The Bank of Namibia (BoN) says itis worried by the continued rise in the amount of personal loans by Namibians to supplement their incomes and lifestyles, with currently levels according to its estimates standing at 84-85 percent of income.
In April 2018, The apex bank head issued the same caution about excessive household debt.
“Our household debt is quite elevated. It’s in the region where advanced countries are, in the region of 84-85 percent of income. That’s high and a sign that we are over-extending ourselves. Therefore my advice is we now need to start saving and reduce our uptake of loans,” BoN governor Iipumbu Shiimi told the Windhoek Observer.
He continued by saying, “Personal loans have been rising in the category of 23 percent and that is of concern as people are borrowing to sustain their lifestyle. My advice is to cut where you can because the current trend may create problems for you. We must return to healthy levels. There is nothing wrong with borrowing, but one has to borrow for a good reason. For example, if you are investing in a house or a productive machine that generates income, that’s good. Borrowing for consumptive purposes is not something that I encourage.”
On the impact that on-going job losses will have on bank’s non-performing loans as their clients struggle to service their loans, Shiimi said the current levels were manageable, as local banks have the capacity to absorb possible loses that may emerge when credit cannot be repaid.
“From where we stand, banks currently have higher capital levels and therefore, they are able to protect themselves from loses. Losses have increased but they still remain within manageable levels. Even if we see more job losses, I believe the banks are on a strong footing and will be able to absorb any negative implications,” he said.
Shiimi said the existing operational practice of banks and registered money lenders, provided the required security that loans advanced, are repaid.
“Fortunately, the consumption loans are actually covered by income. The way it works is that most of the institutions that lend, lend to salaried employees and these are mainly government employees. They have a deduction code at source, so before you get your salary, the bank has already deducted their money. So, in terms of losses, that will probably not create problems for the lenders because they get their money first,” he said.
“There are micro loan and cash loan businesses ones that illegally take their customer’s ATM cards to ensure repayment on time. I believe the Namibia Financial Institutions Supervisory Authority (Namfisa) is taking action against them, so those ones will have to be dealt with by the law. My only concern is people over- exposing themselves to debt they cannot manage. Borrowing too much and they will end up not having money, even for bread for the children. That’s my worry, not that banks won’t be able to recover their money.”
Shiimi who was speaking after the central bank cut the repo rate by 25 basis points to 6.50 percent this week, said the decision was not in any way meant to provide relief to borrowers, but to support domestic economic activity and to maintain the one-to-one link between the local currency and the South African Rand (ZAR).
“We don’t reduce interest rates to assist borrowers but to address the economic needs and maintain the currency link. If you have taken a loan, you should carry the responsibility and banks should also take the responsibility of lending,” he said.
This comes as statistics issued by Namfisa in its 2018 Annual Report showed that the loan book of the micro lending industry (commonly known as cash loans) rose significantly at the end of 2017 by 29.3 percent to N$5.5 billion, compared to a marginal reduction in the loan book value at the end of 2016.
Namfisa at the time warned that the ratio of household indebtedness to disposable income was as high as at 83.3 percent in 2017, with the stock of loans extended by micro lending institutions growing at a faster rate in recent times than banks.