Business credit growth slumps
Mbongeni Mguni | Friday August 14, 2020 12:33
Businesses are either unable to afford loans due to the COVID-19 crisis or prefer to finance their requirements from their own reserves, research by the central bank and other analysts has shown.
Credit growth, or the annualised rate of increase in loans, also slipped amongst households in May, being measured at 11.5% from 14.5% in April.
In absolute terms, outstanding commercial banks’ loans to resident businesses fell from P22.5 billion in April, to P22.3 billion in May, while loans outstanding to households fell from P40.7 billion to P40.4 billion over the same period.
The Bank of Botswana’s Business Expectations Survey showed that most firms were staying away from commercial banks loans in the second quarter.
“Twenty-one percent of the firms indicated that their decisions on the credit were influenced by affordability of suitable credit facilities,” the survey found.
“Most firms preferred to finance their business operations mainly from retained earnings and loans, rather than using a combination of the two.
“Retained earnings as a source of finance was more prevalent amongst the mining and quarrying, manufacturing, water and electricity, trade, hotels, restaurants, transport and communications sectors. “Conversely, most of the firms in the finance and business services sector planned to fund their businesses through loans.”
Kgori Capital portfolio manager, Kwabena Antwi told BusinessWeek that there were several likely reasons businesses were not taking advantage of the lower interest rates.
“This indicates that businesses do not see any viable investment opportunities in the local market,” Antwi said.
“It must be noted that rates were cut in April 2020 and there may be a lagged effect between the rate cut and the pickup in corporate credit.”
He added: “Credit growth is low at the corporate level, however, household credit growth is decelerating but is still robust at 11.5% y/y in May 2020.
“The impact of COVID-19 must also be considered as the bank rate was cut when the national lockdown was still in effect.
“Credit growth may respond to lower rates in the medium rather than the immediate short term.”