By: Nghiinomenwa Erastus
The Bank of Namibia has extended its relief measures to the economy through commercial banks for 12months, in addition to the initial 24 months announced last year.
The Bank of Namibia governor Johannes !Gawaxab announced in a statement released on Friday.
!Gawaxab’s announcement comes amid massive repossessions of houses, commercial buildings, vehicles, and equipment valued at N$251,2 million by several commercial banks.
The commercial banks have moved in to repossess properties and other assets following failure by several businesses and individuals to pay loans.
The relief extension measures present an opportunity to businesses and individuals who have not recovered from the adverse effects of Covid-19 to seek repayment holidays and other arrangements from their commercial banks.
The relief measures include no blacklisting of clients on repayment relief, no extra administrative charges, application for repayment arrangement until 1 April 2023, and more liquidity/cash equivalent to lending for banks.
This arrangement/determination will be in place until the governor wrote to the commercial banks to revoke the arrangement.
The loan repayment moratorium provided in the determination has been revised from the current 6-24 months to a period of 1-24 months, thus removing any inconsistent treatment of moratoria of less than six months.
In extending the relief measures through commercial banks, !Gawaxab has also warned the banking institutions not to charge clients exorbitant charges beyond initial contract rates.
“Banking institutions are prohibited from charging clients higher, punitive interest rates, over the initial contractual interest rate, following the expiration of any Covid-19 related loan moratorium imposed,” wrote the governor.
Similarly, banking institutions are only allowed to charge an administrative fee of the extension of a loan moratorium at the initial extension, thereafter no administrative fee or charge for the rollover of the facility may be charged to a customer.
The central bank has also explained that the general loan moratorium, as a result of Covid-19 distress, will not result in adverse classification at the initial extension of a loan moratorium of any allowable duration, (1-24 months).
A loan is considered, to some degree, to be of substandard credit quality and whose full repayment of principal and accrued interest is questionable.
!Gawaxab stated that should this moratorium, however, be rolled over based on prolonged distress, it will demonstrate increased credit risk once the cumulative moratorium amounts to 12 months.
As part of the relief measure, the banking institutions, as credit providers, are also prohibited from reporting those benefitting from a loan moratorium rolled over for less than 12 months as delinquent to credit bureaus.
This ensures that a negative credit bureau listing does not unduly impact banking customers due to the determination implementation.
The determination has also revised the collateral haircuts on loss category loan facilities- a haircut refers to a reduction applied to the value of an asset being used as collateral for a loan.
The determination now requires that banking institutions implement a once-off collateral haircut of 30% on loans once they become non-performing.
This collateral haircut will be maintained at 30% or increased due to the discounting of collateral over time using the IFRS 9 models to ensure collateral values realistically reflect current collateral market values.
To maintain liquidity for the commercial banks, the central bank reintroduced the relief measures for the lending institutions for the determination duration.
The governor said to ensure liquidity relief in the 0-7 day and 8–31-day time buckets, allowing outflow to exceed inflow.
Commercial banks’ 0-7 days outflows may exceed inflows by an amount equivalent to liquid asset surplus.
While on 8-31 days, the board of banks decided their limits based on liquidity needs.
REPOSSESSING ON THE ECONOMY
Over 13 000 people were retrenched according to the reported statistics from last year to the first half of 2021- while many businesses have scaled-down operations.
As businesses and households struggle to generate revenue and income, it has affected their ability to service their debts/financial obligations to lenders, most commercial banks.
The banks have stepped in to repossess the collateral used in the loan to recover their loan investments.
According to the central bank statistics, last year, the commercial banks have repossessed fixed properties (houses and commercial buildings) worth N$222,4 million from the struggling economic agents in 2020.
By June this year, the repossession of houses and commercial buildings had reached N$230,0 million.
The central bank indicated that 95% of these property values are classified as private dwellings and only 5% as commercial/industrial properties as at mid-2021
In terms of vehicles and equipment, the commercial banks’ repossession was valued at 19,2 million in 2020.
By the end of June this year, vehicles and equipment repossessed had reached N$21,2 million.
The central bank warned that “some of the impact of Covid-19 on repossessions is likely to be felt only in a year or two from now due to the long nature of repossession processes, and the repayment holidays granted due to the pandemic”.
According to the central bank, the commercial banks have received a repayment holiday of 180 583 applications, of which 172 299 was approved.
Aggregate holiday moratorium from May 2020 until July 2021 stood at N$130,6 billion.
Sectors to which most reliefs were extended are the individuals, trade and accommodation, real estate and business services, mining, transport, and others.
The central bank explained that successful repayment holidays would result in the vehicles never repossessed since borrowers will resume repayment as the pandemic fades.
Adding that job losses and reduced income have affected the ability of some owners to repay their instalment credit due to the prolonged weak economic environment, now worsened by the pandemic.
On the other hand, an economic slowdown is characterized by less spending overall; therefore, people looking to start a new business may decide to delay ventures until demand returns to normal levels.
Second, new businesses need new investors and creditors, with lower incomes and wealth levels may mean that new businesses will find it more difficult to find individual investors, and credit constraints may limit borrowing from private banks.
The Private Sector Credit Extension has highlighted the low to no credit uptake, especially from the businesses community.
Data collected from Business Intellectual and Property Authority (Bipa) by the central banks shows that 564 businesses (CC, Pty, and others) were closed.
For this year (nine months data), so far, 468 businesses were closed.
The central commentary highlighted that closures were mainly observed in tourism, construction, wholesale and retail trade, real estate, and other business services (including tour operators, consultancies, bookkeeping, and clearing agents).