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ECONOMIC EXPERT: Dr Tshokologo Kganetsano

Credit extension to businesses grows – BoB

Bank of Botswana’s (BoB) Head of Research and Financial Stability, Dr Tshokologo Kganetsano says credit extension by commercial banks has been on an upward trend as the central bank keeps the lending rate low.

At last week’s Monetary Policy Committee (MPC) meeting, the first of the year, the central bank kept the bank rate unchanged at 5 percent.

“Since the period from around November 2017, credit growth has been on an upward trend. What is even more interesting is that this was mainly driven by credit to businesses, which means credit is supportive of economic activities in Botswana,” explained Kganetsano.

According to Kganetsano, by December 2018 credit growth was 10 percent, compared to a mere 3.2 percent seen in December of the previous year.

Credit to households during this period is said to have been slow, but still high at 6.2 percent from 7.2 percent.

“However, household credit still continues to account for the largest share of total credit,” continued the BoB man, further adding that the ratio of Non-Performing Loans (NPLs) also remains low, and almost unchanged between December 2017 and December 2018.

Of particular concern to the central bank is the imbalance within the financial market.

“We have noted that commercial banks continue to depend on large business deposits, part of which belongs to other financial institutions – this is reflective of imbalance in the market,” warned Kganetsano.

In total, last year commercial banks reportedly lent businesses P20 billion, whilst the business sector in turn returned a whooping P47.4 billion to the banks.

When it comes to households’ credit, the scenario is reversed. Commercial banks are said to have lent housholds P34.5 billion whilst reportedly depositing P13.9 billion

Despite this, Kganetsano insists households remain net savers. He highlighted the fact that they have placed over P38 billion in pension funds and other non-financial corporations, as opposed to the P0.5 billion they borrowed from these institutions.

“Banks have linkages with the rest of the world, and it is symbiotic that one depends on another bank. It therefore requires comprehensive oversight involving monitoring of soundness of relevant institutions, so that we can safeguard investors’ funds and protect the integrity of the financial system,” said Kganetsano.

He says if the central bank becomes lax in its supervisory role and it happens that one commercial bank collapses, the effects will be spread to the whole financial system and other areas as well.

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