BoB's interest expense falls 40%

Brian Benza
Staff Writer | Friday May 31, 2013 00:00

 

The decrease in interest costs is a result of a decision taken by the bank, two years ago, to limit the investments in Bank of Botswana Certificates (BoBCs) to a maximum of P10 billion.Speaking at the launch of the bank's 2012 annual report, research director Kealeboga Masalila attributed the record low interest rates not only to the cap on Bank of Botswana Certificates (BoBCs) but also to the BoB's decision to increase commercial banks' primary reserve ratios in 2011.'The Bank of Botswana certificates fell from P11.5 billion in 2011 to P9.7 billion. This is the reason why the expenses fell to P552 million,' he said.

Interest costs have always been the biggest expense in the BoB's income statement and their rise over the years has drawn criticism from experts who questioned the bank's policies.The policy intervention was aimed at reducing the interest cost the BoB was paying on outstanding BoBCs by firstly limiting the liquidity held by banks, and secondly, reducing the amount of BoBCs available for auction.The BoB regularly auctions BoBCs to mop up excess liquidity in the money market, thus managing interest rates and other trends. For banks, the BoBCs represent regular, risk-free assets in which to invest deposits held and earn tidy returns.

While the decision to cap BoBCs investments coupled with a reduction in the yield has borne positive results for the central bank, it has left commercial banks with more funds to loan out, a larger chunk of which has been channelled towards households.Latest statistics from the central bank show that the take up of loans from commercial banks by businesses has slowed considerably with non-household credit growth tumbling to 14.7 percent (P14.9 billion) in February this year from 16.1 percent in January while households credit growth maintained an upward trend rising to 30.7 percent from 27.7 percent respectively.

While credit to businesses is slowing down, households continue to take up the larger share of commercial banks' loans sitting at P20.4 billion (57.7 percent) from the P35.4 billion total credit.According to the central bank's February financial statistics, total credit extended by commercial banks in February rose by P606 million (1.7 percent) to P35.4 billion. This was mainly due to loans extended to households, which increased by P469 million in the month, adding to fear that households are highly indebted to the banking sector.Speaking on the sidelines of the briefing, another bank official said while official household indebtedness figures are nothing to worry about yet, the bank is closely watching developments.

'Our statistics tell us the situation is not yet out of hand, but we are closely monitoring the trends as indications are that borrowings outside the banking system could be contributing more to household indebtedness.'We recorded a significant increase last year in credit growth to the households largely because one of the commercial banks managed to capture a large portion of a microlender business. This indicates the levels of indebtedness that is outside the banking system which we could not record because it was not from a commercial bank,' he said.