With Namibia faced with high levels of indebtedness and alarming rates of foreclosures, which have seen the Ministry of Justice intervening. The Brief (TB) inquired from the Bank of Namibia (BoN) to find out the Central Bank’s view on these issues. Below is their response.
TB) Is BoN concerned about the increasing cases of bank foreclosures on loan defaulters in the country?
BoN) Naturally, non-performing loans and foreclosures worry the Bank because they could jeopardize financial stability. Nevertheless, 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 Bank welcomes any interventions from the Ministry of Justice and/or any other stakeholder, as foreclosures are the result of a proper legal process in which the Courts have the final say. 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.
TB) From the Bank’s forecasts, is this trend likely to continue?
BoN) 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 levelling off, which is a welcome development.
TB) What impact will this have on the country’s banking sector, as more people struggle to repay their loans with bank’s?
BoN) As stated, this trend threatens financial stability and could have serious consequences if not addressed diligently. However, as previously stated, the trend in NPLs appears to be levelling off.
TB) With at least two interest rate hikes forecast for this year, will this not worsen the situation for those already struggling to service their existing banking sector loans as they will now have to pay more?
BoN) 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.
TB) How does the Central Bank propose to address the growing trend of rising household debt, which increased by 2.8% to N$61.8 billion in December 2021?
BoN) To address the high level of indebtedness, a multi-pronged approach is required, one of which is financial education. 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. This is to ensure that they only extend credit to customers who can afford it and will meet their loan obligations under the terms of the credit agreement.
TB) Has the Bank also engaged with banks to find ways to cushion the public that is already struggling amid job losses and a struggling economy?
BoN) As a result of the economic impact of Covid 19, the Bank issued the Determination on Policy Changes in Response to Economic and Financial Stability Challenges as a Result of the COVID-19 Pandemic (BID-33), which, among other things, provides relief to clients of banking institutions who are experiencing economic hardship as a result of Covid 19. The repayment holiday granted to individuals and businesses who are unable to repay their loans to banking institutions due to the economic impact of Covid-19 is one of the relief support measures provided in the Determination.
Banking institutions are required to provide relief in a fair and transparent manner to distressed, qualifying clients.
TB) Has there been any consultations on planned reforms by the Ministry of Justice regarding home foreclosures and does it support them being the banking sector regulator?
BoN) The Bank is aware of the proposed reforms by the Ministry of Justice, and when called to do so, will make representations as required
TB) What impact will the planned reforms have on banks, in terms of their lending and ability to recover what they are owed?
BoN) As mentioned above, the Bank has yet to be provided with the proposed changes and to consider the proposed reforms and their impact, if any, on the business operations of banking institutions.
TB) What is your comment on concerns that Namibia’s bank charges remain too high and thus continue impacting the inclusion of the unbanked?
BoN) The Bank recognises the public’s concern. Previously, the Bank addressed this issue by exempting individuals and small and medium-sized businesses from paying deposit fees, which is still in effect. Furthermore, transparency in the publication of fees and charges is a result of the Bank’s effort to ensure that the public has adequate information to make informed decisions in their transactional behaviors at commercial banks.
Finally, in the interest of financial stability, the Bank is currently making an ongoing effort to address this issue comprehensively, and we urge the public to be patient because it will not be resolved overnight in line with the expected rate hikes this year.
