A Proactive Approach to Responsible Lending

Due to frequent interest rate hikes and the increased cost of living, more and more Namibians are finding it difficult to keep up with their loan instalments.

On 14 June the central bank announced a third consecutive increase in the repo rate – this time by 50 basis points (bps), from 7,25% to 7,75%.

Currently, the prime lending rate is 11,50%.

Year to date, the central bank hiked the repo rate by 100 basis points, and it expects inflation to average 6,1% in 2023.

Despite persistent interest rate hikes, the Bank of Namibia has reported a surge in households’ demand for credit, which by the end of June 2023 increased by 5,3% year on year.

It is clear that mortgage loans drive credit growth, and people still see a roof over their heads as an investment.

According to the Namibia Statistics Agency (NSA), the country’s inflation slowed to 5,3% in June this year.

When it becomes difficult to pay off debts, clients must reach out to the bank and start a conversation before it is too late.

Through responsible lending practices, Nedbank Namibia can help clients regain financial stability through alternative options, like debt restructuring or debt consolidation.

RESPONSIBLE LENDING

For financial institutions like Nedbank, responsible lending involves evaluating a prospective client’s creditworthiness and viability before approving a loan.

We assess their income, expenses and credit history to make sure, as far as we can, that they are not taking on more debt than they can manage.

Existing and prospective clients have a moral obligation to consider borrowing only when they need to, and they must still be able to settle their debt despite interest rate hikes and the rising cost of living.

Furthermore, clients must clearly understand the terms and conditions of a loan. This includes interest rates, fees and repayment terms, as well their duties and commitments, like paying on time.

Responsible lending helps maintain the stability of the financial system.

Responsible lending practices support confidence in Namibia’s financial system, which encourages foreign investment and economic growth.

Investors are more willing to invest their money into a country’s financial system if it is well managed and controlled.

We believe responsible lending is crucial for the long-term viability of the bank and its clients, which is how we “see money differently”.

All financial institutions in Namibia must comply with the Financial Institutions and Markets Act (Fima), which was passed in 2021.

Under this law the Namibia Financial Institutions Supervisory Authority (Namfisa) plays the role of referee to ensure that entities follow responsible lending principles.

Namfisa also regulates responsible lending practices to make sure banks abide by the responsible lending guidelines outlined in the Fima.

Nedbank has also created internal policies and procedures to comply with Fima requirements.

Maintaining responsible lending practices can support long-term economic growth: It reduces the risk of default, and it safeguards long-term financial health by upholding ethical lending standards and creating a stable base of borrowers who can afford to repay their loans.

Furthermore, borrowers are more inclined to take out loans if they are confident in their ability to repay the loan, which promotes increased economic activity and growth.

Careless lending practices, like authorising mortgages without doing adequate affordability evaluations, cause a high rate of sub-prime mortgage defaults.

During the 2008 global financial crisis, reckless lending and borrowing behaviours by financial institutions – particularly in the United States mortgage bond market – caused a collapse in the housing market which, in turn, caused the financial system to collapse.

Financial institutions’ subsequent packaging and sale of these sub-prime mortgages as mortgage-backed securities to investors everywhere affected the world’s financial system negatively.

Although we have not had a significant financial crisis in Namibia so far, our responsible lending practices have been essential in maintaining Namibia’s financial stability and safeguarding borrowers against excessive debt.

MARKET CONDUCT POLICY

At Nedbank, the market conduct policy plays a critical role in encouraging responsible lending practices.

It specifies the values and procedures we uphold when we provide financial services. It also helps us ensure that we act morally, openly and in the best interests of our clients.

The policy places a strong emphasis on encouraging responsible lending practices by making sure our clients receive fair treatment and clear information about the loans.

This includes disclosing specifics on interest rates, costs and penalties for when they don’t pay in time.

The policy also helps employees to make sure we abide by industry norms of conduct and legal obligations.

Nedbank is committed to responsible lending and has taken several steps to ensure it abides by these guiding principles.

We have developed an affordability calculator that determines a client’s ability to repay a loan by considering their total income, total expenses and credit history.

Through this calculator, we can make sure our clients do not take on more debt than they can afford.

It also helps us to lower the danger of default and safeguards our clients against excessive debt and financial hardship.

• Erastus Haihambo is the head of personal loans at Nedbank Namibia.