• Banks’ asset quality deteriorates
• Past due loans up 32 percent
• Impairments reach P2.5 billion
Driven by continuously dwindling disposable income and job losses, Batswana have failed to re-pay commercial bank loans to the value of P2.5 billion, a blow to the financiers reveals fresh data from the Bank of Botswana (BoB)’s Banking Supervision Annual Report.
The BoB Annual report reveals that the banking sector’s asset quality deteriorated, as the Non-Performing Loans (NPLs) to total Loans and Advances ratio increased from 3.9 percent in December 2015 to 4.9 percent in December 2016, while gross loans and advances grew by 6.2 percent, from P48.3 billion in 2015 to P51.3 billion in December 2016. The central bank says that the relatively slower rate of credit growth as compared to the prior year at 7.1 percent, was a result of the sector adopting a more stringent approach to lending.
BoB says that the slow growth of credit extension was a result of moderate economic growth, restructuring of balance sheets by banks, and reduced marginal capacity for additional borrowing by public sector employees, in particular, as salary increments have been modest.
“This has meant limited head room for increased borrowing from banks,” the report says.
The growth in NPLs followed job losses and the closure of mines such as BCL and Tati Nickel, Discovery Metals amongst others.
According to the central bank, total past due loans (loans tainted by arrears) increased significantly by 32.7 percent to P3.6 billion in December 2016, from P2.7 billion recorded by December 2015.
Further, the NPLs (impaired loans, which would be written off) increased by 32.8 percent to P2.5 billion. The household sector (predominantly comprising unsecured loans) accounted for 59 percent of total NPLs in 2016, increasing significantly from the 52 percent seen by December 2015.
BoB said that the ratio of NPLs to Total Loans and Advances varied substantially among individual banks, ranging from 0.8 percent to 8.5 percent. A quick check by The Business Weekly & Review showed that listed banks have seen an increase in NPLs. First National Bank of Botswana (FNBB), the largest commercial bank by all means saw impairments (NPLs) grow significantly to P361.2 million for the year ended 30 June 2017. During the previous corresponding period, FNBB’s NPLs were sitting at a 228.5 million.
FNBB’s P361.2 million impairment, is set against its P14.9 billion loan book. With a loan book of P9.9 billion, Barclays Bank reported that it has recorded a P97.1 million, for the half year ending 30 June 2017, as impairments, which is reasonable, considering their loan book capacity. During the prior reporting period, Barclays’ NPLs were at P95 million.
Standard Chartered, the only listed bank that reported losses (P66 million) for its half year ending 30 June 2017 has very high NPL at P127.8 million. The impairments grew massively from the P29.9 million it recorded during the prior period. The bank reported that it suffered a once-off impairment from one of the mines, which hit hard on its finances. The company’s loan book sits at P7.8 billion.
The banking sector’s specific provisions, according to BoB, increased from P1 billion in 2015 to P1.3 billion in 2016, providing a 51 percent cover of NPLs as at December 2016. Furthermore, the ratio of NPLs (net of specific provisions) to Unimpaired Capital increased to 12.2 percent as at December 31, 2016 (December 2015: 9 percent). However, BoB, led by Moses Pelaelo said the credit risk mitigation measures that Banks have in place are expected to absorb any residual credit risk.
Household loans and advances increased by 7.6 percent to P30.8 billion and accounted for the largest share of loans and advances (60.1 percent) provided by the banking sector. Private sector enterprises’ loans and advances also increased (4.7 percent) to P19.2 billion and accounted for 38 percent of total loans and advances. The increase was driven mainly by more credit facilities being granted to the manufacturing, commercial real estate, tourism and hotels, and agriculture sectors.