By Sifiso Sibandze
The persistent soaring of borrowing costs is failing to shatter emaSwati’s dream of owning their own homes mortgage loans account for about 45.3 per cent of the total credit extended by commercial banks to households.
Credit to households by banks increased to E6.1 billion in June 2022 from E5.8 billion reported in June 2021. “Mortgage loans contributed a 45.3 per cent share while unsecured loans took 45.4 per cent of total banks’ lending to households,” the Financial Stability Report reads.
Of the E6.1 billion extended by commercial banks, about E2.8 billion was borrowed for buying homes while E3.3 billion went to the unsecured loan portfolio. According to the Central Bank, the unsecured loan portfolio is increasingly becoming more significant and now more than matches the mortgage portfolio in the lending book of banking institutions.
“Since unsecured loans are short-term in nature and are largely a consumption expenditure, it poses a source of great vulnerability for the financial sector. In this period of strained incomes and low productivity, there is an increased possibility of asset quality impairment with little or no fallback cushion,” the report further states.
Strikingly, the Governor of the Central Bank Dr Phil Mnisi highlighted in his speech that the vulnerability of the household sector intensified over the past two years because of the COVID-19 pandemic, weak economic productivity, and, in the past year, the impact of social unrest. “The vulnerabilities from the household sector have contributed to the increased susceptibility of the financial system to economic shocks,” Dr Mnisi said.
Non-banks now dominating lending space
Non-bank Financial Institutions (NBFIs) have surpassed commercial banks in lending money to the private sector. NBFIs include credit financial institutions (CFIs), savings and credit institutions (SACCOs) and building societies. Of the E17.1 billion credit extended to the private sector as of the end of September 2022, NBFIs accounted for E8.7 billion in loans to households which is 51 per cent of the total credit. This shows that commercial banks’ credit to the private sector accounts for 49 per cent (E8.4 billion).
When launching the Financial Stability Report on Thursday at Happy Valley Hotel, Governor of the Central Bank Dr Phil Mnisi cautioned the non-bank financial institutions to lend responsibly and ensure that the loans are repaid. The Governor observed that the increasing dominance of the NBFI sector in credit extension can be attributed to the growing financial intermediation activities extended by both credit financial institutions (CFIs) and savings and credit institutions (SACCOs). Dr Mnisi highlighted that CFIs and SACCOs extended credit equivalent to 20.9 and 13.0 per cent share of total credit respectively while building societies extended 12.1 per cent.
The Governor said credit extension is imperative for productivity and NBFIs are essential in filling financial needs gaps for households while supporting financial inclusion on the other hand. Concerning household sector indebtedness, the governor said it was recorded at 70.5 per cent in June 2022 from 68.9 per cent recorded in June 2021.
“Household income continued to remain under pressure throughout the review period underpinned by challenging economic conditions,” he said. The Governor observed that in the post-Covid-19 period, disposable income remains threatened by high debt levels, debt servicing costs and inflation while employee compensation has relatively remained the same.
Dr Mnisi noted that the household debt-service ratio (DSR) was recorded at 58.0 per cent in June 2022, increasing from a previously recorded 45.8 per cent in June 2021. According to the Governor, this ratio represents the household sector’s ability to meet debt repayments, given their level of disposable income.
Eswatini is open to more banks – Dr Phil
Eswatini is open to more banks, especially niche banks.
This was said by the Central Bank of Eswatini Governor Dr Phil Mnisi on Thursday during the launch of the Financial Stability Report held at Happy Valley Hotel. Dr Mnisi said the bank is currently doing a strategy reset which will clearly spell out the processes that had to be followed by the bank regarding the establishment of new banks in the Kingdom.
“We are open to niche banks like merchant or infrastructure banks but we would be vigilant in our processes as we open the banking space for more banks,” the Governor said.