Local banks are holding abundant liquidity, but businesses and households are borrowing less as higher interest rates and increased government borrowing reshape the country’s credit market.
According to Econsult’s Economic Review for the second quarter of 2026, commercial banks have ample funds available for lending, yet demand for credit has weakened significantly. Annual lending growth has slowed to near zero, with both household and business lending contracting through April.
Economist and former Bank of Botswana Deputy Governor Keith Jefferis said government borrowing to finance budget deficits is increasingly crowding out private sector borrowers.
The trend persists despite improved banking sector liquidity. Higher borrowing costs have discouraged consumers and businesses from taking on new debt, while banks have shifted more lending toward government-backed entities and parastatals, where risks are lower and returns remain attractive.
Private investment remains subdued as the economy continues to absorb the effects of a prolonged downturn in the diamond market. Economists say a moderation in inflation and interest rates could help revive borrowing and investment activity.
At the same time, banks have reduced foreign currency asset holdings against foreign currency deposits, contributing to an increase in Botswana’s foreign exchange reserves through transactions with the central bank.
Private investment remains subdued as the economy continues to absorb the effects of a prolonged downturn in the diamond market. Economists say a moderation in inflation and interest rates could help revive borrowing and investment activity.
Despite weaker credit growth, the banking sector remains well-capitalised, profitable and highly liquid, according to the Bank of Botswana. The challenge facing policymakers is restoring confidence among businesses and consumers rather than addressing financial system stability.
Major lenders have become more cautious. First National Bank Botswana has increased impairment provisions, while Absa Bank Botswana has prioritised lending quality amid rising household indebtedness. Stanbic Bank Botswana has continued financing government and corporate clients, and Bank Gaborone has tightened credit assessments.
