Increased Interest Rates Could Lead To Loan Defaults- FSRA

By Ntokozo Nkambule

The continuous hike in interest rates by the Central Bank of Eswatini (CBE) may have major ramifications for the credit lending industry.

According to the FSRA’s Quarterly Statistical Bulletin ended September 30, 2022, the portfolio at risk for the Eswatini Association of Savings and Credit Cooperatives (SACCOs) increased during the quarter from 7.42% as of June 2022 to 7.71% as of September 2022.

The Bulletin attributes this risk to the prevailing economic environment and an increase in interest rate hikes.

“The prevailing recessionary condition and increasing interest rates contributed to the growth in credit risk stemming from the non-performance of the loan book,” notes the FSRA’s Quarterly Statistical Bulletin.

It is worth mentioning that the CBE has recently hiked interest rates (31st of March 2023) which the FSRA report has not taken into account, so the situation may be more dire.

The CBE announced a 50 basis interest rate hike on Friday, meaning that the prime lending rate has now shot up to 10.75%, which leads to households’ disposable income being hit hard.

“The general economic slowdown has had an impact on household disposable income with potential implications for loan repayments, therefore impacting on non-performing loans,” states the FSRA report.

Interestingly, despite these challenging economic times, households continued to demand more debt, even though it was at a slower pace compared to previous quarters.

“Debt extended to households grew by a sluggish 4% on both quarter-on-quarter and year-on-year basis, mostly driven by long-term credit facilities such as loans and advances. The growth in loans and advances was largely from a book balance of retail outlets followed by DFIs than building societies and credit institutions with 32%, 10%, 4.6%, and 4% respectively.”

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