NBFIs’ P22.9 billion boost to banks

The central bank, the Bank of Botswana (BoB) says the Non-Bank Financial Institutions are the critical sources of banks funding with total deposits by NBFIs comprised of 22.4 percent or P22.9 billion of total customer deposits while they took up only to 4.9 percent (P3.9 billion) borrowing from the local banks. BoB revealed the developments in the October 2024 Financial Stability Report. According to the report, the significantly high net saving position of NBFIs with the banks attest to the systemic importance of NBFIs as source of funds for the banks. 

On the other hand, corporates were net lenders to banks in August 2024, with a net lending position of P19 billion. 

“Therefore, due to the counterparty positions between the banks and NBFIs, there is significant risk of losses cascading from banks to NBFIs and vice-versa in the event of an adverse systemic event,” BoB explained.  Notably, it said the inability of NBFIs to provide funds for the banking system would have devastating implications for the banks and the financial system. 

Furthermore, the report said the size of the financial system as reflected by total assets of banks and NBFIs increased by 12.7 percent to P320 billion in December 2023 from P284 billion in December 2022.  On that note, the NBFIs financial assets (mainly, pension funds) grew, reflecting improved performance in global financial markets. 

BoB said in December 2023, the NBFIs sector accounted for the largest share of financial system assets at 57 percent, compared with 43 percent of the banking sector. represented approximately 121.4 percent of GDP in December 2023, compared to the 112.8 percent in December 2022, demonstrating the significant contribution of the financial sector to the economy,” said BoB. 

Assets 

The Botswana banking sector continues to demonstrate robust financial health and a proactive approach to adapting to the evolving financial landscape.It said banks are demonstrating consistent profitability, with several institutions reporting significant increases in profit before tax for June 2024. According to BoB, this strong financial performance is driven by a combination of factors, including effective asset and liability management, diversified income streams, and cost optimisation measures. The sector also boasts strong capitalisation levels, with capital adequacy ratios well above the regulatory requirements at 22 percent in August 2024 against the prudential limit of 12.5 percent. 

Capital adequacy ratios remain strong across the sector, indicating a healthy level of capitalisation and resilience to absorb potential losses. Furthermore, the analysis of recent financial reports shows an active adoption of digital technologies, and a commitment to customer centricity. “This robust capitalisation provides a significant buffer against potential losses and enhances the sector’s resilience to economic shocks, contributing to overall financial stability,” BoB added