Financial sector resilient

The Financial Stability Council (FSC) says the local financial sector remains well-capitalised, profitable and able to fund key sectors of the economy, despite emerging threats such as the prolonged conflict in Ukraine. The FSC is a statutory body bringing together the Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority and the Financial Intelligence Agency. In a recent update, the FSC said there was no evidence of excessive and uncontrolled credit growth, while excess liquidity continued to fall due to persistent foreign exchange outflows stemming from dampened trade, payment for external obligations, as well as settlement of some government bonds. In addition, the results of a stress test for banks suggested some degree of resilience even though this could be weakened by a delayed recovery in the economy. However, the FSC also noted that the risk of contagion whereby a weakness in one of the elements of the financial system cascades to others in the domestic financial system remains elevated due to strong and concentrated sectoral interlinkages. Most of the retail and household loans have credit life protection, mortgage repayment policies and retrenchment cover policies provided by insurance companies, effectively shifting some banking risks to the insurance sector. This risk, however, was being mitigated through effective regulation and supervision of the financial system, as well as proper governance and accountability structures. While the ratio of non-performing loans to total loans is declining, households, which comprise the majority of bank and non-bank outstanding credit, were assessed as being vulnerable to sudden and sharp increases in borrowing costs. Households owed commercial banks P47.3 billion as at September, with more than 70% of this categorised as non-secured, compared to 24.4% and 30.8% for South Africa and Namibia, respectively.