The bank wants to encourage higher levels of national savings. However, in recent years, households have taken the lion's share of bank loans - at one point nearing 60 percent - compared with the business sectors of the economy. Lending to the business sector is largely seen as productive to the economy and non-inflationary. But household borrowing is largely inflationary and - if not controlled - often lead to high levels of social indebtedness and negligible savings. The worst case scenario would be where entrenched and extreme national indebtedness leads to the failure of the banking system due to bad debts and economic stagnation or deceleration, as the erosion of disposable incomes fails to support various industries and government revenues.
The BoB Banking Supervision Annual Report for 2008, indicates that the central bank's concerns over high household borrowings persist. The proportion of household borrowing to total lending by the banking sector decelerated in 2008 to 55 percent. BoB described this as a worrisome development that require close monitoring.
