Billions in loans ‘non-performing’

Jo-Maré Duddy – Non-performing loans at commercial banks in Namibia exceeded N$6 billion at the end of September last year, an increase of more than N$1 billion compared to September 2019.

According to the latest data on the website of the Bank of Namibia (BoN), 6.4% of the total gross loans at commercial banks were non-performing loans (NPLs) at the end of the third quarter of 2020.

This is the highest figure on the BoN’s web records on banking sector soundness dating back to the turn of the century. The closest ratio to this was 5.6%, which was recorded in the second quarter of 2001.

In accordance with international financial reporting standards (IFRS), banks regard a loan as an NPL when the borrower hasn’t paid made payments on the interest or principal debt for more than 90 days.

According to BoN statistics, loans and advances totalled nearly N$92.4 billion at the end of September 2020, of which 6.4% were NPLs. In September 2019, loans and advances totalled nearly N$89.5 billion and 4.7% were classified as NPLs.

ASSET QUALITY

Generally, banks consider a ratio of NPLs to gross advances below 3% as favourable, PSG Namibia says in their latest Banking Review. Capricorn Group (with Bank Windhoek as its flagship brand), FirstRand Namibia (of which FNB Namibia is a subsidiary), Nedbank Namibia Holdings and Standard Bank Namibia are included in the review.

Most of the banks reviewed have NPL ratios higher than the acceptable 3%, which is partly due to impact of IFRS 9, PSG says.

A gradual increase in the ratio over time reflects a deterioration in the quality of the loans, the analysts add.

Namibia entered is recurrent recessionary cycle in 2016. BoN data shows that 1.6% of total gross loans were classified as NPLs at the end of 2015. At the end of 2016, the figure was 1.5%. A year later it rose to 2.5% and at the end of 2018 it was 3.6%.

BoN statistics show a significant increase in the ratio from the end of March last year when Namibia went into lockdown to try and curb the spread of Covid-19.

At the end of the first quarter, 5.2% of total gross loans were NPLs. Three months later it rose to 5.7%, and at the end of the third quarter the ratio was 6.4%.

‘ONGOING DIFFICULTY’

Cirrus Securities says the stats indicate “that there is ongoing difficulty, and more loans are likely to be impaired, despite efforts by the banks to provide relief (whether in terms of payment holidays or loan renegotiations)”.

“The increase in loan defaults were not only an indication the weakening macro environment, but also that banks would be in for a more difficult time ahead,” Cirrus says in their latest Economic Outlook.

The analysts continue: “Given the uptick in NPLs in an increasingly risky credit environment, the aggregate banking industry increased provisioning in 2020. However, we believe some commercial banks will need to increase their impairments and provisioning further to reflect bank-specific risks.”

Although banks provided aid at the start of the lockdowns in April, payment holidays were generally only scheduled for six months, Cirrus points out. “Most borrowers would therefore have needed to start repaying their facilities in a challenging operating environment.”

According to Cirrus, this could potentially lead to further increases in NPLs and higher impairment charges.

“Namibian banks are therefore expected to, again on a case-by-case basis, extend further payment holidays where needed,” Cirrus says.

OVERDUE

“As households and businesses struggled in the stagnating economy prior to Covid-19, Namibia’s banking industry faced a rapid increase in loan defaults,” Cirrus says.

The analysts looked total loans overdue, but not regarded as NPLs yet.

“At the end of 2017, approximately 4.1% of total loans were overdue. By the end of 2018, this had nearly doubled to 7.5%. This worsened to 8.8% in 2019,” Cirrus says. At the end of September 2020, the figure was 9.7%.

“This was a notable concern, signalling that there was significant vulnerability in the Namibian economy,” Cirrus says, adding that “much of the defaults came from mortgage loans, a sector the banks were heavily exposed to and which had become increasingly risky”.