Consumer credit must be controlled – Bank of Namibia
Slamming the brakes on the raging holiday spirit, the Bank of Namibia this week said it will target the curbing of consumer credit citing several legal arrows in its arsenal.
If the Bank of Namibia has its way, the Credit Agreements Act of 1980 will soon be amended to increase the amount of deposit consumers pay when buying goods on credit.
The Governor of the central bank Ipumbu Shiimi said the bank is consulting with the Ministry of Trade and Industry – custodians of the Credit Agreements Act – and the Ministry of Finance to use the Act as a tool to reduce the prevailing high consumer indebtedness.
Shiimi said this on Thursday as the apex bank announced that annual growth in the private sector credit extension rose to 13.7% at the end of October 2013 compared to 13.3% in September due to increased demand for credit from businesses and individuals.
Figures released by the bank this week show that credit extended to individuals increased to 14.9% year-on-year at the end of October while growth in credit extension to the corporate sector increased to 11.9%.
The bank said the rate of credit expansion to individuals has remained high, thus it warrants targeted intervention.
Governor Shiimi said after a robust debate by management of the central bank, a decision was taken to use the Credit Agreements Act as a targeted intervention instead of increasing interest rates as this will not tamper with the stimulus effect of the low interest rate regime.
Amendment to the Act will likely see consumers buying goods through higher purchase agreement pay deposits of between 15% and 20% up from the 10% required by law currently.
The central bank governor said if gazetted into law, the revised deposit payments will help promote a culture of saving in addition to slowing down credit growth.
The decision to use the Credit Agreements Act to fight high individual indebtedness comes after the central bank had long said it was concerned about the rapid and unsustainable expansion of consumer loans including installment credit and overdraft facilities as it may crowd out funding for more productive activities and put unwarranted pressure on the country’s international reserves. sIn August last year, Shiimi told the Economist that:”There are various tools that one can look at to try and tame too much credit going into unproductive activities. We don’t have a single position yet; we are still thinking about it. If the situation gets better we may not do anything, but if [consumers] continue to borrow too much to finance private consumption we will be forced to act.”