Deduction code halt poses risk to Letshego

The government’s planned suspension of the deduction code from 30 November is expected to disrupt Letshego Namibia’s business model, which relies heavily on deduction at source (DAS) loans, according to institutional researcher Kara van den Heever of Simonis Storm.

Van den Heever says 110 607 loans originated via DAS in the 2024 financial year, representing N$5.2 billion, or 96% of Letshego’s total loan book.

“A substantial share of this is attributable to government employees, Namibia’s largest employer,” she said.

Van den Heever said DAS has historically reduced default risk and given Letshego a structural advantage.

“This advantage may now be challenged,” she said.

Two scenarios could play out, she said.

“First, affected clients could be migrated to a debit order repayment structure. This would materially increase Letshego’s administrative burden and is likely to result in an increase in non-performing loans, as the default risk now rests more heavily with the lender.”

This outcome, she said, would directly impact Letshego’s main revenue driver and could force a repricing of risk by the market.

Van den Heever said alternatively, Letshego may absorb the costs of running the deduction system to preserve the current model.

“This approach could help maintain asset quality, but would introduce new costs to the business. The key question becomes whether the issue is the principle of DAS itself or the government’s willingness to bear its administrative costs.”

DAS loans dominate Letshego’s portfolio, making up 96% of the total loan book in 2024, compared with 3% for affordable home loans and 1% for personal loans.

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