OFFICIAL LAUNCH OF BBS LIMITED PALAPYE BRANCH
Keynote Speech
by
Moses D Pelaelo
Governor, Bank of Botswana
November 26, 2018
It is an honour and a great pleasure to join you here this
morning for the official opening of Botswana Building Society
Limited (BBS), Palapye Branch. Palapye is evidently one of the
fastest growing villages in the country. Growth, in this instance,
is a function of response to economic opportunities, including
actual and potential demand for services. I have no doubt that
the decision by Botswana Building Society to establish a
physical presence here is similarly a realisation of the potential
to serve the proximate community, generate business returns
and be part of the Palapye growth narrative.
Distinguished Guests, by way of background, the Botswana
Building Society is an offshoot of United Building Society of
South Africa, which started operations in Botswana in
November 1971. It subsequently transformed to Botswana
Building Society in December 1976, with a primary mandate to
provide housing finance against immovable urban property,
later extended, in 1986, to cover rural areas, and indeed
commercial loans.
The latest transformation, from a friendly, mutual society to a
public limited company, incorporated in April 2018, is of great
significance in many respects. First, it allows broader scope for
consideration of strategy, sustainable funding and provision of
a wider array of services by Botswana Building Society. In this
regard, there is greater potential to respond to economic
opportunities, drive operational excellence and capacity to meet
diverse customer needs; thus enhance the value of services to
customers, as well as prospects for sustainable returns and
growth. Second, Botswana Building Society recently placed its
shares on the Serala platform, which is for unlisted equities, at
the Botswana Stock Exchange and has shares of over P564
million. This development provides yet another opportunity for
ownership and strategic control of a home-grown, prudently
managed and profitable financial institution by Batswana. The
expectation of Bank of Botswana is that this transformation and
growth will be prudently managed and achieved in an
environment of sound operations, to ensure durable and
beneficial impact on the economy.
Distinguished Ladies and Gentlemen, it is fitting to recognise
the growth and impact of Botswana Building Society on the
economic landscape and as part of the financial sector of this
country. Taking the twenty years to 2017, the assets of
Botswana Building Society have increased at an average
annual rate of 13.9 percent. This compares with an annual
growth rate of 16.2 percent for commercial banks and 12.3
percent average annual increase in nominal GDP. This
suggests a meaningful contribution to the economic and
financial development of the country. Dissecting further, the
average annual growth in residential mortgage loans was 14.2
percent, compared to 21.8 percent for commercial banks.
Another interesting comparison is that outstanding residential
mortgages by Botswana Building Society as at the end of June
2018 amounted to P2.9 billion, constituting 31 percent of the
total of P9.3 billion for the commercial banks, which for the
individual banks, ranged from a smallest value of P2.3 million to
the largest amount of P3.2 billion.
Distinguished Guests, this represents some of the relevant
information that should inform prospective growth areas,
strategic initiatives, and resource requirements of Botswana
Building Society, going forward. Interestingly, Botswana
Building Society Limited is reportedly making efforts to enhance
its service offering and, therefore, potentially greater impact on
society and the economy. In this regard, I wish to underscore
that, to ensure an enduring and mutually rewarding
relationship, businesses need to treat customers with respect
and dignity. To this end, it is pleasing that Botswana Building
"we better",
Society Limited has, as its motto, know you which I
suppose means, a moral and corporate commitment that BBS
staff will give you the respect and service quality that you
deserve, here in Palapye.
Distinguished Ladies and Gentlemen, let me now turn to
expectations on closing existing gaps with respect to housing
finance, resource mobilisation and impact on welfare and
sustained increase in incomes. First, it is germane to
acknowledge the low level of housing finance in Botswana
relative to the size of the economy. For example, residential
mortgage lending amounts to 21.6 percent of total bank lending
(including statutory banks); 14 percent of total assets of banks;
and only 6.9 percent of GDP. Compared to more mature
housing markets, these figures are very low. For example, the
respective ratios for the United Kingdom are, 70.8 percent of
total banking lending; 36.6 percent of total banking assets and
52.7 percent of GDP. This demonstrates the gap in
development and the opportunities.
Significantly, growth in this area represents an important source
of future income growth and wealth generation. This is in
several respects. For individuals, this relates to the opportunity
to invest earnings meaningfully, use of the value of houses to
generate other economic activities and sources of income, and
potential for increase in wealth over time, as well as serving as
a potent hedge against inflation. For the broader economy,
there are benefits in terms of a continuous build-up of the
volume and variety of stock of housing, alongside growth in the
population and incomes. Potentially, this could also have
significant distributional effects and, if housing credit is more
inclusive, it can reduce income inequality. Furthermore,
developed economies, with well-functioning financial systems,
such as the United States of America, attest to the fact that
citizens can access, in a disciplined and beneficial manner, the
"excess equity"
so-called in their mortgaged properties and use
their houses as ATMs! Moreover, with unconstrained growth in
mortgage finance and housing, there are incidental economic
opportunities relating to the construction industry and related
services, thus contributing to economic diversification.
Distinguished Guests, the second point is that such prospects,
however, need support in terms of a land tenure policy that
facilitates the use of the various forms of land and real estate
across the country to secure mortgage financing. This helps in
terms of both financing and marketability of land and property
countrywide, with the attendant economic opportunities.
Therefore, the Improvement of Land Administration,
Procedures and Systems (LAPCAS) project, that should ease
constraints to using land acquired under different tenures as
collateral for mortgages, is a welcome development. In this
regard, it is our expectation that BBS and, of course other
financial institutions in this country, will respond positively in
providing affordable credit that the average household in
Botswana can access.
The third dimension, Distinguished Ladies and Gentlemen, is
that the supporting services need to be robust and sound.
Among others, this relates to professionalism around property
valuations to ensure that the resultant loan financing is aligned
to housing market realities; thus safeguarding the interests of
both the financier and the customer; respectively, as well as the
soundness of financial institutions and welfare of households.
Going forward, the development of a credible property price
index and enhancement of sharing of credit information through
well-organised credit bureaux would be helpful. Therefore, we
agree with the observation made by the Centre for Affordable
Housing Finance in Africa, in their 9th Edition of The Housing
"a
Finance Yearbook, that combination of a good
macroeconomic environment, sound policy, better data and
credit"
increased access to affordable should spur the
development of a vibrant housing market to the benefit of a
large segment of the population.
Fourth, appropriately structured resource mobilisation is key to
successful provision of housing finance and related services.
Given that housing finance is inherently long-term in nature and
that there is an imperative for further growth in Botswana, it
should be supported by a large pool of stable deposits and/or
investments. This is afforded by attracting a range of small to
large deposits, with associated transactional and return
incentives. The point here is that active deposit mobilisation is
critical for availing funds that can be deployed to support
housing finance without undermining the viability of the financial
institution. In addition, a robust capital market that facilitates
seamless raising of long-term funds, including corporate bonds
to suit various needs, is also needed. It is accepted that, as a
matter of prudence, we should not burden short-term finance or
worsen the structural maturity mismatches widely prevalent in
country's
the financial system. Moreover, there is a need to
invest in capacity to develop derivative instruments that
facilitate risk sharing, as well as transformation and trading of
assets and liabilities; thus alleviate constraints to mortgage
financing. Regrettably, in this regard, the Botswana financial
system is way behind the curve and, despite banking industry
outcry about tight market liquidity in recent years, there is not
much evidence of any innovative and structured products, such
as mortgage-backed securities, negotiable certificates of
deposit or credit default swaps.
For its part, the Bank of Botswana has entrenched a largely
credible monetary policy framework, with inflation sustained
-
within the objective range of 3 6 percent and allowing for
maintenance of relatively low interest rates. Furthermore,
effective regulatory oversight and prudently managed financial
institutions continue to contribute to maintenance of a sound
and stable financial system. In this regard, well-anchored
expectations, premised on a credible policy framework,
supports determination of term structure of interest rates,
relevant for both resource mobilisation and pricing of long-term
loans. The policy environment is, therefore, conducive for
orderly and effective intermediation and productive use of
financial resources; and in the context of the theme of my
message today, affordable cost of housing finance.
Distinguished Guests, the fifth point, I want to highlight is the
importance of presence of institutions and access to services,
as demonstrated by the opening of the Palapye Branch of
Botswana Building Society. Geographical spread of financial
institutions allows for proximate access to financial services, in
terms of both acquaintance and usage. This augurs well for
financial inclusion. Thus, when people know about the
existence and benefits of services and facilities, and when
these are accessible in a convenient and cost-effective manner,
"virtual"
they are more likely to use such services. Increasingly,
presence and access enabled by digital channels has become
a viable platform for access to services and needs to be
harnessed accordingly. Overall, presence and accessibility
enhance prospects for mobilisation of financial resources, and
effective demand for housing finance and other beneficial loan
products; ultimately leading to increase in social welfare, as
well as the broadening and growth of economic activity.
I should, therefore, acknowledge that, currently, Botswana
Building Society has offices and branches in Francistown,
Gaborone, Kasane, Lobatse, Maun, Selibe Phikwe, Serowe;
and now Palapye, in addition to twelve automated teller
machines (ATMs) countrywide. More significantly, BBS has
and continues to invest in various corporate social responsibility
projects worth millions of Pula. Among these projects are a
school library in Letswai Primary School in Zutshwa; computer
labs at Marapong and Mowana Primary Schools in the Central
and North East Districts, respectively, as well as building new
ablution facilities and upgrading old ones at Molapowabojang
Primary School. These investments in educational facilities will
go a long way in contributing towards good education for our
children and this is to be applauded.
On that note, let me conclude by indicating that it is my
expectation that patronage and use of financial services will
increase because of this new branch. Thus, with relevant
business strategies by Botswana Building Society, as well as
facilitative policy environment, this branch will foster and
sustain financial inclusion and, in turn, the attendant benefits of
productive saving and use of finance, access to payments
services, and broadly, enhanced economic activity. I implore
you all, Palapye residents, the surrounding areas and beyond,
to use BBS and other financial institutions in your area, to save;
to access and use credit wisely, for the benefit of your families
and sustainable development of the country.
It is now my honour and privilege to declare the BBS Limited
Palapye Branch officially open.
I thank you for your kind attention.