Lesotho’s households are taking on more debt even as jobs disappear, incomes weaken and repayment pressures intensify. The trend is being accompanied by rising mortgage distress, deteriorating loan quality and persistent fiscal vulnerabilities, creating a convergence of risks that the Central Bank of Lesotho (CBL) says is increasing pressure on the country’s financial system.
The warning forms part of the CBL’s recently published 2025 Financial Stability Report, which frames the economy as one where vulnerabilities are no longer isolated to a single sector, but are instead building simultaneously across households, businesses and the public sector.
The central bank puts it bluntly: “Financial stability risks increased as vulnerabilities build across households, businesses, and the public sector.”
At the centre of the concern is household debt, which has continued to expand even as economic conditions have weakened.
“Household borrowing from the banking sector continued to grow despite the weak labour market, indicating rising vulnerability in repayment capacity.”
The report shows that borrowing trends were not linear but cyclical. After a decline in 2021–2022, household debt rebounded strongly in 2023, slowed in 2024 due to weaker mortgage lending, and then picked up again in 2025, driven largely by personal loans.
That shift matters.
“Therefore, the growing reliance on personal loans signals rising household indebtedness and heightened vulnerability, as unsecured borrowing is more sensitive to income shocks, highlighting increased financial stability risks.”
In other words, more households are turning to unsecured credit at a time when incomes are under pressure, a combination that typically increases default risk.
A labour market under strain
The central bank links this borrowing behaviour directly to weakening labour market conditions.
“Labour market conditions remained fragile in 2025 amid subdued economic activity, particularly in key sectors such as mining, manufacturing, and health.”
The report points to multiple shocks hitting household incomes at once. They are job losses linked to falling diamond prices, reduced export activity, and the suspension of some USAID-funded projects.
“Job losses driven by declining global diamond prices, reduced export activity, and the suspension of some USAID funded projects placed downward pressure on household incomes.”
Despite this, borrowing continued to rise — a divergence the CBL treats as a warning signal rather than a sign of resilience.
Early signs of repayment stress
The impact is already visible in credit performance.
“These pressures are reflected in a 2.5 percent increase in household non-performing loans in 2025, largely driven by mortgage loans defaults, pointing to intensifying credit risks within the household sectors.”
The deterioration is not uniform across loan types.
Mortgage-related non-performing loans have been gradually worsening, while personal loans have shown more volatility but an overall upward trend in stress levels between 2022 and 2024.
“Mortgage NPLs remained relatively moderate but trended upward over time, rising notably in 2024 and further in 2025, signaling growing stress in the housing segment.”
The CBL adds that unsecured lending remains a key pressure point. “This surge reflected delayed stress transmission from weakened household incomes and rising debt servicing pressures.”
Even where some indicators improved in 2025, risks did not disappear.
“In 2025, personal loan NPLs declined but remained elevated relative to earlier years, indicating persistent credit risk pressures in the household sector.”
Credit growth moving above trend
One of the more technical but important warnings relates to how fast household borrowing is growing relative to the size of the economy.
The central bank notes a shift from below-trend to above-trend credit expansion.
“The household credit to GDP gap increased from –0.5 percent in 2024 to 2.0 percent in 2025, marking a move from below trend to above trend credit growth.”
At the same time, household credit has deepened relative to the economy.
“Over the same period, the household credit to GDP ratio grew from 17.5 percent to 19.9 percent, reflecting deeper financial intermediation and a greater reliance on credit to support household consumption and overall economic activity.”
The CBL’s concern is not that credit is growing in itself, but that it may be growing faster than incomes can sustainably support.
“Although this increase in credit growth may bolster short term economic performance, the persistent upward trend could heighten future financial stability risks.”
Mortgage market stress builds
The same pattern of rising vulnerability is visible in residential real estate lending, where repayment pressures appear to be intensifying.
The report describes a widening mismatch between lending growth, asset quality and interest rates.
“Developments in residential lending point to mounting repayment pressures and growing vulnerabilities in the housing credit segment.”
After strong growth in 2019 and 2020, residential lending contracted in 2021, recovered briefly, and then slowed again in 2024 and 2025, a sign of cooling demand and tighter credit conditions.
At the same time, loan distress has risen sharply.
“Residential NPL growth surged dramatically in 2024, marking a clear deterioration in asset quality, before easing in 2025 but remaining elevated.”
Restructuring activity has also become more volatile, suggesting increasing stress management by lenders rather than underlying recovery.
“At the same time, restructured residential loans showed extreme volatility, with strong growth in 2020, a contraction in 2021, and a sharp negative swing again in 2024, suggesting that lenders increasingly relied on restructurings to manage borrower distress as repayment pressures intensified.”
A broader warning about financial stability
Across households and housing, the central bank sees a consistent pattern: credit is expanding in an environment where incomes remain weak, repayment capacity is under strain, and economic shocks are accumulating.
The concern is not confined to any single segment, but to the interaction between them – borrowing behaviour, labour market weakness and rising non-performing loans reinforcing each other.
The report ultimately points to a financial system where risks are becoming more interconnected, and where pressure in one part of the economy increasingly feeds into another.
Summary
- The trend is being accompanied by rising mortgage distress, deteriorating loan quality and persistent fiscal vulnerabilities, creating a convergence of risks that the Central Bank of Lesotho (CBL) says is increasing pressure on the country’s financial system.
- The warning forms part of the CBL’s recently published 2025 Financial Stability Report, which frames the economy as one where vulnerabilities are no longer isolated to a single sector, but are instead building simultaneously across households, businesses and the public sector.
- After a decline in 2021–2022, household debt rebounded strongly in 2023, slowed in 2024 due to weaker mortgage lending, and then picked up again in 2025, driven largely by personal loans.
Lesotho activist and journalist who is the Chairperson of the Media Institute of Southern Africa (MISA) Lesotho. He is an International Visitor Leadership Program (IVLP) alumnus.
Boloetse is driven by the need to protect and promote the rights of others, especially the marginalized segment of society. He rose to prominence as an activist in 2018 when he wrote to Lesotho communications Authority (LCA) asking it to order Econet Telecom Lesotho (ETL) and Vodacom Lesotho (VCL) to stop charging expensive out-of-bundle rates for data when customers’ data bundles get depleted.
