- Loan uptake by businesses fasttracked by need to meet demand as economy opened up following restrictive COVID-19 measures
- Poorer household credit growth as demand for personal and property loans slows down in 2022
- BoB’s policy tightening in Q2 and Q3 dampens demand for household credit
Annual growth in commercial bank credit accelerated to 6.2 percent in 2022 from 5.1 percent in 2021 with the faster growth in part associated with an increase in loan uptake by businesses in that period as the economy opened following the end of the State of Public Emergency,
The Bank of Botswana (BoB) says this in the 2023 Monetary Policy Statement (MPS), which is published at the beginning of the year to inform stakeholders about the framework for formulation and implementation of the monetary policy of the central bank. The latest MPS was published in February 2023 and reports on the previous year’s economic and policy developments and evaluates the determinants of changes in the level of prices and their impact on inflation in Botswana.
Reviewing credit and financial stability in 2022, BoB highlights that the impact of the increase in the Monetary Policy Rate (MoPR) was countred by utilisation of credit facilities by businesses aiming to increase activity or augment inventory/supply shortages in order to meet demand during the continued recovery following relaxation of the COVID-19 restrictive measures
“Business sector credit grew, annually, by 8.9 percent in 2022, from a 2.7 percent increase in December 2021, it says. “Meanwhile, credit to businesses excluding parastatals increased by 9.2 percent during 2022, compared to an annual expansion of 4.1 percent in 2021.”
According to BoB, the improvement in the allocation of credit to businesses was in the form of utilisation of overdraft facilities and loans extended to some companies in the agriculture, electricity and water, mining, transport and communications, as well as in real estate industries. There was increased use of credit facilities by parastatals.
But household credit growth decelerated from 6.4 percent in 2021 to 4.8 percent in 2022. The lower credit growth was mainly attributable to the slower rate of increase in personal unsecured lending and property loans during the period under review, which was a possible reflection of the effects of policy tightening in the second and third quarters of 2022 by BoB which had a dampening effect on demand.
“Banks also likely restricted credit supply in an attempt to guard against increase in default rates as the cost of credit becomes expensive,” says the MPS. “The share of mortgages in total household credit decreased from 23.1 percent to 22.3 percent in the same period. “Meanwhile, the growth rate for credit extended to motor vehicles and for credit card balances was higher in the same period.”
The rate of growth of deposits made by households in Botswana decreased to 8.4 percent in December 2022, compared to 15.8 percent in December 2021, while business deposits (excluding parastatals) increased by 11.1 percent from 3 percent during the same period. Overall, total deposits at commercial banks increased by 7.8 percent, compared to 4.7 percent growth in the prior year.
BoB says in general, the rate of increase of credit continues to be supportive of economic activity, although remaining comparatively low by global standards with the financial sector assessed as resilient and characterised by strong capital and liquidity buffers, moderate profitability as well as being adaptive and innovative. “The enduring stability of the financial system is supported by a sound macroeconomic environment, efficient and robust market infrastructure, prudently managed banks, and effective regulation and supervision,” says the MPS.