- Absa has ascribed this to its strategy to support customers and to fulfilling its the primary purpose of providing access to finance.
Absa Bank Botswana Limited says customer loans in the year ended 31 December 2021 rose in excess of P1 billion due to momentum that the bank saw in its Retail and Business Banking (RBB) franchise. According to the bank’s Finance Director Cynthia Morapedi, this is on account of the strategy to continue to support customers as well as play the primary purpose of providing access to finance.
The bank has reported solid assets (advances) year-on-year growth of 9 percent with Morapedi saying from a household perspective, they still experience increased demand for credit owing to different reasons. Morapedi was picking up the cue from her superior, Keabetswe Pheko-Moshagane in response to a question from the floor during a question and answer session where the bank had just presented its set of results for the full year ended 31 December 2021.
The question from Tshegofatso Tlhong, Portfolio Manager at Kgori Capital, sought to understand the driving factor of the bank’s retail lending amidst a number of negating factors and to know where growth is coming from. “If you look at the structure of our lending, housing and unsecured lending lead the demand in that space (household),” Morapedi replied. Despite the many macroeconomic factors affecting households’ debt servicing capabilities, the finance director is not surprised. “It is something that is not surprising to us but it is an appetite we are proactively looking at,” she added.
Ironically, this happens in a market where property experts had in the past year observed that the housing affordability crisis was evident and there was an oversupply of stock as more and more people looked to sell their property as a means of financial rescue. Macro-economic conditions remained stressed, influenced by the COVID-19 pandemic with hundreds of houses repossessed by some banks.
Bankers hold that defaults are typically driven by adverse changes in client’s income and debt service capacity. In the course of the pandemic, businesses resorted to cutting salaries or placing employees on forced leave to stay afloat. Job losses and business slowdowns also directly impaired client incomes and cash flows which affected ability to borrow. In 2021, unemployment rose to 24 percent with Parliament recently documents showing that job losses influenced by COVID-19 (retrenchments) are nearing 800.
Inflation increased significantly, from an average of 1.9 percent in 2020 to 6.7 percent in 2021, according to a presentation by Absa Botswana MD Keabetswe Pheko-Moshagane. The rise in inflation, she noted, was underpinned by modest recovery in domestic demand, upward changes in VAT, administered prices and levies, as well as rising food prices.
As that happened, credit extended by commercial banks decreased by P371 million from P69.291 billion in November to P68.920 billion in December 2021, according to the Bank of Botswana (BoB). But important to note is that loans to households increased by P313 million. The share of credit by households was 66 percent in December 2021, comparted to 65.4 percent in November, with the largest share of loans directed to person loans, especially unsecured loans.
In quizzing the Absa officials, Tlhong noted a negative real wage growth but sustained credit retail growth for the bank and its balance sheet. Year-on-year customer loans and advances have grown by 7 percent. Responding to Tlhong, Pheko-Moshagane noted that Absa had observed an improvement in business confidence. “We have seen improvement in overall economic activity except for hospitality and tourism and the improvement has been driven by various things,” the MD said. In addition to this, she mentioned the government’s interventions to support economic recovery, growing demand in the diamond space and significant recovery of that in terms of sales. Pheko-Moshagane said all this has influenced the Absa view that “we have improved significantly to levels that are much better if you look at 2020”. That is why equally, she said, “you would see a rise in household debt because the monetary conditions in terms of interest rates which are very supportive of that course”.
Meanwhile, despite inflation being above the target range since May 2021, the Monetary Policy Committee (MPC) has maintained the bank rate flat at 3.75 percent at its last meeting. This was mainly to support economic recovery. The MPC has also maintained the view that the upward pressures were cost-push transitionary factors that do not require policy tightening.