• Banks have stopped unsecured lending
• Campaign for deposits intensifies
• BoB to offer more BOBCs
• 2 year moratorium on charges could be lifted
Commercial banks themselves are trying to give the public an impression that all is well yet their coffers are shrinking, but the BoB Governor Linah Mohohlo this week told The Business Weekly & Review that as a regulator she has observed that there is continued reduction of liquidity within Botswana’s banking sector. The year 2014 saw a rise in the loan/deposit ratio in the banking system to unprecedented levels, resulting in credit tightening by banks and a push for higher interest rates. The Loan/Deposit ratio has been on the rise while the liquid asset ratio has been declining because of lower deposits. Last year while advances grew as much as 132 percent, total bank deposits have been at a snail pace of 30 percent. Commercial Banks are now close to being fully lent with a L/D ratio of about 80 percent, while the liquid asset ratio has shrunk to about 10 percent, just close to the statutory minimum. It has emerged through this publication’s findings that commercial banks are now unable to give loans especially personal loans to their customers as they used to, although the customers do qualify for these loans. Six months to the end of last year alone, hundreds of Batswana who had applied for unsecured funding from the big banks especially, Barclays Bank of Botswana, First National Bank Botswana (FNBB), and Standard Chartered Bank were rejected. This publication met a handful of those whose loan applications were rejected but it was impossible to get official figures from the banks as to how many were rejected due to this liquidity challenge. However sources revealed that banks are now looking to fund only secured loans. However, it appeared also that to those loan facilities that banks offer to clients, interest rates are hovering at an average of 25 percent, while the micro lending companies both independent and as divisions of commercial banks are charging close to 30 percent as an interest rate. Jaco Viljoen, Chief Executive Officer (CEO) at Capital Bank Botswana says his bank remains liquid but he says he is experiencing challenges in taking deposits. He says his bank did not offer unsecured lending from the onset. But at Standard Chartered Communications boss Tumie Ramsden says her bank’s processes of rejecting and approving loans is guided by their risk assessment policy and not challenges to do with liquidity. Barclays and FNBB could not respond to enquiries by this publication, despite a timely consultation. Bowing to the pressures of contracting liquidity, some commercial banks are already in the processes of retrenching employees and even shut down some branches so as to reduce costs. Standard Chattered, Stanbic bank as well as Barclays bank are in the process of either firing some employees or shutting down some branches which is a cost cutting and restructuring measure. Mohohlo said the reduction in excess liquidity is attributable to several factors; notably more rapid growth of credit compared to deposits and streamlining of disbursement procedures by Government to Parastatal and local authorities. “There will, of course, be occasions when the banking system as a whole could face relatively tight liquidity. Whenever such circumstances arise, the Bank will, as part of its mandate of lender of last resort, readily provide such liquidity to the banking system; but only on terms that make interbank funding the preferred alternative” Mohohlo said the BoB is confident that the transitional challenges associated with the reduction of liquidity available for mopping through BoBCs auctions, and the moratorium on upward adjustment on non-interest related bank charges, will be resolved through regular consultations with the banks. Further, the Governor said the reduction in excess liquidity means that banks have to adjust their asset-liability management practices to the changed circumstances. “In particular, banks need to restructure their operations to ensure that they have sufficient liquid instruments, in addition to any Bank of Botswana Certificates holdings. Moreover, with reduced excess liquidity, banks would need to intensify deposit mobilization to fund expansion of their operations,” she said. Already a campaign has begun by commercial banks to attract deposit taking and for people to use more banking services like cell phone banking which will assist banks collect more non-interest revenue. House to house campaigns are ongoing. Banks need to moderate the expansion of their lending to take account of their funding conditions. However, it has to be noted that the recent reduction in growth of household credit (including unsecured lending) follows a period of very rapid credit expansion from which a subsequent slowdown would be expected. Moreover, increase in secured lending is broadly to be welcomed; it augurs well for stability of the financial system and, in some respects, productive use of credit. Even so, as of December 2014, year-on-year household credit growth was positive at a rate of 9.2 percent and broadly appropriate for current rates of increase in incomes.