Although year-on-year credit growth eased to 25.0 per cent in the third quarter after reaching 28.1 per cent during the second quarter, household credit still accounts for the largest share of total credit.
In fact, the share grew from 55.9 per cent in the first quarter of 2013 to 57.11 per cent in the third quarter, according to recent Bifm review of the fourth quarter. The discomfort that much of this credit may be used for consumption remains, although it is appreciated that some of it may be used for investment purposes. The review however, says it is difficult to determine from the available data, the proportion that may be used for investment purposes.
Perhaps more serious is the fact that, though falling, a large proportion of credit to households has consistently been unsecured loans. Sharing his views with Gazette Business in an interview, Motswedi Securities analyst, Garry Juma said that the room for credit growth will be very minimal. “Banks are aware that the household sector is indebted. Therefore, we are likely to see a decline in unsecured lending at the same time an increase in secured lending. This is to minimise their impairments. As a result we do not expect credit growth to continue rising at a faster rate as experienced before,” he said.
On the commercial banks side, BancABC’s Country Marketing Manager, Stephanie Stoneham shared that their impairments are well controlled with a credit loss ratio of 1 per cent and a non-performing loans (NPL) of less than 3 per cent which is within industry average.
Stoneham shared the same observations with Juma that there has been a slight drop in unsecured lending to households, but unsecured lending as a proportion of lending to households is still significant. “We expect the drop to continue in the medium term. Our focus has always been on group schemes and secured lending,” she said.
Given that a high number of government employees are on the loan books of local banks, some experts had posited that there is the likelihood of a rise in impairments should government reduce the public service by 5% as advised by the International Monetary Fund.
On the other hand, Standard Chartered Bank Botswana has also said that its portfolio remains strong and impairments are well managed. Its impairments were 57 per cent, which was lower than the previous year.
“As Standard Chartered Bank we are not impacted by the experts’ observations. We would continue a balanced approach to both secured and unsecured lending. Our rate of loan recovery is upwards of 99 per cent and is in line with our targets,” said Communications Manager at Standard Chartered Bank, Itumeleng Ramsden.
She also ruled out the possibility of a drop in unsecured loans against an increase in secured loans, citing that the bank has prudent policies and procedure to manage credit risk, thus has been demonstrated by the lower impairments despite growth in the loan book. Given the banks’ robust credit risk management policies, she said Standard does not foresee any adverse effects to its loan book.
On a positive note, household lending for property financing has been steadily going up (from 21.2 per cent of total household lending in 2008 to 28.0 per cent during the third quarter of 2013), indicating increased appetite for investing in property. In addition, the proportion of credit expended on motor vehicles has gone down from 10.2 per cent in 2008 to 5.8 per cent in the third quarter of 2013.
This suggests a decrease in consumption oriented vehicle expenditure. Analysts emphasised that it is important to note that a proportion of unsecured loans may be used to buy second hand vehicles.