New mortgage regulations by early next year
New measures regulating mortgage lending are likely to be in place by early next year as the Bank of Namibia looks at ways to stem elevated household debt.
Bank of Namibia Governor Ipumbu Shiimi told The Economist on Wednesday that a process is already underway to assess the possibility of increasing the loan to value ratios for mortgage lending as part of measures to control credit growth extended to the private sector.
Although growth in the Private Sector Credit Extension (PSCE) slowed to 13.8% in August from 14.8% at the end of July 2013, the bank said growth in credit extension to individuals remains elevated and requires monitoring.
Credit extended to the private sector increased by N$402.2 million in August to N$55.8 billion. With the exception of “other loans and advances”, growth in all credit categories rose at the end of August , contributing to the overall increase in Private Sector Credit.
A report by IJG Securities says the change in PSCE during the month is a reflection of strong growth in mortgage loans (up by N$210.5 million) and overdrafts (up by N$94.7million) from the corporate sector and from residents.
As part of plans to maintain their share of the housing market in the face of a pending massive public housing scheme, two of the country’s four commercial banks, recently announced the introduction of a 0% deposit on home loans which is likely to accelerate growth in Private Sector Credit Extension.
However, the announcement by Shiimi, if implemented, will put a brake on the banks’ ambitions and plans.
Shiimi said: “We are actually looking at mortgages. We are busy with an assessment right now which could look into introducing a large deposit requirement before you get a mortgage. That is what we call the loan to value ratio. In other words, if you get a loan of N$100, you need to put down either a N$10 or N$20 from your own pocket. So we are still assessing and investigating how to apply that, whether we should apply it to your first mortgage or whether we should apply that to your second mortgage. We may probably start with the second mortgage.”
“That work is currently underway so we have not reached any conclusion yet, but we are busy looking at that issue now and I think by early next year we would have reached a decision on whether we are going to implement that.” The Bank of Namibia Governor also said the central bank is concerned with a fall in foreign reserves. Foreign reserves continued to fall from N$14.8 billion in August to N$14.3 billion at the end of September after increasing by 2.9% in July.
The governor said: “Though lower than in July, reserve levels remain adequate to maintain the fixed currency arrangement and meet other international obligations. Nevertheless, the situation will receive continuous oversight going forward.” IJG Securities said the decrease in the reserve holding is attributed to net commercial banks’ purchases of the Rand, as well as government and Bank of Namibia payments abroad during the month under review.