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Batswana, a nation of defaulting borrowers

The recent Bank of Botswana Banking Supervision Annual Report shows that the banking fraternity is hampered by people who are failing to pay back the money they borrowed, with Non-performing loans and advances standing at P3.2 billion in the year under review.

According to the Banking Supervision Report, household non-performing loans and advances were high in 2017 at 52 percent followed by private businesses loans at 46 percent in the previous year. In the year under review, loans which have been defaulted were at 47 percent in the household sector compared to the 51 percent in the private business sector, numbers still at the peak of non-performing loans.

According to the central bank report the banks’ large exposures to unimpaired capital ratio increased to 209 percent (2017: 200 percent), and was within the 800 percent prudential limit for banks in Botswana. Generally, according to the Bank, the composite credit risk for the banking sector was considered high and is expected to increase in the short- to medium-term due to the dominance in banks’ loan books of the household sector credit, which is mostly unsecured. This makes the banking sector vulnerable to business restructuring and employment risks, particularly for state-owned entities, says the central bank.

“Past due loans (accounts in arrears) increased by 1.2 percent between December 2017 and December 2018. Non-performing loans (NPLs) increased by 10.7 percent from P2.9 billion to P3.2 billion in the same period. As a result, the ratio of NPLs to gross loans and advances rose from 5.3 percent in December 2017 to 5.5 percent in December 2018, thus a slight deterioration in asset quality.

The ratio of specific provisions to NPLs fell from 53.7 percent in 2017 to 42.7 percent in 2018, an erosion in the coverage of NPLs. But the credit-risk mitigation measures that banks have put in place are expected to absorb the residual risks,” says Bank of Botswana Banking Supervision Annual Report.

A cry echoing at judicial chambers

During the just ended Legal Year address Attorney General Abraham Keetshabe told the nation that the judiciary chambers of this country is constipated by debt collection cases. He said the justice system cannot handle the cases brought to court against people who cannot service their debts, as there is a stiff competition for space and time to have such cases heard and resolved within the shortest possible time.

Keetshabe borrowed from the central bank as he highlighted that the commercial bank loans to the household sector grew at elevated rates. “For example, about 13 percent in 2019, to approximately P40 billion and account for a larger proportion of bank credit, at 63.3 percent,” he said.

But the sad story does not end there, it continues with the total credit composition having 68 percent of unsecured loan, mortgages and motor vehicle loans account for 25 percent and 5 percent respectively. “Meanwhile household credit from micro lenders is estimated at P3.6 billion as at November 2019. Clearly the significance share of unsecured loans and advances has the potential to cause financial distress and conflicts in households, given the inherently expensive nature of such credit,” said Keetshabe.

The attorney general said that the risk posed by this credit composition is moderated by the extent to which unsecured credit is diversified. He added that the bulk of household credit is to the working class who are assessed by lenders to determine their capacity to repay the loan. Keetshabe also observed that credit risk is also lowered where a loan is under the custodian of a credit life insurance.

The amount of household credit relative to income and the size of the economy(GDP is modest and stable at around 48 percent and 19 percent respectively, but much lower than what pertains in more mature markets, said Keetshabe. “In this respect, domestic household borrowing appears to be in line with trends in personal incomes, representing relatively stronger debt servicing capacity.  As a result, the rate of household loan default has been modest at 3.3 percent as at September 2019,” said the number one state lawyer.

Keetshabe spoke to lack of financial discipline by Batswana who lack adequate financial planning and evaluation of prospects for borrowing as well as over-borrowing through use of multiple institutions and padding of income sources. He said this leads to inability to repay. This does not only affect the banking fraternity and debt collectors, but the courts also find themselves at loss of time and resources.

“We are all too familiar that there is a beehive of activity in the issuance of writs of execution and subsequent attachment and sale of whatever property that can be salvaged by Deputy Sheriffs; with traumatic effect on the concerned. In the business environment the philosophy is simple- minimize the minimums and maximize the maximums with a clear target of expanding the profit margin,” said the attorney general.

Keetshabe said Batswana are easily tempted by earthly riches hence irresponsible borrowing. As the case of a public servant being rendered a defaulter, he or she is financially embarrassed to a point of being inefficient and this is considered as misconduct. He emphasized the need for continuously promotion of financial literacy.

A continuing credit plague

One of the leading commercial banks, a big player in the local bourse too, First National Bank Botswana could have been far if it was not the rise of non-performing loan exposure from 6.6 percent to 7.6 percent year-on-year, an huge increase to P1.26 billion, according to the bank’s last financial statements.

Three years ago Bank of Botswana Governor Moses Pelaelo highlighted that there is a disturbing emerging trend where customers cannot pay their loan. This was after there was a trend which showed that since December 2014, the industry’s NPLs rose from 3.6 percent to 3.9 percent in 2015 and 4.9 percent in December 2016.

That same year of 2017 when the central bank governor raised concern statistics shows that in July 31, 2017 the non-performing loans had increased further to 5.9 percent of total bank loans. Since 2013 International Monetary Fund (IMF) also shows concerns about unsecured household credit and risks to banks.

Solution

Years ago when Botswana was toying with the idea of strengthening its credit laws, it looked at its southern neighbor South Africa for benchmarking. This is despite antagonists of the South Africa credit legislation saying the law does not offer full solution the country’s high levels of non-performing loans. South Africa’s National Credit Act (NCA) of 2007 received a rude awakening barely two years in its existence as firms and households were not able to live up to their credit expectations in the 2009 recession.

In the past former, legislator, trade minister and Econsult Botswana economist Bogolo Kenewendo suggested that there should be a National Credit Information Registry to make it easier to track and evaluate trends in credit habits in the country.  Last year former Minister of Finance and Economic Development Kenneth Matambo said the ministry was in a process of drafting the credit information bill.

Matambo said the legislation is in line with the implementation of the national financial inclusion roadmap and strategy that runs from 2015 to 2021. According to Mathambo that time,“the bill will seek to improve both positive and negative financial information which will improve access to credit which is extended to small businesses and citizens.”

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Matsheka seeks raise bond program ceiling to P30 billion

14th September 2020
Dr Matsheka

This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.

“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.

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Lucara sits clutching onto its gigantic stones with bear claws in a dark pit

14th September 2020
Lesedi La Rona

Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.

A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.

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Botswana Diamonds issues 50 000 000 shares to raise capital

14th September 2020
Diamonds

Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.

A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.

Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.

In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.

The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.

In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.

Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.

The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”

In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.

Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.

The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.

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