Friday, December 13, 2019

Botswana Businesses shun credit, prefers short deposits

BY BONNIE MODIAKGOTLA

The Financial Stability Council (FSC) has disclosed that businesses are taking on less credit, and while they dominate the share of deposits at banks, their preference for short term maturities have potential to constrain policy transmission.

The FSC on Thursday after the council’s meeting to assess the country’s financial stability position revealed that the financial health of the corporate sector remains good despite a small number of high profile business closures. While credit growth pace has picked up, the loan market share continues to be dominated by households, while credit to the corporate sector relative to the size of the economy remains low by “international standards”.

Latest financial statistics data from Bank of Botswana shows that total credit extended by commercial banks was around P59.2 billion in May, with 61 percent of it channelled to households, and the remaining 38.9 percent held by businesses. The pattern has been familiar over the years, with banks preferring to lend to households, of which the bulk of the loans are unsecured.

On the other hand, local businesses have not been taking on credit amid concerns of the challenging operating environment. A close scrutiny of the share of loans to the business sector reveals that this credit is centred around a handful of corporates, notable large companies that meet the banks’ stringent lending requirements.

Despite this, business continue to dominate a large share of bank deposits. Total deposits held by commercial banks came at P72.7 billion, with 76.3 percent belonging to businesses compared to the 20.4 percent held by households. Interestingly,  a majority of the business deposits are held in accounts with maturity of less than six months. The FSC says while there are no immediate concerns, there can be occasional liquidity management challenges, particularly for individual banks, with potential to constrain policy transmission.

“A less diversified and predominantly short-term base for deposits as well as volatile funds also detract from long-term business, project and infrastructure funding,” advised the FSC.

The FSC was officially launched in February 2019, and comprises senior officials of the Ministry of Finance and Economic Development (MFED), the Bank of Botswana (the Bank), Non-Bank Financial Institutions Regulatory Authority (NBFIRA), and Financial Intelligence Agency (FIA). These authorities have signed a memorandum of understanding (MoU) for the purpose of information sharing, cooperation and communication in the implementation of the macroprudential policy for Botswana.

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