendments to the Bank of Botswana Act and Banking Act have been developed to address these deficiencies.
“Overall the proposed amendments are comprehensive and in line with the key proposed draft law which should be remedied before the proposed amendments are submitted to the Ministry of Finance and Development Planning,” reads the report.
The report stated that the legal powers relating to bank’s corrective action and resolution should be exercisable in relation to banks and any entity in the regulated banking group rather than only in relation to banks and BoB should be required to establish a contingency plan to facilitate bank corrective action and resolution, including clearly identified triggers for particular responses.
“The BoB should be empowered to establish entities for the purpose of acquiring impaired assets from banks in resolution, where it considers this to be more cost effective and less disruptive to the financial system and economy than leaving the impaired assets in the failed bank to be liquidated,”. states the report. IMF also suggested to the BoB to engage senior legal advisors to assist in reviewing and refining draft amendments to the BoBA and BA working closely with other staff in BoB and with input from the Ministry of Finance and Development Planning.