Mmegi/The Reporter (Gaborone)
Wanetsha Mosinyi
30 October 2009
Gaborone — Botswana's commercial banks have it easy. Despite Batswana having virtually no discretional saving culture, being highly indebted, the country's small population and the lion's share of household borrowing being in the form of unsecured loans, banks remain profitable, thanks to the Bank of Botswana and commercial banks' easy access consumers' payrolls.
As Standard Chartered Bank Botswana's Head of Consumer Banking, Michael Wiegand, puts it, Botswana is a "completely unique market, nothing in the world like it".
His testimony is qualified because before joining Standard Chartered, Wiegand worked and researched for some of the world's biggest banks in the course of which he was responsible for consumer banking in southern Africa, Botswana included.
At a forum organised by fund manager Bifm and South Africa's FinMark Trust to deliberate on consumer credit in Botswana in Gaborone on Tuesday, Wiegand said Botswana banks remained profitable despite most of their assets being unsecured loans.
Comparing Botswana's unsecured personal loans as a percentage to GDP, the rest of the region's and emerging market like India and China, this landlocked country was way ahead, he said.
Botswana's unsecured personal loans stand at 10 percent of GDP, compared to 6 percent for South Africa, Zambia's 3 percent, India's 3.5 percent and China's mere 0.3 percent.
Secured loans like mortgage lending from commercial banks was also low, leaving government-owned Botswana Building Society (BBS) to be the leader in that market.
Wiegand believes mortgages are low because Batswana do not save much, hence the difficulty for them to make down payments to secure property loans.
Another disturbing trend in this "unique market" was that personal wealth was very small."In many instances, you find that a majority of individuals with high incomes don't save at all but are at the same time highly indebted," Wiegand said.
"As bankers, should we be alarmed?" he queried before giving a two-fold answer.
However, Wiegand warned that if the trend was left unchecked, the "bubble can burst".
The global recession, which was brought about by a sub-prime crisis in the US, was a good analogy for the world, including Botswana, that regulation was needed before it was too late."Will regulation come in time before household indebtness bubble bursts?"Wiegand raised "the million-dollar question" which both regulators and banks should be asking themselves.
Bifm CEO Victor Senye,said local banks appeared "to be in paradise", extending more loans to households compared to the business sector which banks did not like because they always negotiated for lower interest rates.
Another factor that made banks comfortable with lending to households was the low levels of arrears in the sector (3 percent), Senye said.
As one responsible for deriving the outmost value from billions of Pula worth of Batswana pension funds and life policies, Senye expressed concern at the virtual zero levels of discretional savings among Batswana.
Lack of a saving culture, he said, disadvantaged Batswana as they missed on meaningfully participating in the economy because they did not participate in available investment opportunities.
Until the formation of the Non-Banking Financial Institutions Regulatory Authority (NBFIRA), micro- lenders operated as they pleased, leaving consumers vulnerable to indebtedness as they had access to loans regardless of their financial position.But NBFIRA is yet to formulate a regulatory framework for micro-lenders.
However, commercial banks are not the only benefactors of access to employee payrolls. Micro-lenders Letshego and Blue also benefit from the laxity and have access to the payrolls of the public service, the biggest.
Unlike in other markets, Botswana's commercial banks can afford to be comfortable even if they only now lend out 50 percent compared to 70 percent in 1990s because of the high yields they get from Bank of Botswana certificates (BoBCs).
Perhaps, the uniqueness of the banking market in Botswana is one of the reasons for the mushrooming of banks. Inspite of the small market, there are currently seven commercial banks in the country while the central bank continues to be inundated with banking licence applications.
Be the first to Write a Comment!
Copyright © 2009 Mmegi/The Reporter. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com).
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
