Martin Endjala
The Namibian banking sector’s balance sheet growth has remained strong and reflects an improved liquidity position and adequate capital levels.
Records show that on a quarterly basis, total assets for the banking sector grew by 5.3 percent to N$173.2 billion in the first quarter of 2023. The growth was driven by cash and balances at banks as well as net loans and advances.
The liquidity ratio of the banking sector stood at 19.1 percent during the first quarter of 2023, from 17.8 percent in the last quarter of 2022, due to diamond sales, government spending, capital inflows and subdued private sector credit extension.
According to the Financial Stability and Macroprudential Oversight Director at the Bank of Namibia, Florette Nakuseraduring the Macroprudential Oversight Committee meeting held on Monday, the banking sector maintained adequate capital levels to meet the regulatory requirements and absorb potential losses.
There was, however, a marginal decline in the Return on Equity and Return on Asset ratios, indicating reduced profitability due to decreases in both interest and non-interest income earned by the banking sector.
Asset quality, as measured by the non-performing loans ratio, deteriorated slightly, but remained below the supervisory intervention trigger point of six percent.
Nakusera emphasized that the burden of debt servicing for households and businesses, along with slower growth expectations and tight monetary policy, may apply additional pressure on asset quality.
The International Monetary Fund has revised its global economic growth outlook to 2.8 percent in 2023, down from 3.4 percent in 2022, with expectations of a recovery to 3.4 percent in 2024.
The downside risks to the global economic outlook remain the debt distress in emerging markets and the implementation of stringent monetary policies to combat inflation and geopolitical tensions.
Notwithstanding the recovery witnessed in the domestic economy, as well as the sound and stable financial sector, the Committee Director said that activity in the housing and construction sectors, however, remains dampened.
Economic activity in sectors such as mining, manufacturing, wholesale and retail trade, communication and tourism improved during the first four months of 2023, compared to the same period in 2022.
This lacklustre performance is further exacerbated by the dampened credit extension particularly for the property market, contributing to the ongoing sluggish growth observed within this sector.
These developments, therefore, necessitated the Committee to reflect on the existing Loan-To-Value Ratio regulation which was introduced as a macroprudential tool to contain speculative behaviour in the housing market.
Meanwhile, the Non-Bank Financial Institutions (NBFIs) remained financially sound, with the investment assets returning at a growth rate that coincides with financial market recovery.
The assets held by the NBFIs increased by 4.3 percent on a quarterly basis to N$381.8 billion during the first quarter of 2023. The increase was mainly due to growth observed in the long-term insurance and retirement funds sub-sectors.
Retirement Funds remained solvent with a funding position at 101.2 percent, thus remaining above the prudential limit.
The return on investments of the retirement funds increased to 4.6 percent in the first quarter of 2023 from 3.9 percent recorded in the last quarter of 2022, recovering from the bearish first three quarters of 2022.
This contributed significantly to the increase in assets held by the NBFIs. Total benefits paid continued to exceed the total contributions received.
However, the Governor of the Bank of Namibia, Johannes !Gawaxab said that it is not expected that the viability of retirement funds will be affected in the short to medium term, given the sufficiency of reserve levels.
Similarly, the long-term insurance (LTIs) sub-sector remained solvent with adequate capital reserves.
The claims in the LTI sector continued to recover from the elevated levels observed in 2021, which were a result of relatively higher mortality rates attributable to the Delta Variant of Covid- 19.
The Governor said there were no significant developments in the lapses and termination of LTI policies, despite the higher costs of living exacerbated by relatively higher inflation levels and a tight monetary policy environment.
Collective investment schemes also remained stable during the first quarter of 2023, with no significant spikes in redemptions despite the expected effects of higher costs of living on households and disposable income.
The Bank will pursue Ministerial issuance of regulations to operationalise the macroprudential policy taken and communicate accordingly at a later stage. This is primarily to support economic activity.
In the meantime, the MOC will continue to carefully assess and monitor unfolding developments and, when warranted, necessary remedial macroprudential actions will be taken with the tools at its disposal.
