The most natural thing that comes to potential borrowers regarding securing a loan is to ask for it from the bank in which their accounts are held. That being the case however such a particular bank may not offer the best deal, a factor which may necessitate shopping around for the best loan deal. Interest rate shopping hence became a recommended practice as to allow borrowers to secure deals that better suited their financial circumstances.
The reality today however is that irrespective of the length of time that borrowers have stayed with one particular bank, when it comes to securing a personal loan the loyalty does not guarantee landing the best deal. A ‘new age’ consideration borrowers today have to make is whether to move their accounts to the bank that offers the best deal, and if such a deal justifies the move. This could also mean that if borrowers, after careful consideration, do not find it viable to move accounts for the sole purpose of obtaining a loan they will therefore have to accept loan terms of their bank even if they are aware that it is not the best deal they could have secured. This is one of the difficult decisions borrowers now have contend with, to what previously used to be a matter of simply walking into any chosen bank and sealing a loan agreement deal without any resultant obligations. This brings in the matter of whether it still makes sense for borrowers to shop around for better interest rates and fees when seeking a personal loan.
One could in part attribute this move by the local banking market to the global landscape whose building blocks were reconstructed post the 2008/09 economic downturn in response to the stringent regulatory scrutiny. This as a result forced the banking sector to put in place strict risk management tools. Local banks would at the turn of this new development introduce a sense of obstinacy in their loan application processes as to manage the risk of nonpayment of loans by borrowers. The move would also arrest the rising loan impairments which were observed within the banking sector.
A call to different top tier banks enquiring on personal loans sheds light on this trend of moving accounts which generally serves as a precondition in borrowers obtaining a loan. The industry’s biggest bank in terms of market share, First National Bank Botswana (FNBB), restricts its loans to only its customers and in addition requires that the borrower should have a minimum of six months with the bank so as to qualify for a personal loan. Potential borrowers find out how much rate the bank will charge them on approval of the loan however the highest interest rate that they can expect to be charged is 29.5 percent. The bank offers its loans to borrowers who earn P2500 and above.
Standard Chartered, also a top tier bank in the industry, similarly does not grant personal loans to borrowers who do not hold an account with it. It charges a maximum rate of 22.5 percent on its personal loans. The bank however does not specify the minimum amount of money borrowers need to earn so as to qualify for a loan.
Barclays, included among the top three tier banks, also restricts its personal loans to borrowers whose accounts are held within the bank. Non-customers therefore have to move accounts if their loan application is approved. For private sector employees, the bank offers its loanable funds to borrowers who earn P5000 and above. The maximum rate that the bank charges is 22.5 percent.
Bank Gaborone, which however is not a top tier bank is included in this analysis because of a rather peculiar condition on its personal loans. The bank offers ‘secured’ personal loans. What this means is that it asks that borrowers commit collateral, in the form of an immovable property which commonly is a house, as to be granted a loan. The borrower must produce a title deed and valuation report of the house, however if the borrower does not own a house, the bank allows surety in place of the borrower. The maximum rate charged as a result is lower at 17.5 percent.
A closely related matter is the prevailing cost of borrowing. The interest rates charged by individual commercial banks reflect a paradox when considering the current record low Bank of Botswana bank rate, which provides a guide in how commercial banks charge their interest. Afena Capital Botswana Managing Director Bakang Seretse anticipates the bank rate to remain unchanged with a small probability of a cut if domestic demand pressures weaken significantly. However it is seemingly clear that the cost of borrowing does not truly reflect the low interest rate environment put in place by the Central Bank given the perceived high cost of borrowing observed in the market.