Credit extension by commercial banks decelerated year-on-year from 6.2 percent in December 2016 to 5.6 percent in December 2017. These figures are contained in the Bank of Botswana (BoB) annual report which was released last week.
According to the report, this reflects a slowdown in the yearly increase in lending to the business sector, from 4.2 percent in December 2016 to 3.2 percent in December 2017. This is mostly due to loan repayments by parastatals and some diamonds cutting and polishing companies.
For the same period, household credit eased from 7.6 percent to 7.2 percent and as at December 2017, household credit constituted a larger share of total private commercial bank credit at 61 percent, from 60.1 percent during the same period a year before.
The report states that in terms of components of household credit, growth in unsecured lending increased from 8.3 percent in 2016 to 8.8 percent last year but decreased with respect to mortgage loans from 6.3 percent to 4.8 percent over the same period.
“The lower growth of mortgage lending was consistent with the weaker residential property market, especially at the upper end, and modest growth of personal incomes, which engendered a cautious approach to lending by banks,” says the report.
The central bank believes the banking system performance indicators suggest a stable financial environment with the moderation of mortgage credit growth in the context of a slowdown in the perfomance of the property market thought to be auguring well for financial stability as disproportionate increase in credit is feared could potentially lead to asset price bubbles.
BoB has cautioned that the concentration of household credit in the unsecured lending category which stood at 67.1 percent as at December 2017 requires monitoring for desired impact on sustainable economic activity and to safeguard financial stability.
However, the banks say any risks emanating from this type of lending to households are 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.
“Unsecured lending is constituted by relatively small amounts spread across many borrowers and sectors, thus mitigating the possibility of widespread escalation of bad debts,” the report says.
The loss of employment income from the closure of several companies, including BCL and its subsidiary in October 2016, is said to be a source of some strain on individuals and entities involved.
But the impact on individual banks and the banking system is expected to be mitigated by collateral, insurance and adequate provisioning in the context of satisfactory levels of profitability and capital. The aggregate ratio of non-performing loans to total loans increased form 4.9 percent in December 2016 to 5.3 percent in December 2017.