Sunday, September 27, 2020

Multinational businesses prefer SA than Botswana for credit lending

Business sentiment about access to finance has generally improved, although there is a bias towards borrowing from South Africa than Botswana, a survey carried by the central bank has shown.

The Bank of Botswana’s Business Expectation survey (BES) has also that, to finance their planned capital investments for the second half of 2018 and the twelve-month period to June 2019, most businesses prefer to borrow from South Africa with a net balance of 11.4 percent for both periods.

This possibly reflects, to some extent, the fact that some companies are subsidiaries and, therefore, getting funding either from their parent companies or borrowing through their parent companies in South Africa.

Meanwhile, it shows “some firms prefer to borrow domestically rather than externally, as reflected by the net balance of 1.4 percent in the second half of 2018 and 5.2 percent in second half of 2018-to-first half of 2019, owing to currently low interest rates.”

Despite firms preferring to borrow from South Africa, sentiment about easy access to domestic credit has improved from 4.6 percent in the second half of 2017 to 9.4 percent in the first half of 2018. Nonetheless, business sentiments about access to finance have worsened with those viewing it as tight increasing slightly as reflected by a rise in the net balance from 41.4 percent in second half of 2017 to 43.5 percent in the first half of 2018. Furthermore, the proportion of businesses which believe access to credit is normal declined from 54 percent in the second half of 2017 to 47.1 percent in the current period.

The financial statistics released in March by Bank of Botswana Total credit extended by commercial banks increased by P112 million to P51.6 billion in February, up by 0.2 percent from the previous month. There was an uptake of credit in the non-resident businesses, advancing by 10.5 percent to P86.5 million. This was despite a 1.6 percent fall in credit held by parastatals.

Stockbrokers Botswana banking sector research also showed in its April release that 2017 was a tough year for the banking industry characterized by slower GDP growth, weak business confidence, and marginal growth in employment creation and wages.

As a result, the industry saw a decline in credit growth to 5.6 percent in 2017 from 6.2 percent in 2016; attributable to a slowdown in lending to both businesses and households. Annual credit growth to businesses was 3.2 percent 4.2 percent in 2016, which was largely due to loan repayments by parastatals.

Donald Motsumi, SBB analyst, indicated in the research that, “business credit growth should be more robust given higher levels of business confidence for the year as per Bank of Botswana Business Expectations Survey, and increased government spending in the run up to next year’s general elections.”

Despite the perceived challenging business environment, the BES respondents are relatively optimistic, as opposed to the previous survey about the demand for their products in 2018. The improved optimism, in turn, has led to higher expectations regarding production, as reflected by the net balance of 31 percent in first half 2018 against 7 percent in second half of 2017. Meanwhile, businesses are expecting an improvement in profitability as reflected by the net balance of negative 14 percent profitability for first half of 2018 against negative 22 percent in second half of 2017.

Expectations regarding investment in plant and machinery, vehicle and equipment, and other items are higher in the current survey compared to the previous survey. Similarly, for second half of 2018, expectations improved substantially in all categories. Therefore, the generally improving expectations with respect to investment are consistent with the optimistic outlook for 2018.

In the context of improving expectations regarding investment financing, the current survey shows that retained earnings are the main source of finance, accounting for 55.3 percent of all sources of finance for investment, followed by loans (23.5 percent), equity (12.9 percent) and composite (8.2 percent).

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Sunday Standard September 27 – 3 October

Digital copy of Sunday Standard issue of September 27 - 3 October, 2020.