Household debt growth slows, while corporate debt declined significantly in 2020
The annual growth in household debt slowed from 5.4% in 2019 to 4.5% in 2020, on the back of a much lower demand for short-term credit, the joint Financial Stability 2021 report by the Bank of Namibia and the Namibia Financial Institutions Supervisory Authority (NAMFISA) shows.
The ratio of household debt to disposable income increased due to subdued growth in disposable income relative to the growth in credit. Disposable income contracted by 1.7% in 2020, in contrast to growth of 1.1% registered in 2019.
“Nominal income and GDP declined, leading to an increase in debt-to-income ratios which does not bode well for financial stability; however, given lower interest rates, debt service ratios have gone down thus relieving financial pressure and reducing risks to financial stability,” the report states.
The risk of excessive household and corporate debt materialising in 2021 is viewed as having a low probability, with medium impact.
The stock of corporate sector debt contracted significantly from N$128.6 billion in 2019, to N$123.9 billion in 2020, driven mainly by inter-company borrowing and repayments made by the mining sector. The risk to financial stability of an increase in corporate debt, has declined. However, the probability of this risk materialising in 2021 is low with a medium impact.
Further, the financial system continued to function efficiently and effectively, while remaining generally sound and profitable. The banking sector remained adequately capitalised, profitable (although less so than before) and maintained liquidity levels well above the prudential requirements.
Despite a moderation in the growth rate of Non-Bank Financial Institutions’ (NBFI) assets, the sector remained financially stable and sound. The NBFI sector assets grew by 4.8% to N$341.5 billion in 2020, much lower than the 12.3% growth realised in 2019. The slower growth in total NBFI assets was mainly driven by the continued recessionary conditions, worsened by the COVID-19 pandemic, during the review period.
