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Banks credit extension on the rise

Banks credit extension on the rise

Credit extension by commercial banks continued to rise this year, registering a growth of 10.2 percent for the 12-month period preceding February.

The Monetary Policy Report, unveiled last week, shows that year-on-year, commercial banks’ credit extension increased from the 6.6 percent growth recorded in February 2019.

The increasing growth in banks’ credit extension is said to be an indication of the continuing availability of bank funding, reflecting growth in customer deposits which enabled banks to meet the rise in credit demand.

During the 12-month period up to February this year, household loans increased by 15.2 percent, rising sharply from the 6.3 percent recorded in the same period last year with the bulk of it being unsecured loans accessed through scheme loans.

Mortgage and car loans are also said to have increased during the period, mainly influenced by the increase in public services salaries and the decline in lending rates after Bank of Botswana (BoB) reduced the rate last year.

While household credit extension by commercial banks has seen a rise, it was, however, not the case when it came to businesses.

Annual lending growth to the business sector has reportedly fallen from 7.1 percent in the 12 months to February 2019, to 2.3 percent in the corresponding period in 2020.

This is said to be a result of repayment of overdraft facilities by some companies in the manufacturing sector, including those in the diamond cutting and polishing industry, construction, finance and trade sectors.

Utilization of credit facilities by parastatals, meanwhile, increased during the period under review.

The overall growth of loans to the household sector has resulted in the banking sector witnessing growth in assets, which registered an annual growth of 9.2 percent. The development is attributed to the increase in the growth of loans and advances, which at 6.1 percent, accounted for the largest proportion of commercial banks assets.

The other contributing factor to commercial banks assets growth was an increase in balances from foreign banks and outstanding Bank of Botswana Certificates (BoBCs).

Between 2016 and 2020, figures show that credit extension by banks has been fluctuating, especially between 2016 and 2018, before it rose sharply to 12.9 percent in March 2019, the highest it has reached in that period.

Ever since it dropped to nine percent last June, commercial bank credit extension has fluctuated around that mark.

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