Farmers’ loan breaks still carry interest

Farmers and agricultural businesses qualifying for loan repayment breaks of up to two years may still have to pay interest on their loans under the Bank of Namibia’s (BoN) new relief measures.

Although affected borrowers can temporarily stop paying the original amount borrowed, interest may continue to accumulate during the repayment break – unless the bank and client agree otherwise in writing.

This comes as the BoN’s monetary policy committee last week increased the repo rate by 25 basis points from 6.75% to 7%.

“Interest shall accrue on the loan at the contractual interest rate, unless otherwise agreed in writing between the banking institution and the client,” BoN spokesperson Kazembire Zemburuka says.

The central bank announced the measures on Friday to help farmers and agricultural businesses affected by the foot-and-mouth disease (FMD) outbreak and El Niño-related climate conditions.

The rules were gazetted on Thursday and came into effect on the same day.

Under the new rules, commercial banks may grant qualifying borrowers repayment breaks ranging from one to 24 months on the principal amount of their loans.

The central bank has also directed banks to ensure borrowers are not left financially worse off after receiving relief.

Zemburuka says banks must consider interest rates, fees, monthly repayments and the total cost of the loan when agreeing to new repayment terms.

The rules direct that banks may not charge penalties, default interest or additional fees simply because a borrower has been granted a repayment break.

However, they may charge a once-off administration fee and certain third-party costs, provided these are explained to the client before the agreement is signed.

The relief applies to loans that were in good standing on 22 September, including business loans, equipment financing and working capital loans.

Zemburuka says the relief follows discussions between the central bank, commercial banks and the agricultural sector over the financial difficulties facing farmers.

He says the measures are intended to help farmers continue operating while reducing the financial pressure caused by FMD and climate conditions. The measures also allow banks to restructure existing loans to make repayments easier for affected clients.

This could include reducing interest rates, extending repayment periods or converting short-term loans into longer-term loans.

PROOF OF LOSS

Zemburuka says banks may provide new loans to help affected farmers and agricultural businesses recover.

However, farmers and businesses must show they will be able to repay the money as well as provide evidence that their income has been affected by the FMD outbreak or El Niño-related climate conditions. The measures also cover crop farmers, game farmers, abattoirs, auctioneers, meat processors, transport companies, feed suppliers and other businesses that depend on agriculture.

The BoN says clients whose loans have fallen into arrears because of the outbreak may also qualify for loan restructuring.

Banks must give clients written reasons when their applications are rejected.

Bank Windhoek managing director James Chapman has welcomed the central bank’s decision, saying it will help banks support farmers and agricultural businesses facing financial difficulties.

“We have been engaging the industry, and as an industry, we have been engaging the Bank of Namibia, the regulator who made the announcement this morning,” he says. Chapman says the measures will help banks provide financial relief to farmers and the wider agricultural community.

“We welcome the announcement. It will assist us to provide much-needed relief and support for clients and the agricultural and wider community,” he says.

He says Bank Windhoek is ready to assist affected clients who need financial support.

FLEXIBILITY

Namibia Agricultural Union (NAU) president Thinus Pretorius says the union wants loans offered to struggling farmers to come with repayment conditions that are easier to manage.

He says farmers are facing financial pressure because the FMD outbreak has stopped livestock sales while their daily expenses continue.

“The income stream stopped. The tap is closed. But the expenditure doesn’t stop,” he says. Pretorius says the union is looking at possible relief involving insurance, medical aid contributions and land tax.