- Gov’t workers account for the highest amount of loans
- Household indebtedness stands at P58.3bn
- Banks have low repayment defaults
The household indebtedness survey by the Bank of Botswana indicates that access to credit is skewed in favour of higher-income earners.
According to the survey, household borrowing by income groups shows that banks and micro-lenders typically lend to clients with average monthly earnings between P9 001 and P15 000, followed by those earning between P15 001 and P25 000.
It has also been found that banks have the highest amount of loans with government employees, while micro-lenders typically lend to those in the private sector and the unemployed.
“This is indicative of some level of risk-aversion in the banking sector as banks lean more towards safer loans to government employees, most of which are scheme loans and have a deduction from source payment arrangements,” states the report.
“Furthermore, information obtained from banks show that private sector employees have the highest number of loan accounts even though they have a significantly smaller proportion of loans by value compared to government employees.”
This is reported to be an indication that private-sector employee bank loans are spread across many customers and the diversity tends to alleviate potential credit losses in case of widespread private-sector stress As at the end of December 2022, the estimated total household debt stood at P58.3 billion, comprising P46.5 billion (79.8 percent) commercial bank loans, P11.7 billion (20.1 percent) micro-lender loans and P67.5 million (0.1 percent) being hire purchase loans.
The total household loans have declined by 0.34 percent from the P58.5 billion recorded in December 2021. As a percentage of GDP, total household debt was 23.2 percent, a significant decline from the 29.9 percent reported in 2021.
Furthermore, the results of the survey indicate that households had debt-to-income and debt-service-to-income ratios of 58 percent and 60 percent, respectively. During the survey, banks were asked to state the potential demand and supply factors affecting credit extension. Subsequently, all of them indicated that the state of the economy and funding costs were the most prominent drivers of credit growth, followed by growth in household income and the risk appetite of the banks.
“Other factors driving credit extension in 2022 were credit supply and market share objectives of the banks, involving a desire to increase the proportion of household loans in their portfolios,” the report says.
For 2023, banks stated that the anticipated increase in household income and an increase in their risk appetite are expected to drive credit growth, supported by a healthy economy. According to the survey, banks generally had low default rates in 2022, with the non-performing loans (NPLs) to total loan ratios ranging from 1 percent to 7.3 percent.
Most of the banks are said to have assessed the default rates for 2022 to be medium with slight improvements expected in 2023. The optimism surrounding household loan performance is due to anticipated increases in household income and increasing economic activity due to new government projects.
The implementation of the Transitional National Development Plan is also expected to add impetus to these growth and economic transformation prospects. During the TNDP, the government has recently announced a budget of P13 billion to undertake infrastructure projects across the country.