HOUSEHOLD DEBT HITS P53 BILLION

• Banks relish soaring profits as unsecured personal loans stand at P36 billion

As the country’s main commercial banks continue to report huge profits, it has emerged that the household debt has risen to P53.4 billion in retail loans and advances to households.

“As at 31st December, 2022 loans and other advances extended to household by banks constituted the largest share of bank-lending at 67.6 percent, the majority of which was unsecured personal loans at P36.2 billion,” said the Minister of Finance, Peggy Serame, when responding to a question in parliament last week.

She added that the total household debt to Gross Domestic Product (GDP) ratio was 10.8 percent.

“On the other hand, outstanding mortgage loans extended to households were P14.2 billion (26.6 percent of household debt) or 5.9 percent of GDP. Overall, total bank credit as ratio of GDP was 32.7 percent,” she explained.

The minister said there was need for financial literacy to contribute towards the avoidance of multiple loan acquisitions that result in customers experiencing difficulties in honouring repayment obligations.

She added that the underwriting criteria for most bank loans is that the debt to income ratio of the borrower should not exceed 50 percent or that the monthly income amount should not exceed half of the customer’s salary.

The minister was responding to a question by the Leader of Opposition,

Dithapelo Keorapetse, who had wanted her to explain how much in total is owed by Batswana to lenders and the number of lending establishments, pawnshops and others.

Keorapetse had also wanted to know whether there is a price regulation for micro lenders and the government take home policy for married, single persons, and industrial employees, and when this was last updated.

Serame said: “Government policy is that price control is not effective or desirable and as such interest rates are not regulated. Non regulation may, among other things, result in an increase in non-interest rate fees and commissions, reduced price transparency, lower credit supply and loan approval rates”.

She further explained that non regulation may result in reduced number of non-bank lenders and branch density, which may hinder financial inclusion. This position, she said, is supported by international research by World Bank and other institutions, and is consistent with practice in many jurisdictions.

Take home policy prescribes that the salary scale A3-B1 are allowed a P600 minimum net pay; C4 and above P1,300 minimum net pay for single officers and P1,500 minimum net pay for married officers. She said the minimum net pay was last revised in 2014.

Meanwhile, there are 376 non-bank lenders consisting of 246 micro lenders and 66 finance companies, 3 leasing companies and 61 pawnshops operating in the country.