The local banking industry’s profitability continued to rise in 2019, defying the economic headwinds that constrained growth in other sectors of the economy during the past year, fresh data from Bank of Botswana shows.
The Bank of Botswana’s 2019 annual report shows that profitability of the banking industry improved in 2019 as aggregate after-tax profit increased by 5.1 percent from P1.7 billion in 2018 to P1.8 billion in 2019, making it the largest after-tax profit in the history of the country.
“All banks made profit during the year. Furthermore, the asset quality of the banking sector improved as reflected in the decline in the ratio of non-performing loans to gross loans and advances from 5.4 percent in 2018 to 4.8 percent in 2019,” said BoB.
The improvement in asset quality was attributable to intensified loan collections as well as the writing-off of some non-performing loans. Moreover, the overall banking sector financial position increased by 8.1 percent from P91.3 billion in 2018 to P98.7 billion last year, underpinned by the largest deposit reserves standing at P75.7 billion, up by 9.3 percent from P69.3 billion in 2018.
Loans and advances given out by banks increased by 7.6 percent from P58.3 billion in 2018 to P62.8 billion 2019, the largest debt levels in history. More than 60 percent of loans is held by households, and the bulk of it is in unsecured lending.
“Overall, annual credit growth decreased slightly from 7.7 percent in December 2018 to 7.6 percent in December 2019. The slight decline was mainly due to a contraction in credit extended to the business sector in the same period. However, growth in lending to households increased during the same period due to higher demand for personal loans influenced by the increase in public service salaries,” said the bank.
Ironically, bank deposits growth has outpaced credit growth at a time interest rates are at an all time low, which means money is being kept than being borrowed.
“This suggests that banks in Botswana continue to be “under-trading” as shown by a muted deposit multiplier and, also, the rate of deposit mobilisation exceeding the growth in bank lending,” explained BoB officials.