[Namibia] Bon Mulls Loan-to-Value Limits to Stem Housing Crisis

The Bank of Namibia (BoN) is considering the introduction of loan-to-value (LTV) limits as a macro-prudential tool to address the housing crisis in the country. LTV is the percentage of the value of a house in the form of a home loan a commercial bank will give to a second time house buyer.

If approved, the LTV will require second time home buyers to put up a deposit of at least 20 per cent, to be sourced as a loan from a commercial bank.

"Such a policy intervention will give first time home buyers a better chance of owning a home as they will be completely exempted from paying any deposits based on the newly intended policy tool called LTV. Further, the introduction of such macro-prudential policy tools will also cushion or absorb any potential losses that commercial banks may experience should the prices of homes unexpectedly decline, due to market corrections, and limit the potential social impact that such declines may have on bank depositors," explained Ndangi Katoma, Director of Strategic Communications and Financial Sector Development at BoN.

The stance from BoN comes after the International Monetary Fund (IMF) last week again expressed concern about three main policy challenges to the economy, namely, high housing prices, low level of reserves and a decline in Southern African Customs Union (SACU) revenue. An IMF team was in the country recently for annual consultations with government. Katoma added that BoN, in the March 2013 Financial Stability Report, already highlighted the need to investigate macro-prudential tools such as the loan-to-value ratios for home loans.

 Subsequently a study was conducted by the Financial Stability Committee of the Bank, and the outcome and recommendations were approved to introduce the loan-to-value ratios as a macro-prudential tool in the financial system in order to reduce the risk of exposure of the banking system to sharp declines in residential mortgage prices.

"Currently, consultation is taking place with the banking industry on the proposed regulations and implementation is expected before the end of 2015," said Katoma.

Meanwhile, Minister of Finance Calle Schlettwein last Thursday responded to the IMF report, saying some measures were already taken by the government to address some of the weaknesses in the housing market.

"One of the key risks of the housing market to the financial sector remains the overexposure of the banking sector to mortgage loans. This risk has already been identified and appropriate structure and policy actions have been put in place," said Schlettwein.

He said measures put in place include the creation of the Financial Sector Stability Committee, which consists of the Ministry of Finance, Bank of Namibia and the Namibia Financial Institutions Supervisory Authority (Namfisa).

The Financial Sector Stability Committee monitors the vulnerabilities and risks to the financial sector on a continuous basis and stress-testing is regularly done to inform appropriate policy interventions. .

"At the moment I am glad to share with you that despite overexposure of the banking sector to mortgage loans, non-performing loans have declined and remain low, below the 4.0 per cent benchmark. Overall, the financial sector remains robust and is well capitalized," noted Schlettwein. Responding to questions in parliament about the IMF mission, Schlettwein said: "The IMF does not dictate what government should do. They can only give us advice and it is up to us to decide if we will take the advice or not."

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