BBS Cuts Mortgage Loan Financing

  • Customers to now pay 25percent of their mortgage
  • Trend at other banks is to increase mortgage finance


Aspiring commercial, BBS Limited, has reduced its mortgage loan financing from 90 percent to 75 percent, meaning that customers will have to pay 25 percent of the value of the houses they buy, The Botswana Gazette has established.
In response to a question from this publication, Head of BBS Marketing and Communications, Sipho Showa confirmed this development, saying it was driven by the impact of COVID-19.

“The decision is based on the current performance of the housing market as well as the economy in general, which has been compounded by COVID-19,” Showa said. “All these factors informed our risk appetite. Therefore, this is a strategic decision, taking into account current market conditions. It is subject to review once market conditions improve.”

In this move, BBS seems to be going against the current because almost all commercial banks in Botswana have revised their mortgage lending to 100 percent financing to attract customers in the advent of COVID-19. The decision was influenced by the fact that part-financing of mortgages means that customers have to have funds ready before their mortgages can be approved.

Under BBS Limited’s current 75 percent financing, it means that if a customer wants a house valued at P1 million, they need to have P250 000 upfront or half-a-million for a house valued at P2 million. This led to an outcry that mortgage financing was expensive since customers were expected to finance a part of it (10 percent, for example), which is why banks are moving towards 100 percent financing.

The Botswana Gazette asked Showa if BBS Limited’s decision would not affect its ability to attract customers, considering that not many Batswana have that kind of money ready. Showa returned that it is important to note that BBS Limited is not a commercial bank. “While it has ambitions to become one, it is still a company trading as a building society,” he said.

“Commercial banks are able to leverage off their very diverse products and service offerings to be able to offer 100 percent mortgages. BBS Limited, with its limited products and services, does not have the advantages that its competitors have.”

Further, Showa said BBS does not think that this strategic decision will affect its ability to attract customers because it still offers favourable interest rates and loan term repayment periods. In addition, unlike its competitors, BBS offers mortgage loans for a lot more areas across Botswana. “This reviewable strategic decision is informed by our risk appetite and current view of the market,” he asserted. “Therefore, the decision is intended to protect BBS Limited’s commercial and shareholder value.”

According to the 2018 audited financial statement, BBS Limited had over P3 billion in its loan book. Showa noted that 90 percent of that value is attributed to mortgage financing. Asked about BBS Limited’s competitive advantage post-commercialisation, he said mentioned transactional banking and digital platforms to expand its reach in a cost-effective and efficient manner. In the meantime, Showa emphasized, BBS Limited will continue to play a leading role in providing mortgage finance to Batswana.

Meanwhile, as result of its conversion from a society to a company, BBS Limited recorded a loss of P26.2 million for the period ended December 2018, compared to a profit of P49.9 million achieved in March 2018. Board Chairperson Pelani Siwawa-Ndai says the society recorded the loss not because of poor performance but due to a change in BBSL’s capital structure following its conversion to a company on April 2018, as well as the effects of implementation of IFRS 9 financial statements.