Credit growth slows on tighter economy
Mbongeni Mguni | Wednesday June 17, 2026 12:47
Banks are also battling a prolonged liquidity crunch which has required some to temporarily pause lending activities and focus on balance sheet stability.
In its May report released this week, the Financial Stability Council (FSC) said annual growth in commercial bank credit has trended downwards since October 2025, registering a growth of 2.6 percent in February 2026 down from 5.8 percent in the corresponding period in 2025.
The Council said the trend is consistent with the subdued economic landscape where firms and households face tighter financing conditions as banks take prudent measures to maintain credit quality amid heightened economic uncertainty.
The lower uptake of credit was attributable to a lower uptake of overdraft and revolving credit facilities by businesses, notably parastatals, as well as minimal acquisition of mortgage and motor vehicle loans by households.
On the longer-term trend, the Council noted that consistent with the prevailing macroeconomic landscape and the tighter lending conditions by banks, borrowing by the household sector, which is a key driver of total credit, has declined significantly since 2022.
“The growth in household credit ranged between two to six percent in recent years, from highs of 30 percent in the pre-COVID 19 era,” the FSC said. “Household credit growth reached 7.7 percent in June 2025, before drastically declining to 0.02 percent in December 2025.”
The Council said generally, the financial cycle is trending downward, reflecting weakening financial conditions amid tightening liquidity. The trend also indicates increasingly stringent credit standards and heightened uncertainty associated with fiscal pressures and subdued economic activity.
“The downturn signals a decline in risk appetite among banks, which are prioritising balance sheet resilience over credit expansion. “These pressures are being amplified by a persistent liquidity squeeze in the banking system, driven by net foreign exchange outflows and reduced government spending, which remains the primary source of systemic liquidity. “Continued liquidity shortages, together with ongoing reliance on central bank support, point to heightened fragility in the financial system,” the Council noted.
The softening financial cycle heightens concerns around credit risk, particularly in the context of elevated household indebtedness and weak income growth, which increase the likelihood of rising defaults and pressure on bank profitability, the FSC noted.
Liquidity constraints are also expected to intensify funding risks, while fiscal consolidation is likely to dampen credit demand.
“In response, banks are expected to tighten lending standards further, resulting in slower credit growth, potential deterioration in asset quality, and increased short term reliance on emergency liquidity facilities,” the Council said.
The FSC comprises the Finance Ministry, the Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Deposit Insurance Scheme of Botswana. The Botswana Stock Exchange is an observer and non-voting member.