Botswana consumers anchor Stanchart
Mbongeni Mguni | Thursday March 6, 2014 17:07
In a report on its impact in Africa released last week, Standard Chartered revealed that in 2012, Botswana consumers made the second highest contribution to its African consumer banking income of US$482 million (P4.3 billion), second only to Kenya.
The report is the fourth in a series of social and economic impact studies commissioned by Standard Chartered. “The growing middle class across Sub-Saharan Africa is creating demand for more sophisticated financial products and services, resulting in strong momentum for Standard Chartered’s African consumer banking business,” researchers said in the report.
“The African Development Bank reported that (Africa’s) middle class doubled in size between 1990 and 2010, thanks to the growth in more affluent urban dwellers.
“The growing middle class and its increased spending has made Africa more interesting to consumer goods firms, while rising domestic consumption has become an important part of the African growth story.” Researchers highlighted a five-year plan in which Standard Chartered planned to add 100 new branches to its 180-strong African network, in order to tap into middle-class opportunities with wealth management, insurance and investment products.
Standard Chartered Bank Botswana’s last financial results underline the domestic subsidiary’s importance to the group. In the six months to June 2013, Stanchart Botswana’s consumer banking income rose 12% year on year to P229 million. The local bank’s consumer banking loan book jumped 30% to P4.02 billion, while deposits attributable to consumers quickened 20% to P3.95 billion. While Standard Chartered Bank Botswana is due to unveil its full 2013 results by April, local economic commentary continues to focus on rising levels of household indebtedness. One of Stanchart Botswana’s listed peers recently unveiled a 58% jump in impairments due to household debt stress, while the Banking Adjudicator has called for legislative changes forcing credit providers to contribute towards greater public financial literacy.
Standard Chartered’s report reveals that its loans to retail consumers in Nigeria, Ghana, Kenya and Zambia make up between three and 18% of the total loan book.
By comparison loans to retail consumers across all listed banks in Botswana, comprehensively dominate the loan book, accounting for 75% for one bank, which recently published its full 2013 annual results. Analysts have pointed out that the situation is due to stiff competition among local banks over the years for retail customers who attract higher interest income, especially when the loans are unsecured. Since the recession and the public sector strike of 2011 however, local banks have begun shifting towards more secure retail lending such as scheme and asset backed loans.
Standard Chartered’s report also shows that access to credit, for all economic sectors, is still a problem across most of Africa. According to the report, only South Africa and Mauritius have credit output to Gross Domestic Product ratios of more than 100%. Kenya and Botswana have credit to GDP ratios in the mid-thirties with the rest of Stanchart markets in Africa significantly below that.
“For a country to flourish there must be a healthy ratio between credit and GDP (and) in most African countries, there is still not enough access to credit,” researchers said.
“Research shows that, although too much credit hampers economic growth, this is the case only when the ratio between credit and GDP exceeds 100%. “Many (African) countries are below 20% and this suggests that access to finance is still a major constraint for development.” Researchers explained that banking activities that helped to facilitate trade and investment include providing payment infrastructure, loans, guarantees, risk management, letters of credit and insurance. “However, in Africa, most lending is short-term, and smaller businesses find it particularly hard to access credit,” the report notes.