Bank of Botswana (BOB) governor Moses Pelaelo says banking systems ought to invest more in risk management infrastructure in order to tap into new resources and opportunities; including identifying and funding bankable projects from low income groups and small enterprises.
Amidst the celebrations of Stanbic Banks Botswana silver jubilee this past week, Pelaelo warned banks that failure to do so could marginalize them in a long term as they are known today, as fintechs and block chain technologies increasingly satisfy the demand for financial services in more innovative and cost effective ways. “In order to continue to contribute positively to sustainable economic development, the Botswana Banks should be more inclusive.”
According to the World Economic Forum Global Competitiveness report of 2016/17, Botswana financial sector’s overall ranking is 66 out of 138 countries, representing a slight deterioration from a ranking of 63 in 2015/16. The report attributes this to weak performance in the soundness of bank (ranked 68) and ease of access to loans (ranked 69). These indices were ranked 55 and 56 respectively in the previous report.
The report noted that it is also a matter of public policy concern that the ratio of private sector credit to Gross Domestic Product (GDP) has increased only marginally from 25 percent in 2011 to 31.8 percent in 2016. Furthermore the proportion of mortgage loans to total GDP has been, on average 5.2 percent in the last five years. This compares, for example with the ration of 69.3 percent for Norway 67.6 percent for the United Kingdom and 84.3 percent for Sweden. Pelaelo says these particular financial indicators for Botswana are below international norms. “It suggest that it may be true that lack of cost effective to appropriate finance and credit is a constraining factor towards a more diversified economy.”
Post global financial crisis, the financial stability board and other international standard setting bodies have been spearheading regulatory reforms aimed at enhancing the resilience of banking systems globally. In this regard BOB has demonstrated foresight with respect to the minimum prudent capital requirements for banks, which has been set at 15 percent of risk weighted assets, compared to the international benchmark of 8 percent since 1997, Pelaelo said.
“As some of you will be aware, effective January 1 2016 the Bank of Botswana implemented those elements of revised International Convergence of Capital Adequacy Measurement and Capital Standards called Basel II.” It was deemed relevant and proportionate to the nature of the risk profile of banks as well as the structure and the needs of Botswana’s economy.
Furthermore the BOB is along with other stakeholders, taking steps to strengthen the framework for the banking sector safety nets and system wide crisis management. This project requires all systemically important domestic banks to develop recovery plans in conjunction with their parent bank.” The bank recently issued a guidance note on cybercrime risk imploring banks to put in place effective risk management systems and maintain sound internal control specifically designed to counter the growth of increasingly sophisticated cyber-attack and other forms of financial crimes.