The health of our banking sector is in good shape as the Lesotho Revenue Authority (LRA) will net a combined M243.83 million in tax revenue for the 2017/18 financial year as reported in recent weeks by the four banks operating in Lesotho. This compares to M160.53 million tax revenue reported in the 2016/17 financial year.
Standard Lesotho Bank leads the pack with M140.97 million in 2017/18 compared to M136.36 million in 2016/17, followed by the Lesotho Postbank M24.17 million from M12.53 million, then Nedbank Lesotho M18.60 million from M11.63 million and FNB Lesotho M3.86 million from a loss of M7.07 million the previous financial year.
The Postbank is owned by the Lesotho government while the other three commercial banks are South African multinationals. Otherwise, the government holds shares in Standard Lesotho Bank which has consistently declared dividends.
The distinguishing factor of state-owned banks such as the Lesotho Postbank is its dependence on government for additional resources such as grants. For the financial year under review, the Lesotho Postbank received M11.61 million unlike M6.98 million it received the previous year in capital grant income.
It is expected that the Lesotho Postbank will be recapitalised through the Maseru Securities Market in future so that Basotho can buy shares that are held by government. Political pressure to lend to risky or non-creditworthy borrowers with consequent default rates running high, has since seen the collapse of the state-owned Lesotho Bank and the Lesotho Agricultural Development Bank.
The financial results come at a time when the financial sector that includes the central bank, commercial banks and insurance companies are campaigning for an improved savings mobilisation. Without savings, the banks would not be able to raise funds largely through deposits and equity, which they invest in productive assets.
Lesotho’s main revenue sources are the Southern Africa Customs Union (SACU) revenues, tax revenues, grants, and other non-tax revenues. As part of SACU, Lesotho receives its share from the union which is primarily driven by South Africa’s economic growth and are highly volatile.
While financial inclusion is another challenge facing the banking industry, the establishment of the credit bureau is a shot in the arm where credit information enquiries is around 13 000. Already, the credit bureau has reportedly registered about 137 000 individuals with 220 000 accounts.
Historically, Basotho have reared livestock as a store of wealth. Savings in cash or kind in the form of cattle, goats, sheep, food grains, and farm implements, have served as inflation hedges.
But without a bank account and access to payment services, it is impossible for an individual to participate effectively in a modernised Lesotho economy. A bank account is usually required in the formal economy to receive salaries and wages, make a wide variety of routine payments, and access savings and credit facilities.
Employers insist on depositing salaries electronically into employees’ bank accounts. Credit facilities, including home and car loans, are generally only available to those who can service the debt via a transaction account. In general, access to insurance products, unit trusts or collective investment schemes, require an individual to have a bank account.
A bank mobilises savings in a variety of ways – savings accounts, time deposit accounts, and certificates of deposit. Deposits can be classified by ownership such as private, public or inter-bank and form of withdrawal like savings, time or demand deposits.
Savings deposits have no specified maturity and no contractual provisions that require the depositor to give written notice of an intention to withdraw funds.
Time deposit contracts are distinguished from demand and savings accounts by provisions specifying maturity or other withdrawal conditions. A time deposit is a deposit which has a written contract with the depositor that neither the whole nor part of it may be withdrawn prior to the date of maturity. If funds are withdrawn prior to maturity, the depositor will forfeit interest specified by the bank.
A certificate of deposit is a deposit evidenced by a negotiable or non-negotiable instrument (certified) that provides on its face that the amount of each deposit is payable either on a certain date specified in the certificate or at expiry of a specified period not less than 30 days after the date of the instrument.
Saving money is certainly a good thing to do. Apart from contributing to sustainability and mobilisation of investment resources, your deposits into a bank account provide security against future adversities. Savings help you build financial discipline and creditworthiness. Regular transactions build up a lender-borrower history and accumulated deposits can be used to support loans.