Fitch Ratings recently affirmed Development Bank of Namibia Limited’s (DBN) Long-Term Issuer Default Ratings (IDR) at ‘BB-‘ and its National Long-Term Rating at ‘AA+(zaf)’. Fitch said the outlooks are stable.
Fitch said DBN’s National Long-Term Rating of ‘AA+(zaf)’ is equalised with that of Namibia and reflects the bank’s creditworthiness relative to that of issuers in South Africa and Namibia.
The government has a high propensity to support DBN, given the bank’s important policy role, 100% state ownership and significant share of government-guaranteed funding.
The DBN is Namibia’s flagship and largest policy bank and contributes to the country’s economic growth and social development. The bank focuses on financing infrastructure, developmental and large industrial projects in strategically important sectors, and, to a lesser degree, small and medium-sized enterprises (SMEs).
DBN’s impaired loans ratio increased to 33% at the end March 2023 but eased slightly by end of December 2023 due to write-offs and some recoveries. The sharp deterioration reflects DBN’s weak risk profile due to its development lending focus and weak economic conditions, due partly to the pandemic, weighing on borrowers’ repayment capacity.
The DBN’s Chief Financial Officer, Nicky Mutenda told Observer Money this week the DBN is in the process of cleaning up the loan book and anticipates the non-performing loan (NPL) ratio to stabilize in the 2028 financial year.
Observer Money (OM): What has been the cause of the high loan impairment charges and other factors that resulted in the loss of N$270m in 2023?
Nicky Mutenda (NM): The bank incurred losses totalling N$450 million over two consecutive years (FY2022 & FY 2023) due to high impairments from Non-Performing Loans (NPLs). This primarily reflects the bank’s focus on developmental lending, such as the elevated credit risk associated with pioneering industries like renewable energy. The issues concerning high NPLs reflect the current economic conditions and the repercussions of the pandemic. This perspective is reinforced by Fitch rating commentary.
OM: When will the DBN complete the cleaning up of its lending book and what does the cleaning up entail?
NM: The process of cleaning up the loan book is ongoing. We anticipate the non-performing loan (NPL) ratio to stabilize in FY2028. This involves a combined effort, revitalizing clients with long-term potential and liquidating collateral for those without such potential. Fitch said the sharp deterioration reflects DBN’s weak risk profile due to its development lending focus and weak economic conditions, due partly to the pandemic, weighing on borrowers’ repayment capacity.
OM: What was the total amount of Covid related loans issued and how many of them have been written off?
NM: The bank has approved more than N$110 million in recovery loans. None of these loans have been written off.
OM: Fitch expects that the DBN will make a profit in 2024, how much will this forecast profit be?
NM: Management forecasts profits of less than N$50 million for the 2024 financial year.
OM: Are there any plans to sell a minority stake in the DBN?
NM: There is no indication from the Shareholder of any plans to sell a minority stake in the medium term.
