Credit Appetite On The Rise

MBONGENI MGUNI
Staff Writer | Monday September 6, 2010 00:00

 

Thus far this year, annualised credit growth peaked at 18 percent in April, with loans and advances outstanding pegged at P21.2 billion.  The rate slowed to 15.2 percent in May and climbed to 17 percent in June, the third highest level it has reached this year.

According to Bank of Botswana statistics released last week, total outstanding commercial bank loans and advances for June amount to P20.9 billion, the second highest figure for the year after April's peak.

Of this figure, households account for 56 percent or P11.7 billion, with the private sector, parastatals and Government bringing up the balance.  In June, households snapped up 255.4 million in credit while the business sector received P165.4 million.

Analysts believe the latest data is further evidence of economic recovery, following last year's recession during which commercial banks tightened their risk management and trimmed credit output.

Simultaneously, the credit appetite of households and businesses was curtailed by factors such as economic collapse, labour uncertainty, retrenchments and market shrinkage.

Said an executive with a local commercial bank: 'The credit growth rate kicked off the year at 13.3 percent year-on-year, having been flat throughout 2009.  The rate at which commercial banks opened up their coffers to the market has been climbing since then, peaking in April and again in July.

'Credit demand is among the key signs of healthy economic activity as it is also linked to other growth indicators such as employment and output.  For banks, the latest figures are obviously good news, but many will be eager to reduce their reliance on interest income, given the harsh lessons of 2009.'

Households' traditional dominance of credit figures will, however, be of concern to the Bank of Botswana because this type of credit appetite is often inflationary.  This is particularly so as the data indicates that personal loans, as opposed to motor and property credit, are underpinning households' credit appetite.

'Personal loans could be for a variety of uses, some of these blatantly inflationary and carried out in the spirit of consumerism,' the executive said.

'However, it must also be noted that over the years, applications from households for personal loans have skyrocketed because customers see personal loans as more flexible and accessible than motor vehicle loans, which often involve more paperwork.

'As a result, in terms of volume, I would say personal loan applications outweigh all other categories.  But in terms of individual transaction value, applications for property obviously lead the pack.'

BoB data shows that with the business sector, business services, construction and manufacturing have the biggest credit appetites respectively across the years.