Economists have expressed a worrying trend in the banking sector coupled with liquidity within the sector, arrears in bank loans which impact on the supply of loanable funds and credit risk. Dr Keith Jefferis and Sethunya Sejoe of Econsult firm expressed with concern in their 2017 second quarter review that there are increasing signs of stress in the banking system, on a number of fronts.
First to note is that banking liquidity has been falling steadily for some time, but the decline has been particularly sharp since the beginning of 2017. Excess liquidity fell to 2.6 percent of banking assets in April, the lowest since the “liquidity crisis” of late 2014. “The liquidity squeeze has been driven by stagnant deposits –there has been no growth in the deposit base of banks for at least two years.
With little surplus liquidity, it is not surprising that bank lending has slowed – the banks (or some of them at least) are simply running out of loanable funds. “At the same time the level of bank loans in arrears has jumped sharply, to 8.3 percent – up from 6.4 percent a year earlier. Contrary to some perceptions that it is household borrowers that are debt stressed, the most striking increase in arrears has been on lending to businesses and – for the first time – on lending to parastatals.”
According to the duo, the combination of these developments – lack of supply of loanable funds and concerns about credit risk – combined with much reduced borrowing by parastatals, have led to a sharp slowdown in annual bank credit growth, which is now at its lowest rate for 20 years. Perhaps in a further reflection of the lack of credit-worthiness of many parastatals, Government’s own direct lending has increased sharply.
On the other hand, another firm, Motswedi Securities analysts Garry Juma and Moemedi Mosele have observed that the sector is transforming and the primary objective of banks as intermediaries between savers and borrowers is no longer the key driver of profitability, with complementary services and fees taking a leading role. Under the current interest rate regime, the two said margins remain under pressure with banks forced to improve efficiencies and cost management to remain afloat.
“We expect impairments to remain above 2 percent for the second quarter, as BCL and its employees continue to impact on the sector. Furthermore, the South African Reserve Bank recently cut rates by 25 basis points, in the wake of a technical recession, placing the local economy under pressure and giving the Bank of Botswana room for a further cut before the end of the year, thereby squeezing bank margins,” shared the analysts. Meanwhile, Barclays momentum has slowed following a sterling performance in Q1, up by 13.1 percent, to close Q2 2017, up by a modest 3.5 percent, at P5.90 per share.
FNBB’s performance was flat for the quarter, dipping by 0.7 percent, while Stanchart saw a massive 14.1 percent price slip, the biggest move of the quarter. As for Stanchart, the analysts do not believe that the bank is out of the waters just yet, although activity on the counter is slowly improving, with volumes showing participation by institutional investors and not only desperate to sell retail investors.
They said, “It might be too soon to say the company has turned a corner, but the last financials (Dec 2016), showed an improvement on profits before tax of over 50 percent, enough to raise interest on the counter.” Last Friday the board of Standchart Botswana announced that the company’s results for the period ended 30th June 2017 will be significantly lower than those achieved in the corresponding period in the prior year.
‘Manufacturing holds key to economic growth’
Barclays bank’s economist Naledi Madala has urged the country to consider manufacturing, as a key tailwind to drive the economy and reduce inequality.
She was speaking at a gathering organised by the bank which focused on economic outlook for 2019. “We should not make a mistake of leapfrogging without manufacturing,” said Madala, lamenting that the country’s diversification remains a pipeline dream, as the diamond is still the economy’s mainstay. She bemoaned that mining activities in the country could not spring forward diversification, though non-mining GDP has been steady over the years.
“Extractive industries are not good stepping stones for diversification, the sector does not prepare us for the next step,” said Madala at the Barclays’ Economic Outlook Forum Review 2019. The economist further noted that government should confront head-on challenges of productivity and competitiveness to attract the much needed Foreign Direct Investment (FDI). Though diversification efforts continue to hit a brick wall, Madala said the country should expect increased activities in the mining sector hinged to ramp up in coal production in the year ahead.
She also implored government to consider a welcoming attitude towards foreign investors and generous tax incentives to businesses that set up in the country. Madala is also upbeat that the use of public private partnership model could also help diversify the economy coupled with privitisation. “Privitisation will offer opportunities for growth, through the renewed optimism from government, as business confidence has improved,” said Madala.
She implored the government and the business community to access what is going to drive and hinder growth highlighting that key headwinds to growth are income inequality, diversification challenge and productivity, among others. “The pace of poverty reduction has slowed down, while income inequality goes up,” said Madala
MINISTER BEWAILS BAD REPAYMENT BY YOUTH
Minister of Youth Empowerment, Sports and Culture Development, Tshekedi Khama has told parliament his ministry continues to face challenges on the repayment of Youth Development Fund (YDF) loans.
Recently presenting the budget to Parliament, Khama said this financial year the ministry has received a total of 2582 YDF applications and approved 983of them to the value of P98 million. He said the programme attracts a high level of interest from youth but the ministry is only limited to funding a maximum of 1200 youth projects annually due to budget limitations.
“However the greatest challenge for the Fund is the repayment of the loan component by the majority of the youth businesses. The youth have advanced number of challenges for this including high rentals for operating spaces, low market access owing to tight competition and limited production capacities,” said Tshekedi, adding that they continue to pursue beneficiaries to repay the loans.
Out of the 919 businesses funded 1058 jobs have been created. The minister highlighted that disbursements of funds will continue to be undertaken until the end of the financial year. “The YDF is currently under review in line with the pronouncement made by the President, Dr Mokgweetsi Masisi in the State of the Nation Address, to improve beneficiaries through training, and encourage consortia and cooperatives,” said Tshekedi.
The ministry assists YDF beneficiaries in marketing their products and services through fairs and exhibitions. The ministry also runs entrepreneurship-training seminars for youth and in the past year 3692 young people were trained. Over 600 youth businesses attended fairs and exhibitions to market their products and services. Currently the ministry is collaborating with Local Enterprise Authority (LEA), First National Bank Botswana and Citizen Entrepreneurial Development Agency (CEDA) on training in entrepreneurship development and mentorship of YDF beneficiaries.
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