The level borrowing in the country is in its slowest pace in more than a decade as commercial banks cut bank on lending, citing the Covid-19 uncertainty.
Annual growth in commercial bank credit declined to 3.6 percent in February 2021, compared to 10.2 percent growth in February 2020, signalling the subdued demand for credit, as well as restrictive supply of credit by banks on account of the uncertainty created by the COVID-19 pandemic.
The biggest consumer of bank loans, households have been finding it hard to get loans, with the credit channelled to individuals slowing to 6.1 percent in the twelve months to February 2021, from 15.2 percent in the corresponding period in 2020.
“In particular, there was a significant decline in credit card advances. Furthermore, there was a deceleration in growth for mortgages and personal unsecured lending which is mostly accessed through scheme loan arrangements, and motor vehicle loans,” Bank of Botswana said in its latest financial statistics.
Despite the decline in household credit growth, the share of the sector in total lending by commercial banks increased to 65.2 percent in February from 63.7 percent in the same period last year.
The increase in household’s share of outstanding debts was mostly due to a 0.7 percent reduction in loans given to businesses. Credit extended to companies, excluding parastatals, contracted by 2.3 percent in the year to February 2021 compared to a 1.2 percent decline in February 2020. The slowed update of credit by businesses was attributed to decreased utilisation of overdraft facilities by some companies in the manufacturing, agriculture and construction sectors, among others.
Meanwhile, the recently released Business Expectations Survey reveal that businesses expect borrowing costs to increase, though moderately, in the domestic market. Still, the companies expect an increase in credit across all markets in the twelve-month period to March 2022, consistent with improvement in business conditions and reduction in lending rates in external markets.
The expected increase in domestic borrowing in spite of the expected rise in borrowing costs, could indicate relative easier access to domestic than external credit, the survey suggested. However, businesses perceived overall access to credit to have been tight in the first quarter and could extend to the rest of the year as banks remain risk averse.