Wednesday, October 28, 2020

Local banks record decline in mortgage lending

The annual growth in mortgage lending to households in Botswana decreased significantly from 18.4 percent to 7.2 percent between 2014 and 2015, data collected by the Central Bank shows.

 

Figures contained in the recently released Bank of Botswana Monetary Policy Statement (MPS) indicate that just like in 2014, local banks reduced their lending towards home financing.  In 2014 the financial sector recorded a downward trend on mortgage lending from a significant 40.1 percent in 2013 to 18.4 percent. As a percentage of the Gross Domestic Product (GDP), mortgage lending in Botswana represents about five percent.

The Central Bank says the fall appears to be consistent with indications elsewhere that the market for residential property is weakening, especially for high-value properties and associated use of property refinancing to augment spending in other areas.

However, the Reserve Bank says the share of mortgage financing in total bank credit extension to households increased further, as it stood at approximately 30 percent in 2015. The bank data further shows that household loans were at 59.4 percent share of credit as at the end of December 2015; continuing to dominate commercial bank credit.

 

A breakdown of the BOB data indicates that the concentration of household credit in 2015, just like in previous years is in unsecured lending. Unsecured lending stood at 65.8 percent, a ratio which the Central Bank says remains a concern. Bank of Botswana (BoB) Governor, Linah Mohohlo says the risk to financial stability is moderated by the extent to which such credit is diversified and potentially contributes to increase in wealth.

 

“The bulk of household credit is to salaried individuals, which allows for proper credit evaluation using proven wage income as the basis for determining ability to pay. Where the risk of loss of employment is low and the loan is protected by credit life insurance, credit risk can be low. Business credit is also diversified across economic sectors,” she said.

 

The household credit surge over the years which runs parallel to clogged savings supports the idea that Botswana has become a credit-feeding society. While a few banks report that they recorded a notable decline in impairments, the figures remain at unacceptably high levels. The Central Bank says developments with respect to household credit are in line with the slower growth in incomes and augur well for maintenance of financial stability.

In 2015, the annual growth in lending to households was buoyant and increased from 10.7 percent in 2014 to 12.8 percent. The Central Bank says the growth was mostly influenced by faster yearly expansion in unsecured lending to households from 7.4 percent in 2014 to 15.5 percent by end of December last year.

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