Average daily market liquidity increased to P12 billion
Deposit rates to remain low over 12 – months
Asset managers are price takers
Asset managers are grappling with the challenges posed by suppressed deposit rates, as heightened liquidity significantly impacts investment strategies in the money markets sector.
Deposit rates, which once hovered around 9% in previous years, have reportedly dropped to 4-5% due to increased liquidity.
Asset managers become price takers when market liquidity is high, according to Kgori Capital’s Chief Investment Officer (CIO) Tshegofatso Tlhong who was speaking during a recent webinar.
She explained, “Ultimately, if a bank has too much, we don’t have much of an option.”
The Financial Stability Report of May 2024 shows that the average daily market liquidity increased from P11 billion in January 2024 to P11.9 billion in February 2024, against the backdrop of high government spending. “Banks continued to maintain adequate liquidity positions, with a liquid asset ratio (LAR) of 17.6% in February 2024,” the central bank wrote.
“Sometimes we have a situation where it’s a structural difference where tier 1 has access to more liquidity than tier 2,” Tlhong said.
“Then you are able to perhaps play that area to enhance yields to take on a different exposure.”
Financial Stability report shows that the interbank activity increased from P1.9 billion in January 2024 to P4.9 billion in February 2024, inconsistent with the overall increase in market liquidity. The report also showed that non-domestic systemically important banks contributed 55% to total interbank lending and took up 67.1% of total interbank borrowing.
First National Bank of Botswana Limited (FNBB) and ABSA Bank Botswana Limited were identified and designated as Domestic Systemically Important Banks (D-SIBs) for 2024. Financial Stability Report shows that the domestic assets of the two banks constitute the largest share of total banking industry domestic assets.
They represent 44.2% of the industry’s total assets and 53% of household deposits in Botswana
With increased liquidity, Tlhong expects deposit rates will remain lower over the 12, 18 and 24 months before we “see the unwinding government spending”.
This is because Kgori views Botswana’s current structure of liquidity as “transitory”. Tlhong forecasts that the market should start to see “it start to dissipate in the next 12, 18 to 24 months as “pension funds start being deployed in asset classes they are supposed to be deployed in”.
“Structurally, our economy exports a lot of liquidity because we don’t have a lot of manufacturing or productive capacity in the country,” Tlhong said.
Kgori Capital has shown that the fixed-income deposit curve came down quite significantly over the last year, reflecting also the repatriation of pension funds assets (about P8 billion repatriated last year).
“Deposit rate pressure to continue in the near-term due to expansionary fiscal policy and pension fund asset allocation transition,” Tlhong said.
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