Over the last 12 to 24 months, credit market has seen a significant increase in household and consumer demand, according to the Bank of Botswana statistics. This is against the backdrop of very low wage growth over the same period and very low new employment numbers.
The impact of that, according to the First National Bank of Botswana (FNBB), has been that the overall household debt numbers have increased on the back of very new participants into the loan industry. According to Sean Pugh, the Director of Credit, this would imply that there’s been increased loan debts extended to the same individuals, therefore higher levels of debt within families. “So what we have seen in the market is that banks have extended loan turners on unsecured personal loans to 84 months,” Pugh said during the bank’s results presentation last week. He was responding to a question by Kgori Capital’s Tshegofatso Tlhong. The portfolio manager sought to establish opportunities presented by household loan book.
Pugh explained that this has contributed to particiapants being able to increase and access loan with higher levels. FNBB said from its point of view as responsible banker, it continued to keep loan appetite consistent in lending to households taking into account the impact of inflation and rising costs in the economy. Inflation rose to 8.9 percent July but softened to 8 percent in August.
FNBB’s retail advances experienced a sharp decline of 7 percent while the Botswana retail market increased by 9 percent. The bank said it maintained its existing affordability criteria and a selective approach to retail exposure.
“We are mindful of the household debt obligations as well as the ability for households to have sufficient disposable income to service the remaining,” Pugh said.
In the near term and post SOE, the bank cautioned that Botswana will likely see some retrenchments as businesses right size given that consumer activity remains relatively quiet mute. But over the medium term, Gomolemo Basele expects that as the economic recovery and transformation plan becomes entrenched there will be growth opportunities. “We should see a reversal of the uptick in unemployment that we expect to see over the near term as more employment opportunities are presented along those areas in line with key priorities by government,” the Quant analyst chipped into the conversation.
CFO Luke Woodford finds comfort in the fact that there are very positive signs coming through as the country opens up slowly. “We see economic activity returning and I think that is a positive sign,” he said. What he also noted though is any risk around a resurgence of the virus and that has an unknown effect. The bank’s internal view is that they are cautiously optimistic and it will continue to support wherever any measures are put in place by the government as relief measures as the bank did over the past 18 months. “So we remain supportive and look forward to a positive outcome and a positive outlook on the economy,” Woodford said.
The bank said it has also seen new opportunities arising from customers looking to expand the businesses. Corporates had deferred expansion programs and development over the last 12 to 18 months. The corporate segment experienced excellent growth of 19 percent year-on-year.
Director of RMB Botswana Olebile Makhupe expects this will continue growing. She said customers who delayed expansion programs in the last year due to restrictions on movement will be going ahead with those progressively in this new financial year. “So we have a very robust pipeline of deals that haven’t been fully drawn yet,” she said noting that the bank also positioned itself to participate as much as possible in the green sector in terms of energy projects expected to come to work in the next financial year. Agriculture is also a sector that the bank sees great opportunity to develop at this point.
Overall, the picture seems very positive in the corporate sector as the banks grows cautiosuly in the retail sector. The bank has entered into key partnerships to enhance the value that it offers communities and customers. One such is the Debswana Citizens Economic Empowerment program seeking to capacitate citizen companies to participate in the Debswana supply chain. FNBB says it is fully committed to take part in this program to provide support and membership and mentorship to participants. Secondly, the UNDP supplier development program is aimed at connecting local suppliers to larger markets locally and abroad as well as improving productive capacity to increase competitiveness. “We are very excited about this opportunity, and the doors are open for local business community,” Makhupe said.
In response to the COVID-19 pandemic, Makhupe said FNBB needed to relook at its strategy with the aim of building resilience into the business. The bank selected key focus areas for 2021 stemming from its vision 2025 strategy to fortify the business while ensuring that customers are put at the center of everything that the bank does.