Improved spending by the government driving liquidity – Stanchart
P14 billion of the liquidity slowly trickling back – Absa
“Liquidity will start to tick up into 2024”
Bifm notes quoting declining levels of rates for fixed deposits in the banking sector
Commercial banks’ liquidity has stabilised during the second quarter of 2023, driven by a “bond that matured”, a treasury expert said. Giving an overview of “stable market liquidity conditions” recently, Galeboi Sennanyana, the Head of Treasury Markets at Standard Chartered Bank Botswana told reporters that “we are seeing improved spending by the government and that is driving the liquidity in the market”.
Salma Baduel, Absa Bank Botswana’s Country Treasurer has corroborated; that the market is seeing surplus levels still around P4 billion circulating around the banks. “We know the reasons why. The government has taken P14 billion of the liquidity out of the market and now it is slowly trickling back.”
The latest available results of the auction of the 7-day Bank of Botswana Certificates (BoBC) maturing on October 18 also show that the entire subscription amount of P7.310 billion (amount of money commercial banks want to park with the central bank for a week) has been allotted. This is compared to an allotment of P2.3 billion at the end of Q1 2023. “We have seen it (liquidity) improve by the end of Q2 2023,” Sennanyana observed.
Fund manager Botswana Insurance Management Fund (BIFM) has supported this observation. BIFM, which invests in Call and Fixed deposits and Treasury Bills through its Pula Money Market Fund noted: “Towards the twilight of the quarter (2), banking liquidity began to improve, albeit slightly so, with banks responding by quoting declining levels of rates for fixed deposits”. The company which is a subsidiary of the mighty Botswana Insurance Holdings Limited (BIHL), had observed that competition for deposits amongst local banks continued to be rife in the earlier part of Q2 2023, resulting in higher money market yields as the fund took advantage of the movements.
The International Monetary Fund (IMF) has found that total deposits of non-bank financial institutions (NBFIs) in the banking sector account for 23% of deposits and comprise sizeable deposits from a few large depositors. In its report titled the Botswana Financial System Stability Assessment released in September, IMF said the largest banks hold close to 68% of total household and corporate call and savings deposits, leaving smaller banks to rely largely on price-sensitive fixed deposits or access interbank funding from larger banks. “To strengthen the funding liquidity of banks, it is advisable to transition to the Basel III framework for liquidity monitoring and enhance the development of money and bond markets,” IMF said.
Even though the experts agree that there is an improvement in market liquidity right now, from a utilisation perspective (i.e. credit extension), Sennanyana observed that “it has really been muted compared to pre-COVID levels because of the slowdown in household income”. Household income constitutes about 65% of credit extension and so far because of the decline, she said that has affected the credit extension. “We all know disposable income has been eroded because of the rising prices and that explains the slowdown in credit extension. But apart from that, so far “we are seeing an improvement in market liquidity”.
At Absa Bank Bank Botswana, Country Treasurer Salma Baduel observed that “liquidity has remained fairly slim in the market”. “The outlook remains positive because of government spending,” Baduel said when speaking during the bank’s results presentation stating that the market “is seeing that P14 billion taken now coming back into the market”. “We also know of the onshoring of the pensions’ funds, we expect that to bring more liquidity.” Baduel is quite optimistic that liquidity will start to tick up into 2024 given that in “2023 liquidity remained quite still in the market”.
Even though the market went through the process of declining liquidity, Sennanyana emphasised that the financial sector remains sound. “Yes the cost of funding has significantly gone up. If you look at the data year on year, the expense has gone up by 50 percent or so,” she said. Baduel supports: “If you look across the board, you will see interest expense increasing across the board with high levels mainly because liquidity has not increased much year on year.”
Against the background of elevated rates triggered by low liquidity, BIFM Money Markets Fund returned 2.08%, outperforming the benchmark return of 0.15% over the second quarter of 2023. On a 12-month basis, the Fund returned 7.65%, an outperformance of 704 basis points over the benchmark which returned 0.61% for the same period.
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