While the Umbrella for Democratic Change (UDC) has yet to outline specific policies for the banking sector, its broader agenda suggests significant potential benefits for banks, according to global research firm Business Monitor International (BMI).
BMI predicts that Botswana’s banking sector will remain stable and resilient in 2025, despite economic challenges. The sector has maintained high liquidity and solvency levels, allowing it to withstand various shocks.
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BMI also points to recent stress test results, which confirm the sector’s ability to manage credit, liquidity, and interest rate risks effectively. Banks are reporting low and declining non-performing loan (NPL) ratios, robust capital buffers, and strong profitability. This resilience, coupled with the improving economic environment in 2025, is expected to support loan and deposit growth for banks.
The 2024 general election brought a significant political shift, with the UDC emerging victorious. Botswana’s economy has been grappling with challenges, particularly a downturn in the mining sector, a traditional growth driver. BMI notes that this economic slowdown has affected banks’ balance sheets, with loan growth slowing from 12.0 percent year-on-year at the end of 2023 to 4.8 percent by August 2024, as banks adopted a more cautious lending approach in response to economic uncertainty and weaker demand for credit.
However, BMI anticipates that as the economic environment improves in 2025, bank lending will increase. Deposits, which have shown stronger performance than loans in recent months, are expected to see robust growth through the remainder of 2024 and into 2025.
Although the UDC has not yet specified objectives for the banking sector, BMI believes that the partyโs broader policy agenda will have positive implications for banks. Key initiatives, such as the creation of 400,000-500,000 jobs over five years through infrastructure projects and economic diversification, are expected to increase demand for banking services. Banks stand to benefit from financing these infrastructure projects and supporting new businesses. The jobs initiative is also likely to improve loan demand and loan quality, though BMI notes that the number of jobs created may fall short of the UDC’s ambitious target.
Additionally, the UDC’s proposed wage increases, including a minimum wage of P3,000 and an average salary of P10,000, are expected to boost consumer spending and savings, providing banks with opportunities to expand retail banking services. Moreover, the UDCโs target of 10 percent annual economic growth, if achieved, would create a more favorable operating environment for banks, driving demand for loans and other financial products.
