There is a narrative that likens banks to a person who offers you an umbrella when you do not need but then takes it away from you when you really need. Lending money is one of the oldest revenue models for banks, but the old tradition has its own risks.
Recent official data shows that total credit given out by Banks was P55.5 billion in May, and with households gobbling much of that and showing no sign of slowing down, banks have loosened the purse strings. The downside has been arrears on loans, that is, signs of struggling borrowers who are defaulting from paying back what’s due to Caesar.
As of May 2018, arrears on loans and advances were roughly P6.5 billion or 11.7 percent of total credit. Present at the scene is the usual suspects. Households which have the largest exposure to total credit also led in the frontlines of defaulters. The households are roughly P2.7 billion in the red or 41.5 percent of total arrears on loans and advances.
This P2.7 billion in arrears is made up of P570.4 million in value of loans that missed their scheduled payments within 30-90 days, followed by eye-popping P712.3 million which falls under the 90-180 days schedule, while loans that have defaulted over 180 days are valued at P690.1. In addition to all that, are the specific provisions of about P735.6 million.
Industry captains maintain that the outlook for household indebtedness in Botswana is increasingly concerning, as consumers have slipped from being mildly to very financially exposed. As opposed to the high income earners and the elite, low-skilled and highly indebted consumers find themselves sinking ever deeper into financial decrepitude, the results of which are amplified through the ever widening inequality gap.
Barclays Bank Botswana Economist, Naledi Madala says as things are, “fiscal consolidation will continue to weigh on household credit demand. The low interest rate environment helps to gradually reduce non-performing loans (NPLs) in the corporate sector but until there is a pick-up in non-mining economic activity, we do not believe that this will translate into a rapid increase in household lending.”
According to Formal Sector Employment Stats Brief by Statistics Botswana, average earnings for citizens as at September 2017 stood at P5, 742; which however, some pundits see this misleading since the average citizen earnings for each sector differs from P1, 388 (in Agriculture sector) to P16, 590 in the financial sector. However, the top 5 sectors by employment is construction which makes up 19.3 percent of total employment (with lower average earnings of P3,544); wholesale and retail trade is at 14.3 percent of total employment (average citizen wages of P3,490); education makes up 18.5 percent (earnings of P7, 027); manufacturing is 14.7 percent of total labour force (pays citizen an average P4, 799) and; Agriculture makes up 5.8 percent of labour force (pays the lowest average of P1,388).
FNBB Market Strategist-Treasury, Moatlhodi Sebabole recently said that, “The average earnings calculated by Statistics Botswana might be overstated when considering the majority of the employees per sector will fall on the lower income bracket and informal employees especially in rural and semi-urban areas will be earning much closer to the minimum wage bracket.”
Meanwhile official surveys also shows that over 70 percent of total spending by Batswana goes towards essentials, top three of which are housing & utilities, transport and food ÔÇô which means though local poverty incidence levels for the country has dropped, households disposable incomes remain under pressure as there is limited income to spend on investments, savings or other discretionary spending options.
The past administration of Ian Khama had come up with short term employment initiatives such as Ipelegeng, which has been on the receiving end by most politicians and economists that even though it was set up with good intentions- it does not provide meaningful job solutions. Of paramount concern is the growth in long-term unemployment, which the new administration of President Mokgweetsi Masisi will have to take a closer look at and give it a sense of urgency. His fate in the next years coming general elections also lies partly on the employment creation as it will gain him much confidence particularly from the unemployed youth.