Good morning, let’s get into it!

We are beginning a new series this month of May, due to the new MoPR by Bank of Botswana, this also will force me to make changes on my investment plan this year, as I will still go offensive but remain defensively responsible, that’s something I will discuss next month, here we need to attend this one.

The financial landscape of Botswana has transitioned into a period defined by aggressive monetary policy recalibration, shifting from a long-standing accommodative stance to a proactive management of systemic liquidity and inflationary expectations. Between 2024 and 2026, the Bank of Botswana (BoB) implemented a series of pivotal interest rate adjustments that fundamentally altered the profitability profiles of the nation’s leading commercial banks. This shift was characterized by a massive 200 basis point hike in the Monetary Policy Rate (MoPR) on April 30, 2026, which brought the benchmark rate to 5.5 percent—the highest level recorded since 2017. While such a restrictive stance typically implies a cooling of economic activity, the structural nuances of the Botswana banking system have positioned the major listed financial institutions—First National Bank of Botswana (FNBB), Absa Bank Botswana, and Stanbic Bank Botswana—as the primary beneficiaries of this cycle. [1][2]

The Macro-Financial Environment and the Genesis of Recalibration

The rationale for the central bank’s intervention is rooted in a complex interplay of domestic contraction and external price shocks. Botswana’s economy faced a marked slowdown in 2024, with real Gross Domestic Product (GDP) contracting by approximately 3.1 percent due to the prolonged weakness in the global diamond market. Although a marginal recovery was observed in 2025, the economy remained under pressure, contracting by 0.4 percent as government spending was constrained by diminished diamond receipts. Despite this sluggish growth, headline inflation began to accelerate in early 2026, rising from 4.0 percent in February to 4.2 percent in March. [1][2]

The Monetary Policy Committee (MPC) faced a dual challenge: addressing the breach of the upper bound of the 3–6 percent inflation objective range, which was projected to average 8.7 percent in 2026, while navigating a "liquidity crunch" that had already begun to drive up interbank lending rates. The BoB’s decision to raise the MoPR from 3.5 percent to 5.5 percent in April 2026 was explicitly described as a "recalibration" rather than traditional tightening. This strategic nuance was intended to amplify the impact of policy adjustments that had helped ease liquidity conditions in late 2025 while simultaneously signaling a firm commitment to price stability in the wake of the global energy shock triggered by the Iran war.

The adjustment of the Pula exchange rate framework further reinforced this recalibration. In July 2025, the annual downward rate of crawl was increased from 1.51 percent to 2.76 percent to align with relative inflation developments and preserve external competitiveness, while trading margins were widened significantly to ±7.5 percent to support market-driven price discovery. For the commercial banks, these changes created a volatile but high-yield environment, allowing them to leverage their competitive advantages in treasury management and digital transactional platforms. [1][2][3][4][5][6]

The "Winners" Thesis: Why Financial Institutions and Stock Companies Thrive

The assertion that "stock companies" and particularly the major banks are the main winners of these rate hikes is supported by the "endowment effect" and the structural characteristics of the Botswana Stock Exchange (BSE). The BSE Domestic Company Index (DCI) appreciated by 12.5 percent in 2024, with the Domestic Company Total Return Index (DCTRI) posting returns of 22.6 percent. This resilience in the capital markets, even during periods of GDP contraction, points to a decoupling where listed entities with robust balance sheets can exploit high-interest regimes. [1][2][3][4][5][6]

Commercial banks in Botswana benefit from a high proportion of non-interest-bearing deposits (current accounts) and low-cost savings accounts. When the policy rate increases, the interest earned on loans—which are typically floating and tied to the Prime Lending Rate (PLR)—reprices upward almost immediately. Conversely, the cost of the transactional deposit base remains relatively static. This widening of the Net Interest Margin (NIM) is the primary engine of profitability in a rising rate cycle. Furthermore, the BoB noted that banks have continued to increase lending interest rates by widening margins above the PLRs, even when instructed not to do so, reflecting a persistent structural deposit concentration and uneven liquidity distribution that favors the larger incumbents.

Beyond the banking sector, Variable Loan Stock (VLS) companies, which dominate the listed property market on the BSE, also emerge as winners. These companies distribute income as interest on the debenture portion of their linked units, which is taxed as interest rather than dividends. In a high-interest environment, these units remain attractive to investors seeking yield, and the variable interest rates paid to unit holders often reflect the underlying rental streams that are adjusted for inflation. [1][2][3][4][5][6]

Comparative Analysis of Income Statements: Harvesting the Yield

The income statements of FNBB, Absa, and Stanbic over the 2024–2026 period reveal distinct strategies for capturing value from the shifting monetary landscape.

First National Bank of Botswana (FNBB)

FNBB has consistently demonstrated the most efficient translation of rate hikes into bottom-line growth. For the financial year ended June 30, 2024, the bank’s profit before tax (PBT) grew by 25 percent to P1.8 billion. This performance was primarily driven by a 24 percent increase in Net Interest Income (NII), reaching P1.84 billion. [1][2][3][4][5][6]

A critical component of FNBB’s NII growth was the P444 million uplift in pre-impairment interest income. While interest on advances grew by 14 percent despite earlier rate cuts, the bank’s interest from Treasury placements surged by 56 percent, totaling P237 million. This highlights FNBB’s superior yield management, as it successfully managed its deposit mix to grow interest expense at a significantly slower pace (18 percent) than total interest income.

The release of P48 million in net credit impairments in 2024, compared to a charge of P94 million in 2023, reflects an improvement in credit performance and collections that further bolstered the PBT. This ability to reduce impairment costs while maximizing interest income from a high-yield treasury portfolio represents FNBB’s primary competitive advantage in a rising rate environment. [1][2][3][4][5][6]

Absa Bank Botswana

Absa Bank Botswana’s income statement reflects a more complex reaction to the rate cycle, characterized by margin compression due to elevated funding costs. For the interim period ended June 30, 2025, Absa’s NII decreased marginally by 0.8 percent to P755 million. By the end of 2025, the full-year results showed a 7 percent decline in NII to P1.42 billion, driven by a 41 percent increase in interest expense to P876.4 million. [1][2][3][4][5][6]

The surge in interest expense was a result of the bank’s reliance on higher-yielding deposit products in an environment of structurally tight liquidity. However, Absa successfully offset some of this pressure through non-interest income growth. Fee and commission income rose by 8.0 percent to P266 million in the first half of 2025, driven by higher transaction volumes and the acquisition of new customers.

The decline in PBT for the interim 2025 period (26.7 percent) was exacerbated by a 15.6 percent increase in operating expenses, largely due to a 17.2 percent rise in staff costs and a 28.5 percent jump in general administration costs. These investments in people and systems are part of Absa’s long-term strategy to gain market share, but they have exerted short-term pressure on profitability during the peak of the rate hike cycle. [1][2]

Stanbic Bank Botswana

Stanbic Bank Botswana’s performance in 2024 and 2025 was marked by an "organisational redesign" and a focus on cost optimization that yielded impressive results. In 2024, Stanbic reported a 43.7 percent growth in PBT to P950 million. Total operating income grew by 19.6 percent, supported by a 23.4 percent increase in NII and a 15.6 percent growth in net fee and commission income. [1][2]

However, the 2025 results highlight the impact of the "massive" rate hikes on interest expense. While total interest income rose to P2.03 billion, interest expense shot up by 86.1 percent to P957 million. This led to a 21.6 percent contraction in NII. Stanbic’s ability to remain profitable despite this was due to its stellar net trading income, which more than doubled to P541 million in 2025.

Stanbic’s competitive advantage lies in its Corporate and Investment Banking (CIB) segment, which delivers resilient earnings through strong trading activities and liquidity management opportunities. The bank’s "Letsema 2025" strategy has focused on process optimization, which allowed it to reduce its cost-to-income ratio to 48.6 percent in 2025 from 49.1 percent in 2024. [1]

Balance Sheet Structural Evolution: Liquidity vs. Risk

The balance sheets of the three banks have been reshaped to maximize returns in a high-rate environment while complying with the increasingly stringent regulatory framework mandated by the Bank of Botswana.

Asset Allocation and the Pivot to Securities

A hallmark of this period was the massive shift of liquidity into government and central bank securities. FNBB’s investment securities surged by 94 percent to P11.6 billion in 2024. This strategic move allowed FNBB to lock in high yields while the BoB Certificates (BoBCs) were being auctioned at rates reflective of the increasing MoPR. [1]

In contrast, loan growth has been more measured across the sector as banks balanced the pursuit of assets with the necessity of maintaining high-quality loan books in a contracting economy.

Absa’s total loans and advances rose by 6 percent in 2025 to P18.55 billion, with growth noted in emerging sectors such as telecommunications and non-diamond mining. Stanbic’s loan book, however, contracted by 9 percent in 2025 to P21.3 billion from P23.4 billion, reflecting a more cautious lending posture as rates reached their peak. [1][2][3][4]

Deposit Dynamics and the Liquidity Constraint

The "liquidity crunch" mentioned in several reports has been the primary constraint for balance sheet expansion. The banking sector in Botswana relies on a few large institutions for cash deposits, making them vulnerable to shifts in institutional liquidity. [1][2][3][4]

FNBB’s balance sheet was significantly boosted by the 28 percent growth in customer deposits to P30 billion in 2024. This was largely driven by a 574 percent increase in Treasury deposits, attributed to the localization of pension funds. This inflow provided FNBB with a "low-cost" liquidity cushion that its competitors lacked, resulting in a loan-to-deposit ratio of 62 percent—one of the lowest in the market. [1][2][3][4]

Absa and Stanbic have faced more intense competition for deposits. Absa’s Liquid Asset Ratio (LAR) closed at 14.8 percent in 2025, down from 15.8 percent in 2024, as the bank balanced profitability with the need for resilience. Stanbic’s deposits remained relatively stable at P22.7 billion in 2025, but its interest margins compressed as it was forced to offer higher returns on term deposits to match the yields available on government paper. [1][2][3][4]

Capital Adequacy and the Basel III Mandate

As part of the implementation of the Basel III standard, the Bank of Botswana will require commercial banks to hold additional capital for deposit concentration risk by the fourth quarter of 2026. This regulatory shift has forced banks to maintain robust Capital Adequacy Ratios (CAR) significantly above the 12.5 percent regulatory minimum.

Stanbic’s CAR saw a significant increase to 20.85 percent by September 2025, up from 17.73 percent in December 2024. Absa’s CAR, while high, saw a marginal reduction to 19.04 percent in June 2025 due to the redemption of a USD 20 million subordinated debt instrument. This high level of capitalization ensures that the banks can absorb potential credit losses while continuing to support real economy growth. [1][2]

Cash Flow and Liquidity Management: The Dividend Nexus

The statement of cash flows for each bank reveals how they managed the transition from a period of liquidity surplus in 2023 to the "crunch" of 2025/2026.

First National Bank of Botswana: Managing Surplus

FNBB’s 2024 integrated report highlighted a strong liquidity position, with the bank declaring a total ordinary dividend of 43 thebe per share, up from 32 thebe in 2023. This increased payout was supported by the bank's massive influx of treasury deposits. The statement of financial position showed that FNBB moved away from holding "Cash and short-term funds" (which decreased by P1.32 billion) into "Investment Securities," which increased by over P5.6 billion. This represents a tactical cash flow move to capture the higher yields of the recalibrated MoPR. [1][2]

Absa Bank Botswana: Restatements and Resilience

Absa’s cash flow analysis was complicated by a comprehensive review that led to significant restatements in its 2025 interim reporting. The bank adjusted its "Cash and cash equivalents" to exclude restricted mandatory reserve balances and loans to banks that did not meet the definition of cash equivalents, while including highly liquid treasury bills. [1][2]

Despite these accounting adjustments, Absa maintained its dividend commitment. For the full year 2025, dividends paid to shareholders amounted to P452.8 million, with a final dividend of 57.74 thebe per share approved in March 2026. This demonstrates that even in a year where PBT declined, the bank prioritized capital returns to shareholders, reinforcing the "stock companies as winners" narrative. [1][2]

Stanbic Bank Botswana: Defensive Cash Management

Stanbic’s 2025 audited results showed a net movement in cash and cash equivalents of P1.05 billion, ending the year with a strong cash position of P2.48 billion. This was a reversal from the prior year, where cash flows were utilized in operations. By increasing its cash position while simultaneously growing its CAR to 20.85 percent, Stanbic adopted a defensive but highly liquid posture, preparing for the increased capital requirements of 2026. [1][2]

Competitive Advantage: Digital Transformation and Market Positioning

The ability of these banks to thrive during a monetary policy recalibration is inextricably linked to their digital transformation and unique market positioning. A 20-year panel data regression model (2003–2023) of commercial banks in Botswana confirms that digital transformation has a positive impact on efficiency, profitability, and market share, albeit with variability based on bank size and resource constraints. [1][2]

FNBB: The Inclusion Pioneer

FNBB’s competitive advantage is its "CashPlus" agent network, which had 1,481 agents by June 2024. This network extends the bank’s reach into remote areas without the overhead of traditional branches, facilitating a 43 percent increase in transaction volumes. This digital-physical hybrid model allows FNBB to capture low-cost retail deposits that are largely immune to the yield-seeking behavior seen in corporate and institutional clients. Furthermore, FNBB’s focus on ESG, with over P610 million in green loans approved, aligns it with the growing global demand for sustainable finance. [1][2]

Stanbic: The Corporate Strategist

Stanbic Bank Botswana has leveraged its position as the third-largest bank by profitability to dominate the Corporate and Investment Banking space. Its "Unayo" mobile money platform and "Shyft" forex application are designed for high-value transacting households and businesses, ensuring that it captures a high share of the fee-based revenue associated with international trade and digital transactions. Stanbic’s organisational redesign in 2023 allowed it to fill critical talent vacancies, which the bank credits for its 25.3 percent improvement in net income before operating expenses. [1][2]

Absa: The Sectoral Diversifier

Absa’s advantage lies in its strategic focus on diversification. By financing solutions for businesses in telecommunications, media, and critical metal mine expansions, Absa is reducing its exposure to the volatility of the diamond sector. Its Sustainable Finance Issuance Framework, including the issuance of sustainability bonds under a P2 billion Note Programme, positions it as a leader in the next generation of capital market products. This focus on "future-proofing" ensures that even when NII is pressured by funding costs, the bank remains a vital partner for the most resilient parts of the Botswana economy. [1][2]

The Future Outlook: Risks and Opportunities

As Botswana enters 2027, the banking sector faces a landscape of moderating inflation but persistently high rates. The BoB projects inflation to decline to 5.6 percent in 2027, but the "second-round effects" of fuel and administered price increases remain a risk.

The Credit Loss Threat

While the banks have been winners thus far, the prolonged period of high interest rates and the "stabilization crisis" associated with anti-inflationary policy can reduce growth and increase unemployment. This typically leads to a spike in Non-Performing Loans (NPLs). Absa already noted a 16.9 percent increase in impairments in 2025 due to the "normalization of credit stress". FNBB’s NPL-to-advances ratio stood at 4.0 percent in 2024, and the bank will need to maintain its rigorous collection discipline to prevent this from eroding profit gains from the rate hikes. [1][2]

The Regulatory Horizon: Basel III

The requirement for additional capital for deposit concentration risk by Q4 2026 will likely temper dividend growth in the short term. Banks that have maintained high CARs, such as Stanbic and FNBB, are better positioned for this transition. Those with lower cushions may need to reduce payout ratios to meet the new Basel III mandates. [1][2]

Economic Recovery and the Diamond Market

The projected rebound of the Botswana economy to 3.1 percent growth in 2026 is heavily dependent on the recovery of the diamond sector and the success of the Economic Transformation Program. If this recovery fails to materialize, the "liquidity crunch" will intensify as government deposits remain low and diamond-related business activity stays subdued. [1][2]

Synthesis: A Narrative of Strategic Resilience

The analysis of FNBB, Absa, and Stanbic Bank demonstrates that the Bank of Botswana's monetary policy recalibration has acted as a stress test that highlights the strategic resilience of the sector. The 200 basis point hike in 2026 was the definitive moment of this cycle, forcing banks to choose between defending their net interest margins or protecting their funding costs.

FNBB emerged as the "yield champion," leveraging its low-cost deposit base and localized pension fund inflows to dramatically expand its treasury income. Stanbic Bank proved to be the "trading powerhouse," using its CIB segment and digital platforms to generate massive non-interest revenue that offset the 86.1 percent spike in interest expense. Absa Bank, while most affected by the rising cost of funds, demonstrated the "diversification edge," pivoting toward sustainable finance and emerging economic sectors to maintain its long-term growth trajectory.

Ultimately, these institutions are the "main winners" because they possess the scale, digital infrastructure, and capital buffers to navigate a period of economic contraction while harvesting the higher yields of a restrictive monetary policy. The stock market has recognized this, with listed property companies and banks leading the BSE's indices to impressive returns. While the risks of credit stress and regulatory tightening loom on the 2027 horizon, the strategic shifts made during the 2024–2026 period have ensured that the pillars of Botswana’s financial sector remain stable, profitable, and increasingly essential to the nation’s economic transformation.

The transition from the "New Dawn" of 2025 to the high-inflation reality of 2026 has confirmed that in Botswana, a rising tide of interest rates does not lift all boats equally, but it certainly favors those with the most sophisticated navigation systems. The banks’ ability to uncouple their prime lending rates from the central bank’s benchmark, their strategic deployment of liquidity into central bank certificates, and their aggressive pursuit of digital transaction fees have turned a period of macroeconomic challenge into a landmark era of financial performance. As the BoB continues to recalibrate, these institutions will remain the primary vehicles through which monetary policy is transmitted—and the primary repositories of the value generated by that transmission.

1. https://tradingeconomics.com/botswana/interest-rate (Botswana Interest Rate - Trading Economics)

2. https://tradingeconomics.com/botswana/interest-rate/news/546681 (Botswana Delivers Massive Rate Hike - Trading Economics)

3. https://thepanafrikanist.com/botswanas-2026-monetary-policy-statement-a-new-dawn/ (Botswana's 2026 Monetary Policy Statement: A New Dawn - The Pan Afrikanist)

4. https://www.bankofbotswana.bw/sites/default/files/publications/Monetary%20Policy%20Statement%20-%202026.pdf (MONETARY POLICY STATEMENT | 2026 - Bank of Botswana)

5. https://www.bankofbotswana.bw/ (Bank of Botswana: Home)

6. https://www.bankofbotswana.bw/sites/default/files/press-release-files/Press%20Release%20-%20Monetary%20Policy%20Committee%20Decision%2030%20April%202026.pdf (Statement of the Monetary Policy Committee: October 27, 2009 - Bank of Botswana)