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Serame reveals devastating impact of COVID-19

Minister of Finance & Economic Development Peggy Serame

Expert prediction that the impending end to government moratoriums worldwide could set off a wave of evictions and foreclosures has come to pass.

The Minister of Finance and Economic Development, Peggy Serame was speaking on the theme of repossession of immovable properties by financial institutions since the advent of COVID-19 following a question by the Member of Parliament for Bobonong, Taolo Lucas.

Lucas had asked the  Minister to state; the number of persons whose immovable properties have been repossessed by financial institutions due to failure to pay monthly premiums since the advent of COVID-19, the number of people who have defaulted from paying monthly mortgage premiums to financial institutions since the advent of COVID-19 and during the state of emergency period as well as the number of those who have defaulted to pay, out of those who have defaulted how many are earmarked for the repossessions; and if there are any efforts to stem the tide of repossessions of immovable properties by financial institutions given that failure to pay has been occasioned by the economic hardships arising from COVID-19.

In her response Serame disclosed that; “the reference period (advent of COVID-19) is confined to the period from 1st April 2020 to 31st October 2021. This is because current official statistics were not designed and collected based on the COVID-19 pandemic.

Second, “financial institutions” is defined as the eight commercial banks licensed and supervised by the Bank of Botswana and three statutory banks, namely, Botswana Building Society Limited, National Development Bank and Botswana Savings Bank. Third, the available data relates to the number of accounts, as opposed to “number of persons” as requested; in some cases one person has multiple mortgage loan accounts.”

She further observed that “as at 31st October 2021, a month after the expiry of the period of State of Public Emergency, the eight commercial banks and the three statutory banks held 402 815 loan accounts with a total value of P75.4 billion. Of these, 25 712 were for residential property, that is 6.4% at a value of P14.2 billion or 18.9 % of the total loans and advances.”

Serame enunciated that from 1st April 2020 to 31st  October 2021, a total of 184 or 1.9% of the defaulting residential property loans, valued at P136.4 million, had the collateral called upon, meaning the collateralized property was repossessed while 97 properties or 1.0%, valued at P79.1 million, were foreclosed. Foreclosure meaning that the properties were sold to recover the loan amount owed to the financial institutions.

“During the same period, a total of 42 860 loan accounts were in arrears, which means that they had defaulted on their repayment obligations, out of which 9 477 were residential property loan accounts, with a value of P437.1 million.

Out of 42 860 loan accounts which defaulted to pay, 9 477 or 22.1% were residential properties, a total of 184 properties had the collateral called upon, while 97 properties were foreclosed. This means that 87 properties or 0.9% are still earmarked for repossession.”

The minister acknowledged that repossession of residential property, especially owner-occupied residential mortgages, represents a painful experience and loss of welfare for the affected individuals or households.

This is particularly so during a period of limited or reduced income earning opportunities, such as is the case with the advent of the COVID-19 pandemic, economic depression or other natural or social disasters.

The adverse impact of the COVID-19 pandemic on the economy and individuals that undermined the ability of bank customers to repay bank loans, in accordance with agreed repayment programmes, also entailed significant risks for the safety and soundness of banks.

The most important being undermining the safety of customer deposits through failure to repay loans, notwithstanding the reasons for the default. In this regard, banks use short-term customer deposits or public funds to lend; and, in turn, loan repayments in accordance with agreed terms ensure the availability of funds to meet deposit withdrawals, as demanded by customers from time to time.

On the onset of the COVID-19 pandemic, banks, with the regulatory support and encouragement by the Bank of Botswana, afforded customers an opportunity to make rearrangements or restructuring of loan facilities, including a three to six months repayment moratorium. The broader objective was not only to assist the borrower, but also to safeguard the repayment programme and loan servicing capability and, therefore, protection of depositors’ funds.

“With regard to CEDA, I wish to state the following: 70 projects were advertised for sale in execution in the 2020/2021 and 2021/2022 financial years but all these projects had judgement obtained prior to the outbreak of COVID-19; During both financial years, a total of 11 506 businesses defaulted from monthly payments of their mortgage premiums; and A total of 188 businesses were earmarked for repossession but this happened prior to the outbreak of COVID-19 and continued to be non-performing since then.

The Agency introduced the following interventions to assist businesses in mitigating the effects of COVID-19: Moratoriums on repayments, Restructuring and rehabilitation of ailing businesses, Capitalization of defaulting accounts, Capital injection through products such as Letlhabile, COVID-19 Relief Fund, Industry Support Facility and other CEDA products,” said Serame.

According to the State of the Nation’s Housing 2021 report by the Joint Center for Housing Studies of Harvard University, income losses during lockdowns left nearly a quarter of both low-income renters  and homeowners behind on housing payments at the start of 2021. Indicating that nearly 40% of homeowners had lost income due to the pandemic, and 9% were behind on their mortgage payments.

The pandemic has highlighted how vital affordable, good-quality, and well-connected housing is to health and well-being. Indeed, the Household Pulse Surveys in the first quarter of this year show a clear relationship between the stress of being behind on housing payments and the incidence of other hardships.

For example, more than three-quarters of households that were unable to cover their rents or mortgages also struggled to pay other expenses. Some 60% of households in arrears experienced feelings of depression or anxiety, while 35% reported being in fair or poor health. Many of these households may have little recourse to get help with these health issues, with a fifth having no public or private health insurance.

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Uzair and his wife went to settle in Dubai, the latter’s birthplace. He stayed in touch and was working for a real estate company owned by Mr. Sameer Lakhani. “Our understanding is that Uzair approached Mr. Abdoola to utilize their services for any property-related interests in Dubai. He did some work for Mr.Abdoola and others in the Botswana business community,” narrates a friend of Mr Abdoola.

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