11 January 2019

Namibia: Dwindling Disposable Income Pushes Up Household Debt

THE weak economic conditions have compelled households to take up more loans because of reduced disposable income.

The current economic conditions and the loss of jobs have caused disposable income to come under pressure, resulting in a significant increase in the ratio of non-performing loans (NPLs), the latest financial stability report by the Namibia Financial Institutions Supervisory Authority (Namfisa) and the Bank of Namibia revealed.

The financial stability reports stated that disposable income on a yearly basis rose to N$71 500 in 2017 from N$65 000 in 2016.

"The ratio of household indebtedness to disposable income remained high at 83,3% in 2017," the report stated.

Namfisa's latest annual report also indicates that the loan book value in the 2017/18 financial year increased significantly by 29,3% to N$5,5 billion compared N$3,8 billion in 2016/17.

"The strong growth was driven by high demand from term-loan household borrowers that was reflected not only by an increased number of term loan borrowers but also by the value of the disbursements," the annual report said.According to the report the value of outstanding loans has exceeded loans disbursed over the past five years.

In 2017, for example, outstanding loans stood at N$5,5 billion while loans disbursed were at N$3,6 billion. In 2016, there were N$4,2 billion outstanding loans compares to N$3,2 billion disbursed.

In 2015 Namfisa recorded an amount of N$4,3 billion for loans outstanding while N$2,6 billion to loans disbursed.

In 2014 an amount of N$3,3 billion was recorded for loans outstanding while N$2,3 billion was recorded for loans disbursed.The report further shows that in 2013 N$2,6 billion was for loans outstanding and N$2,2 billion was for loans disbursed.

Namfisa said the stock of the loans extended by microlending institutions has been growing at a faster rate in recent times.

Furthermore, at the end of the period under review, the report said the banking sector credit rose by only 6,2% while the credit for microlenders rose by 29,3%.

This is attributed to factors such as the less rigorous affordability assessments and credit conditions in the microlending space.

"Microlending loans extended without affordability assessment lead to a vicious cycle of household over-indebtedness, which in turn worsens households financial vulnerability," Namfisa said.

Namfisa manager for corporate communications Victoria Muranda said there is a new Microlending Act that came into force in October 2018.

The act aims to regulate and supervise microlending business in Namibia; to establish an effective and consistent enforcement framework relating to microlending and to promote responsible borrowing and lending.

Muranda said the role of Namfisa is to ensure the implementation and enforcement of the provisions of the act.

According to Muranda the act is focused on promoting and protecting the rights of borrowers by seeking to limit malpractices that have been prevalent within the microlending industry, and their effects on borrowers.

Furthermore, Muranda said the main objective of the act to foster the highest standards of business conduct by microlenders, the promotion of public awareness and understanding of the microlending industry and the reduction and deterrence of financial crime.

The money and banking statistics report released by the Bank of Namibia in November last year stated that the annual growth in other loans and advances (i.e. personal/commercial loans and credit cards) stood at N$12,4 billion end of November 2018.

In comparison to November 2017, it showed an increase of N$2,4 billion from a level of N$10 billion at the end of November 2017.

The volume of borrowed funds over the years, both household, corporate sectors and mostly manufacturing industry reported to be the main lead of growth in loans, the report revealed.

The total household sector credit stood at N$56,7 billion in November last year, which showed an increase of 7% from N$52,9 billion in Namibia.

The meagre increase in household sector debt was due to continued increase in other loans and advances during the month under review, the report revealed.

Bank of Namibia spokesperson Kazembire Zemburuka said the debt levels have been increasing by 7% year-on-year as at the end of November 2018.

He also said private sector credit extended slowed in 2017, due to lower demand for credit from both the corporate and household sectors.

"However, it is important to note that, although there's evidence of a deceleration in the overall private sector credit growth, households continue to be highly indebted which raises serious concerns about vulnerabilities in this regard," Zemburuka said.

The Bank of Namibia is encouraging Namibians to borrow wisely and reduce consumption expenditure.

The bank further advises businesses to take up productive loans to start or expand existing businesses as these would create new job opportunities and contribute to economic output, Zemburuka added.

Namibians seem to be falling into debt almost every year which is a result of a significant increase in mortgages, personal loans and credit cards.

The Bank of Namibia annual report 2017 revealed that mortgages stood at N$1,3 billion in 2017, which showed an increase of 68% from 775 million of 2016.

In 2013, mortgages were reported to amount to N$402 million and had been increasing over the years which caused a significant increase in non-performing loans.

The other unsecured lending categories, such as personal loans and credit cards are also performing poorly.

Personal loans have reportedly increased with 58% from N$70 million 2016 to N$112 million in 2017.

Non-performing credit cards stood at N$18 million in 2017 compared to N$15 million of 2016. This shows an increase of 21%, the report stated.

Kudu Finance branch manager Sylvia Ndjavera told The Namibian on Thursday that in recent years, the number of households taking loans has increased.

"People are not able to meet all their needs at once with their current disposable income, which is why they run to cash loans," she said.

Ndjavera explained that on a monthly basis, more people tend to take loans in January compared to December, and this is based on the fact that people overspend during the holidays.

Cash loan companies charge 30% interest, and the client is expected to pay back the loan on payday. If the client fails to repay, they will be blacklisted, she added.

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