Tuesday, April 23, 2024

Gov’t, Central Bank urged to toughen law for regulating debt

The Central Bank and the Government of Botswana have been urged to hastily toughen up the law for regulating credit as a way of intervention to stop families from drowning in debt.

According to the Director of A & P Consulting Kabelo Tomeletso, “the task of regulating an industry of this complexity can be overwhelming but it is necessary. It is now critical for the government to ponder over this fact because the ramifications for ordinary people are so profound if they fail to.”

Tomeletso’s comments come in the wake of reports that household debt continues to increase at very unsustainable levels resulting in some families taking nothing home after the deductions. He also faulted banks which are heavily reliant on loans for profitability for taking advantage of vulnerable individuals. “If the banking environment was healthy, most people who are currently weighed down by debt would not qualify for bank loans or even credit cards.”

If the laws are toughened, borrowers will be able to save and have reasonable income, while also reducing debt stress and financial difficulties, he said.

“Bank of Botswana statistics show that while households have the biggest appetite for credit, they are the minority contributors to total deposits in the banking sector,” he said, adding that the dangers of unrestrained household credit are particularly severe in tough economic conditions.

Tomeletso said regulation of debt will see the country making progress in ensuring the market is sustainable. “With the weakening local labour market as companies are forced to right-size in response to the difficult changing macroeconomic conditions, the loan servicing capacity of households may be affected and the risk of default heightened. This is why toughening debt regulation will go a long way in protecting borrowers.

He also said the fact that the number of defaulters is increasing and not showing signs of slowing should be impetus for the Central Bank to toughen up the laws in order to protect households. He said although in the past Botswana suggested a law making clear the terms under which both lenders and borrowers can operate, it is vital that they revisit that issue again.

The debt hole

In his address Tomeletso also stated that non-performing loans have also recorded an increase over the past few years. “The increase in non-performing loans is mainly because of the decelerated growth of the Botswana economy which put immense strain on corporate and household income,” he said.

In his view, Tomeletso said the closure of a considerable number of mines in the north of Botswana such as BCL and its subsidiary, Tati Nickel led to people losing their jobs which resulted in some people defaulting.

“Unfortunately some of the said workers were already committed on things like mortgage and other forms of credit. So when they lost their jobs they did not have any means of repaying,” he said.

Tomeletso said it is time to sound alarm bells as the household debt continues to grow at a faster rate than borrowing.

Amongst other things, the forum touched on consumerism saying it was also becoming exceedingly high. “The culture of consumerism is not sustainable no matter which country you are from. Banks are also likely to be exposed in the near future when this bubble finally bursts,” he said.


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