Nam banks' assets risk expected to rise amid COVID-19

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Namibian banks' asset risk is expected to rise with mounting household debt amid the COVID-19 pandemic, Moody’s Investors Service has indicated.

The credit ratings agency in a media statement availed to Nampa recently said rising household indebtedness amid the COVID-19 pandemic is credit negative for Namibian banks, particularly lenders providing unsecured loans to small and medium-sized enterprises, because it diminishes households’ capacity to service debt.

“The COVID-19 pandemic will disrupt income-generating activities and employment, and will likely erode households' disposable income, diminishing borrowers' repayment capacity. We expect non-performing loans (NPLs), which were 4.8 per cent of total loans in 2019, to increase to above 6 per cent this year,” the agency said.

Moody’s further expects banks' NPLs to continue increasing over the next 12 to 18 months because the fallout from the coronavirus pandemic will place further pressure on Namibia's economy, which was already falling short of the growth rates that provide banks with good business opportunities.

“The Namibian economy contracted by an average of 0.3 per cent between 2016 and 2019, limiting banks' business opportunities while increasing their asset risks.

Between 2016, when Namibia's economic recession began, and 2019, the stock of NPLs increased by 300 per cent to N$5 billion in 2019 from N$1.2 billion, and over the same period the NPL ratio increased to 4.8 per cent from 1.5 per cent,” the statement reads.

Namibian banks have high exposure to households, with residential mortgages, personal loans and credit cards contributing about 47 per cent of total loans at year-end 2019 it said, noting that with the COVID-19 pandemic likely to increase unemployment or limit wage growth, debt service costs for households will rise, increasing their probability of default.

Debt service costs were 20.1 per cent of disposable income in 2019, up from 18.8 per cent in 2018, as debt repayments increased faster than household income.

Household income, which increased by 2.0 per cent in 2019 while debt service costs increased by 8.8 per cent will likely contract this year, the statement reads.

“Namibians banks capacity to write off some of their NPLs and reduce the stock without eroding their capital cushion is also limited by their relatively low provisioning,” said the agency. -(NAMPA)

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