Unsecured household debt worries FSC
Mbongeni Mguni | Wednesday July 13, 2022 18:18
The Financial Stability Council (FSC), made up of the Bank of Botswana, Non-Bank Financial Institutions Regulatory Authority, Financial Intelligence Agency and the Finance Ministry, revealed the findings in its latest report covering the year to March 2022.
As at March 2022, household borrowers, a term that refers to individual rather than corporates, owed commercial banks P33.3 billion in unsecured debt, out of the P45.9 billion in total outstanding debt they owe.
By comparison, the FSC found that unsecured loans in South Africa and Namibia accounted for 24.4% and 30.8% respectively of the total household loans over the same period.
The figure of 72.5% for local household borrowers has been consistent since the third quarter of last year, prior to which it ranged between 70.6% and 72.4%.
The central bank has previously said while the ratio of unsecured loans is high, the risk to the financial sector is mitigated by the fact that a high proportion of this debt comprises scheme loans which are underwritten to a certain extent by employers.
However, with inflation expected to rise in the near term due to runaway fuel prices, the central bank is expected to further raise interest rates, which will pile pressure on most borrowers’ repayments at a time when wages have been stagnant. Rising inflation is also expected to further worsen household borrowers’ ability to settle their loans, due to their declining disposable incomes.