Local commercial banks suffered a sharp decline in profitability in 2025 as soaring interest expenses squeezed earnings with aggregate after-tax profit falling by more than P400 million.
According to the Bank of Botswana Banking Supervision Annual Report 2025 released recently, net after-tax profit for commercial banks declined by 10.1 percent, from P4.1 billion in the 12 months to December 2024 to P3.7 billion in the corresponding period in 2025.
The central bank said this was the first decline in commercial banks’ after-tax profits since 2020, when profits fell by 17.5 percent.
The report attributes the latest deterioration primarily to a steep rise in the cost of funding.
“The decrease in profits was attributable to a 52 percent increase in interest expense,” the Bank of Botswana said.
Interest expenses jumped from P3.4 billion in 2024 to P5.1 billion in 2025, an increase of approximately P1.7 billion. The surge came despite a 2.9 percent increase in interest-bearing deposits, which the central bank said had taken a larger share of banks’ total funding.
The pressure on earnings was reflected across key profitability indicators.
Return on equity (RoE) fell from 27.3 percent in 2024 to 21.3 percent in 2025, while return on average assets (RoAA) declined from 3 percent to 2.5 percent.
“All banks reported positive net after-tax profit, except for one bank, which made a loss of P104.9 million,” the central bank reported.The squeeze on profits came alongside a substantial increase in banks’ overall expenses.
The performance of individual banks varied considerably. According to the Bank of Botswana, RoE ranged from -25.1 percent to 30.8 percent, while RoAA ranged from -1.9 percent to 4.2 percent.
Although all commercial banks recorded positive net after-tax profits, with one exception, the report reveals a significant divergence in performance.
“All banks reported positive net after-tax profit, except for one bank, which made a loss of P104.9 million,” the central bank reported.The squeeze on profits came alongside a substantial increase in banks’ overall expenses.
Total expenses rose by 23.1 percent, from P9.2 billion in 2024 to P11.4 billion in 2025. Interest expenses accounted for 45.1 percent of total expenses, while operating expenses represented 54.9 percent.
Operating expenses increased by 6.4 percent, from P5.9 billion to P6.2 billion. Staff costs remained the largest component, accounting for 46.5 percentof operating costs, followed by administration and other expenditure at 32.7 percent. Meanwhile, statutory banks also recorded a contraction in their balance sheets. Their combined assets declined by 2.3 percent from P6.7 billion in 2024 to P6.6 billion in 2025, while deposits and shareholders’ equity fell by 1.8 percent to P5.6 billion.
The figures point to growing pressure on the banking sector as higher funding costs increasingly eat into earnings.
