79% of Eswatini Households Are In Debt

EmaSwati are struggling to service their respective debts given the decreasing disposable income levels. This is according to the Central Bank of Eswatini (CBE) Financial Stability Report 2023.

The Financial Stability Report is published annually by the CBE and provides a platform to communicate with stakeholders about pertinent issues and assessments of identified risks and vulnerabilities in the financial system.

The CBE Governor, Dr. Phil Mnisi defines Financial Stability as a “condition in which the financial system-comprising of financial intermediaries, markets and market infrastructures is capable of withstanding internal and external shocks such that participants have confidence in the system.

According to the report the level of household indebtedness stood at 79.05 percent in June 2023, higher than the 68.3 percent recorded in June 2022.

The Financial Stability Report states that household income on the other hand remained strained throughout the review period, primarily due to challenging economic conditions during the ongoing recovery phase from the COVID-19 pandemic.

“Households’ disposable income remains threatened by high debt levels, debt servicing costs, and inflationary pressures. The Ukraine-Russia war, along with escalating interest rates placed substantial pressure on the household sector. Consequently, the ratio of disposable income to GDP decreased from 26.1 percent in 2022 to 21.6 in June 2023, which hit hard on lower-income households, who possess fewer financial assets and are disproportionately affected by shocks such as the COVID-19 pandemic.”

Mnisi notes that total credit extended to households by the entire financial sector increased by 7.4 percent year-on-year. Among the total credit extended, Non-Banking Financial Institutions (NBFIs) contributed 53.1 percent (E7.10 billion) in the period ending June 2023 compared to 51.0 percent observed in June 2022.

“Among the NBFIs, the Credit Financial Institutions (CFI) and Savings and Credit Cooperatives (SACCOs) accounted for 27.3 percent and 13.8 percent of the total credit, respectively. At this level, credit extension by the CFIs increased by 12.8 percent and SACCOs by 13.9 percent since the last financial stability review. Credit extended by the Building Society increased by 6.2 percent.”

“Total credit extended to households by banks in June 2023 stood at E6.26 billion, from E6.12 billion observed in June 2022. Mortgage remains the biggest lending portfolio in the household sector, constituting 45.6 percent of the total bank credit extended to households. Unsecured credit, on the other hand, accounted for 42.6 percent. Motor vehicle finance experienced notable growth of 12.6 percent to E749.79 million in June 2023 from E658.37 million in June 2022,” states the Governor in the report.

The Bank further reveals that NPLs from the banking sector as well as NBFIs (Building Society) increased by 8.2 percent when compared to June 2022. Most of the NPL growth was observed in banks’ residential mortgage portfolio than in other credit portfolios at 24.3 percent.

The Governor raises concern that the higher ratio indicates weakened resilience of both lenders and households to negative shocks, as households are finding it more challenging to service debt given the decreasing disposable income levels.

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