Spike in business credit uptake
Brian Benza | Friday July 11, 2014 11:44
Financial statistics released by the Bank of Botswana this week show that the annual credit growth increased to 15 percent in April from 13.8 percent in March. This was largely due to a rise in business credit growth from eight percent to 10.8 percent in the period.
The 10.8 percent rise in loans to businesses in April represents a three fold (200 percent) rise from a 3.6 percent growth rate recorded in November last year.
Despite the two-percentage point bank rate cut by the central bank last year, which was aimed at encouraging productive lending, credit growth to businesses has been sluggish as households took up the lion’s share of commercial banks’ loans.
Analysts have fingered the pessimistic operating environment for the private sector characterised by weakening personal real incomes and government spending restraint for the weak credit growth to business.
In 2013, the non-mining sector recorded a modest growth rate of 5.2 percent while mining grew by over 10 percent and economic activity in the private sector is expected to remain below the potential level in the medium term.
Bank of Botswana figures show that from a growth rate of 3.6 percent in November last year, credit to business has steadily increased in 2014 rising to 6.7 percent in January before further expanding to 8 percent in March.
According to the statistics, the manufacturing sector recorded the highest growth rate with total amount loaned out rising from P2.4 billion in December to P2.9 billion in April while significant increases were also recorded in the parastatals and mining sector. While credit growth has risen, this has been followed by a similar trend in arrears with the trade sector the most affected.
Statistics show that between December 2013 and March this year, the trade sector recorded the highest amount of arrears totalling P450 million from P330 million while the construction sector figures also jumped from P21 million to P96 million. The arrears growth rate in the manufacturing sector was modest settling at P130 million in March from P86 million in December last year.
Traditionally households have dominated the credit growth in the commercial banking sector with businesses recording lower growth rate and arrears as well. In April alone, total credit extended by commercial banks increased by P658 million (1.6 percent) in April to P41.6 billion from P40.9 billion in March.
This was due to increases in loans to resident businesses by P323 million in March and households by P370 million (1.6 percent).
In an earlier interview with BusinessWeek, chief investment officer at asset management company, Afena Capital, Alphonse Ndzinge said that credit extension to the business sector is highly influenced by business confidence and economic activity. The latest business expectations survey indicates confidence remains relatively weak with high levels of uncertainty regarding the economic environment.
“Economic activity is also restrained by weak domestic demand, and below trend output particularly for non-mining sectors.
“The impact of actual government spending on economic activity has been depressed with the fiscal consolidation measures of the past three to four years. Based on the current Budget proposals, planned fiscal development spending growth levels this year is flat. So in our view the accommodative monetary policy stance is encouraging more spending from consumers and businesses, however the general uncertainty of the global and local economic environment, and pressures on Government spending seem to be neutralising the impact,” he said.