Firms turn to balance-sheet financing as cash hunt intensifies
Lewanika Timothy | Monday November 24, 2025 06:00
The latest Business Expectations Survey by the Bank of Botswana (BoB) indicates that the shift is reflected in the growing number of businesses relying on assets and retained earnings to fund operations and expansion plans, rather than taking on new external debt. Central bank researchers found that the number of firms preferring to use their own cash, in the form of retained earnings, grew quarter-on-quarter this year, reflecting worries about rising interest rates.
The researchers noted a decline in the number of firms preferring debt or loans to finance operations as a result of what they perceived to be the growing cost of cash. 'Firms continued to prioritise financing their business operations primarily from retained earnings, consistent with the findings of the previous survey. This was followed by loans and equity,' researchers noted. Between the second and third quarter, firms preferring balance sheet financing grew from 47% to 55% whilst the percentage share of firms preferring loans shrank from 37% to 31%, according to data from the central bank.
When firms turn to balance sheet financing or retained earnings financing, they are essentially funding their operations by tapping into what they already own. This includes collaterising assets such as property or reinvesting profits instead of distributing them as dividends. When banks slow down lending, interest rates remain uncertain, or funding conditions tighten, firms face higher borrowing costs and reduced access to credit. In response, firms retreat to the safest and cheapest sources of capital: their own balance sheets.
Researchers also found that amongst those firms seeking credit, firms that produce exclusively for the local market continued to have a preference towards borrowing locally, whilst exporters were turning to outside markets such as South Africa for financing. 'Most domestic market-oriented firms preferred borrowing locally (Botswana) compared to South Africa and elsewhere in September 2025,' the BoB found. 'However, export market-oriented firms preferred borrowing from South Africa and elsewhere during the same period.'
Commercial banks unilaterally raised their prime lending rates earlier this year, marking the first time banks have uncoupled from the Bank of Botswana interest rate benchmark since the freedom to do so was introduced two years ago. Absa Bank Botswana, Stanbic Bank Botswana, and BBS Bank raised their lending rates by between 75 and 100 basis points, as the impact of a long-running liquidity crunch in the local capital market came to bear, with all others joining them a few weeks later.
More recently, the central bank upped the monetary policy rate but ordered banks to stay put and not increase interest rates in turn, which added to more concerns around the future movement of interest rates in future quarters. Firms expect lending interest rates to increase across all markets, both domestically and in South Africa, in the year to September 2026. This expectation is most likely informed by the recent increase in the prime lending rates by domestic commercial banks.