Jo-Maré Duddy
27 October 2009
OVERDUE bank loans in Namibia have ballooned by nearly 18 per cent to N$2,1 billion in six months as the economic crisis continues to cripple consumers' ability to pay their debts.
Of this, more than N$989 million is made up of non-performing loans (NPLs), or loans that have been in arrears for three or more months.
The figures, which cover from last Christmas to June, are contained in the Bank of Namibia's latest Financial Stability Report.
The BoN report shows that home loans constitute the biggest chunk, nearly 54 per cent, of NPLs.
People who can't pay back their overdrafts form 22 per cent of NPLs.
Consumers are also struggling to pay their leases, credit cards and personal loans, the report indicates.
As a result, banking profits have nose-dived in the first half of 2009, the BoN said.
Return on equity (ROE), generally an indicator of profitability, has plummeted from 29 per cent in December to 19 per cent six months later.
Banks' cost effectiveness has equally suffered, the cost-to-income ratio in the report shows.
By June, almost 61 per cent of banks' income was consumed by operating costs, compared to nearly 52 per cent in December.
The BoN fears that the situation may deteriorate further before getting better.
"There is still a risk/possibility that the real economy impact may spill over into the banking sector, as weaker growth blunts business and increases in non-performing loans. These issues warrant close monitoring, going forward," the BoN report says.
Despite these problems, the central bank gave the banking sector a relatively clean bill of health.
Local banks continued to have "very limited links to financial markets ravaged/devastated by the global financial crisis" during the first six months of the year.
Their financial position remained strong and sustained, and banks continued to be liquid, well capitalised and solvent, the BoN said.
The report comes as banks try to convince the BoN not to put their profitability under pressure by insisting on lower interest rates.
According to the BoN, the banking sector's asset quality improved slightly in the first half of the year.
Growth in loans and advances during the period was 3,2 per cent, and outpaced growth in NPLs, which stood at 1,3 per cent. As a result, the NPL ratio fell from 3,1 per cent in December to 3 per cent in June.
"The ratio is still considered to be within the acceptable range," the BoN said, referring to the international Camels credit rating system.
In December, NPLs represented 54 per cent of NPLs, mainly because of the floods affecting business clients in the North, the BoN said. This figure dropped to 46 per cent in June this year.
Similarly, non-performing mortgage loans as a percentage of total mortgage loans declined from 3,3 per cent in December to 3,2 per cent in June.
The BoN also said the banks' large exposures to the mining and related sectors, as a share of banking industry capital funds, fell from 34 per cent in the fourth quarter of 2008 to 27 per cent in the second quarter this year.
"This share is relatively small. The likely impact of this exposure on banking stability is, therefore, moderate," the BoN said.
The financial sector in Namibia remains "generally stable", the central bank said.
"Furthermore, positive signs of economic recovery have started to appear, which will augur well for banking performance."
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