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Non-performing loans, foreclosures threaten financial sector stability - BoN

February 21, 2022
Non-performing loans, foreclosures threaten financial sector stability - BoN

The Bank of Namibia says it is greatly concerned with the alarming rate of non-performing loans, a development that threatens stability of the country’s financial services sector.

This comes as a lot of people and institutions have lost properties to banks after failing to service their loans. According to the Bankers Association of Namibia (BAN), banks were compelled to foreclose on houses valued at N$230 million in the first six months of 2021.

“Naturally, non-performing loans and foreclosures worry the Bank because they could jeopardise financial stability. This trend threatens financial stability and could have serious consequences if not addressed diligently,” BoN Director: Strategic Communications, Kazembire Zemburuka told The Brief.

The central bank said although it was aware of on-going foreclosures, its hands were tied due to its regulatory role in the country’s banking sector.

Foreclosure is a legal process in which a lending institution, such as a bank, seizes collateral used as surety for a loan advanced to a defaulting borrower. The lending institution issues a letter of demand, a default judgement and writ of execution are obtained in the High Court, and the Sherriff of Court seizes and sells a borrower's home or property after the borrower fails to honour his/her loan repayment obligation for a certain period.

According to Namibian civil and contractual law, if a banking institution has non-performing loans on its books, it may take the necessary legal action, such as that described above, to enforce the recovery of the owed loans.

The BoN’s sentiments also follows concerns raised by the Ministry of Justice about foreclosure cases in the country, with Justice minister Yvonne Dausab announcing proposed reforms to guard vulnerable persons from losing their primary homes.

“The country has experienced an economic downturn due to the aggravating effect of Covid-19. As a result, some people have lost their jobs, and some businesses have closed. This makes it difficult for borrowers to meet their loan repayment obligations and leads to an increase in non-performing loans, which may result in some foreclosures. However, the Bank has recently observed the non-performing loan ratio of banks reaching a plateau and leveling off, which is a welcome development,” Zemburuka said.

BoN said it welcomes any interventions from the Ministry of Justice and/or any other stakeholder to assist those affected by foreclosures.

“Given the involvement of courts, such matters cannot be interfered with by the Bank as a regulator and supervisory authority, as any interference would amount to the Bank being in contempt of a court order and/or the Bank being liable to interfering and/or defeating the course of justice.”

The apex bank also blamed the high level of indebtedness to lack of financial education, with Namibia’s household debt having increased by 2.8% to N$61.8 billion in December 2021 from N$60.1 billion in January the same year.

“One of the causes of indebtedness is a lack of financial education; therefore, it is critical to increase financial education so that people understand the consequences of over-indebtedness and will only borrow loans that are productive in nature and that they can repay. Before extending credit to a customer, lending institutions must conduct a comprehensive affordability assessment,” the BoN Spokesperson said.

He, however, admitted that the central bank’s increase in repo rate by 25 basis points to 4% will have an impact on borrowing costs.

“Increased interest rates may result in higher borrowing costs, forcing borrowers to pay slightly more on existing loan facilities. While changes in interest rates affect individual borrowers, the Bank's Monetary Policy Committee takes into account a wide range of factors when determining the appropriate rate for the country in order to promote the primary goal of price stability,” Zemburuka said.

*Full responses from the Bank of Namibia to be published on Friday.

 

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Last modified on Wednesday, 23 February 2022 17:32
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