BoB Reports Decreased Household Borrowing

• Household loans decrease to 3.6% in February 2023
• Bank of Botswana attributes decline to policy review
• But banking sector assets rose by 9.5% in February 2023

Figures contained in BoB’s Monetary Policy Report for the month of April 2023 suggest that year-on-year growth in household loans decreased from 5.5 percent in February 2022 to 3.6 percent in February 2023 while personal loans at household level have been on the rise for many years.

BoB attributes the lower growth in household credit to the decline in growth of personal unsecured loans during the period under review, which is a possible reflection of the effects of policy tightening in the second and third quarters of 2022 by the central bank. The bank says the tightening of policy in the banking sector had a dampening effect on demand. “Banks also likely restricted credit supply to guard against increases in default rates as the cost of credit become expensive,” it notes in the report. It notes that the share of the household sector in total lending by commercial banks decreased slightly from 67.5 percent posted in February 2022 to 66 percent in February 2023.

Economic pundits say the decline in household loans reflects weaker increase in incomes, particularly in the private sector, as salaries remain stagnant. Economist Lame Bothata says the suppressed household borrowings could also  be linked to household debt that is now closer to P70 billion. “The increased household debt in many instances is attributable to high loan borrowings by lower income households which sought to maintain rising consumption and ended up broke,” Bothata asserts.

He observed that the reduction in household borrowing is a rare event in the context of Botswana’s economic dynamics, adding that it signals suppression in household finances. Bothata says the decreasing appetite for personal loans causes a negative impact on the balance sheet of commercial banks, given the fact that the  majority of loan borrowers are the working class. However, the Monetary Policy Report says motor vehicle, property and credit card-based loans increased in the year to February 2023.

Meanwhile, the Bank of Botswana there has been an increase in banking sector assets mainly due to a rise in balances from foreign banks, loans and advances as well as holdings of debt securities. “The banking sector assets growth accelerated in February 2023,” says the report. “The annual banking sector asset growth increased from 3.5 percent in February 2022 to 9.5 percent in February 2023.

“Loans and advances accounted for the largest proportion of commercial banks’ assets (62 percent) in February 2023,” the bank said. “Overall, growth in banking sector assets was mainly funded through customer deposits, which rose annually by 7.7 percent in the same period.”