Retail banking proved resilient amid the Covid-19 turbulence, with households maintaining deposits at their highest level while also consuming more credit, latest data from the central bank shows.
Total deposits held at the nine commercial banks in Botswana grew to their all-time high in September, reaching P79.7 billion after advancing by 2 percent from the previous month. Businesses account for 75.2 percent of deposits, while households’ share grew to 21.5 percent or P17.1 billion, also a record high in the local banking history.
Annual credit growth slowed to 4.4 percent in September compared to the 4.8 percent growth rate in the previous month. Total credit issued by banks stood at P63.7 billion, with about 64.8 percent of the loans held by households, while businesses account for 35.2 percent of loans.
Despite the record low bank rates, commercial banks have tightened their lending this year, citing economic risks due to coronavirus aftermath. The most affected has been businesses and non-government workers who have detailed their struggles to obtain loans. Nonetheless, loans to households increased by P294 million in September, coinciding with the increase of civil service’s salaries. The government is the largest employer, with over 150,000 workers.
From the P43.3 billion loans held by households, about 69.1 percent or P28.5 billion is unsecured personal loans, while mortgage loans are valued at P10 billion, motor vehicles credit at P2 billion and credit card debt at P701 million.
The central bank in October said that the relatively low level of mortgage lending is a cause for concern, especially in the context of the banking sector dominated by unsecured household lending
“In general, the inherent credit risk for the banking sector was considered high. The risk management systems and controls of banks were satisfactory, but the residual risk remained high” the officials said, before adding that this was likely to increase over the next 12 months because of the potential shutdown of businesses and loss of employment resulting from the adverse economic impact of the COVID-19 pandemic.
However, the gloomy outlook for credit-quality deterioration will be moderated by low risk of default from government workers who are responsible for the bulk of the household credit and have high job security compared to the private sector which is expected to bleed jobs after the State of the Emergency (SOE) elapses in April 2021. The SOE which has been in effect from April prohibits companies from retrenching.