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Household borrowing slows down

BRIAN BENZA
Source: Bank of Botswana
Despite low interest rates, the uptake of loans by individuals grew at a significantly slower rate in 2014, reflecting weaker growth in incomes and tightening liquidity in the market.

Figures released by the Bank of Botswana (BoB) indicate that annual credit growth in the household sector more than halved last year, decelerating   from 24.2 percent in 2013 to 9.4 percent. 

This was attributable to a significant decrease in mortgage lending growth from 40.1 percent to 18.4 percent and a steep fall in the growth of personal loans from 19.6 percent to 5.3 percent between 2013 and 2014.  While the weakening personal loans uptake reflects slower growth in real incomes, the slow down in mortgage lending appears to be consistent with other indications that the market for residential property is weakening particularly for the high-value properties.

“Deceleration in mortgages also followed a period of rapid growth and could be indicative of portfolio rebalancing and debt consolidation,” said BoB governor, Linah Mohohlo when launching the 2015 Monetary Policy Statement (MPC) recently.

 Contributing to the slower annual credit growth could be the weaker growth in loanable funds due to a prolonged period of over-extended lending without commensurate rise in deposits.

As at December 2014, total deposits held by commercial banks declined by P2.1 billion to P51.5 billion from P53.6 in November 2014. On the other hand, total credit extended by commercial banks increased by P236 million to P45.12 billion in December last year from P44.88 billion in November 2014.

Due to the lack of a corresponding growth in deposits, the industry’s loan to deposit ratio has risen from 47 percent in 2007 to 88 percent

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in 2014, leaving some banks fully lent.

As a result of a shortage of funds to loan out, most banks have adopted a risk averse attitude towards unsecured loans, a development that may have also contributed to the decline in personal loans in 2014. Announcing its full year to December 2014 results recently, the country’s largest bank, FNBB said that it maintained a conservative credit risk appetite in 2014 with growth in advances predominately coming from secured asset classes.

In the year, FNBB’s advances to customers grew by 16 percent, reaching a new high of P12.7 billion driven by increases in property finance, WesBank and RMB term loans.

In contrast to household borrowing, credit to business rose markedly, from 4.6 percent year-on-year in December 2013 to 19.1 percent last year. “This rapid increase in business lending moderated the extent of the slack in non-mining GDP growth, which had slowed to 4.7 percent in the 12 months to September 2014, compared to the 5.2 percent growth rate registered a year earlier,” Mohohlo said. 

In 2015, GDP is expected to grow at a slower rate of 4.9 percent from an estimated 5.2 percent in 2014 with the non-mining sector expected to drive growth.

In the 2015-2016 budget speech, the Minister of Finance, Kenneth Matambo said the anticipated 4.9 percent growth this year will be driven mainly by the non-mining sectors like trade, hotels and restaurants, finance and banking, and social and personal services.



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