Amid the Covid-19 pandemic, banks have tightened their credit policies, with fear that the economy might shed jobs during the uncertain times and post the state of emergency.
Credit growth in 2019 grew slightly by 4.4 percent to P62.8 billion, lower than the 8 percent growth in 2019 that brought the loan book to P65.6 billion. The growth in loans was noted across all banks except for three banks.
“The slow growth in credit could reflect the reluctance of the banking industry to extend credit, the use of more stringent credit assessment criteria and a reduction in the borrowing capacity and appetite of prospective borrowers, given the impact of the COVID-19 pandemic and associated uncertain prospects for economic performance,” according to data from Bank of Botswana’s banking supervision report for 2020.
Much of the growth in loans and advances were led by households, which added 7.3 percent to the P42.9 billion household debt in 2020, up from P40 billion in 2019, and 65 percent of total gross loans and advances extended by banks. The share of credit to public sector entities (parastatals) and financial institutions in gross loans and advances increased to 2 percent and 5 percent in 2020. While that of private business decreased from 31 percent to 28 percent in the same period.
Total household debt as a proportion of total GDP increased to 23.7 percent in 2020 from 20.3 percent in 2019. The commercial bank mortgage lending to GDP ratio also increased moderately from 4.9 percent in 2019 to 5.6 percent in 2020.
“Likewise, including statutory banks, the broader ratio of mortgage lending to GDP increased from 7.1 percent in 2019 to 8 percent in 2020, indicating an important role of statutory banks in mortgage financing,” the report noted.
The central bank has reiterated again that the low level of mortgage lending remains a concern, especially for the banking sector dominated by unsecured household lending and detracts from the potential welfare benefits of appropriately funded expansion of residential housing.
In terms of loans with repayment arrears, it decreased by 0.9 percent to P3.87 billion in 2020 from P3.9 billion in 2019, while non-performing loans (NPLs) decreased by 7.5 percent from P3.1 billion to P2.8 billion.
The central bank explained that NPLs decreased mainly as a result of ongoing efforts by banks to intensify credit assessment criteria and focus on creditworthy clients. Notwithstanding the decrease in NPLs, Bank of Botswana expects a deterioration in asset quality should the pandemic last for a much longer time.
As of December 31, 2020, households, which predominantly hold unsecured loans, were responsible for 51.7 of NPLS, while private businesses accounted 47.7 percent of bad debt. Meanwhile, the public and financial institutions sub-sectors had negligible NPLs of zero and 0.5 percent, respectively.
“Furthermore, the withdrawal of the regulatory forbearance measures and the lifting of the state of public emergency are also likely to result in deterioration of asset quality and credit losses, given the expected loss of employment and the anticipated impairment provisions for the non-performing loan book that was not classified as such during the period of payment holiday or repayment moratorium,” the central bank said.