BoN Governor clarifies severe debt default practices

Niël Terblanché

The sale in execution of banking procedures to reduce debt owed by people, who have fallen on hard times, has left many Namibians without a roof over their heads.

Johannes !Gawaxab, the Governor of Namibia’s central bank, has responded to niggling questions about the draconian judicial steps taken against people who default on their home loans and added that the BoN has taken note of the concern that some commercial banks in Namibia purchase properties at a low cost during the sale in execution process and may omit to credit the home loan debt with the amount obtained from the sale.

Prominent legal practitioner, Advocate Richard Metcalfe in a series of letters addressed to various commercial banks and the central bank campaigned for the Bank of Namibia (BoN) to show mercy by introducing less stringent measures in an economy where people are struggling to honour their financial responsibility.

The BoN Governor’s response preceded the tabling of the Banking Institutions Bill in Parliament by the Minister of Finance and Public Enterprises, Iipumbu Shiimi that seeks to repeal the Banking Institutions Act.

If promulgated the BoN will have the authority to deal harshly with commercial banks that are contravening the Banking Institutions Act.

While introducing the bill, Shiimi stated that the banking regulatory framework should be effective and responsive to the needs of the people.

Shiimi said he introduced the bill because the BoN currently does not possess adequate powers to deal with banking institutions that are conducting their businesses in a manner detrimental to their customers.

The finance minister was of the opinion that the new bill will empower the BoN to suspend or remove directors or executive officers of banking institutions through an order, particularly in circumstances where such directors or executive officers are suspected of conducting illegal activities which are detrimental to the banking institutions.

!Gawaxab meticulously clarified the central bank’s stance on the issues highlighted by Metcalfe.

  1. Clients of commercial banks losing their homes without any mercy through High Court proceedings:

In response to the economic challenges brought about by the COVID-19 pandemic, the Bank implemented policy changes and relief measures, as outlined in the gazetted Determination on Policy Changes in Response to Economic and Financial Stability Challenges as a result of the COVID-19 pandemic: (BID-33). These measures were intended to provide support and alleviate financial difficulties faced by individuals and businesses consequent to the pandemic, which measures will remain in effect until 1 April 2024.

The pertinent credit policy measures in the above Determination include a general loan repayment moratorium of up to twenty-four (24) months for those clients under distress. The debt collection period was also extended for up to three (3) years, which avails clients time to engage banking institutions on debt restructuring and to renegotiate payment terms.

  1. Legal fees incurred by homeowners in default on their home loans:

The Bank acknowledges the financial hardships caused by high legal fees incurred by clients of banking institutions, who have defaulted on their home loan repayments. Legal fees are set out in the contract signed at the inception of the loan agreement. As such, homeowners (actual and prospective) are encouraged to thoroughly scrutinise the loan agreements before they sign such agreements.

The Bank herewith further guides that a complaints resolution mechanism to adjudicate complaints lodged by clients against banking institutions is in place. In terms of the Regulations on Unfair Terms in Transactions or Contracts between Banking Institutions and their Customers, any person may complain to the Bank against a banking institution about unfair terms contained in a loan agreement.

  1. Confiscation of homes, rules of the High Court and buying of properties by commercial banks:

The Bank takes note of the concern that some commercial banks in Namibia purchase properties at a low cost during the sale in execution process and may omit to credit the home loan debt with the amount obtained from the sale.

Section 40(4) of the Banking Institutions Act, 1998 (Act 2 of 1998) as amended, provides that “In the event of a default in the repayment of a debt or an advance referred to in subsection (3), or if the property referred to in that subsection is for any reason sold in execution or in any other way, the banking institution concerned may, subject to subsection (5) acquire such property”. The Bank is considering issuing a determination to clarify circumstances in which a banking institution may acquire a property sold in execution.

However, it is important to note that sales in execution are conducted in accordance with the Rules of the High Court. As such, whilst commercial banks have the right to bid on properties during the sale in execution, it is expected that commercial banks act responsibly and take into consideration the best interests of all parties involved, including the borrowers. The Bank further actively promotes ethical conduct within the financial sector and continuously monitors the practices of commercial banks, to ensure effective compliance with relevant regulations. That said, it is advisable that relief for the concern raised should also be addressed in terms of the High Court Rules.

  1. Concerns regarding the measures taken by commercial banks in the selling of clients’ houses and the subsequent economic consequences for the debtors:

As indicated above, sales in execution are conducted in accordance with the Rules of the High Court. Rule 110(9) of the High Court of Namibia provides as follows: “The sale of property in execution must… be sold to the highest bidder, except that if a primary home of a person is being sold in execution, the highest bid must- (a) not be less than 75% of the regional or local authority council or land valuation of the property; and (b) in the absence of a regional or local authority council or land valuation, not be less than 75% of a sworn valuation.”

In this regard, the primary residential properties are auctioned as per the High Court Rules based on the set reserve price of at least 75% of the municipal value of the property and such executions are conducted by the Deputy Sherriff of the High Court. The challenge is that loans are provided based on the market value of properties acquired. Regrettable to note, is that the valuation referred to in the High Court is not based on the market value but rather the local authority (municipal) valuation, which often does not reflect the market value of the property. In Namibia, municipal valuations are periodically conducted after the lapse of several years. As such, the valuation criteria may not take into account the actual market value of the property, causing a shortfall when properties are sold. Appreciating the concern, it may be advisable that the banking institutions’ clients keep their properties’ valuation current and place the same before the courts at the appropriate stage(s).

  1. Ministry of Justice:

The Bank, based on research outcomes, engaged the Ministry of Justice regarding aligning the sale of immovable property in the execution of a judgement with global best practice, cognisant of Namibia’s Constitutional dispensation and the protection of the equity home-owners have invested in affected properties. The Ministry has prioritised actions to ensure primary property owners receive more protection during the sale in the execution process. The Bank guides that it will be best for Metcalfe Beukes Attorneys, to further engage the Ministry to guide on progress in this regard. Given the involvement of courts, such matters cannot be interfered with by the Bank as a regulator and supervisory authority of banks.

  1. BID-33 not actioned – ‘lip service’:

Clients of banking institutions are afforded an opportunity to make repayment arrangements and/or request for a holiday moratorium to clear arrears on their accounts over a period in accordance with the Determination on the Asset Classification, Suspension of Interest and Provisioning (BID-2) and BID-33. As of the date of issuance of the Regulation (1 April 2020), banks received a total of three hundred and seventy-seven thousand, eight hundred and seventy-five (377,875) applications for holiday relief of which three hundred and seventy thousand and eight hundred and sixteen (370,816) were approved. Individuals were the sector that largely benefited from relief measures as the total applications granted, stand at two hundred and twenty-eight and eight hundred and eighty-seven (228 887) approved facilities, followed by real estate and business services and trade and accommodation entities. The industry’s value of loans approved under the moratorium stands at five billion eight hundred million Namibian Dollars
(N$5.8 billion).

  1. How clients can be assisted – EasySell initiative:

The Bank acknowledges your suggestion to adopt the EasySell program, which has been successfully implemented by Standard Bank South Africa to address the challenges faced by home loan debt defaulters in Namibia. The Bank herewith guides that the proposed offering is already available in Namibia as Standard Bank Namibia (SBN) introduced and implemented it eighteen (18) months ago. For ease of reference, we have attached the EasySell product undertaken by Standard Bank (Annexure: SBN EasySell).

The offering overall, is quite new in Namibia and is only availed to clients who defaulted on their home loan obligations. However, it should be noted that it is an option for distressed clients only and part of the particular banking institution’s rehabilitation strategies, not linked to any legal/regulatory requirements, similar to South Africa. Interested individuals are encouraged to engage with commercial banks to explore similar offerings available. For instance, other commercial banks have put measures in place such as debt restructuring and loan consolidation, where commercial bank clients are able to renegotiate flexible terms and fees, as well as loan repayment holidays.

!Gawaxab said that the BoN remains steadfast in its commitment to address the issues faced by the Namibian public and to ensure a fair and inclusive financial system for all.

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