The uptake of mortgages from the country’s commercial banks remains very low despite high level of indebtedness by the country’s household sector, the central bank’s annual report for the year 2013, released on Monday, has shown. Researchers at the Bank of Botswana say although in many countries mortgage lending dominate household borrowing, in Botswana the mortgage portfolio remains very low, while unsecured loans continue to dominate and record an upward trend.
The upward trend, according to market observers, is a result of a combination of low salaries and absurdly high property prices due to unfriendly land policies. These are said to be the major contributors to mortgage lending being unreachable for the majority of households in Botswana. Bank of Botswana’s Mathew Wrights on Monday said that mortgage lending in the domestic market is at low levels in overall, but outlined that it is growing rapidly in both number and value of loans, as figures indicate that the total number of loans issued by various banks has more than doubled since 2006.
The Bank of Botswana’s recent figures indicate that on a year on year basis, there has been increase in credit to the household sector by the 13 commercial banks from 21 percent in 2012 to 24 percent by December last year. The acceleration is said to have been driven by growth in mortgages 43.3percent and personal loans 19.1percent.
Meanwhile, Wrights, the bank’s deputy director of research, rubbished suggestions of a possible financial crisis because of high level of household debt. He labelled the set-up as an ‘exaggeration’ as there are no signs of major stress on the country’s 13 commercial banks. He was however later to point out that, “the situation warrants close monitoring”. The Bank of Botswana think-tanks believe the increase in credit to households, which is much larger than the growth in nominal Gross Domestic Product, reflects, in part, improvements in provision of financial services and greater financial inclusion.
“Current indicators, including low and stable default ratios for household borrowing, suggest that wide spread default risks are not imminent,” the bank’s annual report note.
The BOB report indicates that as at December 2013, the share of household credit in total private commercial bank was 57.7 percent compared to 53.5 percent in December 2012.