In the year ended December 2025, Absa Bank Botswana expected credit losses reached P110 million, rising by 22% from last year’s P89 million. The significant rise was anchored on projections that households will not be able to afford monthly loan commitments as debt levels coupled with inflationary pressures keep the household purse under pressure.In its 2025 integrated report, the bank hinted on a strategic shift to shareholders, citing that while Retail Banking has been the traditional anchor in the local banking industry, it was also fraught with growing risk.Officials said the risk perception apportioned to corporate lending was seen as a more viable medium-term option.“Given Botswana’s predominantly retail-led banking landscape, Retail Banking continues to make the largest contribution to the Bank’s overall performance,” the officials said in the report. “However, over the medium term, we anticipate increased contribution from Corporate and Investment Banking as persistent macroeconomic pressures, including elevated cost-of-living pressures and higher household financial strain, continue to constrain consumer spending and borrowing capacity”.”The Bank added: “In contrast, corporate clients are generally better positioned to absorb cyclical pressures through stronger balance sheets and greater financial flexibility.”In the past, many banks burnt their fingers due to over-exposure to parastatals, companies in construction and similar sectors. The highest risk comes when economic activity slows and these sectors cannot sustain enough cash flow activity to honour repayments.The corporate banking move reflects a broader recalibration taking place across the banking sector as lenders seek to reduce exposure to household credit at a time when disposable incomes are under pressure from inflation, rising living costs and a sluggish economy.Standard Chartered Bank Botswana, which has been selling its retail division across Africa including its local unit in Botswana, has also increasingly been positioning itself as a corporate and institutional bank, focusing on multinational firms, trade finance and treasury services.Locally, other lenders have also sought greater exposure to commercial clients, infrastructure projects and large corporates, sectors traditionally viewed as carrying lower default risk than unsecured retail lending.The moves comes as concerns over household indebtedness continue to mount. Botswana remains one of the most heavily banked economies in the region, with a significant portion of formal sector workers carrying multiple loan obligations. As economic growth slows and employment creation remains subdued, banks are increasingly factoring in the possibility that consumers may struggle to service debt.Earlier this year, the country’s largest commercial bank , First National Bank Botswana (FNBB) warned that credit impairments are expected to rise as economic conditions soften, with management noting that pressure on households and businesses could translate into higher non-performing loans in the periods ahead.Economists often describe the phenomenon through the "flight to quality" theory, where lenders become more selective during periods of economic uncertainty and redirect capital towards borrowers perceived to have stronger balance sheets and more predictable cash flows.Under such conditions, banks typically favour established corporates, government-linked entities and cash-generative businesses over retail borrowers whose repayment ability is closely tied to wages and household disposable income.
