Household bank arrears near P1bn

MBONGENI MGUNI
Staff Writer | Tuesday July 9, 2013 00:00

Bank of Botswana (BoB) figures provided last Friday indicate that defaults among individuals made their closest approach to P1 billion, driven by the growth of fresh arrears as well as the graduation of existing arrears to more severe categories.By March 31, 2013, P294 million in household loans were overdue by between 31 - 90 days, with P530.8 million in the 91 - 180 day category and P156 million categorised as beyond 180 days.This is compared to P198.7 million, P613.3 million and P81 million for the three arrears' categories respectively in the fourth quarter of 2012. At that point, household arrears were equal to 4.55 percent of the total loans owed by households to commercial banks.

For the first quarter of the year, household arrears made up 62 percent of total commercial bank arrears, compared to 80 percent in the fourth quarter of last year.The latest arrears figures come as other data confirms an increase in credit appetite among individuals contrasting with a slowdown among businesses.BoB figures indicate that between January and April, outstanding commercial bank loans attributable to households rose from P20 billion to 21.2 billion, while that attributable to businesses rose from P14.8 billion to P15 billion.Businesses that participated in the BoB's recent Business Expectations Survey cited cost of finance as one of the challenges of the current economic climate.

'Given limited investment plans, there is little appetite for additional borrowing, especially in local and regional markets where interest rates remain relatively high,' the BES said.'There is also some anticipation, albeit limited, of higher interest rates in both Botswana and South Africa.'The BoB will hope its recent one percent bank rate cut will trigger investment activities among businesses, boost their borrowings and spur economic activities.

The need for growth and the BoB's role have become more urgent after recent figures showed the economy had shrunk by 2.2 percent quarter-on-quarter in the first three months of the year.Commenting on the first 0.5 percent rate cut effected at the end of April, Standard Chartered Bank Botswana Head of Assets and Liability Management Maungo Lebanna said it was critical for domestic growth to be supported. 'The rate cut was aimed at achieving this,' she told Mmegi Business.'With lower lending rates, businesses are able to borrow cheaply and to grow, thereby contributing positively to the local economy. Support for domestic growth is not an isolated incident; it has been one of the emerging trends in global markets and we have seen other countries cutting their monetary policy rates in support of growth such as in the Euro zone, Australia, Israel and Kenya'.

The recent fall in inflation to 6.1 percent could possibly spur the Bank of Botswana to another rate cut as part of its efforts to spur economic growth. At 8.5 percent, the bank rate is currently at a historic low and represents a full turnaround from the BoB's traditionally austere approach to macroeconomics.The central bank has said its focus is on boosting economic output and lowering unemployment, while also moderating inflation.