IMF warns Botswana on household debt
Mmegi.bw - Sep 5th 2013, 07:45
The International Monetery Fund(IMF) has weighed into the long-running debate on high household debt, warning that commercial bank's level of exposure to this was a "significant source of vulnerability".
In a statement released earlier in August, the IMF added its opinion to a subject that several economic commentators have warned has the potential to unravel the country's generally robust banking sector. "The authorities should pay close attention to macro-financial linkages," the IMF said in a statement following a recent consultative mission.
"The high level of exposure of the banking system to household debt is a significant source of vulnerability and warrants close monitoring." By April, individuals (households) owed commercial banks P16.1 billion, with approximately 67 percent of this classified as "unsecured" debt, meaning banks would have difficulties recovering part of or all of the due debt in case of default by borrowers.
Bank of Botswana data also indicates that by March, individuals accounted for P709 million of the P935.1 million classified as arrears owed to commercial banks.
Economists' misgivings about the level of household debt are worsened by the absence of credible data on individual commitments to hire purchase schemes, salary advances, funeral schemes and informal credit arrangements. The IMF, however, also noted that the quality of loans to households improved significantly in the second half of 2011, leading to a "notable" drop in non-performing loans.
"Increased interest and non-interest income, combined with lower provisions for nonperforming loans, contributed to the rebound in banks' profitability (in the second half of 2011)," the IMF said. Loans to households traditionally comprise the lion's share of total credit extended by banks, accounting for 54 percent by April.© Dikgang Publishing Company 2011
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