- Loans and advances rose from P73.2bn in 2022 to P81.8bn in 2023
- Deposits up by 14.5% from P90.9 billion in 2022 to P104.1 billion in 2023
- But loans with payment arrears up by 16.4% from P3.6bn in 2022 to P4.2bn in 2023
TLOTLO KEBINAKGABO
Botswana’s banking industry experienced significant growth in 2023, with total assets expanding by 14.2 percent from P117 billion in 2022 to P133.6 billion by the end of December.
According to the latest report from the Bank of Botswana (BoB), the growth was largely driven by a notable increase in loans and advances, which rose from P73.2 billion in 2022 to P81.8 billion in 2023.
In its Banking Supervision Annual Report 2023, BoB attributes much of this expansion to greater lending activity. “This growth reflects the confidence of the banking sector in the market, particularly through the expansion of loans,” the report notes.
Intermediation ratio slides
However, while the industry saw asset growth, the financial intermediation ratio – measuring the effectiveness of banks in channelling funds from depositors to borrowers – eased from 80.5 percent in 2022 to 78.6 percent in 2023, within the central bank’s recommended range of 50 to 80 percent.
Customer deposits, which constitute 78 percent of the banking sector’s total liabilities, rose significantly. Deposits increased by 14.5 percent from P90.9 billion in 2022 to P104.1 billion in 2023.
BoB cites this increase as critical to funding the growth in assets. “Deposits remain a vital source of funding for banks, enabling the expansion of loans and financial services across the country,” the report states.
Jobs up 1.5%
As of 31 December 2023, Botswana had nine licensed commercial banks, two statutory banks, 52 operating bureaux de change, and 25 providers of electronic payment and value-transfer services.
Employment within the banking sector also saw a modest rise. The number of employees at commercial and statutory banks grew by 1.5 percent, from 5,021 in 2022 to 5,094 in 2023.
Increased electronic processing
The report attributes this to “business and branch expansion for some banks”. However, the real transformation lies in digitalisation.
Banks are increasingly adopting electronic processing and digitalisation as key approaches to improving service delivery.
“Banks continue to optimise internal processes to improve convenience and access to transactional banking services,” BoB notes.
Describing digitalisation as a “critical driver” of financial services, the central bank says the trend is expected to further enhance the sector’s development.
Credit quality challenges
But despite the positive growth, the banking sector faces challenges, particularly in credit quality. Total past-due loans, or loans with payment arrears, rose by 16.4 percent, from P3.6 billion in 2022 to P4.2 billion in 2023.
This increase has led to higher specific provisions for loan losses, which went up from P1.4 billion to P1.5 billion during the same period.
As a result, the net ratio of non-performing loans (NPLs), after accounting for specific provisions, rose from 8.3 percent to 8.7 percent of unimpaired capital.
Inherent credit risk
The report also notes a decline in the ratio of specific provisions to NPLs, which fell from 52.3 percent in 2022 to 50.3 percent in 2023, indicating that banks may be less equipped to absorb potential losses on bad loans.
Still, the ratio of NPLs to gross loans and advances fell slightly, from 3.8 percent in 2022 to 3.7 percent in 2023. BoB warns, however, that inherent credit risk in the sector could increase over the next year, given that household loans account for 65 percent of total loans and are particularly vulnerable to economic cycles.
“Credit risk is expected to rise in the near future due to the significant share of household loans,” the report notes.
Profitability surge
Despite concerns over credit risk, the profitability of the banking sector surged in 2023. Aggregate net after-tax profit for the banking industry rose by 18.3 percent, from P2.6 billion in 2022 to P3.1 billion in 2023.
The return on equity increased from 21 percent in 2022 to 22.2 percent in 2023 while the return on average assets improved from 2.3 percent to 2.5 percent.
Net interest income also saw a substantial rise, growing by 27.4 percent from P5 billion to P6.4 billion. BoB attributes this to the increase in loans and advances as well as the high-interest-rate environment during the period.
The banking industry remains well-capitalised, meeting regulatory requirements. In aggregate, unimpaired capital rose by 9 percent, from P15.7 billion in 2022 to P17.1 billion in 2023.
Sector adequately capitalised
All banks reported capital adequacy ratios above the minimum prudential standards, with core Tier 1 capital ratios exceeding the 4.5 percent threshold.
“Overall, the banking industry remains adequately capitalised and has met minimum regulatory capital and liquidity requirements,” BoB states.
Despite some challenges, the sector is expected to remain resilient, supported by ongoing digital transformation and efforts to improve financial inclusion.