Botswana’s commercial banking industry remained well capitalised and liquid in 2025, but profitability weakened as sharply higher interest expenses squeezed earnings, according to the Bank of Botswana’s Banking Supervision Annual Report 2025.
The report shows that commercial banks’ net after-tax profit declined by 10.1% to P3.7 billion in 2025, from P4.1 billion a year earlier. It was the first annual decline in banking industry after-tax profits since 2020.
The deterioration was largely driven by a sharp increase in the cost of funding. Interest expenses rose by 52%, from P3.4 billion in 2024 to P5.1 billion in 2025. Despite the increase in lending and other income streams, the higher cost of interest weighed on the industry’s overall earnings.
The pressure on profitability was reflected in the sector’s returns. Return on equity declined from 27.3% to 21.3%, while return on average assets fell from 3% to 2.5%. At the same time, net interest income as a share of total income declined from 65.7% to 56.2%, while non-interest income increased to 43.8% of total income.
Despite the weaker earnings, the banking industry expanded its balance sheet during the year. Commercial bank assets increased by 1.8% to P146.5 billion, although this represented a marked slowdown from the 7.7% growth recorded in 2024.
Gross loans and advances increased by 3.3% to P90 billion, compared with 6.5% growth a year earlier. Customer deposits also increased by 3.3%, reaching P110.8 billion, and remained the main source of funding for the banking sector.
Households continued to account for the largest share of bank lending, with household credit rising 2.6% to P57.2 billion and representing 63.3% of gross loans and advances. Lending to private businesses increased at a faster rate of 7.6% to P27.2 billion, while credit to public sector entities rose 17.1% to P2 billion.
The report also points to emerging pressure on borrowers. Total past-due loans increased by 24.6% to P5.2 billion, which the Bank attributed partly to slow economic growth, including job losses and business closures that affected some borrowers’ ability to service their loans.
However, non-performing loans remained broadly stable at about P3 billion, while the NPL ratio improved marginally from 3.4% to 3.3%. Specific provisions increased from P1.5 billion to P1.6 billion, improving the coverage of NPLs from 49.3% to 54.6%.
The banking sector also maintained a strong capital position. Unimpaired capital increased by 7.4% to P19.7 billion, while the industry-wide capital adequacy ratio improved from 19.1% to 19.8%, well above the 12.5% prudential minimum. Common equity Tier 1 capital stood at 14%, compared with the 4.5% minimum requirement.
Liquidity also remained sound. Statutory liquid assets increased by 8.7% to P20.9 billion, with the industry’s liquid assets ratio at 18.9%, significantly above the 10% regulatory minimum.
The sector continued to expand access to financial services during the year. The number of bank depositors increased by 7.4% to 1.7 million, pushing the financial inclusion ratio from 86% in 2024 to 90.2% in 2025. The number of bank branches also increased from 162 to 169, while ATMs rose from 649 to 658.