Bank of Namibia
71 Robert Mugabe Avenue
P.O. Box 2882, Windhoek, Namibia
Tel: +264-61-283 5111
Fax: +264-61-283 5228

Bank Supervision Department

BANK OF NAMIBIA

No.1                                                                                          2010

GUIDELINE UNDER THE BANKING INSTITUTIONS ACT, 1998 (ACT NO.2
OF 1998): VALUATION OF RESIDENTIAL MORTGAGE PROPERTIES

In my capacity as Governor of the Bank of Namibia (Bank) and under the
power vested in the Bank by virtue of section 3(1)of the Banking Institutions
Act,1998 (Act No 2 of 1998), I hereby issue the guideline on valuation of
residential mortgage properties (BIG-1).

I.W. SHIMI
GOVERNOR                                                                                      Windhoek, 05 May 2010

Guideline No BIG-1
VALUATION OF RESIDENTIAL MORTGAGE PRORERTY

Arrangement of paragraphs

PART I
Preliminary

1. Short Title
2. Authorization
3. Application
4. Definitions

PART II
Statement of policy.

5. Purpose
6. Scope
7. Responsibility

PART III
Implementation and Specific Requirements

8. Regulatory Loan to value Ratio/Limit
9. Exception
10. Valuation of existing residential property
11. Valuation of new residential property
12. Taking over loan from one bank by another
13. Valuation of property financed by two or more banks
14. Valuation of property at disposal
15. Valuators and valuation reports
16. Frequency of valuation
17. Consolidation of credit facilities
18. Transitional provisions
19. Reporting requirements

PART I: PRELIMINARY

1. Short Title – Valuation of residential mortgage properties

2. Authorization - This valuation guideline is issued in terms of section 3 of the
Banking Institutions Act, 1998 (Act No 2 of 1998).

3. Application - This guideline applies to all banking institutions authorised by
the Bank to conduct banking business in Namibia.

4. Definitions – Terms used within this guideline are as defined in the Act, as
further defined below, or as reasonably implied by the contextual usage.

4.1 Acceptable collateral - means any collateral in which the lender has a
perfected security interest that has a quantifiable value.

4.2 Consolidation of credit facilities - consolidation refers to cases where
balances from other credit facilities accounts are transferred to residential
mortgage loan account as part of recovery of non-performing loan
accounts other than mortgage loans.

4.3 Construction loan – means the extension of credit for the purpose of
erecting or rehabilitating a building or other structure, including any
infrastructure necessary for development.

4.4 Fair market value – The price that a willing buyer and seller will agree
upon when they are acting freely, carefully, and with complete knowledge
of the situation.

4.5 Forced sales value – A property price that is lower than the reserve price
determined by the bank for the purpose of disposing off of a repossessed
property.

4.6 Land development loan – means an extension of credit facility for the
purpose of improving the land prior to the erection of structures (which
may include the levelling of the ground, laying or placement of sewers,
water pipes, utility cables and other infrastructure necessary for future
development).

4.7 Loan amortization schedule – means a payment plan that enables
borrowers to reduce their debt gradually through monthly payments. The
payments may be principal or interest-only. The monthly amount is based
on the schedule for the entire term or length of the loan.

4.8 Loan origination - means the time of inception of the obligation to extend
credit (i.e. when the last event or prerequisite, controllable by the lender,
occurs causing the lender to become legally bound to fund an extension of
credit).

4.9 Loan-to-value or Loan-to-value ratio (LTV) - means the relationship or
percentage, between the principal amount of a loan and the appraised
value of the property the lender is willing to finance with a mortgage.

4.10 Mortgage - means a lien on the property that secure a promise to
repay a loan. A security agreement between the lender and the buyer in
which the property is the collateral for the loan granted. The mortgage
gives the lender the right to collect payment on the loan and to foreclose if
the loan obligations are not met.

4.11 Reserve price – means a seller’s stated price for a property.

4.12 Un-serviced land loan – means an extension of credit facility for the
purpose of purchasing land that is in its natural state or unimproved land
(which requires improvement prior to its usage).

4.13 Value - means an opinion or estimate, set forth in an appraisal or
evaluation, whichever may be appropriate of the market of residential
properties. For the purpose of obtaining a loan to purchase an existing
property, “value” means the lesser of the actual acquisition cost or the
estimate of market value.

PART II: STATEMENT OF POLICY

5. Purpose – This guideline is intended to set out the minimum uniform standard
of residential mortgage property valuation practice, which all banks in Namibia
shall apply at all time. It is also intended to promote sound and prudential
banking practices on valuations of residential mortgage property.

6. Scope - This guideline applies to all residential mortgage exposures held or
reflected on a bank’s balance sheet or otherwise held or reflected as off-
balance sheet items.

7. Responsibility - The board of directors of each bank shall be responsible for
establishing policies and procedures which are adequate to ensure that all
residential mortgaged exposures fully conform to this guideline. The directors
are also responsible to cause a review and approve at least annually such
policies and procedures relating to residential property assessment.

PART III: IMPLEMENTATION AND SPECIFIC REQUIREMENTS

8. Loan to value Ratio/Limit – Banks shall establish their own internal loan-to-
value limits for residential mortgage loans. These internal limits should not
exceed the following regulatory limits.

Regulatory Limits

| Loan category | Loan to value limits (%) |
|---------------|--------------------------|
| Unserviced land & land development | 60 |
| Serviced land | 70 |
| Construction or erecting building | 100 |
| Purchasing of existing property | 100 |
| Improvement of existing property | 100 |

In an event, where banks grant loans amount above the regulatory limit, such
exposure shall be risk-weighted at 100% instead of 50%.

9. Exception – An exception from the regulatory limits shall only apply when the
excess of residential mortgage loan is secured with collateral recognised
under BID-5 for the purpose of providing capital relief.

10. Valuation of existing residential property for a new loan - Where a bank is
extending a loan to a client for the purpose of acquiring a residential property
which in turn will be used as collateral for the loan advanced, the property
must be valued. A complete valuation report signed off by the valuator must
be obtained prior to the disbursement of the loan amount.

For the purpose of this guideline, a complete valuation report is the one
detailing an assessment done physically on the inside and outside of the
property valued. Outside inspection or observation done will not be
recognised by the Bank.

11. Valuation of new residential property - In normal practice, banks are
extending loans for the construction of new residential property based on the
approved municipal plan, and where this is the case, regular valuation reports
based on the progress achieved in terms building work completed, should be
obtained from time to time to assess the quality of work performed and
facilitate the progress payment in terms of the loan agreement.

12. Taking over loan from one bank by another bank - Where an exposure is
secured by residential mortgage bond and is being taken over by another
bank, the bank wishing to take over such exposure shall cause the property
taken as collateral for that exposure to be valued. Therefore a fresh,
complete and signed valuation report should be produced by the banking
institution which is taking over the loans. However, if the banking institutions
handing over the account can produce a valuation reports that is not older
than six months, it is acceptable.

13. Valuation of property financed by two or more banks - Where a new loan
is advanced against residential property which are already financed by
another bank other than the institution extending new loans, the bank
extending the new loan shall conduct a fresh valuation of the property before
the new loan is granted.

14. Valuation of property at disposal – The following procedures shall apply to
the valuation of residential property at disposal:

i. Where an attachment order has been served on the residential property
and repossessed, the bank concerned should carry out a fresh valuation to
ascertain the value of such property regardless of whether a previous
valuation was carried out before repossession took place. In the event
where the bank intends to sell the attached property on sale in execution,
the forced sales value (FSV) shall be used.

However, under exceptional circumstances, fair market value (FMV) may
be used, for example, where the bank feels strongly that the property
bonded is worth FMV and there is evidence to that effect;

ii. Where an auction is pending and reserve price (RP) has been fixed, RP
shall be used;

iii. Where the auction has been aborted and FSV of the property is lower than
the RP, and in the absence of new RP, FSV shall be used;

15. Valuators and valuation reports – Since valuation of land and properties in
most cases are based on certain assumptions, valuators are required to
elucidate their assumptions adopted to support the value estimated and also
to allow for replication¹. Additionally, valuation reports should indicate both
the fair market value (open market value) which is normally accepted for
credit appraisal purposes, and forced sale value which is commonly used for
classification of credits and determination of specific provisions for loan
losses.

16. Frequency of valuation - For the purpose of providing credit protection,
when a bank processes any of the under mentioned transactions a valuation
should not be older than 6 months; else a fresh valuation should be obtained:

i. When further advance or additional mortgage is applied for;
ii. When repayment become arrears (90 days or more);
iii. When dispute relating to the insurance replacement value arises;
iv. When the application for the release of collateral or any additional security
is received;
v. On application for a third party bond; and
vi. On application for a subdivision of an erf.

The valuation referred to above is strictly applicable to residential properties
situated in Namibia only. For residential properties outside Namibia, then the
provision of BiD-17 will have to be followed.

¹ For the purpose of this determination, replication means that the methodology and assumption used to
arrive at the said value should be systematic such that in an event of dispute another valuator should be
able to reach to same value or close to it.

17. Consolidation of credit facilities - Transfer of debit balances from other
credit facilities other than those that are secured by residential mortgage
property to mortgage loan accounts as part of recovery or an effort to reduce
the amount of specific provisions required shall not be allowed.

18. Transitional provisions - Banks should ensure that all valuations of
residential mortgage property conducted subsequent to the issuing of this
guideline are done in accordance with this guideline.

19. Reporting requirement – a bank shall, at the end of each calendar quarter
submit to the Bank a return or information in terms of this guideline in the
format, frequency and submission date as specified by the Bank.

Questions relating to this Guideline should be addressed to the Director,
Banking Supervision Department, Bank of Namibia, Tel: 283 5040.

ANNEX A

Banks are required to submit to the Bank at the end of each calendar quarter the following information:

Description / distribution	Number
The number of residential mortgage loans granted and taken up during the calendar quarter with the loan amount up to N$500, 000-00.
" " " more than N$500, 000-00 and up to N$1,000,000-00.
" " " more than a N$1,000, 000-00 and up to N$1,500,000-00
" " " more than a N$1,500, 000-00 and up to N$3,000,000-00
" " " more than a N$3,000, 000-00
Total of residential mortgage loans granted and taken up as at quarter end........