A cooling down in the banking sector

Mbongeni Mguni | Monday March 30, 2026 14:06

In 2007 commercial banks’ collective net incomes first breached the P1 billion mark. Today, the country’s top bank routinely makes P1 billion in pretax profits every six months.

Banks have grown from the “comfortable duopoly” of Standard Chartered and the former Barclays Bank in the 1950s, to become the country’s most consistently profitable sector, an industry that has ploughed unfazed through the recessions that have dampened the broader economy.

Through rapid, but strategic expansion, adaptability and dynamic innovation, particularly in the area of fintech and Artificial Intelligence, banks have kept a nose ahead of other sectors over the years and delivered for the economy, job creation and shareholders.

An example of this performance can be seen in that Stanchart, the country’s oldest bank, has enjoyed a 484 percent rise in its share price in the last five years, rising from P1.50 to the current P8.76. Technically, one hundred pula invested in the bank in 2021, would be worth P584 today, a return that comfortably eclipses most other promises in the market.

Economic weight

As the reporting season beckons for the banks and other listed entities following the conclusion of the 2025 financial year, there have been a slew of profit cautionaries issued by listed banks warning of below trend performances.

Under Botswana Stock Exchange rules, listed companies are required to publicly report when they expect their profits to be ten percent higher or lower than the previous corresponding period.

Banks are usually amongst counters issuing positive profit cautionaries in each reporting period, but this year those that have done so thus far have been warning about declining profits.

Absa Bank Botswana expects its pretax profits to drop by between five and 15 percent, a figure representing up to P159 million for the year to December 2025. Bank executives attributed the drop in profits to “higher impairment charges and increased operating expenses,” with the results due to be released by 26 March.

Standard Chartered Bank Botswana also expects that pretax profits for the full year to December 2025, will come in as much as 35 percent lower than in 2024, or P167 million down when results are unveiled on March 31.

The other listed banks, Access Bank Botswana and Stanbic Bank Botswana, are yet to issue cautionaries ahead of their results. Stanbic Bank Botswana is not listed on the BSE equity platform, but does publicise its results by virtue of a listing on the Exchange’s fixed income platform.

The country’s largest bank, First National Bank Botswana (FNBB), meanwhile, recently unveiled interim results to December 2025, showing pretax profits nominally flat at P1.002 billion, broadly in line with the prior period’s P1.004 billion.

The main reason behind FNBB’s flat profits, is the same reason other banks are experiencing the rare slowdown in their financial performance.

“Impairment provisions for the period surged to P221 million (compared to P8 million for the same period in the prior year),” said FNBB directors recently. “This level of provisioning is driven by forward-looking indicators as the economy finds its way out of a difficult cycle.”

While local banks have generally enjoyed lower impairment charges since the pandemic, thanks to tighter credit risk assessments and the introduction of automation via Artificial Intelligence, the pressure households and corporates have been under from the economy appears to have finally broken through to the banks’ books.

Bank of Botswana figures indicate that while the banks largely skated through the three percent contraction in 2024, the continued weakness in the economy in 2025 began to knock on profitability. While final Gross Domestic Product figures are only due to be released on March 31, the numbers are expected to reflect the first time the economy has contracted in two successive years since Independence.

That performance has taken the lustre off banks’ usually rosy numbers, with preliminary estimates by the central bank showing that collective net incomes for the banks declined to P3.79 billion last year, from P4.14 billion in 2024.

Much of the pain was caused by arrears, which rose 21.5% last year in the sector to about P6.9 billion, led by households, as the contracting economy piled pressure on borrowers’ ability to repay.

The figure for last year came even as banks restrained their lending activities, with total loans extended starting 2025 at P87.2 billion, peaking at P90.6 billion in May and reaching December at about P90 billion.

The arrears rose from 6.4 percent of the total outstanding loans in January to 7.7 percent in December 2025, indicating the growing difficulties faced by banks in recovering credit extended.

Bank of Botswana figures show that of the total P6.9 billion in arrears to banks in December, the majority was owed by households at P4.3 billion or 62 percent of the total. Households, a term referring to individual borrowers as opposed to corporates and other organisations, accounted for 64 percent of total outstanding loans as at December 2025.

The central bank’s statistics also indicate that within the arrears, the majority of debt was aged between 30 and 90 days old, a category associated with higher recoverability. The oldest debt, classified as “specific provisions” and well over six months old, amounted to P1.7 billion or nearly a quarter of arrears.

Over and above the actual arrears recorded by banks are the impairment provisions or the amounts set aside by banks on their financial statements as possible bad or doubtful loans. Under the updated reporting standards, banks have widened the scope of the “expected credit losses,” resulting in further knocks on their income statements.

BoB figures show that provisions for bad and doubtful debts jumped fourfold to P897 million in 2025, from P221.2 million in 2024, reflecting the tightening of economic conditions for banks’ customers.

Concentration risk

While banks’ fortunes will pick up as the economy recovers, a development expected by government and other external agencies from this year and beyond, the central bank and other authorities have picked a more structural concern lurking within the banks’ numbers.

“The banking sector remains vulnerable to funding risk arising from a concentrated deposit base,” the Financial Stability Council noted in its last assessment. “Commercial banks’ funding structure is concentrated on a few wholesale deposits as reflected in the top 20 deposits to total deposits ratio of 40 percent in September 2025 from 43 percent in December 2024.”

In essence, the top 20 deposits by value account for 40 percent of banks’ total deposits, a situation that poses a risk in terms of funding costs, as well as volatility. The situation is understood to be particularly extreme for certain banks, as the sector competes for funding in an environment of tighter liquidity.

“...concentration funding remains high and continues to suggest high funding costs due to the inherent volatility and expensive nature of wholesale deposits,” the Council noted.

While the wholesale deposit concentration trends are well-established and have been picked by assessments dating back years, this particular risk became more pronounced from 2024 onwards as the diamond downturn precipitated a liquidity crunch in the local financial sector.

The high concentration of wholesale depositors snowballed into a national urgency, as lending interest rates rose by nearly four percentage points in 2025. BoB deputy governor, Kealeboga Masalila, explained the connection between wholesale deposit concentration and higher lending rates to Mmegi recently.

“A few large, bulky depositors are pushing up interest rates and making banks raise their rates by saying if you don’t pay us this much, we will take our deposits to someone else willing to pay that,” he said. “This situation is not sustainable and it’s also a systemic risk where there is uneven distribution of funding, where some banks have these large concentrations of wholesale depositors.”

Masalila explained that the situation becomes a systemic financial stability issue because banks that have large deposit concentration run a risk of not continuing to be funded if they do not raise the interest rates as demanded by depositors.

“Also, remember, the asset creation or loans they have given out are premised on that funding and if its pulled out, there’s a systemic challenge,” he told Mmegi.

The central bank is introducing a charge on commercial banks that maintain high concentrations of wholesale depositors. Charges will take the form of additional capital requirements and bank executives say the decision is not a punishment but an incentive to diversify banks’ funding bases.

“This is not to punish banks, but to provide an incentive in the form of higher costs of deposit concentration for them to diversify their funding base to mitigate these systemic financial stability risks as well facilitate monetary policy transmission,” Masalila told Mmegi. “It’s to say ‘if you maintain a concentrated portfolio with respect to deposits, you are going to be charged higher in terms of the capital requirements and it’s in your interest as a bank to diversify your deposit base’. “I’m sure the shareholders of the banks will also be on them to do that because they don’t want a higher capital charge.”

As the economy pushes towards a recovery from this year and beyond, banks have their own moment of reckoning as their numbers cool and risks grow.