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Indebted Batswana, Banks cautious

Publishing Date : 04 September, 2017


Indebtedness, cautious commercial banks, low personal incomes are key themes from the Bank of Botswana presentation of the monetary Policy Statement, an indication that many households continue with the inescapable consumerism that has been so much a feature of Batswana’s lifestyle.

Amid the achievement of key objectives of an Inflation range within the 3-6 percent and a stable financial environment, the recently released Bank of Botswana Mid-Term Review (MTR) of the 2017 Monetary Policy Statement (MPS) paint a picture of Batswana swimming in debt. According to the Bank of Botswana, annual growth in commercial bank credit was 4.1 percent in June 2017, lower than the yearly increase of 6.2 percent in June 2016, against the background of moderate economic activity and restrained growth in personal incomes. In particular, the year on year increase in lending to households fell from 7.6 percent to 5 percent in this period.

“The yearly growth in lending to the business sector decreased from 4.2 percent in December 2016 to 2.8 percent in June 2017; some large loans were repaid by parastatals. Excluding parastatals, the annual increase in borrowing by businesses rose from 7.4 percent in December to 9.5 percent in June 2017.” However Banking sector performance indicators, including levels of capital, liquidity, profitability and default ratios, suggest a stable financial environment. Even then, the aggregate ratio of non-performing loans (NPLs) to total loans increased from 4.9 percent in December 2016 to 5.3 percent in June 2017, says Bank of Botswana.

Meanwhile the slight deterioration in asset quality experienced by the banking sector is attributed to, in the main, challenges for some diamond cutting and polishing businesses, job losses resulting from the closure of BCL group of companies and ongoing retrenchments by some major employers, as well as weaker market for high-value residential properties. Job losses are the biggest dent to the economy at the moment more so that unemployment, especially among the youth, remains a thorn.

“The NPL to total loans ratio for individual banks ranged from 0.2 percent to 10.8 percent in June 2017. Households account for a larger share of total lending by commercial banks, which stood at 59.6 percent in June 2017.” Low personal incomes are forcing many households into debt. The Bank of Botswana observes that the annual growth in mortgages moderated to 4.4 percent in June 2017, from 7.3 percent in June 2016, which mainly reflects a weak housing market, especially at the upper-end, and tighter lending criteria by some banks.

“Nevertheless, unsecured household lending, which constitutes a large proportion of commercial bank credit, represents relatively small amounts spread across many borrowers of differing credit profiles, which mitigates associated financial stability risks.” The BoB says: Overall, current levels of credit growth continue to be supportive of economic activity and augur well for durable stability of the financial system. “The Board of the Bank has approved broadening the range of securities that are eligible for use by commercial banks as collateral when accessing credit facilities offered by the Bank. By allowing all government securities, regardless of maturities to be used for this purpose, commercial banks will be able to manage liquid assets more efficiently, with less reliance on BoBCs for collateral.”

The Central Bank is of the view that in turn, this should improve the efficiency of the policy transmission mechanism, while also reducing further the costs of monetary policy implementation. The bank new framework will become operational in the second half of 2017. “The Bank’s implementation of the exchange rate policy will continue to entail a 0.26 percent upward rate of crawl of the NEER for the remainder of 2017, given that inflation in Botswana is projected to be within the medium-term objective range of 3 – 6 percent and below the projected average inflation of trading partner countries.”

MPS examines price developments and the underlying causal factors in the first half of 2017. It also assesses key financial and economic developments that are likely to influence the inflation outlook and financial stability, in order to determine the likely monetary policy response in the second half of 2017.



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