The central bank, Bank of Botswana (BoB), is worried that non-performing loans in the local banking industry are on the increase, saying if the trend continues it could negatively affect the country’s banking sector.
In his remarks at the opening of Bank Gaborone Maun branch last week, the governor, Moses Pelaelo said they are concerned that non-performing loans in the local banking sector were increasing as some individuals and businesses are failing to repay loans.
“The Bank of Botswana is concerned about the recent observed upward trend in non-performing loans. While this trend could be, in part, due to sluggish global economic activity, poor performance of the business sector and difficult trading environment, there is some evidence of lack of financial discipline on the part of some individuals and poor management practices by some businesses. There is also an undesirable creeping culture, on the part of some customers of banks, of failing to repay their obligations to banks according to the agreed schedule,” said Pelaelo.
The governor indicated that banks should not hesitate to take legal action towards clients who fail to repay loans. “When a borrower is in default, the bank should institute lawful, procedural and ethical recovery procedures including attachment and liquidation of property pledged as collateral to recover its money,” he said, encouraging the board and management of banking entities to ensure that borrowed funds are not lost due to failure to repay loans since this could lead to an unsafe banking sector. “Banks in Botswana are funded mainly by depositors/savers’ funds. Therefore the board and management of banking entities should ensure that the lending and credit underwriting standards are sound, the bank is managed in a safe and prudent manner to safeguard depositors’ funds and ensure that these borrowed funds are not lost through uncollectable loans.”
He indicated that writing off a loan in the bank’s books, as a non-bankable asset, does not extinguish the debt the customer owes to the bank. “The bank is only being prudent and adhering to sound accounting and international financial reporting standards. The defaulting customer continues to be obliged to repay.”
Commenting on the status of liquidity in the banking sector, Pelaelo stated banks have sufficient liquidity, of about P19 billion, inclusive of Bank of Botswana Certificates and balances held abroad. BoB says sufficient liquidity in the banking sector ensures that banks have adequate funds, including contingency funding sources, to meet their financial obligations which include customer withdrawals, drawdown of loan facilities and new credit requirements by their clients.