Commercial banks and microlenders view outlook for demand for credit to be generally moderate while hire purchase stores expected it to be low in 2020.
Information contained in the Bank of Botswana (BoB) household indebtedness survey report for December 2020 says on average, 25 percent of both banks and microlenders expected demand for credit to be high in 2020 on the backdrop of the increase in government employee salaries and the reduction in the bank rate.
Stated on the report is that on the other hand, 50 percent of microlenders, 42 percent of banks, 27 percent of SACCOS and 25 percent of hire purchase stores expected demand for credit to be moderate in 2020. Stated is that the banks explained that their moderate outlook for demand for credit is informed mainly by their intention to grow the loan book, particularly secured lending.
“In Botswana, government is the largest single employer, which explains the largest contribution of government employees to total household debt. Cognizant of that, some credit providers use government-prescribed net take-home pay rules,” reads the report.
BoB’s report stated that majority of credit providers expect a moderate to high demand for credit in 2020 as a result of progressive reductions in the bank rate and increase in salaries of government and other public sector employees. Added is that however, the demand for credit is likely to be negatively affected by the loss of incomes and possible losses of employment due to the COVID-19 pandemic.
“Banks continue to dominate in providing credit to households with the majority of loans being unsecured personal loans. A larger percentage of household borrowers are the middle-aged (men or female) who earn around the average monthly income in the formal sector,” reads the report.
According to the report most banks’ lending strategies focused on increasing the market share, proportion of loan book and contribution to overall income. Regarding microlenders, 37.5 percent focused solely on increasing market share, while the other 37.5 percent focused on the combination of increasing the market share, proportion of loan book and contribution to overall income.
The report further stated that in order to mitigate risks associated with lending to the household sector, banks engage in extensive credit worthiness checks and arrange for deducting monthly repayments from source and through direct debit (standing debit orders). Added is that other risk mitigation measures include cession of credit life policies, obtaining retrenchment insurance covers, personal guarantees and mortgage protection policies.
“Policy makers should continue to closely monitor the level of household indebtedness, as well as domestic and international developments that could potentially affect the ability of households to honour their debt obligations, thus negatively affecting the asset quality of credit provider,” reads the report.
For the year ending December 2019, a total number of 31 133 loan applications, valued at P5 286 million were rejected by banks. Added is that this represented approximately 40 percent of total loan applications for the reference period. Inability of some households to satisfy certain stipulated requirements led to the rejection of credit applications.