Thursday, February 9, 2023

High Interest Rates pushing banks profitability

The banking industry remains resilient as it brushes off the impact of rising interest rate and high inflation, delivering growth and profits.

Latest information from Bank of Botswana shows that total deposits held by the eight commercial banks grew slightly by 1.5 percent to P91 billion between July and August. Businesses continue to account for a large share of deposits at 78.2 percent, with household deposits at 19.2 percent. In the past eight months, deposits have increased by 6.8 percent percent.

The banks issued P440 million in loans between July and August, bringing total credit held by commercial banks to P72.3 billion. A huge chunk of the debt belongs to households, accounting for 64.9 percent compared to businesses’ 35.1 percent share of credit. The growth in credit has been spurred by households, defying the increases in interest rates, with disposable incomes under pressure as the country battles double digit growth in inflation.

Annual credit growth was 6.6 percent in August, higher than the 5.8 percent in July. In the period up to August, credit grew by 4.7 percent, also higher than the 2.9 percent growth in the same period last year. The growth happens at a time the central bank hiked the monetary policy rate three times this year, effectively lifting the benchmark rate by 1.51 percent to the current 2.65 percent in a bid to curb inflation which slowed to 13.8 percent in August.

The high interest rate and credit growth has boosted banks’ income earnings, with net interest income coming at P3.2 billion in August, up by 10.3 percent from the corresponding period in 2021. So far in the first eight months of the year, banks have recorded post tax profits of P1.67 billion, up by 36.4 percent from August 2021’s P1.22 billion. The increased profitability puts the eight banks on track to surpass last year’s performance. In 2021, net interest income declined marginally by 1.1 percent from P4.4 billion in 2020 to P4.3 billion, owing to the low interest-rate environment. Operating expenses grew marginally from P4.36 billion in the prior year to P4.39 billion in 2021, resulting in the lenders posting a net after-tax profit of P1.8 billion, 25 percent higher than the profit in 2020.

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