Banking access, credit appetite balloon - World Bank

MBONGENI MGUNI
Staff Writer | Friday September 17, 2010 00:00

According to the World Bank's Financial Access 2010 report released on Thursday, in 2009, nearly half of Botswana's adult population holds deposit accounts, while nearly a third have loans with various financial institutions.

Bank of Botswana statistics indicate that commercial banks held a total of P37.6 billion in deposits and P19.7 billion in outstanding loans by various sectors, notably households by December 2009.

 According to the report, in 2009, Botswana had 479 deposit accounts per 1000 adults, among the highest in Africa and more than 235 loans per 1000 adults, representing an increase of 41 percent from 2008. In comparison, the report shows that sub-Saharan Africa had an average of 163 deposit accounts per 1000 adults and only 28 bank loans per 1000 adults.

In addition, the disbursement of loans shrank across sub-Saharan Africa last year, with Namibian loan accounts declining in volume by 36 percent. The statistics indicate that in terms of banked populations in 2009, Botswana has the third highest density in Africa after Mauritius and Cape Verde, while in terms of loan accounts, it is the second highest after Mauritius. The Financial Access 2010 Report indicates that the 41 percent spike in loan accounts was the highest in sub-Saharan Africa.

More remarkable is that this growth in deposit and loan accounts took place in a punitive economic environment characterised by economic contraction, dwindling consumer spending power and tighter credit growth.

Globally, the Financial Access 2010 Report indicates that Botswana's banking balance sheet is comparable to nations such as Ecuador, India, Panama and Chile. In terms of accounts with Specialised State Financial Institutions (SSFIs) or statutory institutions, Botswana is among world leaders with 421 deposit accounts per 1000. These figures are higher than countries such as Brazil, Peru, France and the Czech Republic, indicating the continuing central role such entities play in the national economy.

Despite the high density of accounts with statutory banks, the World Bank report echoes BoB statistics in terms of the low loan output from these institutions, indicating that the private sector enjoys the lion's share of the credit cake in Botswana.The expanding footprint of the banking sector in Botswana can also be seen in World Bank statistics showing the number of ATMs and Point of Sale terminals per 100,000 adults. Botswana presently has 21 ATMs per 100 000 adults, the fifth highest in Africa after South Africa, Mauritius, Cape Verde and Namibia. The country also has a density of 288 point of sale terminals per 100,000 adults, also the fifth highest in Africa.

While the World Bank Report indicates positive improvement in access to banking and the overall stability of the sector, some analysts believe it also reflects the congestion of banks in a small market with mixed benefits to clients or the economy.'A fraction of Botswana's 1.7 million population are bankable and yet there are nine commercial banks targeting this small group,' said an executive with a micro-lender on conditions of anonymity. 'Countries with larger populations have a lower banking density and indebtedness than Botswana and this is a concern for the monetary authorities.

'It's a concern because the congestion of banks is not being reflected in lower charges for customers, competition in interest rates offered or services. The banking sector is structured in such a way that four main entities are feeding off a small bankable population, most of which is already trapped in long-term debt. The executive continued: 'In future, the World Bank researchers should go a step further and analyse the average cost of banking per capita and it will become evident that local bank charges are higher than regional averages. It's good news that the banking footprint is spreading, but it's distressing that the newly banked will find themselves saddled with access and maintenance charges.'

The Financial Access 2010 Report stresses consumer protection, financial literacy and rural, SMME and savings promotion as critical in the spread of services and products to unbanked populations. The World Bank's researchers note that while consumer protection legislation is in place in most countries, implementation and enforcement is often lacking.

'Legislation is often broad and does not cover issues specific to the financial industry,' said a researcher. 'Only half of the economies (studied in the Report) have legal provisions restricting unfair and high-pressure selling practices and abusive collection practices.

'Regulators in only about half of the economies are empowered to issue warnings or impose fines on financial institutions violating consumer protection regulations. A public notice of violation - one of the most effective deterrence tools - can be used in only about a third of economies.' According to the Report, BoB scores well across five critical areas, which include consumer protection, financial literacy and rural, SMME, savings and microfinance promotion.

The Financial Access 2010 Report encompasses survey responses from 142 economies, including Botswana, and analyses changes that took place in the banking landscape in 2009. The Financial Access 2009 Report covered 139 economies.