Households and business deep in debt but central bank not worried yet

The general meltdown in the economy has left many Namibian households and businesses in debt but the central bank maintains that the risk emanating from both is well contained and will not affect the economy’s financial stability.

“Will this debt be repaid? We are not worried,” exclaimed governor Iipumbu Shiimi Speaking at the launch of the financial stability report last week.

Household debt relative to disposable income moderated slightly from 84.1% in 2016 to 83.3% in 2017, in line with the slow growth in total credit extended in 2017. In contrast, total corporate sector debt grew by 12.7% in 2017, compared to 9.8% in 2016.

“The growth in the corporate debt stock was concentrated in the sector’s foreign debt, whereas the domestic debt rose quite slowly. The private sector’s foreign debt grew by 20.3% as a result of a low base attributed to the restructuring of debt to equity by some mining companies in 2016,” says the report.

Meanwhile, overall house price inflation for residential properties, though positive over the last five years, continued to come down in 2017.

“With the economy sluggish and grinding into recession in 2017 and the associated shedding of jobs, disposable income remained under significant pressure. These macroeconomic challenges continue to weigh in on the Namibian housing market as annual house price inflation decelerated to 4.0% in December 2017, in contrast to 5.4% during the same period in 2016,” says the report.

The moderation, however, is said not to pose a threat to the stability of the financial system even if prices continue to come down, given the sustainable demand and a relatively smaller proportion of non-primary residential properties.

Namibia’s banking sector remains sound, said the governor, while banks remain adequately capitalised.

Assets for banks continue to grow although the non-performing loans (loans not being paid) ratio which is the key measure of the asset quality, siginificantly deteriorated to 2.5% at the end of December 2017, up from 1.5% during the same period in 2016.

These unpaid loans, however, do not pose any threat to financial stability, Shiimi said, while the Financial System Stability Committee will continue to monitor these trends and taken action when only necessary.

Despite pressure from the recession, the non-banking financial institutions industry also remained financially stable and continued to grow their assets (18% in 2017).

The growth in assets was driven by a general increase in investment due to upbeat financial markets, said Shiimi.

“The payment system and infrastructure continued to perform efficiently and effectively with robust risk-mitigating measures in place to facilitate safe payments,” he added.

The major risk to the economy’s financial system, meanwhile, is the economic slow-down.