by Lazarus Amukeshe

THE International Monetary Fund managing director Kristalina Georgieva is calling on commercial banks to renegotiate some loans for stressed borrowers whose businesses are affected by Covid-19.

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The call is part of the International Monetary Fund’s (IMF) policy recommendations set to help guide countries in the difficult days ahead.

Georgieva said, while it is true that some countries are harder hit than others, solidarity is needed more than ever and polices that talk to each other across the board have the ability to lessen the virus’s effect.

“While quarantining and social distancing is the right prescription to combat Covid-19’s public health impact, the exact opposite is needed when it comes to securing the global economy,” she said.

She said if commercial banks particularly are encouraged to use flexibility in existing regulations, for example by using their capital and liquidity buffers and undertake renegotiation of loan terms for stressed borrowers, the impact of the virus on business lines would be less severe.

The economic impact of the coronavirus will affect borrowers’ capacity to service loans and depress banks’ earnings, which could eventually impair bank soundness and stability, she said, but this should not mean the banks should not respond.

“Banks should be encouraged to use flexibility in existing regulations and undertake prudent renegotiation of loan terms for stressed borrowers. Loan classification and provisioning rules should not be eased, and it is critical to measure NPLs and potential losses as accurately as possible,” Georgieva said.

To support this, the IMF chief said central banks should support demand and confidence by easing financial conditions, ensuring the flow of credit to the real economy, and fostering liquidity in domestic and international financial markets.

At the moment, Namibian banks have most of their funds tied up in the properties market, standing at over N$50 billion and there is less to the very minimal ability for the Bank of Namibia to influence that.

The IMF had warned last year that Namibian banks have invested so much in non-productive sectors, leaving out small businesses and manufacturing.

This business model, the IMF had said will not support long-term economic growth nor can respond to a crisis as funds are tied up in slow-moving assets.

Georgieva said, while many governments have already taken significant steps, with major measures being announced on a daily basis — including yesterday’s bold, coordinated moves on monetary policy, more still needs to be done. 

“As the virus spreads, increased coordinated action will be key to boosting confidence and providing stability to the global economy,” she said.

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