Defaults on loan repayments on the rise � BoB
Pauline Dikuelo | Thursday September 21, 2017 18:00
Speaking at the official opening of First National Bank of Botswana’s (FNBB) branch in Pilane this week, Pelaelo expressed his concern noting that the NPLs and advances have been on an upward trajectory since 2014.
Since December 2014, the industry’s NPLs rose from 3.6% to 3.9% in 2015 and 4.9% in December 2016. As at July 31, 2017, the NPLs had increased further to 5.9% of total bank loans.
“The trend is a cause for concern, this is despite the fact that these levels of NPLs are relatively low, by international norms, especially in the context of prudent and sound accounting practices as well as the quality and level of capital in the banking system,” he said.
Pelaelo also expressed concern at the current level of private sector credit to gross domestic product of about 30%, which he said is low by international standards. He further suggested that there is greater scope for the banking sector to perform better in mobilising resources to support economic activity and sustainable incomes.
“Indeed affordable credit when put to good use is beneficial for economic activity, investment, wealth creation and ultimately increase living standards,” he said. According to Pelaelo, the challenge arises when there is high leverage or over-indebtedness, relative to incomes and where there is weak financial management noting that a combination of these, as well as subdued economic growth, can undermine the ability to repay bank loans.
He said if left unchecked, unsustainable personal indebtedness not only leads to financial ruin, but also threatens the safety and soundness of banks and by extension depositors’ funds emphasising the need for expansion of financial education and literacy.
Further, Pelaelo warned about the mushrooming of illegal deposit taking activities in the form of pyramid schemes. He urged people to avoid participating in the ‘get rich quick schemes’ noting that they can lead to financial ruin, resulting from loss of hard-earned money.
“The general guide is that, returns or rate of profit on any investment should be around the general level of interest rates, the growth rate of the economy or the average return of the companies listed on the stock exchange. Anything substantially higher is either too risky to be worthwhile or fraud,” he said.
On his part FNBB chief executive officer, Steven Bogatsu said the opening of the Pilane branch presents the bank with an opportunity to bank the unbanked bankable population.
“Since the opening of Mochudi branch in October last year, we have observed that local businesses are now saving their earnings more than before,” he said.