Credit dries up as bank deposits shrink
Lewanika Timothy | Wednesday May 13, 2026 06:00
Household credit has been sluggish since late last year, with other economic agents like businesses in both the services and manufacturing industries taking fewer loans, whilst some with existing loans continue to default.
Economic data released by the central bank in the Botswana Economic Financial statistics datasets show that from October last year all the way through February this year, credit has been on a simultaneous downturn with economic activity, with rising interest rates turning enterprises and individuals away from borrowing.
The slowdown comes as interest rates trend upwards, with banks having adjusted their prime lending rates upwards, raising the cost of borrowing for both consumers and firms.
The tightening conditions are also evident on the funding side of the banking sector, with commercial bank deposits being stagnant and in some instances declining over recent months. This has constrained the pool of loanable funds available to banks, further limiting their ability to extend credit.
The BEFS shows that total commercial bank deposits have been stagnant since last June, oscillating between P110 and P111 billion. As of February this year, deposits were still at P110 billion, while advances were also muted at P89 Billion, a figure that has remained relatively the same since last January.
Researchers at economic consultancy firm Econsult have raised an alarm over this trend, warning that if arrears continued to grow in an environment of shrinking deposits, it could lead to systematic risks for the banking sector.
“Perhaps more seriously, over the three months to January, bank credit actually contracted, with annualised growth of minus 4.4 percent over this period. This presumably reflects a combination of reduced demand for credit from firms and households (due to high interest rates and uncertainty over future economic conditions), as well as restricted credit supply from the banks,' researchers noted.
Data shows that total arrears across the banking sector rose significantly in 2025, driven by rising pressure on both businesses and households. By December 2025, total arrears reached 5.8 percent of bank credit, up from 4.8 percent in the same period of 2024. This upward trend was particularly pronounced in the household sector, where arrears jumped from 4.3 percent to 5.5 percent year-on-year, likely reflecting the impact of rising interest rates.
The slowdown in credit for agents like households is seen in shrinking mortgage loans. The Financial Stability Council last year noted that residential real estate loans were stable between September 2024 and 2025 at P15 billion, remaining stuck at 25.1% of household credit and 16.1% of total credit.
Despite rising demand for housing in Gaborone and its periphery areas, banks did not expand mortgage books, a break from the double-digit growth that characterised the market a decade ago, which was an early sign of a slowing market.
BusinessWeek further reported at the same time last year that a growing number of businesses were starting to rely 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.
Rising interest rates in Botswana have largely been driven by increased government borrowing pressures and global inflation shocks. As government revenues continued to weaken owing to a slump in the diamond sector, government has turned more aggressively to the domestic bond market to finance its budget.
Investors, however, have demanded higher returns to lend, pushing Treasury Bill and bond yields sharply upward now because these government securities serve as the benchmark for pricing all other credit in the economy. Commercial banks have had little choice but to adjust their lending rates upwards in line with the higher 'risk-free' returns now available in the market.