By: Nghiinomenwa Erastus
In 2021 individuals/households spent N$15.3 billion of their disposable income repaying their debts from banks and non-banking entities, the country’s latest Financial Stability Report states.
The burden of debts on individual borrowers is measured by calculating how much of their income is spent servicing the debt-for Namibians. 17.2 per cent of Namibians’ disposable income in 2021 was directed to debt repayment.
The report released by the Bank of Namibia last week revealed that in 2021 individual debts from banks and other lending facilities stood at N$68.9 billion, increasing by N$1.4 billion from last year.
As a result, the ratio of total debt service to disposable income, which indicates how much households are directing to debt servicing, increased notably during 2021.
The ratio rose by 8.2 per cent compared to its value at the end of 2020 to reach 17.2 per cent by the end of 2021.
This means individuals used 17.2 per cent of their disposable income last year to service their debts (the principal and interest).
According to the central bank analysis, the higher ratio was due to a sharp growth in total debt service during the reporting year, especially foreign debt.
Thus, the total debt service stood at N$15.3 billion at the end of 2021, which was 45.2 per cent higher than at the end of 2020.
“The high service value was ascribed to households servicing their debt at a faster pace given a low-interest-rate environment,” the report read.
By the end of last year, households’ disposable income (money available for consumption) increased by N$12.03 billion to N$88.9 billion – the most significant increase since 2017.
The central bank explained that the growth could be attributed to higher government transfers during the period under review as households whose income was impacted by Covid-19 restrictions were supported by subsidies during the peak of the Covid-19 pandemic.
However, because these subsidies were once-off payments, the growth rate is expected to normalise going forward.
DEBT VERSUS INCOME
Although individuals’ disposable income increased significantly to N$88.9 billion, the central bank indicated that in comparison to what they owed, household debt constituted 77.4 per cent (N$68.9 billion) of disposable income at the end of December 2021.
In other words, 77.4 per cent of households’ disposable income is not theirs but their lenders. Thus, households spent N$15.3 billion in debt repayment last year.
Notably, the debt to disposable income ratio for 2021 is lower than the 87,7 per cent recorded at the close of the previous reporting year.
According to BoN, the lower ratio was driven by disposable income increasing faster than debt during the period under review.
Compared with December 2020, disposable income had grown by 15.64 per cent by the end of December 2021, possibly boosted by increased economic activity after the Covid-19 pandemic, the report read.
Debt extended to households grew by a sluggish 2.1 per cent during the same period, driven mainly by short-term credit facilities such as other loans and advances.
BoN also highlighted that households mainly demand debts to finance their houses, as mortgages grew more than overall credit extended to households.
“Is worth noting that households continued to demand mortgage credit during the period, albeit at a slower pace than in previous years,” the report read.
Annual growth in mortgage credit extended to households stood at 2.6 per cent at the end of 2021 compared with 5.2 per cent in the previous reporting year.
The BoN research team explained that low demand for mortgage credit usually mirrors a weak housing market amidst a depressed economic environment, especially when household incomes become uncertain.
The team also highlighted that the reduction from 87.7 per cent to 77.4 per cent in the households’ debts to disposable income is good for the country’s financial stability.
“Generally, a lower ratio is positive for the stability of the financial system,” the BoN team wrote.
They added that since non-performing loans (NPLs) were still at manageable levels, household credit posed a minimal risk to financial stability during the reporting period.
Any financial stability report aims to identify risks and vulnerabilities in the financial system, assess the system’s resilience to domestic and external shocks, and present recommended policy responses to the risks identified.
The stability of Namibia’s financial system is critical, as it provides important services to households, corporates, and the economy.
Email: erastus@thevillager.com
