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Why is credit growth failing to pick up?

Publishing Date : 07 August, 2017

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This is a very interesting and important question as one would have naturally expected credit expansion to grow at a much faster rate given the ultra-low interest rates.

We believe the irony of this declining trend could be attributable to the deterioration of borrowers’ credit capacity and weak demand prospects, which all have dampened banks appetite to extend more credit and demand for business to take up more credit. The latest Bank of Botswana March 2017 Business Expectations survey shows an improvement in overall business confidence and we are eagerly waiting to see if this will translate to an uptick in economic activities.

Credit growth to the business sector has declined much faster since November 2016. It grew by 7.2% y/y in November 2016 before falling to 4.2% y/y in December 2016 and 3.6% y/y in January 2017. As at April it stood at 0.5% y/y. Credit growth to the mining sector has been negative since June 2016 reflecting the challenges in the mining sector which saw the closing of some major mining houses such as African Copper, Discovery Metals and most significantly BCL Group. The BCL group loan repayment in December 2016 also impacted negatively on the credit expansion to this sector.

The household sector has not been spared either from the decline in credit growth as it has fallen to a growth of 5.3% y/y in April 2017 from a much higher growth of 13.9% in March 2016 reflecting the restrained growth in personal incomes. Banks have also been reducing their appetite on extending unsecured loans to the household sector as shown by the contraction in unsecured loans from 15.5% to 8.3%. Mortgage lending also slowed to 6.3% from 7.2% reflecting the weaker residential market. There are fears that most households will struggle to settle their arrears if interest rates starts to rise in the near future and this will have contagion effects on the banking sector and the economy at large in terms of NPL’s. Credit extension to the household sector takes up 59% of total credit extended by commercial banks.

There were however positive signs in credit growth to the agriculture sector, construction and finance. The improved rains improved prospects in the agric sector, while the govt ESP programme to some extend boosted the construction sector resulting in an uptick in credit expansion to 16.8% y/y in April from 1.8% y/y in March.



Do you think the closure of BCL will compel SPEDU to double their efforts in creating job opportunities in the Selibe Phikwe?