Bank of Botswana (BoB) has chastised local banks for their continued complaints about liquidity challenges within the local market.
According to the central bank, commercial banks are to blame for the current liquidity challenges they face due to their business models and lack of adequate risk management.
Governor Linah Mohohlo told the media at a press conference yesterday that talk of a “iquidity crunch” and banks not being able to lend out because of a lack of money in the system is “…simply not true. This issue of liquidity crunch in the banking sector was never and is still not true, it wasn’t true throughout 2014 and is not true now,” Mohohlo charged, emphasizing that if it were to arise, the central bank would have reacted swiftly with the many statutory instruments they have to prop up banks.
She revealed that most of the banks were lending out even money they were getting in deposits, however, “they were offering interest rates which were not commensurate with the state of the economy of this country which is totally not advisable, so it’s a situation that they brought onto themselves.”
Mohohlo accused some of the international banks trading locally of creating a situation where they end up without money in their coffers while they made hefty profits, “some banks actually move money out of here to fund their ailing operations elsewhere.” She said this externalization of profits is creating a funding deficit within the banks.
BOB Head of Banking Supervision, Andrew Motsumi, revealed that after the reduction of the Primary Reserve Requirement (PRR) by the central bank from 10% to 5% earlier this year, a move that injected P2.3 billion into the banking sector, most of the banks used the funds to shore up their liquid asset ratios. “The banks have tended primarily to shore up their liquid assets with the funds rather than increase lending,” Motsumi said, adding that the central bank cannot be seen to be dictating to commercial banks on how to use their money. “It was never our intention to say to the banks take this money and lend it out to the public, but rather ease the liquidity challenges they face, it is up to each individual bank to decide how to use the capital, as most were coming increasingly close to the required 10%.”
Motsumi however revealed that while the rest of the industry was solid, some of the banks violated the liquid asset ratio requirement by going below the required 10%. The central bank leadership however refused to reveal which of the eleven commercial banks violated the requirement and what punitive measures were taken against them.
Deputy Governor Moses Pelaelo said the banks over extended themselves in a short space of time coming close to 80% of the intimidation ratio which is highly risky. He said even with that, “by the end of 2014 we had P4.2 billion in excess liquidity that is still a lot and as due to the reduction in primary reserve requirement and other funds being available, we are nearly close to P10 billion a situation we need to manage.”
The central bank has revealed that they intend to maintain excess liquidity at P5 billion from as high as P17 billion about 10 years ago.