Financial Stability Report - October 2021

FINANCIAL STABILITY

REPORT

REPUBLIC OF BOTSWANA

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT

OCTOBER 2021

FINANCIAL STABILITY COUNCIL

FINANCIAL STABILITY

REPORT

Republic of Botswana

REPUBLIC OF BOTSWANA

MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT

OCTOBER 2021

FINANCIAL STABILITY COUNCIL

Financial Stability Council | Financial Stability Report October 2021 iii

TABLE OF CONTENTS
LIST OF TABLES, CHARTS AND FIGURES...........................................................................	v
ABBREVIATIONS.......................................................................................................................	vi
ACKNOWLEDGEMENT.........................................................................................................	viii
PREFACE…..................................................................................................................................xi
1.	EXECUTIVE SUMMARY................................................................................................	1
2.	FINANCIAL STABILITY DEVELOPMENTS AND TRENDS....................................	3
(a)	External Sector Vulnerability Assessment...........................................................................	3
(b)	Global Financial Stability Trends........................................................................................	3
(c)	Regional Financial Stability Trends.....................................................................................	4
3.	DOMESTIC MACROPRUDENTIAL ANALYSIS........................................................	4
(a)	Sovereign Vulnerabilities.....................................................................................................	4
(b)	Credit Growth and Leverage................................................................................................	5
Box 3.1: Tools for Assessing Excessive Credit Growth..................................................................	9
(c)	Liquidity and Funding Risk...............................................................................................	14
(d)	Macro Financial Linkages and Contagion Risk.................................................................	23
Box 3.2: Impact of COVID-19 on the Insurance Sector................................................................	24
(e)	Banking Sector Stress Test Results....................................................................................	29

4. FINANCIAL MARKET INFRASTRUCTURE (FMI) AND REGULATORY

	DEVELOPMENTS..........................................................................................................	33
(a)	Payments and Settlements Systems....................................................................................	33
(b)	Regulatory and other Developments Relevant to Financial Stability..............................	33
5.	CONCLUSION AND OUTLOOK.................................................................................	36

iv Financial Stability Council | Financial Stability Report October 2021

LIST OF TABLES, CHARTS AND FIGURES

TABLES

Table 3.1: Sectoral Distribution of Commercial Bank Loans……………….……………….......................6

Table 3.2: Household Net Wealth……………………………………………………….…..........................8

Table 3.3: Non-Financial Corporates' Financial Soundness Indicators (Percent)……….….......................11

Table 3.4: Selected Botswana Stock Exchange Indicators………………………………….......................18

Table 3.5: Selected Bond Market Indicators…………………………………………………....................22

Table 3.6: Selected Exchange Traded Fund Indicators………………………………………....................22

Table 3.7: Structure and Size of the Financial System…………………………………….…....................25

Table 3.8: Banking Sector Financial Soundness Indicators……………………………….…....................30

Table 3.9: June 2021 Stress Test Results for Commercial Banks…………………………...................… 31

Table 4.1: Selected Payment and Settlement Systems Indicators……………………………....................33

Table A1: Macroeconomic and Financial Stability Indicators……………………………….....................37

CHARTS

Chart 3.1: Growth in Household Debt (Year-on-Year)…………………………………….........................8

Chart 3.2: Household Debt to Income and NPLs (Year-on-Year)…………………………........................8

Chart 3.3a: Aggregate Credit-to-GDP Gap…………………………………………………......................10

Chart 3.3b: Household Credit-to-GDP Gap………………………………………………….....................10

Chart 3.3c: Business Credit-to-GDP Gap……………………………………………………....................10

Chart 3.4: Commercial Real Estate Loans………………………………………………......................…13

Chart 3.5: Trends in Mortgages……………………………………………………………......................13

Chart 3.6: BoBC Stop-out Yields………………………………………………………….......................15

Chart 3.7: Commercial Banks' Foreign Exchange (FX) Exposure…………………............................…17

Chart 3.8: Exchange Rate Volatility……………………………………………………...........................17

Chart 3.9: Twelve-Month Equity Indices Volatility……………………………………..............….........19

Chart 3.10: Corporate Credit Spread……………………………………………………..............….….....21

Chart 3.11: Twelve-Month Bond Indices Volatility……………………………………….....................….21

Chart 3.12: Commercial Banks' Exposure to NBFIs……………………………………...............….....…27

Chart 3.13: Investment Allocation of Pension Funds…………………………………..............…….....…28

Chart A1: Financial System Vulnerabilities - Heat Map……………………………………...................38

FIGURES

Figure 3.1: Macro-Financial Linkages (September 2021)…………………………………...................…26

Financial Stability Council | Financial Stability Report October 2021 v