A confident Moses Pelaelo – the Governor of Bank of Botswana – unveiled the 2018 Monetary Policy Statement (MPS) on Tuesday insisting that his bank remains committed to ‘ensuring price and financial stability, without undermining sustainable economic growth’. Addressing leading corporate leaders that included CEOs of commercial banks, ministers, Pelaelo maintained that they will focus on entrenching expectations of low and sustainable inflation, through timely response to price developments. The unveiling of the MPS is an annual event where the Governor gives a forecast of the year ahead and assures the market and key players about the status of the economic fundamentals. This year on completion of his deliberation, he received praise from the Minister of Finance and Economic Planning, Kenneth Matambo for the bank’s sterling work and on the “excellent presentation of the Monetary Policy Statement”. He presented the minister with the MPS report. Pelaelo said this year the bank will produce a number of reports including four Monetary Policy Reports and will establish the Financial Stability Council through which together with the Non-Banking Financial Institutions Regulatory Authority (NBFIRA) they will shocks from the financial sector and strengthen the sector’s defence. Meanwhile Pelaelo confirmed that credit default was on the rise. The MPS shows that the ratio of non-performing loans (NPL) to total credit increased from 4.9 percent in December 2016 to 5.3 percent in December 2017. By the sector, the MPS for 2018 observes that by sector, the ratio of NPLs to total loans or households decreased from 4.9 percent in December 2016 to 4.5 percent in December while for businesses increased from 4.9 percent to 6.4 percent. The central bank has observed that though there was an increase in credit default rates, this however did not have a negative impact on the financial system as there was sufficient provisioning by banks to cover NPLs, with banks remaining profitable.
In the statement, Pelaelo has indicated that the capital, liquidity, asset quality and profitability levels that meet provident requirements for banks indicate a generally sound and table financial system and current levels of credit are said to be supportive of economic activity. The NPL ratio for individual banks by December 2017, ranged from 1.3 percent to 10 percent. While there is no breakdown on which businesses sectors might have contributed to an increase in credit default rates, Research Manager at Motswedi Securities, Garry Juma said he suspects the mining industry which has been under stress might have contributed to this increase. He told this publication on Friday afternoon over the phone that while firms like BCL Group which have ultimately fell might have been secured, there might be credits that was extended to either individuals or firms linked to BCL that were not secured. Though default rates for households decreased last year compared to the year before, households loans constituted for a larger portion of total loans at the end of 2017 with a share of 61 percent of commercial bank credit. It has been observed that household credit is concentrated in unsecured lending at 67.7 percent by December last but developments with respect to household credit are said to be in line with the slower growth in personal incomes and augur well for maintenance of financial stability. Household deposits have reportedly gone down as well, decreasing by 8.4 percent in 2017 following a 3.6 percent fall in 2016. This is thought to reflect potential financial strain on households arising from sluggish growth in incomes.