Excess Liquidity Decline

| May 27, 2015

Excess liquidity has been dramatically reduced due to a number of factors such as the higher rate of conversion of deposits into loans by commercial banks, Bank of Botswana’s director of monetary and financial stability, Dr Kealeboga Masalila has said.

Presenting the 2014 Bank of Botswana (BoB) annual report on Monday (May 25), Dr Masalila said the gap between the deposit and credit level had significantly narrowed over the years, hence excess liquidity has been reduced.

Streamlining of government disbursements to parastatals and local authorities as well as director payment of taxes into government accounts at BoB also added to reduced excess liquidity.

“There was also an increase of foreign placement of funds by banks in search of higher returns as well as to have funds to pay out foreign deposits. Such tightening of liquidity in the short term would result in reduced pace of lending but not a cessation of lending by any particular bank,” he said.

Dr Masalila said banks have responded to sustain their businesses to be more competitive in terms of attracting deposits. This development augurs well for financial inclusion and sustenance of banking industry, he added.

There has also been an increase of funding of local banks by the parent banks and banks continue to use BoB facilities to augment short term liquidity needs, he said.

The bank with effect from April 1 reduced the primary reserve requirement from 10 per cent to 5 per cent thereby availing an additional P2.3 billion to banks to be available for lending.

Dr Masalila said conversion of deposits to loans results in a reduction in liquid assets but the liquid assets ratio banks are supposed to hold remains higher than the statutory rate of 10 per cent.

He said therefore the banking sector remains safe, sound and stable, with adequate capital levels and profitability indicators. On capital markets, Dr Masalila said the P15 billion government bond programme remains in place and supports market development and can be a source of government funding.

He said government in 2014 increased domestic borrowing thus outstanding securities increasing from P6.7 billion to P7.2 billion at the end of 2014.

The bank introduced a new family of coin in February last year and the old coin was demonetised in August and would continue to be exchanged for the equivalent value at the BoB until August 2019.

Meanwhile, Bank of Botswana Certificates decreased from P5.5 billion in 2013 to P4.2 billion at the end of 2014 due to a decrease in excess liquidity in the banking system.

Source : BOPA

Source : Botswana Daily News

Category: Business & Finance

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