Households bank deposits rise quicker than loans uptake
Brian Benza | Friday March 4, 2016 12:53
Figures provided by the Bank of Botswana (BoB) show that there was a notable increase in the annual growth rate of household deposits from 9.2 percent in 2014 to 16.8 percent in 2015 which was a much faster growth compared to the 12.8 percent increase in credit to households.
“This signifies a rebalancing by the household sector, which bodes well for financial stability,” said the central bank in the 2016 Monetary Policy Statement (MPS).
Due to tight liquidity conditions and weakening households incomes, banks were stricter in lending last year while the financial institutions also went on a massive deposit attraction crusade through new savings products offerings.
Despite interest rates reaching a three-decade low in 2015, banks credit growth slumped to a 10-year low as tight liquidity coupled with poor credit worthiness of customers slowed advances.
Annual credit growth fell by nearly half from 14 percent in 2014 to 7.1 percent in 2015, with the decline almost entirely concentrated on corporate borrowing.
Credit growth rate was last below eight percent 10 years ago when it reached 7.2 percent in December 2005.
Analysts assert that the slowing credit growth in an environment of lower interest rates is a reflection of the tight environment that businesses and households are operating under.
On the other hand, the status quo is also seen as an indication of the stricter lending conditions applied by commercial banks due to tight liquidity and the spiralling costs of sourcing new deposits.
“The reduction in commercial bank lending to businesses reflects an element of crowding out as the government resumed direct funding to some parastatals through the Public Debt Service Fund.
“Weaker economic activity also contributed to subdued requirements for credit by private businesses. On the supply side, banks appear to have adopted a cautious approach to lending following a relatively tight liquidity environment towards the end of 2014 and in early 2015,” said governor Linah Mohohlo in the MPS.
In contrast, annual growth in lending to households was buoyant and increased from 10.7 percent in 2014 to 12.8 percent in 2015, mostly influenced by faster yearly expansion in unsecured lending to households.
In the year, business deposits also increased more rapidly by 16.2 percent in 2015 compared to 5.8 percent in 2014.
Overall, total deposits at commercial banks grew by 16.4 percent in 2015 from an increase of 6.1 percent in 2014. Due to the higher increase in deposits than growth in bank lending, the intermediation ratio decreased from 87.6 percent in December 2014 to 80.6 percent in December 2015 and thus contributed to a related increase in excess liquidity in the banking system.