By Staff Writer
The central bank governor Ipumbu Shiimi has cautioned that this week’s move to cut the repossession rate by 25 basis points was not spurred by a deliberate desire to allow for the settlement of Non-Performing Loans.
The Bank of Namibia cut the interest rate this week hot on the heels of the South African Reserve Bank (SARB) having cut the repo rate by 25 basis points to spur growth in the subdued South African economy.
Speaking at the announcement of the Monetary Policy Committee’s stance on the repo rate, Shiimi said the Bank of Namibia’s job was not to help people pay their loans.
He said Namibians indulged in excessive borrowing during the good times of economic stability and some were now struggling to pay their loans which has seen the Non-Performing Loans ration shooting up.
But will these pose a serious shock to the banking sector?
Shiimi said the loans were within manageable levels and could easily be absorbed by the banks.
“These are always symptoms of economic stress and there is this saying that risks build up during good times and they show up during bad times. So we were all celebrating when the economy was growing and excessively borrowing.
Now some of those borrowers are no longer able to pay back their loans that they have taken and we are starting to see that the economy has slowed down. As a result the Non-Performing Loan ratios have increased, still remaining within reasonably manageable levels.
Can the banks absorb that? We believe that the banks are able to withstand those shocks, those higher NPLs because they are prudent. They have put aside some of the profit to keep their capital levels high and therefore even if there are people who are not able to pay back they will still be able to absorb that and remain healthy and stable,” he said.
The governor expressed that the bank is thus not too overly concerned about NPLs “unless things change significantly”.
“Are we doing this (cutting repo rate) to mitigate against this? No. We don’t reduce interest rates for the sake of helping borrowers. The interest rate is actually a monetary policy tool. Our monetary policy is really aimed at protecting the one-on-one link between the Namibian dollar and the Rand.
It doesn’t look at any other metrics like NPLs and therefore we need to soften the blow to the borrowers and the banks. So if you have taken that money you should carry that responsibility,” said the governor.
The domestic economy has so far continued to register negative growth for the rest of the first half of 2019.
Mining, agriculture, retail and wholesale have all been limping with the exception of manufacturing.
Growth prospects for this year remain grim while the central bank expects the economy to bottom out only next year. The global economy has already begun to show signs of over-heating with the UK, Germany and China having slowed down.
South Africa’s honeymoon dubbed ‘Ramaphoria’ is also over.
The rand has been performing at its worst this week while job losses and company retrenchments have hit the economy hard.
“The Rand has shown some weakness over the last few days. Is it because of what is happening in South Africa? Part of it is probably because people are worried about the escalation of trade tensions and of course the Rand will be affected by such developments.
Of course South Africa as a country has got its own challenges like all of us. You are aware of the challenges with regards to power, some people are worried about that and it’s just our hope and belief that they will do what has to be done to resolve these issues so that the economy can get on a stronger footing again.
A stronger South Africa is good for Southern Africa because first of all they are our neighbour and we get a significant part of our revenue from the customs union and therefore if the economy isn’t growing that will negatively impact on the revenue,” said Shiimi.
Meanwhile, inflation in the domestic economy is expected not to soar beyond the 4.5% threshold.
Inflation is said to have weakened in July.
“On inflation, what gives us confidence that inflation will be contained? Again as we have seen that inflation for the last two years has really remained reasonably low in the region of 5% and 6% and we don’t think there are any developments in the domestic economy that will put further pressure on inflation to rise faster.
Much of the downward pressure is coming from the housing market which is helping us to contain inflation. And hopefully we will get more rain and food will not put pressure on inflation going forward,” Ipumbu concluded.