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Individuals & Property Developers Struggle To Pay Debts

By: Nghiinomenwa Erastus

Many households and real estate businesses are struggling to make monthly payments, with most of them behind in their instalments for more than three months, revealed the Bank of Namibia in their annual report.

By the end of 2021, the commercial banks had loans worth N$6,7 billion that were not being repaid for some months.

For the past two years, non-performing loans increased by around N$1,71 billion as more loans pile up due to not being serviced on time or not at all as households and businesses struggle with income.

The country’s Non-Performing Loans (NPL) ratio level breached the trigger ratio benchmark of 6,0 per cent to stand at 6,4 per cent by the end of 2021.

The NPL ratio that tracks a portion of commercial banks’ loan books that are defaulting has increased beyond the stress trigger ratio (abnormal time benchmark) as macroeconomic conditions worsened in the wake of the Covid-19 shock.

“The unfavourable market conditions that caused cash flow constraints for households and businesses as a result of retrenchments and restrictive business regulations ultimately had a negative influence on NPLs,” read the report.

According to the central bank, many of those struggling to service their debts are individuals and real estate/property developers.

“The growth in NPLs was mainly triggered by individuals and by real estate and business services due to economic challenges,” the bank wrote.

The individuals’ sector accounted for the largest share of the NPLs with 40.7 per cent, followed by real estate and business services with 22,9 per cent, agriculture and forestry with 8,9 per cent, and trade and accommodation with 7,4 per cent.

The NPLs in the construction, manufacturing, transport and communication, finance and insurance, government services, mining, and other sectors were minuscule, accounting for the remainder of 20,1 per cent of total NPLs.

In monetary value, individuals as a sector were the most affected, recording a N$260,9 million increase in NPLs, followed by real estate and business services (N$183 million) and other sectors (N$117,7 million).

Significant increases in NPLs have also been recorded for the trade and accommodation (N$49,6 million), finance and insurance (N$25,1 million), mining (N$24,6 million), government services (N$22,6 million), manufacturing (N$7,4 million) and transport and communication (N$5., million) sectors.

The remaining sectors, namely the construction, agriculture, electricity, gas, and water and fishing sectors, recorded a decline in NPLs.

During the past year, overdue loans increased by N$1,5 billion and amounted to N$12,1 billion, up from the N$10 billion reported in 2020.

Overdue means any asset for which any portion of principal and/or interest is due and unpaid for 30 days or more.

Gross loans and advances increased during 2021 by N$721 million to stand at N$105,7 billion.

The central bank also noted that the economic participants are failing to service their overdrafts and credit cards. The two are reported to be responsible for the spike in NPLs’ rise during the year under review.

“The NPLs under the overdrafts category exerted pressure on industry NPL as it recorded an increase of N$108,1 million,” the report read.

This is followed by non-performing personal loans that increased by N$88,6 million.

Furthermore, an increase in non-performing categories of other loans and advances of N$76.6 million and in credit cards, which increased by N$12,7 million, was also observed.

Conversely, non-performing mortgages and instalment sales recorded decreases of N$249,5 million and N$22,8 million, respectively.


Non-performing mortgages continued to top the list of categories of non-performing loans, constituting 57,4 per cent of total NPLs, followed by overdrafts at 17 per cent, and other loans and advances at 14,4 per cent.

The central bank, which monitors and regulates the commercial banks, explained that even though bad loans continued to breach the NPL ratio trigger benchmark of 6 per cent, commercial banks continued to perform their intermediary roles under extreme economic conditions. This particularly affected their credit risk.

It is also evidenced by the total provisions for loan losses, which increased from N$3,4 billion to N$3,6 billion to cushion a poorly performing loan book.

The banks also increased their specific provisions cover from N$2 billion to N$2,3 billion- as a result, the ratio of specific provisions to NPLs increased from 29,3 per cent to 34,4 per cent.

Specific provisions are those set aside for loans graded Substandard, Doubtful, and Loss.

The slight increase in provisions was in line with the rise in NPLs.

Moreover, the realisable value of collateral pledged to the non-performing loans increased as banks required new security for NPLs, and revaluations of these securities were executed.

Realisable security (collateral) held against defaulting loan exposures increased by N$36 million to N$4,2 billion.

As the pandemic persisted, the Central Bank introduced several measures to assist banks in managing their credit risk in response to the Economic and Financial Stability Challenges resulting from the pandemic (BID-33).

This led to the introduction of the loan repayment moratorium, which provided short-term relief on the payment of the principal amount on loans for a period ranging from one month to a period not exceeding 24 months.

The loan moratoriums were to be based on a thorough assessment of individual borrowers’ economic and financial conditions (i.e., households) and small businesses.

In addition, the central bank has indicated that it has presented the industry with possible NPL recovery options to increase the banking institution’s ability to recover.

The option included securitisation, debt restructuring options, and debt-to-equity options.

These supervisory measures were implemented to limit the deterioration in the credit risk of banking institutions, reported the central bank.


Julia Heita

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