Chamwe Kaira
Simonis Storm Securities analyst Kara van den Heever says the suspension of the Deduction Code, effective 30 November, raises concerns for Letshego Namibia because a large portion of its Deduction at Source (DAS) model depends on this system.
On 28 August, government employees were informed that the Deduction Code would be suspended. Van den Heever said the impact could be significant.
“To put the scale into context, as of the 2024 financial year, 110 607 loans were originated via DAS. While not all of these loans relate to government employees, the government remains Namibia’s largest employer, which allows us to reasonably assume that a substantial share of the DAS loan book, valued at N$5.2 billion for the 2024 financial year, is attributable to this segment,” she said.
She noted that Simonis has long raised concerns about the sustainability of Letshego’s DAS-driven model.
“Microlenders typically accept higher credit risk in exchange for elevated yields. DAS has historically allowed Letshego to significantly reduce default risk, providing the company with a structural advantage. This advantage may now be challenged. We have reached out to management for comment and clarity on the company’s strategy in light of this announcement, but no response has been received as yet. We see two potential scenarios emerging,” she said.
Van den Heever said one scenario would be migrating affected clients to a repayment system using debit orders.
“This would materially increase Letshego’s administrative burden given the size of the DAS book. More importantly, this is likely to result in an increase in non-performing loans, as the default risk now rests heavily with the lender. This outcome would negatively impact Letshego’s key revenue driver and could lead to a repricing of risk by the market, “ said Van den Heever.
She said the second scenario would be for Letshego to absorb the cost and administer the deduction system to maintain the model in its current form.
“This approach could help preserve asset quality but would introduce new costs to the business. The key question becomes whether the issue is the principle of DAS itself or the government’s willingness to bear its administrative costs.”
Simonis maintains a hold rating on Letshego Holdings Namibia shares, with a potential downside of 2.9% for the 2025 financial year.
“This view is driven solely by fundamentals and excludes the impact of the Deduction Code suspension due to a lack of clarity. As more information emerges, we will reassess our position,” Van den Heever said.
