BOB Unveils Liquidity Support For Commercial Banks

  • Banks to access overnight funding from BoB


Banking sector regulator, the Bank of Botswana has introduced a COVID-19 Relief Fund and Liquidity Support for the commercial banks to enable them to satisfy capital requirements and address liquidity challenges as they continue to support economic activity under conditions of possible increase in credit defaults and need for additional lending.

Dr Seamogano Mosanako, Head of Communications and Information Services said In this regard: the prudential capital adequacy ratio (CAR) for banks operating in Botswana has been reduced from 15 percent to 12.5 percent. Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities. It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process. By reducing the CAR by 2.5, it means that extra funds which would have been ordinarily kept as regulatory requirements are now freed up as liquid cash by banks to fund their operations.

Further, Dr. Mosanako said commercial bank liquidity is currently adequate.

“Moreover, normal operations facilitate augmentation of liquidity for individual banks on an ongoing basis. These include the interbank market and the purchase and sale of Bank of Botswana Certificates (BoBCs), including repos (that is, buying back of previously purchased BoBCs) and reverse repos (purchase of additional BoBCs after auction),”she explained.

To alleviate any possible pressure on the banks and extend potential additional sources of liquidity, the central bank is introducing the cost of accessing overnight funding by licensed commercial banks from the Bank of Botswana Credit Facility which will be provided at the prevailing Bank Rate (currently 4.75 percent), without the current punitive 6 percentage points above the Bank Rate.

Further, repo facilities currently available only on an overnight basis will be offered against eligible securities with maturity of up to 92 days; and subject to completing regulations and arrangements relating to valuation and custody, the collateral pool for borrowing by licensed commercial banks from the Bank of Botswana will be extended to include all corporate bonds listed and traded on the Botswana Stock Exchange.

“Bank Of Botswana acknowledges the granting by banks of moratoria on loans with a good repayment history for up to six months and the offer to restructure loans for entities adversely affected by Covid-19. Against this background, the Bank will generally exercise regulatory forbearance in relation to assessment of non-performing loans and determination of expected credit losses, for regulatory and compliance purposes,” she said.

Given that the full extent of economic and financial disruption from COVID-19 is yet to be established, the measures currently expended by the Bank of Botswana will continue to be reviewed as the need arises. Furthermore, the Bank has a suite of other policy options that could be implemented and respond, in a timely and effective manner to provide liquidity to financial intermediaries or preserve market liquidity, according to the bank.

Dr. Mosanako said the Bank is committed to acting decisively and timely to maintain price and financial stability in order to support economic activity.