According to recently released Bank of Botswana data, various sectors of the economy, including households, owed commercial banks about P6.1 billion as at April 30. About P1.57 billion of this was classified as “specific provisions” which means arrears that are more than 180 days overdue, regarded as being in the worst category of defaulters.
By comparison, in March, total commercial bank arrears were estimated at P5.8 billion, with specific provisions of P1.56 billion.
The central bank figures also show that within the defaulters, households account for most arrears, at P3.44 billion in April, from P3.37 billion in March. In terms of growth, however, the manufacturing and construction sector had the highest rate of growth in arrears, rising by 19% and 13% respectively between March and April.
For both sectors, the bulk of the debt is over 180 days due and in specific provisions.
While arrears in construction and manufacturing rose, their contributions to overall loans outstanding to commercial banks remained minimal, a fact noted by the central bank which has not flagged the arrears as a risk.
Rather, the central bank, in its last report on domestic credit and vulnerabilities, noted that the corporate sector had more room to take up credit.
“Relative to GDP, bank credit to the corporate sector declined slightly to 10.8% in December 2023 from 10.2% in December 2022, and was significantly lower than South Africa’s 32% in December 2022, and Namibia’s 72% at the end of 2022. “This reflects room for prudent credit extension to support business activity and, in turn, domestic economic growth,” the central bank said in its Financial Stability Report for May.
Even the household sector, which is frequently singled out as a vulnerability due to the high percentage of unsecured loans, was given the all-clear in the May report.
“The household portfolio showed modest credit quality with a non-performing loan ratio of 3.2 percent in December 2023, which is slightly higher than the 3.1 percent in December 2022 but lower than the banking industry average of 3.7 percent. “Moreover, households are net savers when considering their non-discretionary contractual pension savings and other assets,” the BoB stated.
However, the central bank also noted that “expensive unsecured loans” continue to dominate household credit, at 68% which presents potential debt distress to households, especially “when financial and borrowing conditions could suddenly and sharply tighten”.
