Unsecured household debt worries FSC

At the helm: BoB governor, Moses Pelaelo chairs the Financial Stability Council PIC: THALEFANG CHARLES
At the helm: BoB governor, Moses Pelaelo chairs the Financial Stability Council PIC: THALEFANG CHARLES

Nearly 73% of the P45.9 billion owed by households to commercial banks is unsecured, a situation which could cause distress in the event of a sudden, sharp tightening of financial conditions, a multi-agency council has warned.

The Financial Stability Council (FSC), made up of the Bank of Botswana, Non-Bank Financial Institutions Regulatory Authority, Financial Intelligence Agency and the Finance Ministry, revealed the findings in its latest report covering the year to March 2022.

As at March 2022, household borrowers, a term that refers to individual rather than corporates, owed commercial banks P33.3 billion in unsecured debt, out of the P45.9 billion in total outstanding debt they owe.

By comparison, the FSC found that unsecured loans in South Africa and Namibia accounted for 24.4% and 30.8% respectively of the total household loans over the same period.

The figure of 72.5% for local household borrowers has been consistent since the third quarter of last year, prior to which it ranged between 70.6% and 72.4%.

The central bank has previously said while the ratio of unsecured loans is high, the risk to the financial sector is mitigated by the fact that a high proportion of this debt comprises scheme loans which are underwritten to a certain extent by employers.

However, with inflation expected to rise in the near term due to runaway fuel prices, the central bank is expected to further raise interest rates, which will pile pressure on most borrowers’ repayments at a time when wages have been stagnant. Rising inflation is also expected to further worsen household borrowers’ ability to settle their loans, due to their declining disposable incomes.

Editor's Comment
Tighten the law on drug dealers

Our youth are perishing; their once hopeful bright future is going down the drain; all because of illicit drugs.It is very easy to blame the addict, but it is not as simple as that! Drug dealing is a very lucrative business for some shameless people amongst our society and as such they have come up with tight strategies on how to push their business.Drug addiction is bad, and while the individual on drugs sometimes might have been the one who...

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