If banks were shops, money would be their stock. They “buy” money at one price, then “sell” it at another. But lately, the cost of restocking the shelves—borrowing money—has gone up. Against this background, banks are trying to recover margins
What’s New?
Stanbic Bank was the first to raise its lending rate from 6.01% to 7.01%, effective May 1, 2025.
Absa Bank followed suit, increasing its rate from 6.01% to 6.76% beginning May 6, 2025. First Capital Bank and Bank Gaborone, which are not listed, increased to 7.01% and 7.51% respectively. BBS Bank and Access Bank increased from 6.01% to 7.16% and from 6.01% to 7.01%, respectively.
If you have an existing loan or take out a new one with any of these banks, yes, your repayment will be higher.
But for shareholders, it signals a margin recovery move, especially if you own shares in Absa or Access, both of which have listed equities on the Botswana Stock Exchange (BSE). Stanbic’s shares are unlisted and cannot be traded like those of Absa and Access.
What’s important for investors is that the banks are trying to defend profit in a climate where borrowing money has become more expensive for even the banks themselves.
Banks are shops. Money is stock
Think of banks as supermarkets for money. They “buy” money from depositors or large investors. After restocking, they “sell” this money to borrowers through loans. In this process, they have to charge interest.
Banks make most of their money by lending through:
- Personal loans
- Car loans
- Mortgages to build homes—say, in Mopping
- Business loans for someone starting a tuckshop
- Financing for businesses with large-scale projects
The interest on these loans is what fills a bank’s pockets and should compensate for the high interest paid to large investors.
Cash is Dry
Diamond revenue has been in decline. Government, which has to pay salaries, is spending more than it is earning. The government now has to rely on borrowing to meet its financial needs.
This means:
- There’s just less money circulating in the system.
- Because the government has also been borrowing, it has absorbed available cash
- This cash is also sourced by the government from professional investment managers mentioned above. This is the cash that would ordinarily go to banks to extend credit to consumers and businesses.
In other words, the government is also competing for money. Fund managers have to decide who to borrow based on good returns.
You can be a part of it too
- Even if you’re not a pensioner or big investor, you can play in this game through unit trusts, especially the money market unit trust.
- These funds pool money from individuals and invest it in low-risk instruments, including bank deposits that banks compete for.
Competition is tight
Because there’s less cash in the system, banks also have to compete for it so they can lend to their customers.
The banking industry says banks are paying between 11% and 14% to borrow large sums of money.
So, banks must offer higher rates to attract money, which they can then lend out. This raises their costs—costs that, until this month, had not been passed on to clients.
Margins matter
When the cost of restocking money for banks goes up—as is currently the case in Botswana—it eats into profits and, by extension, affects shareholder returns.
That is, unless the bank raises the lending rates it charges borrowers, which is what’s happening now.
Banks must strike a balance between the rising cost of buying money and the rates they pass on to borrowers when they sell money.
- Absa Bank
In its previous results, Absa mentioned that it grew its base of stable current and savings accounts through deposit campaigns.
As a result, the bank reduced its reliance on short-term institutional deposits, which might explain why its lending rate increase was the lowest among the banks that raised rates.
- In 2024, Absa made P1.5 billion in net interest income—that’s the difference between what it earned from lending and what it paid to borrow.
- That’s three times more than what it made from fees and commissions (about P500 million).
If you’re a shareholder—or a would-be investor—you’d notice that Absa’s lending business is a major contributor to its performance.
Absa is the second most profitable bank in the country.
- Access Bank
Access Bank saw its net interest income grow at a meager 1% to P413.9 million, helped by its cost of attracting money slowing by 4%.
Access Bank said:
“Strategy continues to focus on growing its lending portfolio across all business segments, ensuring the on-boarding of high-quality deposits to support sustainable growth”.
- Stanbic Bank
Stanbic, which is not listed on the stock exchange, made P1.37 billion in net interest income—up from P1.11 billion the previous year.
Its deposits came from a mix of personal accounts and big businesses through corporate banking.
- BBS Bank
BBS’ net Interest income increased by a robust 68% in 2024, rising from P123.0 million in 2023 to P206.4 million.
BBS bank said there will be an increase in current and savings accounts, which will remain the bank’s focus area in 2025 to expand the deposit base and contain the cost of funding while maintaining adequate balance sheet growth potential.
Bankers say it’s important for banks to take responsibility for how they manage the cost of deposits. They are not just increasing rates but taking ownership for the role they played in building a balance sheet that is too dependent on institutional and short-term deposits.
Will the Lending Rate affect borrowing?
Experts are mindful that an increase in lending rates has the potential to slow down borrowing, which also affects income. This is especially if other banks don’t follow suit. Two other listed banks are yet to respond. If no adjustments are made, this may continue to squeeze their margins on existing deals.
Even if banks don’t increase their prime lending rates, they could be passing on the increased cost of borrowing by increasing their margin over prime that they quote on various loan products, effectively, having the same outcome as a higher prime rate. Except in this case, this move would only affect new deals.
If money is their stock, they have to make sure their mark-up doesn’t disappear someway.
