Tight liquidity, plummeting deposits and subdued profits have become the ‘new normal’ for Botswana’s commercial banks, as observed by industry captains and economists.
An analysis of the third quarter of 2015 by local economic think E-consult indicates that the impact of the economic slowdown was also reflected in the financial sector, which is struggling to contain loan impairments in the face of decreasing deposits.
“Bank credit growth has fallen to the lowest level in a decade, and arrears remain problematic. Banks have become very cautious in making new loans, due to concerns about the volatility of the deposit base and the ability of customers to repay,” said E-consult.
The economic think tank also disclosed that the post tax rate of profit for the banking sector as a whole was only 12.5 percent (annualized), which indicates a sharp plunge from 18.6 percent in 2014 and half of the 25.7 percent realized in 2013. The impact of this ‘new normal’, warns E-consult, is that it could pose a danger to the stability of the banking system, which would have widespread costs.
“And as a general indicator of deteriorating business conditions, it is of major concern. Furthermore, there is fiscal impact through reduced tax revenue, given that the banks are amongst the largest taxpayers in the economy after Debswana,” said E-consult.
On the other hand, stock broking firm Motswedi Securities believes the banking sector has exercised restraint with regard to lending to certain specific sectors, particularly mining which is currently plagued by low commodity prices. The firm also observes that there is a sharp decline in credit to the business sector, highlighting however that the opposite is observed in the household sector which is experiencing an increase in lending activities. It warns in that regard that the bulk of this lending is within the unsecured space which makes it unsustainable lending practice. It also observes that there is “more appetite for short-term financing and the margins are attractive.”