Thursday 17 June 2021
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Household’s indebtedness limit ability to participate in Standard Bank public equity offering

The announcement by Standard Bank Namibia to offer 81 million of shares to the public is good news. Namibians now have a chance to purchase equity in the bank.
The minimum subscription are 250 shares at the price of N$8,90 translating at a price tag of N$2225 plus other costs. The offer is in line with the requirement of the Bank of Namibia which encourages financial institutions to offer opportunities to locals to own shares. The Standard Bank is following in the footsteps of FNB Holdings, Bank Windhoek through Capricorn Investment Holdings and Letshego Holdings Namibia. The question is: are Namibians equipped to participate in these offerings?
FNB Namibia Holdings’ shares have been depreciating. In April 2019 the price per share was N$40.00.
At the end of September 2019 the price was 33.46 per share. Similarly, the Letsego Holdings Namibia’s shares depreciated from N$3.82 in April 2019 to N$3.32 in September 2019. The Capricorn Investment Holdings’ shares were stable overtime at N$16.00 but stood at N$15.98 in September 2019.
These decreases may be an indication of depressed demand. It may also be an indication of the public’s lack of literacy about equity market. Most likely Namibian households are under stress of indebtedness.
According to Daniela Marchettini of the International Monetary Fund, household debt as a percentage of net disposable income was 50 percent in 2015 in Namibia. Total mortgage loans were N$16 billion.
The Namibia Financial Stability Report of April 2019 stated that household indebtedness increased by 7.0 percent in 2018 due to increased demand for short term credits. Credit to individuals and households stood at N$ 5717million in 2018.
This translates in credit ratio to disposable income of 76.9 percent. The Namibia Financial Stability Report concluded: “… asset quality as measured  by the non-performing loans deteriorated further in 2018 partly described to unfavourable economic conditions and their concomitant impact on household disposable income”.
According to Rainer Ritter’s paper titled, “Risks developing in the financial sector (October 2019)”, non-performing loans of commercial banks stood at 4.5 percent. For Standard Bank Namibia non-performing loans is  6.16 percent of their loan book.
The Bank of Namibia introduced a financial literacy programme a few years ago. Financial literacy should have a strong component of credit and saving literacy. Borrowing should only be entertained for capital assets and not for consumption.
Borrowers should fully understand the lending terms and their implication to their income as well as the period of repayment.
In particular the concept of compound interest calculation should be well understood and its implication to the ability to repay a loan.
Many public officials have become slaves of micro-lenders.
Currently they owe N$6.5 billion to micro-lenders. Some of them take little or nothing home after the month end pay. At times they are forced to go back to micro-lenders to borrow additional amounts in order to survive.
The Ministries which subtract monthly repayments to micro-lenders should enforce strict measures as to the percentage of salary allowed for debt servicing.
In the 1970s I was assigned by the leadership of SWAPO of Namibia to work for the United Nations Secretariat in New York. At induction all the new employees were given a simple formula as how to manage their salaries.
The formula stated that if your salary is $1000 you should save $200 every month. Spend $ 300 on your mortgage or rent and $200 on your transport. The remaining $ 300 should be spent on clothing, food and education.
Perhaps this formula should be taught to new public employees to avoid them going into the debt trap.
More importantly the culture of saving should be inculcated in the national consciousness. Currently much of the savings in Namibia are contractual savings. Such savings are in pension funds and health insurance.
Though contractual savings are important ,individuals are not free to use their saving when- ever they want to invest in something. However, there are varieties of investment instruments on the market.
Most of us put our money in banks. Money may be safe in the bank, but money needs to grow. For the risky savvy individuals equity products have high risk but high return.
Standard Bank public offering is in equity participation. If one is not risky tolerant there are many other investment vehicles such as Growth Funds, Balanced Funds, Property Funds, Money Market Funds , and many other instruments. My advice to those who want to take up shares in banks, consult a broker. A broker is able to do due diligence on the institution selling shares.
While we continue to invite foreign direct investment, as Namibians we should start to invest in wealth generating businesses. We are the primary developers of our country.
Others can add to our own efforts! In meantime buy a share and save!

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