REMARKS BY VICE PRESIDENT KEDIKILWE AT THE ANNUAL BOTSWANA INSTITUTE OF BANKERS’ DINNER (full text) The Botswana Institute of Bankers’ invitation is a source of immeasurable pleasure to me. Immeasurable pleasure equally tinged by your evident appreciation of my humble contribution to the national cause. Equally stimulating is the pertinent theme, quote, “The role of banks in bridging the socio-economic gap and promotion of sustainable development” unquote. It is self-evident that initiatives by Government to promote and support development of human capital and other aspects sufficient to promote upward socio-economic mobility to reach the larger cake of economic resources and opportunities of income and wealth. Banks have a critical role to play in bridging income disparities by promoting broad-based participation in economic activity by a wide cross-section of society. In tandem, the National Development Plan 10 has underscored the need to facilitate the growth and efficiency of the financial sector as it is increasingly critical in supporting the needs of the expanding and more sophisticated economy. This entails fostering competition among financial institutions, enhancing access to financial services and promotion of financial innovation to support niche markets. This latter role includes developing products that are tailor made for the needs of those who are currently unbanked. With the safety and stability of the financial system underpinned by the regulation and supervision of the central bank, promoting financial access for the under-served should be a key focus for strategies to develop the financial sector if we are to bridge the socio-economic gap and promote sustainable development. Access to financial services can be critical in helping the poor and remote area dwellers by providing affordable opportunities to fund productive investment in small businesses and facilitating small-scale payments and savings. Most of us would know of the presumption that savings in developing countries were inherently insufficient to finance investment, given that low income earners could not afford to save. The result was that some countries remained poor and trapped in what was known as the quote “vicious circle of poverty” unquote. To break this circle, foreign funds, either in the form of loans or donor assistance, were needed to finance both infrastructure and private businesses. It was realised only later that the notion that developing countries were not saving was incorrect. Households were saving, mainly in physical assets such as jewelry, livestock and crops, which were not easily transferable to those who could put them to productive use. At some point, there was extensive research on quote “the role of banks in economic development” unquote. This led to a substantial reversal of previous thinking which saw banks as a consequence of development to a more dynamic view under which banks promote development. The establishment of banks was therefore recognised as a necessary condition for sound, sustainable and inclusive growth. Banks and other financial intermediaries are indeed a conduit through which physical assets can be turned into financial savings which accrue interest. In turn, this is paid for through lending to entrepreneurs who engage in production of goods and services, and this is the process of financial intermediation, to which banks are central. The global financial system is struggling to emerge from the financial crisis which culminated in the economic recession of unprecedented dimensions. The causes of the crisis are complex; it first manifested itself in the United States’ housing market in 2007, quickly spreading to a large swathe of the financial system and into the real sector. The contagion rapidly crossed borders, leaving in its wake ruined businesses and reputations; in some countries, it ended political careers. This, once again, demonstrated the potential fragility of banks and other financial intermediaries when in distress, as well as the inter-linkages between banking soundness and macroeconomic stability. Botswana was spared the first, direct adverse effects of the crisis, as the domestic banking sector remained largely unscathed. However, the economy was severely affected through the subsequent weakening of the external sector, especially diamond exports and, consequently, the deterioration of government finances and a slackening of domestic spending. The lesson to be learned is that strong micro-foundations of a financial system, especially banks, are of crucial importance at both national and international levels. Financial innovation, while welfare enhancing, requires robust risk governance frameworks together with smarter and more effective regulation. For these reasons, there continue to be legitimate reasons for effective regulation and supervision of banks by central banks. Accordingly, it is important that there is appropriate good conduct and strict adherence to regulatory and supervisory requirements at all times. We are fortunate that the Bank of Botswana has performed this role admirably over the years. Banks provide a key channel for the transmission of economic policy. Notably, transactions financed by bank credit, whether for consumption or investment, affect expenditure flows which have a bearing on inflation. Therefore, through their lending activities banks transmit the monetary policy signals of the central bank as price stability is maintained. This too is important for economic development. It is from this perspective that the history of Botswana’s rapid economic transformation, growth and development cannot be written with reference only to good governance and prudent management of resources. The role of banks also needs to be recognised. Banks in Botswana have played a major role in economic activity, with their real value added increasing nearly five-fold over a twenty-year period, and, as a result, doubling the sector’s share of the Gross Domestic Product (GDP). Such achievements are to be acknowledged and celebrated. As the Governor noted at this same occasion last year, banks must face up to a range of challenges if they are to realise their full potential of contributing to inclusive national development, while at the same time delivering adequate returns to their shareholders. It is not enough to contribute handsomely to GDP growth and attainment of middle-income status for the country if the related prosperity is not broad-based and inclusive. It is a sobering fact that, despite the country’s strategies to spread the benefits of development as widely as possible, as set out in the National Development Plans, Botswana continues to have a highly unequal distribution of income with a sizeable proportion of the population, albeit diminishing, living in poverty. The Government’s efforts to eradicate poverty and encourage citizen participation in business and employment creation are well-documented. Nor can it be said that banks have not been alert to the challenges, including through an increasing focus on financing Small and Medium Enterprises (SMEs), which have tremendous potential to contribute to national output, employment creation and economic diversification. Achieving adequate levels of financial access remains a challenge. Enabling currently unbanked enterprises and households to become part of the bankable population will require deliberate legal, regulatory and product development efforts, as well as making effective use of relevant new technologies. There will, therefore, be need for enhanced financial literacy so that users of financial services can have adequate knowledge of these financial products. It is imperative that the banking sector is engaged in promoting financial literacy. Some predatory operators, such as peddlers of pyramid schemes, may seek to trade on people’s ignorance if the knowledge gap is left to widen. It is just as important that banks adhere to the Bankers’ Code of Conduct, which emphasises transparency in banking tariffs, truth-in-lending and fair trading practices. Information sharing between banks is also important and, in this regard, I urge local banks to be fully supportive of on-going initiatives to strengthen the effectiveness of credit bureaux in Botswana. Cost-effective access to banking services should be a key strategic objective for sustainable and broad-based financial sector development. As the banking sector expands, it is logical to expect a diversity of banking products and services at reasonable cost, in part through increased competition. While there is some improvement in turn-around time for processing loan applications, there remains some aspects of customer service that need overhauling. As indicated by the recent KPMG Banking Industry Customer Satisfaction Report for Africa, 8 out of the 14 countries surveyed considered quote “friendliness of staff and their willingness to assist” unquote to be the most important measure of customer care. This suggests that customers need more than just access to finance; they need to be made welcome and afforded a pleasant and efficient service. I therefore challenge banks to reflect a lot more on this matter and ensure immediate and continuous improvement. Furthermore, it is evident that the cost of banking infrastructure in a vast and sparsely populated country like ours can be high, and this will, in turn, affect the cost of doing business. Even so, it is a matter of serious concern that in a number of instances, the quality of service falls far short of the charges levied by banks, inevitably leading to customer dissatisfaction and the conclusion that such charges are too exorbitant. This has led to a growing perception that bank charges are as high as they are to compensate for the banks’ internal inefficiencies. The effect of high charges will impede progress towards financial inclusion; they also discourage saving and, as a result, financial intermediation. It is in this context that the Bank of Botswana has decided to declare a two-year moratorium on a further increase in bank charges until end of 2015. This measure should not be seen as a punishment for banks but as a spur to focused discussion on the way forward. There is growing concern about the high cost of money transfers. According to the Africa Progress Panel which is chaired by the former UN Secretary General Mr Kofi Annan, money transfer costs are higher in Africa than anywhere else in the world. The high cost retards the potential growth of e-commerce and desirable linkages between rural dwellers and the more developed parts of the continent. I hope that the Bankers Association of Botswana and other stakeholders will look into this and related matters with a view to removing the impediments and achieving cost reductions. I wish to conclude by emphasising the critical importance and viability of the banking sector in Botswana. The need for banks to remain sound and profitable is not in dispute, and I know you are receiving a balanced helping hand through the effective regulatory and supervisory ambit of the Bank of Botswana. The Government will continue to undertake financial sector reforms, which include privatisation and redefining the roles of development financial institutions. I wish to congratulate the award winners who will be recognised shortly. I trust that they will put the knowledge they have gained to good use in the service of others, both their employers and their clients. I therefore take this opportunity to wish the Botswana Institute of Bankers well in its endeavours to support the banking sector in enhancing the educational welfare and standards of its most precious resource, the staff members. I thank you for your attention and good evening.
Posted on: Mon, 18 Aug 2014 19:27:42 +0000
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