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The trend prompted a local financial adviser to urge regulators to take more action, including frequent audits of lenders to ensure they aren’t overburdening borrowers.
Bank of Botswana figures released this week show that of the 3.1 billion pesos owed by individuals to commercial banks in December 2020, around 1.4 billion pesos were less than 180 days old, while 765 million pesos were over 180 days old. Another 998 million pesos was classified as “specific provisions,” the worst category of arrears among banks.
The coronavirus (COVID-19) has put pressure on the disposable income of bank customers, limiting their ability to meet their loan obligations, even as banks have reduced their loan extensions. Bank risk aversion saw annual growth in personal credit drop from 13.7% in December 2019 to 7.3% in December 2020.
SCI Wealth, certified financial planners and licensed investment advisers told BusinessWeek that the net zero pay phenomenon is on the rise in the country, as an indicator of irresponsible lending and high debt. Zero take-home pay occurs when people pay more interest, loan obligations, and other expenses in their wages than they earn.
“The phenomenon of the zero net pay continues to increase, in large part due to borrowing to finance lifestyle expenses such as cars and furniture, which in turn reduces the disposable income of the individual and, as a result, , the individual’s ability to save in an emergency, ”Tiro Howard, a financier with SCI Wealth, told the planner.
“Unauthorized microlenders and SACCOS institutions (savings cooperatives) definitely worsen the situation because they still have poor control over loans.
“The regulator should carry out random audits on credit institutions and in particular micro-lenders and hire-purchase programs.”
He added: “These audits would reveal loan limit overruns and thus ensure that these institutions only lend to an individual what they can afford to repay. Severe penalties must be imposed on any credit institution that does not comply with them. “
Howard said more businesses, especially SMEs, were also accumulating debt to fund salaries and overhead.
“This is especially true for SME-wide businesses, as they tend to be owned and managed by one or two people.
“These businesses tend to ignore the need to save when times are good – and therefore have to borrow to fund cash flow for emergencies such as COVID-19,” he said.
Meanwhile, the Bank of Botswana, which regulates commercial banking activities, said the household debt situation remained stable, although there were concerns about the level of unsecured loans.
“There is still an asset quality risk associated with the high proportion of relatively more expensive unsecured loans (at 71.5% of household credit as of December 2020) in commercial bank credit,” the BoB said in its recent monetary policy statement.
“This asset profile potentially exposes the household sector to any sudden and sharp increase in borrowing costs and job loss. The risks are moderate, however, as credit is widely distributed to a large number of employees in different sectors of the economy, a large proportion of them in the public sector.
For his part, Howard urged borrowers to live within their means.
“Remember, if you borrow, you are impoverishing your future self. All debts must be repaid plus interest. The only path to real wealth is to save and invest wisely – to grow and make your money work for you.
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