Botswana bank loans arrears jump sharply to 8.3%

Botswanas banking sector continues to be hit hard by the sluggish economic performance with increasing signs of stress in the banking system, Econsult Economic Review for the second quarter covering period April – June 2017 has observed.

Dr Keith Jefferis

The research firm said the banking liquidity has been falling steadily for some time, but the decline has been particularly sharp since the beginning of 2017. Excess liquidity fell to 2.6% of banking assets in April, the lowest since the “liquidity crisis” of late 2014.

The liquidity squeeze has been driven by stagnant deposits –there has been no growth in the deposit base of banks for at least two years.

“With little surplus liquidity, it is not surprising that bank lending has slowed – the banks (or some of them at least) are simply running out of loanable funds,” it said.

At the same time, the level of bank loans in arrears has jumped sharply, to 8.3% – up from 6.4% a year earlier.

“Contrary to some perceptions that it is household borrowers that are debt stressed, the most striking increase in arrears has been on lending to businesses and – for the first time – on lending to parastatals,” Econsult added.

Total arrears as a proportion of outstanding bank credit increased further in the first quarter of 2017. Arrears increased from 6.6% in Q4 2016 to 8.3% in Q1 2017, and compares to 6.4% a year earlier. The increase is driven by both households and businesses; arrears on lending to households increased to 7.7% in Q1 2017 from 6.4% in Q1 2016, and on lending to businesses increased to 9.2% from 6.8% during the same period. There was also an increase in arrears on lending to government and parastatals in March 2017.

The firm headed by Dr Keith Jefferis noted that the combination of these developments – lack of supply of loanable funds and concerns about credit risk – combined with much reduced borrowing by parastatals, have led to a sharp slowdown in annual bank credit growth, which is now at its lowest rate for 20 years.

“Perhaps in a further reflection of the lack of credit-worthiness of many parastatals, government’s own direct lending has increased sharply.”

The Botswana economy slowed marginally during the first quarter of 2017, recording year-on-year growth of 3.9%