Debt breaks consumers

During 2018, nearly 59% of non-performing loans at commercial banks were mortgage debt.

06 May 2019 | Economics

Consumers - by the end of last year - spent N$95.50 out of every N$100 earned to pay off debts.

During the recession, the consumer debt burden has led to a 54% rise in non-performing commercial bank loans, translating into more than N$1 billion more when compared to 2017.

Despite low interest rates, non-performing loans increased by 3.6% at the end of 2017.

This is just shy of the acceptable threshold of 4% and is the highest in five years, the Bank of Namibia's latest financial stability report indicates. Non-performing loans during 2017 were 2.5% of the total loans; in 2016 this figure was 1.5%.

Although high, neither the consumer debt burden nor the rate of defaulting loans puts Namibia's financial stability at risk, the BoN assured. The central bank said the country's banking sector remains profitable, liquid and adequately capitalised. Only 0.06% of loans were written off. The BoN said an increase in non-performing loans does not automatically lead to an increase in loan write-offs and losses to banks.

Most non-performing loans (58.8%) were home mortgages, followed by overdrafts (15.2%). The other bank debt figures are: other loans and advances (13.6%), instalment debt (7.7%), personal loans (4.1%) and credit cards (0.7%).



Deep in the red

The latest monthly BoN statistics show consumers owed commercial banks almost N$54.4 billion at the end of March. That is about N$3.4 billion or 6.3% more than a year ago.

On an annual basis 'other loans and advances' have increased the most. The total of nearly N$5.8 billion in March is almost N$1.2 billion (20%) more than at the same time last year.

Mortgage loans of about N$36.7 billion were about N$2.7 billion or 7.2% more than a year ago, while the N$3.1 billion in overdraft accounts were 5% higher.

Consumers are still wary of instalment debt. By the end of March, instalment credit was almost N$371 million or 5.2% less than a year ago.

The BoN says the increase in short-term credit shows the household cash crisis.



Disposable income

According to the central bank household adjusted credit amounted to 95.5% of disposable income last year. Adjusted credit includes bank and micro-lender debt.

This means that the consumer was N$1.30 per N$100 better off than in 2017, when N$96.80 of out every N$100 was for debt repayment.

The BoN attributes this improvement to an increase in disposable income, rather than the small debt burden.

Total disposable income last year was almost N$74.4 billion, about N$5.8 billion or 8.5% more than in 2017. On the other hand, credit granted to individuals increased by 7%.

The BoN said the increase in disposable income was due to more government transfers, remuneration and foreign income earned by consumers.

Jo-Maré Duddy

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