When banks play it safe
Lewanika Timothy | Friday August 29, 2025 10:22
Local banks have demonstrated their traditional resilience to shocks in the past years, maintaining a strong balance sheet of P145 billion as at May this year. The strong books were achieved through shrewd liquidity and risk management, something which has made the banking sector a cash cow in the economy even in trying times.
A recent climate transition report by the South African Reserve Bank (SARB), aiming to assess the financial sector’s exposure to carbon intensive industries found that Botswana had limited exposure to these risky industries. Carbon intensive industries are facing a global uproar due to their role in the climate crisis, with most global investment firms keeping their money away.
Researchers at the SARB found that Botswana banks’ exposure to these industries was within amenable risk appetites. This means that local banks are keeping their money elsewhere in less carbon emitting assets.
“In Botswana, the banking system is heavily concentrated in low-risk sectors, with finance and business services consistently representing the majority of loan allocations. “Agriculture maintains a small but stable share, while high-risk sectors such as fossil fuels, utilities and energy-intensive industries account for only a minor portion of the portfolio, indicating relatively limited exposure to transition risks,” the researchers noted.
Data from the central bank showed that as of May this year, commercial banks were mostly exposed to households, with household credit hovering above P57 billion the largest across different lending portfolios.
Climate related transitions risks are prominent in industries like agriculture which are susceptible to droughts and natural disasters. Other industries include sectors like mining which cause high carbon emissions and land degradation through the use of earth moving machines, blasting equipment and chemicals.
“In Botswana, electricity, agriculture and transport consistently account for the largest shares of transition risk. “Mining and manufacturing exhibit greater year-to year variability, suggesting episodic changes in sectoral loan allocation or emissions intensity,” SARB researchers said.
They added: “In Botswana, the agricultural sector dominates, with relatively stable contributions from other sectors, while emissions from industrial combustion and industrial processes exhibit noticeable variability over the years.”
The research by the SARB investigated climate-related transition risks in the financial sectors of Botswana, Namibia, Mozambique and South Africa, focusing on exposure to carbon intensive industries and the macro-financial transmission of transition shocks. Drawing on sectoral loan allocation data, greenhouse gas emissions and transition risk metrics, the analysis applied the Climate Policy Relevant Sectors taxonomy, loan carbon intensity and a transition risk index to quantify financial sector vulnerabilities across the four economies
The global push towards renewable and clean energy requires economic and financial adjustments to shift towards a low-carbon economy. The risks to this are driven by evolving environmental policies, technological advances, market shifts and changing social preferences that place increasing pressure on carbon-intensive industries.
The country’s commercial banks raked in P4.1 billion in after-tax profits last year – the highest in history – despite two reductions in interest rates and a contraction in the economy.
The SARB’s research is somewhat countered by the fact that in Botswana, the most carbon intensive sectors such as energy, mining and to a lesser extent, agriculture, are either dominated by government funding or enjoy state subsidies, which lowers their uptake of bank credit.
However, local banks have also made deliberate strides to roll out climate friendly financing solutions to the local economy, including to help carbon intensive sectors such as agriculture.
Players such as First National Bank Botswana, Absa Bank Botswana, Stanbic and Bank Gaborone, are heavily involved in climate finance, with hundreds of millions of Pula either already lent out, or made available in sustainable and impact activities, as well as to help the private sector transition.
Absa Botswana, which floated the country’s first sustainable bond in December 2023, previously said the milestone was instrumental in helping the local market shape returns, pricing, risk and the monitoring of impact.
“Being a pioneer in the market has enabled us to truly influence the direction that the market is taking in the area of sustainable financing,” the bank’s CEO, Keabetswe Pheko-Moshagane told Mmegi previously. “The bond programme has been met with keen interest and optimism, reflecting a growing trend in sustainable financing. “This has led to other players also following suit in adopting similar initiatives.”
Analysts believe that going forward, Foreign Direct Investment flows may shift towards countries with stronger climate policies, leaving economies with weak regulatory adaptation at a competitive disadvantage. Socio-economic vulnerabilities further complicate the green energy transition process, as carbon-intensive industries remain major employers in the region.
The analysts have said ff not carefully managed, the decarbonisation process may exacerbate inequality, drive up unemployment and trigger social unrest, which underscores the urgent need for a just and inclusive transition.