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BY PATIENCE RADISOENG
The uptake of mortgages by Botswana households from the country’s commercial banks remains very low despite the general and high level of indebtedness by the same segment, the central bank Governor – Moses Pelaelo has said.
Speaking at the official opening of the BBS Limited Branch in Palapye this past week, Pelaelo said the low uptake demonstrates the gap in development as well as the opportunities.
“It is our expectation that BBS and, of course other financial institutions in this country, will respond positively in providing affordable credit that the average household in Botswana can access”, Pelaelo said.
According to the governor, growth in this area represents an important source of future income growth and wealth generation,” Pelaelo said.
For individuals, Pelaelo said, this relays to the opportunity to invest earnings meaningfully, by using the value of houses to generate other economic activities, and sources of income, and potential for increase in wealth over time, as well as serving as a potent hedge against inflation.
On the other hand, the governor said that for the broader economy, the benefits are in terms of a continuous build-up of the volume and variety of stock of housing, alongside growth in the population and incomes.
To cement his sentiment on low uptake, Pelaelo revealed that residential mortgage lending in Botswana account for as little as 21.6 percent of total bank lending (including statutory banks), 14 percent of total assets of banks and only 6.9 percent of the country’s GDP.
Compared to more mature housing markets, Pelaelo said that the figures are very low. He gave an example of the United Kingdom where he said mortgage lending stands at 70.8 percent of total banking credit; 36.6 percent of total banking assets and 52.7 percent of GDP.
“Furthermore, developed economies, with well-functioning financial systems, such as the United States of America, attest to the fact that citizens can access, in a disciplined and beneficial manner, the so-called “excess equity” in their mortgaged properties and use their houses as ATMs”, Pelaelo said.
He added that this could also have significant distributional effects and, if housing credit is more inclusive, it can reduce income inequality.
Moreover, with unconstrained growth in mortgage finance and housing, there are incidental economic opportunities relating to the construction industry and related services, thus contributing to economic diversification,” said Pelaelo.
However he said such prospects need support in terms of a land tenure policy that facilitates the use of the various forms of land and real estate across the country to secure mortgage financing.
Given that housing finance is inherently long-term in nature and that there is an imperative for further growth in Botswana, it should be supported by a large pool of stable deposits and/or investments.”
Adding that people of Palapye should know about the existence and benefits of services and facilities brought by BBS, because when these are accessible in a convenient and cost-effective manner, people are more likely to use such services.
Managing Director of BBS Limited, Pius Molefe said, “We are in Palapye because we have a healthy number of customers in the village and surrounding ones and as BBS we understand the needs of Batswana and one of them is that it is time for Botswana to have its own home grown commercial bank.”
He said this was with realization that transformation is happening rapidly in various industries not least the financial sector, so BBS too has to change in order to remain competitive on all fronts.
Apart from that he mentioned that, the expansion was also because they would like to take advantage of the growth of Palapye which is happening at a noticeable pace.
Lastly he said, “We spend a lot of time looking at spreadsheets, charts and trends but it is never lost to us that behind these aggregated numbers, is our individual customers. So we are working very hard on a new exciting strategy for the future.”