Namibians still exposed to high debt – Analyst
By Tiri Masawi
WINDHOEK – Many Namibians still struggle with debt despite a recent report by the Namibian Financial Supervisory Association and the Bank of Namibia giving that counry’s financial sector a clean bill of Health a renowned Namibian Market analyst and Managing Director of Twilight Capital Mally Likukela has said.
His sentiments come at a time when many Namibians are exposed to one of the highest transactional charges in the region which have prompted the central bank to force all commercial banks to introduce basic bank accounts that do not charge anything upon opening an account.
Likukela writing in an analysis in response to the latest Namibian financial sector report, argued that the financial system is healthy, sound and well-capitalized, but many Namibians continues to sink deeper into economic hardships.
“These developments could suggest that despite the financial institutions having experienced remarkable growths in assets and profitability, this growth has not translated tangibly into an improvement in the economic welfare of many Namibians as majority remain deep in debts, shattered balance sheets and weak buying power.
“While it is fundamentally important for the financial system to be sound and stable because of its role in supporting sustainable economic growth, it’s equally important also to ensure that the benefits thereof trickled down to the real economy and improve the livelihood of these households. He added that particularly, households who depend on debt. Heavy household debt are known to amplify slumps and weaken economic recoveries,” he said.
Likukela also acknowledged that the improvements in the performance of the Namibian financial sector also come at a time when the country’s Gross Domestic Product has been improving.
“GDP growth slumped to 0.2 percent in 2016, from 6.1 percent in 2015, and it’s expected to recover gradually to 2.9 percent in 2017. However, this recovery will be challenged by the huge debts held by both corporates and households despite the clean bill of health of the financial sector.
“Stability, soundness and profitability of the financial system should be evaluated against social, economic value and benefits to the household (borrowers) and any mismatch can give rise to the suspicions of possible exploitations.
“Furthermore, the financial sector as one of the engine of economic growth, its inability to impact the real economy in a tangible manner places tremendous pressure on Government as it will eventually be forced to intervene in line with its fiscal policy’s social responsibility – prosperity for all,” he said.
Likukela added that while the Banks and Non-banks continue to report strong growth in assets and profits, households continue to sink deeper into debts.
“According to the Namibia Financial Stability (NFS) report, the ratio of household indebtedness to disposable income remained high at the end of December 2016 despite a slight moderation.
“While the Banking assets grew by 10.1 percent to stand at N$110 billion, Household debts also increased to N$ 50.1 billion, which represents an annual growth in indebtedness ratio of 9.3 percent during the period under review. Many Namibian are feared to remain in the debt trap as their debt servicing ratio remains high and virtually unchanged at 15.3 percent during the review period. What is more alarming is the fact that growth rate of debt servicing at 9.1 percent is faster than that of Gross income which was reported at 8.2 percent,” he said.
He also added that, “According to the report, although the growth of disposable incomes rose from 10.5 percent in 2015 to 12.0 percent in 2016, the rise in average prime interest rate from 10.1 percent to 10.7 percent coupled with elevated inflation weakened the buying powers of many households.
“ For non-banking institutions, high intermediation costs, as evidenced by large and rising interest rate spreads compounds the problem. Because of weak buying power as a result of high interest rates and elevated inflation rates, Household are left with little funds to save or invest – a condition which will perpetuate high poverty levels and dependence on debt. According to the report, savings deposits consisted only 4.0 percent of the non-banking funding compared to other balance sheet liability items. “
According to Likukela, banks in Namibia remain liquid with ratios improving to 13.0 percent in 2016 from 12.4 percent in 2015.
“While the banking/non-banking industry remaining firmly secured and protected – adequately capitalized, households on the other hand remain broadly exposed and unprotected. The reports states clearly that banks remained adequately capitalized in order to cushion against risks associated with institutional growths and to protect themselves against unsecured risk that can result in operational losses amongst other things.
“Households on the other side, remains exposed to any interest rate changes, exchange rate fluctuations, credit shocks as well as liquidity risks. Since the banks are heavily fortified, any costs associated with risks such as downward ratings, interest rate changes, capital outflows, Brexit, investors’ confidence – shall be easily passed on to consumers (households),” he said.