Banking sector stability intact despite falling housing prices – Iipumbu

Central bank governor Iipumbu Shiimi has allayed fears over the possibility of weakening property prices severely rattling the financial stability of the country’s major banks.

“Whenever you see a slowdown in property prices, that would have a negative impact on the stability of banks. We do not see that as a big concern because the banks are well capitalised. They will be able to absorb the slowdown in property prices,” said the governor. 

Property prices have been waning since December of financial year 2016 while FNB’s statistics released in August of this year indicated a fall by 0.8%.

While this has been a hard blow to property business moguls, Shiimi says it is a welcome development since it gives a chance for people to purchase property at an affordable cost more than before.

“I think with regards to the development that we see in property prices; we have raised a concern before that property prices are elevated and that has made housing unaffordable. This concern is now being addressed somehow by the fact that housing prices are slowing down so definitely it’s a welcome development to us and also to households,” said the governor. 

Meanwhile, the Global Knight Frank index released early this year indicated that average house prices around the world rose at their fastest rate in almost three years, increasing by 6% on average in 2016, up from 4.1% in 2015, the highest annual rate recorded in two years.  

The governor has also heralded the persistent contraction of motor vehicle sales saying that it signifies that at least money is staying within the country.

On a yearly basis, vehicle sales have been in a negative territory over a prolonged period since July 2015.

Economists view the continuous contraction in instalment credit lending by commercial banks as continuing to be a drag on an already struggling motor industry as well as the economy.

Said Shiimi, “We see that as a positive development. We talked about spending money wisely and buying productive assets. We have been worried about imports, especially imports of vehicles. The fact that it’s now coming down that’s also going to help us to reduce our imports and increase the reserves.”

He noted that if imports are coming down, it means there is a better capacity to increase exports and thus central bank sees both property prices and vehicle sales contraction as a blessing in disguise.