The proportion of credit to households has consistently been higher than the uptake by businesses over the years, contributing to inflation through non-productive spending while simultaneously driving national indebtedness higher and encouraging a culture of consumerism.

Higher household borrowings, largely through unsecured loans, also underpin higher rates of bad debts and defaults within commercial banks, placing an unhealthy squeeze on the relationship between deposits received and loans advanced within the sector.

By the end of 2008, outstanding credit from the commercial banks stood at P17.1 billion, with households' borrowing accounting for approximately 57 percent of the total. This percentage rose to nearly 60 percent in January 2009, with outstanding commercial bank loans to households recorded at P10.5 billion.

However, latest BoB statistics show that total credit advanced has been skewed in favour of businesses, with these holding P9.2 billion or 43.4 percent in loans outstanding to the various commercial banks by April 2010. Monthly, business borrowing has eclipsed loans advanced to households, becoming largely responsible for credit growth since the beginning of the year.

Prominent economist and Bifm Investment Committee Chairman, Keith Jefferis, said the trends were expected."This is not surprising: arrears on household lending remain much higher than on lending to businesses, indicating the risks of lending to households, while real incomes remain squeezed and many households are over-borrowed," he said in Bifm's second quarter Economic Review.

"Increased lending to businesses rather than households is also preferable from an economic development perspective. While arrears on bank lending to households remains a major concern, a positive development in the first quarter of 2010 is that the arrears rate has fallen marginally."

Jefferis said if the trend continued, "it will be an indication that credit problems in the banking sector have peaked," and that economic conditions are improving.

The "problems" include rapid expansion in bank lending prior to the recession, with a 30 percent year-on-year credit growth recorded in January 2009, far above BoB's previously stated credit growth thresholds. By April 2010, credit growth had dropped to 18 percent year-on-year, reflecting lower advances from the commercial banks last year.

Analysts said the latest trends were a direct result of last year's global recession, which cooled credit appetites and commercial banks' willingness to extend credit. "During the recession, banks became extremely cautious about extending credit to households, due to the high risks involved," one analyst said.

"They stepped off the accelerator in terms of household lending, focussing rather on credit to businesses, non-interest income and consolidation.

The recession has thus succeeded where BoB was failing - easing the rapid flow of unsecured money to risky and inflationary borrowers. It remains to be seen whether the trends will hold as the economy warms up."

Economists agree that the fundamental challenge will be whether banks are able to identify alternative asset classes to diversify their investment portfolios. Several completed and planned equity listings on the Botswana Stock Exchange, as well as the entry of the inaugural gold Exchange Traded Fund hold promise for diversification in investment.