Small banks struggle to catch up
Sharp competition within the commercial banking sector has suffocated growth of small banks, as the country’s big four – First National Bank Botswana ( FNBB), Absa, Stanbic and Standard Chartered have remained market leaders for the past nine years.
Renowned researchers from Econsult have challenged small banks to up their novelty to survive and break the 80 percent market share dominated by the big four.
“Small banks have managed to penetrate the industry to some extent. However, they have been somewhat struggling to increase their relative size in recent years,” said Econsult Researchers, Sethunya Kegakgametse and Kitso Mokhurutshe attributing the development to big banks enjoying economies of scale, which contributes to higher profitability.
The two analysts said small banks need uniqueness to survive. “It appears that for the smaller banks to survive and remain profitable, they need to secure a niche that enables them to earn a higher net interest margin, or higher fee income, to compensate for the lack of economies of scale,” said Kegakgametse and Mokhurutse. The researchers have emphasized that the relationship between bank size and profitability is relevant for the commercial banking industry in Botswana’s relatively small economy. “Small banks can survive, but it is tough, as evidenced by the exit of three small banks over the past decade, and of four other banks.” Econsult has bemoaned that the need to achieve a certain minimum size poses a barrier to the entry of new, small banks. “However, it is not an absolute barrier, and successful entry is possible with a well- designed and executed market and growth strategy. It is also important to recall that banks do not have to just grow organically, and that acquisitions may be an important route to gaining scale and market share.”
Despite challenges faced by small banks indications are that market share for the small banks increased between 2008 and 2017, from 6.5 percent to 20.7 percent, but has been unchanged since then at around 20 percent. “Access Bank ( previously Bank ABC), the biggest of the small banks, rapidly attained an increase in market share, rising from 2.9 percent in 2008 to 10.4 percent in 2016, although it has since fallen slightly to 8.5 percent in 2020,” said Kegakgametse and Mokhurutse.
Econsult says the strides of the smaller banks have not been successful in increasing their collective market share since about 2013. Meanwhile, the assets of commercial bank rose from P45.9 billion in 2008 to P107.7 billion in 2021; over the years, banks in Botswana grew from two in the 1970s, to eight banks as at the end of December 2021, although it had reached as many as 11 banks in 2013.