The International Monetary Fund (IMF) wants Namibia to do away with the current regulation that allows people to buy their first and second homes without a deposit or down payment.
According to a credit development and macro-financial risks in Namibia report by the IMF, this will protect the banking sector from future non-performing loans (NPLs).
This is because household mortgages make up the majority of the bank’s loan book and continue to be primary contributors to NPLs in Namibia.
“Given the large share of credit to the housing sector and existing vulnerabilities, Bank of Namibia should reverse the elimination of down payments on first and secondary residential properties,” reads the report.
In 2023 the Bank of Namibia announced new amendments that replaced the old restrictions on loan-to-value ratios in 2019.
The loan-to-value ratio represents the amount of money lent to a borrower by a banking institution to purchase a property in relation to the property’s price or valuation, and the deposit required from the borrower.
The new amendment allowed those buying homes to buy their first and second homes without a deposit while mortgage loans for third and subsequent residential properties only require a 10% deposit.
In the event that the first residential property has been paid off completely, the prospective buyer will be treated as a first time buyer.
This amendment replaced one that came into effect in 2017, where first-time home buyers were not required to put up a deposit but every additional property thereafter will have an increase of 10% on the deposit amount.
According to reports from the central bank, as at the end of May non-performing mortgage loans were standing at N$3.29 billion, making up more than half of the total NPLs. This is money owed to banks by Namibians who have missed payments, indicating that they are struggling to pay off their homes. A loan is categorised as a NPL if it remains unpaid for more than 90 days (or three months).
The second largest category of NPLs is overdrafts of N$1.1 billion. Credit cards made the smallest contribution to NPLs at N$45 million.
The total NPLs stood at N$6.2 billion with the total loan book value for commercial banks standing at N$116 billion.
During the monetary policy announcement last month, the central bank said the current NPL ratio is standing at 5.4%, and is still manageable as it is not above the acceptable 6%.
The NPL ratio shows the proportion of the banking system’s loan portfolio that is currently not generating income due to borrowers failing to make scheduled payments for 90 days or more.
Executive director of finance Michael Humavindu says: “The ministry has taken note of the recommendation and will apply its mind on it.”
– shania@namibian.com.na
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