Wednesday, February 21, 2024

Unsecured loans still tempts Botswana households

It is often said households in Botswana are saddled with debts while not having enough savings. But what fuels this growth? Well just a look at Bank of Botswana’s financial statistics gives sobering insights.

Total outstanding credit extended by commercial banks was about P55.2 billion; about P10 billion lower than total deposits held by banks. Households debts are estimated P33.5 billion, representing about 60.7 percent of total debts. The closest sector that comes to burning through credit is private busineses at P21.7 billion or 39.2 percent of all credit due to banks.

The current household debt is the highest in history of the local banking industry, and households are not showing any significant waning appetite for credit. Pundits have sought to link the high levels of household credit to stagnated wages, in combination with poor financial literacy, leaving workers to the mercy of predatory lending, helped in part by trade unions that are forever signing loan agreements with lenders.

The major question then becomes, where are these funds channelled to? While one cannot answer with certainty, the financial statistics from the central bank becomes a starting base to unravel this worrying appetite for debt.

Of the outstanding loans and advances, P21.7 billion or 64.8 percent of total household debt is being channelled to personal advances which exclude loans for motor vehicle, property and credit cards. In a much simpler term, this gigantic debt is what is commonly referred to as “unsecured loans”.

The second highest portion of household at P9.4 billion or 28 percent is a result of property loans. This is one sector that has shown consistent growth over the years, with the value of the loans increasing due to the high valuations of houses especially in Gaborone.

Households are also burning cash through motor vehicle loans which account for P1.7 billion or 5 percent. Trailing behind is credit cards at P720.5 million or 2.6 percent of total household debt.


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