Economy

MBABANE - Household indebtedness in Eswatini fell to 74.3 per cent in the 2024/25 financial year, down from 79.1 per cent the previous year.

This is according to the Central Bank of Eswatini’s (CBE) annual integrated report presented by Governor Dr Phil Mnisi on Friday.

This decline means that households are carrying a lighter debt burden relative to their disposable income, reducing the risk of defaults and strengthening overall financial stability.

The report further revealed that the debt-service ratio – the share of household income devoted to repaying loans – also declined to 54.8 per cent, offering more breathing space for families.

Governor Mnisi explained that the improvement in indebtedness reflects stronger disposable incomes and a gradual easing of financial stress in the household sector. “These developments support financial stability by lowering default risks,” he said, while also warning that the predominance of unsecured loans continues to pose risks. Such loans, typically without collateral, make households more vulnerable to sudden income shocks or interest rate changes.

The fall in indebtedness marks a significant turnaround after years of rising household borrowing. Improved household financial health could boost consumer confidence, supporting domestic demand in the broader economy.

However, the central bank stressed that vulnerabilities remain, particularly in unsecured lending which continues to dominate household borrowing.

The report noted that although non-performing loans in the household sector have improved marginally, the sector remains exposed to income instability and fluctuating borrowing costs. This suggests that while the trend is positive, stability could be tested if economic conditions worsen.

In contrast to households, the corporate sector remains under considerable pressure. The report highlights that small and medium enterprises (SMEs) have continued to post losses while taking on more debt, leading to rising leverage and declining interest coverage ratios.

Larger corporations have also felt the squeeze. Their profitability dropped by a staggering 74.1 per cent, driven by escalating operational costs and shrinking revenues. Although there was a slight decline in debt-to-equity ratios, key profitability indicators such as return on equity (ROE) and return on assets (ROA) weakened further, reflecting ongoing financial stress.

The bank cautioned that these developments point to increased risks of corporate defaults, particularly if the high-cost environment persists. “Elevated debt levels and weakening profitability among corporates are contributing factors to rising default risks,” the report states.

Banking sector: Stable but facing profitability pressures

Despite challenges in both households and corporates, Eswatini’s banking sector remains adequately capitalised and financially sound. The sector’s capital adequacy ratio stayed well above regulatory requirements, underscoring resilience in terms of protecting depositors and absorbing shocks.

Full article available in our publication.

Central Bank of Eswatini Chief Operations Officer Mfanfikile Dlamini and Head Strategy and Communication Mandla Luphondvo. (Pic: Courtesy)