Banks cash in on household debt

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Lending to households remains the fattest cash cow for commercial banks as more individuals take up loans as borrowing by the private sector slows down.

According to the 2012 Banking Supervision Annual Report, commercial banks raked in 61 percent of their P6.5 billion incomes from household borrowings compared to a 20 percent contribution from businesses.The economic slowdown has reduced businesses' appetite for loanable funds while static salaries and eroded disposable incomes have pushed households into further debt. According to the report released by the central bank this week, the share of lending to the household sector was 60.2 percent of total loans and advances, an increase on the 53.4 percent registered in 2011.On the other hand, the share of lending to the private business sector declined from 43 percent in 2011 to 35.9 percent of total loans and advances last year.

"This could be attributed to the slower growth of the economy as well as the repayment of loans by parastatal organisations," reads the report. In 2012, the banking industry's total income rose by a slower rate of 8.4 percent to P6.5 billion.According to BoB, the slowdown in income growth is explained by the 14.3 percent decline in interest income from loans and advances, and the 54.5 percent decrease in Bank of Botswana certificates (BoBCS). However, despite interest income falling due to squeezed   margins and a static bank rate in the year, interest earned on loans and advances from households was the major source of income for commercial banks, accounting for 61.5 percent.Before reducing the bank rate three times this year in a bid to free up loanable funds to boost economic activity, the central bank had kept the benchmark interest rate stable at 10 percent since December 2010.

Editor's Comment
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