BoB: Household lending falls 

SHARE   |   Monday, 22 May 2017   |   By Kabelo Adamson
Pelaelo Pelaelo

Growth in commercial bank credit has decelerated from 7.1 percent in 2015 to 6.2 percent in 2016 against a backdrop of subdued economic activity and restrained growth in personal incomes. This is according to the Bank of Botswana (BoB) 2016 annual report which was unveiled on Wednesday during the annual economic briefing by the central bank. According to the bank’s assessment, the slowdown in annual credit expansion was mostly due to the decrease in growth in lending to the household sector which saw a decline from 12.8 percent in 2015 to 7.6 percent in 2016. In the same breadth, lending to the business sector jumped from the negative to register positive growth, from minus 0.3 percent the year before to 4.2 percent last year. The central bank notes that household credit extension growth of both unsecured lending and mortgage loans declined during the period. Unsecured loans decreased from 15.5 percent in 2015 to 8.3 percent in 2016, while yearly expansion in mortgage loans declined from 7.2 percent to 6.2 percent. The bank – led by Moses Pelaelo who took over long serving Governor Linah Mohohlo in October – says slower growth in these categories was consistent with subdued activity in the property market and modest growth in income at personal level which led to lenders applying strict measures towards lending. Overall, the bank says the banking system performance indicators shows a stable financial environment, with the moderation of mortgage credit growth in the context of a slowdown in property market thought to be boding well for maintaining potential risks in the sector at modest levels.

A major issue however is the concentration of household credit in the unsecured lending category at 66 percent. “Nonetheless, any risks emanating from this type of lending to households is moderated by the extent to which unsecured credit is diversified and its potential contribution to economic activity, wealth-creation and growth activities that it finances,” the report says. Unsecured household lending is said to represent a relatively small amount spread across many borrowers, which will in turn reduce chances of escalation of bad debts. Loss of employment from closure of several companies, including BCL and its subsidiaries which all led to a loss of thousands of jobs is believed could be a source of some possible strain on individuals and entities involved. Banks are expected to be cushioned from such loss with minimal effects, mitigated by collaterals, insurances as well as adequate provisioning in the context of satisfactory levels of profitability and capital. During the period between December 2015 and December 2016, the combined ratio of non-performing loans increased from 3.3 percent to 4.9 percent. In the same report, the central bank which supervises all commercial banks in the country indicates that during the period under review, the banking sector was adequately capitalised, profitable and liquid. The industry is also said to have complied well with regulatory requirements which the central bank says was satisfactory. Most banks are said to have posted higher levels of profit compared to the previous year.