The ups and downs of economics
CREDIT GROWTH UP: BoB

Credit extension growth to businesses up as households’ declines

Growth in commercial bank credit extension rose from 5.6 percent in 2017 to 7.7 percent last year.

Figures taken from the latest Bank of Botswana annual report indicate that the credit expansion was mainly attributed to a drastic increase in lending to businesses, from 3.2 percent in 2017 to 10 percent last year.

The increase was predominantly towards sectors like trade, hospitality, tourism, construction and financial services.

These are mostly sectors economists have identified as the country’s main sources of economic growth in the coming years.

As has been the trend in the last three years, credit extension to households continued on a downward spiral, falling from 7.2 percent in 2017 to 6.2 percent in 2018.

This is largely believed to be due to the slower uptake of personal loans, from growth of 9.2 percent to 7 percent last year.

This comes despite the central bank maintaining the bank rate at a lower level in order to spur economic activity by encouraging borrowing.

In the same period, the rate of unsecured lending also slowed from 8.8 percent to 6.8 percent, reflecting tightening of lending procedures by commercial lenders.

Similarly, the portion of mortgage lending in total bank credit to households went down as well, from 27.8 percent in December 2017 to 27.4 percent in December last year.

Despite the decline in both mortgage lending and personal loans, households’ loans still accounted for the larger portion of total credit extension by banks at 60.2 percent.

Over the past few years, commercial banks have expressed concern at the ballooning rate of Non-Performing Loans, (NPLs). However, BoB feels the level of NPLs to total credit remained sustainable at around 5 percent between 2017 and 2018.

NPL ratios for both household and businesses decreased during the period, while household debt as a proportion to household formal employment income ranged between 46 percent and 50 percent from 2016 to 2018.

These levels of household indebtedness are considered low by international standards.

The bank says a concern would only arise in a situation whereby high levels of borrowing are out of line with trend in economic income growth, which would increase the risk of households and businesses to economic shocks and may harm their ability to repay debt.

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