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Banks’ scramble for deposits heats up

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The on-going liquidity woes in the banking sector have put commercial banks on an overdrive mode to attract deposits. To come to the banks rescue, the regulator, Bank of Botswana (BoB), reduced the Primary Reserve Requirement (PRR) from 10% to 5%, effectively releasing approximately P2.3 billion into the market. Last week, Bank Gaborone launched two new savings products, Ipeele and SureSave accounts, which according to the bank’s Managing Director, Andre Barnard, offer very competitive interest rates. At the launch of the savings products, Barnard emphasized the importance of a savings culture and prudent management of finances. He said the products were available even to the unemployed, carry no service fees, offer guaranteed returns, and come complete with a funeral cover.

 

During the same week, Standard Chartered Bank was floating an advert for a special fixed deposit account which was open to consumers for a very limited time, up to the end of April 2015. The product offers 8% return on a minimum balance of P20 000 fixed for a year. Gazette Business asked the three Botswana Stock Exchange (BSE) listed banks, First National Bank of Botswana (FNBB), Standard Chartered Bank (SCB) and Barclays Bank of Botswana (BBB) what they are doing to attract deposits. Bomolemo Selaledi, Director Marketing and Communications at FNBB responded, “In an effort to attract deposits, First National Bank of Botswana offers investment value to its customers across different product classes, providing access to customers across all income levels through low minimum or opening balances. Our product offering ranges from basic transactional accounts, call accounts, savings accounts, fixed deposits across varied tenures.” Selaledi also talked about their latest offering, the Flexi Fixed Deposit, which she said was a long term savings account that required an opening minimum balance of P100.00 which affords anybody an ability to invest their money. “FNB also offers ‘Bank Your Change’, which is a savings pocket linked to a customer’s transactional account.

 

Whenever a customer makes a purchase at a point-of-sale terminal using their FNB debit card, the purchase amount is rounded up to the nearest Pula. The rounded-up amount is then transferred into the customer’s linked Savings Pocket free of charge. This allows customers to save as they spend,” said Selaledi. Asked if the reduced PRR will ease the bank’s liquidity problems, Selaledi gave a resounding yes, adding that “Short term pressure has eased off, however, we remain vigilant in all our transactions.” Stan Chart and Barclays had not responded by print time. Stan Chart is the best performer of the three listed banks in the attraction of deposits. The bank saw a steady growth of customer deposits since 2012 to settle at P10 billion at end of 2014. Deposits have constantly hovered above loans and advances, with the bank’s loan book sitting at P8.1 billion.  Gazette Business asked experts if the reduced PRR will ease liquidity squeeze on the banks. Professor Emmanuel Botlhale, a public finance expert and University of Botswana academic, said the move will alleviate the liquidity squeeze in the sense that commercial banks will have more money at their disposal to lend out to borrowers; and to readily meet their obligations to depositors and other creditors. Garry Juma, an analyst at Motswedi Securities, responded that the reduced PRR will without a doubt ease the banks’ liquidity squeeze because it will free up P2.3 billion into the banking system.  Asked if banks can derive much from retail clients in terms of deposits and savings given the heavy household debt burden, Professor Botlhale responded, “On account of liquidity constraints, some banks have dangled a very big carrot before depositors; an attractive deposit interest rate.

 

All things being equal, this should actuate a sizeable number of depositors to deposit their money with the commercial banks. However, this is not likely to result in maximum results because a sizeable number of households and individuals is heavily borrowed and also has impaired loans. A majority of would-be depositors do not have extra cash that they can put away, so, they won’t be able to benefit from the big carrot.” Juma corroborated the Professor, “This is going to be an uphill task for banks given the low interest rate environment which discourages consumers from saving given the low deposit rates on the market.  The situation is also compounded by the tight economic situation which has reduced household disposable incomes leaving most consumers with nothing to save.  It’s not surprising now that some banks are coming up with innovative products to attract deposits.” Gazette Business also asked if the recent spate of company closures and retrenchments indicate anything about the current business environment, and if banks will derive much from commercial clients in terms of deposits and savings. Professor Botlhale described the Botswana economy as recovering from the debilitating economic downturn and espoused that reports of company closures and retrenchments do not augur well for this prospect. “The cumulative effect of these events would be a slowed and fractured economic recovery due to slowed down production on the part of producers and reduced aggregate demand on the part of individuals whose economic fortunes would suffer a reversal due to the retrenchments,” said the Professor. Juma pointed out that the current economic conditions are worrisome but did acknowledge that it happens.

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