THE BANKING INDUSTRY WITHSTANDS TOUGH TIMES
Despite the ripple effects of the COVID-19 pandemic, the banking sector has withstood the tough times, the 2020 Banking Supervision Report from the Bank of Botswana has revealed.
The report notes that the sector remained sound, profitable, adequately capitalised, and liquid.
Moreover, it is reported that no bank violated either prudential or statutory limits during the challenging times.
To demonstrate the resilience of the industry, the report states that overall banks have not yet tapped into the capital release through a 2.5 percentage points reduction in the minimum prudential capital adequacy ratio; all banks were operating significantly above the 12.5 percent.
When the pandemic struck last year, the central bank decided to reduce the Prudential Capital Adequacy Ratio (CAR) from 15 percent to 12.5 percent for banks operating in Botswana.
On aggregate, by end of December last year, the banking industry held a 7.5 percent capital buffer.
In addition, it is said that there has been no explicit recourse to the bank’s liquidity support measures, while utilisation of the government loan guarantee scheme has remained low.
“The support measures, although less utilised, together with the transformation initiatives continue to positively influence market confidence, prospects for stability and recovery, and therefore economic and business decisions,” the supervision says.
On the downside, it has been noted that there is likely to be a deterioration in the credit quality for most banks upon withdrawal of regulatory forbearance measures and if the lifting of the state of emergency results in the unwinding of businesses currently operating at the margins.
While the banking sector has displayed some resilience, the central bank expects that continuance of the pandemic would adversely affect the banking sector, most notably through the deterioration in asset quality and profitability.
Meanwhile, the report has further shown that employment levels in the banking sector decreased between 2019 and 2020.
The number of persons directly employed in the banking sector decreased from 5 172 in 2019 to 5 142 in 2020.
Increased automation and the use of digital channels, along with staff resignations and retirements (not replaced), are cited as the factors behind reduced employment levels in the sector.