Tuesday, December 7, 2021

Lower interest rates fail to stimulate borrowing by business

Despite the recent reduction by Bank of Botswana in the cost of borrowing, local companies snapped up only P548 million (3.3 percent) of the total credit from the local commercial banks during the month of August, central bank data has shown.

BOB figures show that total credit extended by commercial banks to the domestic economy went up by P250 million reflecting a 0.7 percent upward trend during the month of August. The figures revealed that during August, total credit reached an amount of P37 944 million compared to P37 694 recorded during the preceding month of July.

The Monetary Policy Committee (MPC) of the reserve bank last month decided to maintain the Bank Rate at 8 percent. The policy rate was lowered by half a percentage point to 8 percent following a consecutive 0.5 slash of the bank rate which was initially packed at 9.0 percent by the beginning of the year. However despite these low rates, domestic businesses seem to have stayed away from ‘too much’ borrowing.

Meanwhile, the upward trend in total credit has been linked to a 9.8 percent (P27 million) and 3.7 percent (P770 million) rise in loans to non-residents’ businesses and local households respectively. The reserve statistics indicate that share of credit to households sector in the total credit increased from 55.0 percent in July to 56.7 percent during the month under review.

The BOB data shows that year on year, credit growth fell to 19.4 percent from 20.4 percent in July rising from 25.9 percent to 27.4 percent for households and falling from 14.2 percent to 10.5 percent for businesses.

During August, total deposits held by commercial banks increased by 89 million (0.2 percent) to P48 762 million from P48 673 million in July. Deposits from central government, local government and parastatals reportedly went down by P78 million (37.5 percent), P252 million (10.9 percent) and P1 170 million (18.8 percent) respectively. At the same time the Bank of Botswana financials indicate that business accounted for 72.7 percent of total deposits compared to 22.8 percent of households.


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