BoN wants data on debt holidays

Jo-Maré Duddy



Feedback on local commercial banks' willingness to grant debt repayment holidays to businesses and individuals crippled by the Covid-19 pandemic has been “a mix bag of responses so far”, the Bank of Namibia (BoN) said yesterday.

BoN deputy governor Ebson Uanguta, standing in for new governor Johannes !Gawaxab at the monetary policy announcement, said the central bank first needs “tangible data” to assess whether it is satisfied with the extent of relief granted by commercial banks.

The BoN needs data of “at least three months to know and understand the full extent” of the relief granted, Uanguta said.

At the end of March the BoN announced a number of relief measures to mitigate the impact of the lockdown and the global Covid-19 pandemic. These included debt holidays for businesses and households of between 6 and 24 months granted on merit by commercial banks. These holidays apply to the principal amount and interest and are granted at commercial banks' discretion.

Since then, banks have implemented “some or a number of measures”, Uanguta said yesterday. Banks are busy compiling data on their relief measures as requested by the BoN, he added.

In May, the Namibian Chamber of Commerce and Industry (NCCI) complained to BoN that commercial banks apparently weren't delivering on their promises of financial support in the Covid-19 crisis.

“There are complaints; that's why we're gathering data,” Uanguta said yesterday.

The BoN will continue monitoring the situation and “at any point when appropriate will possibly look at other tools” the central bank could use, he said.



Repo lowered

Uanguta yesterday also announced that the BoN has decreased its repo rate by 25 basis points to 4.0% - the lowest rate in the history of Namibia.

The central bank has already decreased its repo rate four times this year. It lowered the repo by 25 basis points in February, followed by 100 basis points in March and another 100 basis points in April. The significant latter two drops were in response to Covid-19 and the lockdown ravaging the Namibian economy.

The latest repo rate decrease means that the prime lending rate of local commercial banks will be lowered from 8% to 7.75%.

Asked why the BoN didn't follow the example of the South African Reserve Bank and cut the repo by 50 basis points, Uanguta said the central bank is aware that local interest rates “should not significantly deviate” from those in South Africa. Both countries are in the Common Monetary Area (CMA), allowing for the free flow of money and therefore the possibility of capital flight.

Among the factors influencing the Monetary Policy Committee's (MPC) decision to only cut by 25 basis points, is that the BoN is “trying to promote and preserve savings and promote a favourable saving and investment culture”, Uanguta said.

Lower rates mean people earn less interest on their savings.

“We also want a bit of an advantage. We want a positive spread on our side and this will likely count in our favour with capital outflow,” he said.

Uanguta also pointed out that “monetary policy can only go so far”.

With many businesses, especially in the tourism sector, nearly at a “standstill”, lower interest rates will have a limited impact on stimulating the economy.

“Even if you reduced the rate to zero, many businesses are unlikely to take up any credit because they've come to a standstill,” he said.



Spread

Asked whether it wasn't time the BoN decrease the spread and force commercial banks to bring their prime rate closer to the repo rate, Uanguta said the spread between the repo and the prime has always been maintained at around 300 basis points.

“We do not want to dictate the [prime] rate to the commercial banks,” he said.

“We recognise that banks have your funds, savings and they also need some kind of returns.”

Uanguta pointed out that commercial banks have already made some compromises like the introduction of a basic bank account and no deposit fees in certain cases.



!Gawaxab

It was highly anticipated that Namibians yesterday would get a glimpse of the approach new governor Johannes !Gawaxab intends to follow at the BoN.

As it was only his second week in the job, !Gawaxab opted to only observe during yesterday virtual press conference, the media was told.

He is busy with a “comprehensive induction programme”. This programme doesn't mean he is “being taught”, but that he is familiarising himself with the people and getting to know the system.

!Gawaxab will “take over in subsequent meetings”, the BoN said.