Modest decline in big banks� dominance
Brian Benza | Wednesday September 10, 2014 12:22
There are 13 licenced commercial banks in the country, up from just six entities nine years ago.
As at the end of 2013, the big four banks kept a tight leash on their dominance holding over 80 percent of the industry’s assets, deposits, loans and advances.
This was a marginal decline from 2009, when the big four- FNBB, Barclays, Stanchart and Stanbic - held about 90 percent of the sector’s business. According to the banking supervision report for 2013 released recently, the sector remains largely old fashioned, although the level of market concentration by the big four has reduced from high to moderate.
“The most widely used measure of concentration is the Herfindahl-Hirschman Index (HHI). Evidence drawn from the results the analysis based on the HHI over a five-year period shows a modest decline in the index, from 0.21 in 2009 to 0.18 in 2013.
“This provides some evidence that competitiveness in the Botswana banking sector is gradually improving, as the ratio is at the theoretical threshold of 0.18 for moderate concentration,” reads the report.
In 2005, when the sector only had six banks, the HHI stood at 0.25
An HHI score closer to one indicates a market that is near monopoly while an index close to zero shows near perfect competition.
According to the central bank, the rise in the smaller banks market share from 10 percent to 20 percent in the past nine years indicates that the large banks lost a portion of business to smaller banks.
However, the portion has had to be shared by four additional smaller banks in the period.
Although not monopolistic in nature, the dominance by the four banks is still an unhealthy scenario in a sector that is supposed to be characterised by lower concentration in order for banks to price competitively, thus reducing the degree of market power and collusion among players.
“Increased competition in the banking sector is desirable as it is expected to enhance institutional delivery efficiency, innovation and contribute to superior service delivery,” said the BoB.
Effective January this year, the central bank has slapped a two-year moratorium on commercial banks’ charges, fees and commissions. This was in response to the growing public concern about the perceived high level of bank charges and other fees, which are deemed not to be commensurate with the quality of banking services.
Since 2009, BancABC has ventured into the retail banking segment, while new players including, State Bank of India and Bank of India have also ponded shop.
Between 2005 and 2009, new players in the industry included Capital Bank and Bank Gaborone.
The central bank said in 2013, it received 15 enquiries from potential investors regarding establishment of banking business in Botswana.
BoB further revealed that, except for two applications received in 2012, none of the enquiries either materialised into granting of a banking licence nor reached a stage of a formal application for a banking licence. In 2013 the central bank also completed the processing of two bank licence applications submitted in 2012. “These two banking licence applications were rejected because, on assessment, they were found to be materially deficient,” read the report.