Central Bank Hopeful That Non-Performing Loans Will Pick Up

It appears that the decision taken by the Central Bank of Eswatini (CBE) to reduce interest rates as announced on 21 July 2023, is paying dividends.

The CBE Governor, Dr. Phil Mnisi has disclosed that consumers are applying for loans from banks again.

Dr. Mnisi noted this when responding to questions posed by the media during the September 2023 Monetary Policy Statement announcement.

“The reason behind the easing of interest rates in our July Monetary Policy Meeting was to try and ease the pressure on loan repayments and general financial pressure on consumers. We believe it is having some effect as there is an uptick in loan applications.”

The Governor, however, noted that there are a number of factors that could lead to consumers failing to service their loans.

“One of the reasons consumers may struggle with loans is because when a policy position is introduced, it takes a while for it to be felt. So, as much as we reduced rates in our July 2023 meeting it might take a while for people to adjust in terms of paying their loans. In certain cases, consumers enter into agreements with their respective banks on how they service their loans, which means we might start seeing an improvement in three or even six months.”

Dr. Mnisi added, “The non-performance of loans could be isolated cases because we are talking about the overall non-performing ratio for the industry. So it could be a couple of loans that have now affected the ratio. As a result, we must be cautious not to judge and form conclusions early. It is essential that we take time before concluding that the loans are indeed non-performing,”

Worth noting is that the CBE Monthly Statistical Release for July – August 2023 noted that credit extended to households closed the month at E8.1 billion, which reflects a contraction of 0.3% month on month and 1.7% growth year on year. The Bank notes that the month-on-month reduction was driven by other personal (unsecured) and motor vehicle loans which receded by 1.0% to E3.0 billion and 0.7% to 1.0 billion respectively. Mortgage loans on the contrary improved by 0.3% to close the month under review at E4.1 billion.

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