Banks register moderate growth in loans

Shutdown of businesses and loss of employment has reduced the borrowing capacity of retail customers, the Bank of Botswana ( BoB) has revealed. The central bank said the increase of 7.3 percent in household sector loans in 2020 was slower than the 13.8 percent in the previous year.

“The personal ( mostly unsecured lending), mortgage and motor vehicle loans increased by 9.6 percent, 4 percent and 2.8 percent to P29.8 billion, P10.1 billion and P2.1 billion, respectively, while credit cards declined by 27.7 percent to P709 million in the same period,” said BoB’s latest Banking Supervision Annual Report. Despite a slump in loan applications, personal loans constituted the largest proportion of loans and advances to the household sector at 70 percent, and were higher than 68 percent in 2019, while the share of mortgages was unchanged at 24 percent. BoB emphasized that the moderate growth rates of most components of household loans was as a result of the negative effect of the COVID- 19 pandemic on the economy. The central bank has highlighted that inherent credit risk is likely to increase over the next 12 months because of the shutdown and partial operation of businesses and loss of employment resulting from the economic fallout from the COVID- 19 pandemic. “However, this outlook for an increase in credit risk due to asset- quality deterioration is expected to be moderated, for the bulk of the banking credit comprises relatively small amounts to multiple uncorrelated retail borrowers in the various sectors of the economy, especially public sector employees.” In addition, BoB anticipates that through a variety of credit- risk mitigation mechanisms, such as mortgage payment protection insurance, credit life and lien over life insurance policies, a significant portion of credit risk has been transferred to, and warehoused by, the insurance sector. Meanwhile the distribution of private business loans and advances for the period 2016 – 2020 indicates that the market share of two sub- sectors, namely, trade, restaurant and bars, and commercial real estate increased marginally during the review period. “Despite the increase in its share of credit, the output growth for the commercial real estate sub- sector was negative, contributing to the fall in overall GDP. The COVID- 19 pandemic negatively affected the tourism and hotels, and construction sub- sectors, resulting in the respective contraction in output by 33.3 percent and 11 percent in 2020, from the growth of 4.6 percent and 3 percent in 2019,” reads the report.