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Fourth wave, rising debt pose risks to Namibian financial system

December 13, 2021
Fourth wave, rising debt pose risks to Namibian financial system

Namibia’s financial system is under threat from the impending COVID-19 fourth wave coupled with vaccination hesitancy and rising government debt, the central bank has warned.

Bank of Namibia Governor Johannes !Gawaxab said although the economy is projected to recover from a contraction of 8.5% in 2020 to a growth rate of 1.5% for the year 2021 and improve further in 2022, the economic environment remains fragile.

“These developments warrant close monitoring going forward. Given the COVID-19 pandemic, risks to the Namibian financial system remain imminent and will be monitored closely by both BoN and NAMFISA,” he said.

He also noted that the Macroprudential Oversight Committee of the Bank of Namibia had concluded that the country’s financial system is resilient and sound, therefore no need for further macroprudential policy intervention.

“Overall, the financial system is solvent, sound and has been resilient throughout the COVID-19 pandemic and associated economic challenges. Both the banking and non-banking sectors remained liquid, profitable and well capitalized,” he said.

“This bodes well for financial stability because the financial system was able to withstand the impact of the COVID-19 pandemic coupled with challenging macroeconomic conditions.”

!Gawaxab said although the overall banking sector's key performance indicators improved, asset quality remains a concern.

“The liquidity ratio increased from 15.9% in the second quarter of 2021 to 17.8% in the third quarter. Capital adequacy slowed marginally on a quarterly basis, but remained well above prudential requirements. Profitability improved and is recovering to pre-pandemic levels, as represented by the return on equity (ROE) and return on assets (ROA) ratios. The ROE ratio increased from 11.8% in the second quarter of 2021 to 13.6% in the third quarter; while the ROA ratio increased from 1.4% to 1.6% over the same period,” the Governor said.

“The stress tests indicated that the banking sector will remain solvent over the next 12 months. Of concern is the continued increase in the non-performing loan ratio during the period under review, though marginally, however the Bank is monitoring these developments closely.”

!Gawaxab said the country’s Non-Bank Financial Institutions Sector (NBFIs) remained sound and sufficiently capitalised recording a quarterly growth rate in assets of 2% between the second and third quarter of 2021, driven mainly by market returns from pension funds and new business from long-term insurance (LTI) and collective investment schemes (CIS).

“Although the pension fund industry remained solvent, there are concerns regarding benefits paid exceeding contributions received, which is as a result of the impact of the pandemic on the labour market. However, there is some comfort that the return on investments recorded a 4% growth rate, during the period under review and hence remained sufficient to cover the gap identified above. The LTI sector remained solvent with sound reserves and net premiums sufficiently covering claims. In addition, the CIS sector remained stable. The regulator will continue to monitor developments accordingly,” the Governor said.

 He said Private sector credit extended (PSCE) declined during the first ten months of 2021 compared to the corresponding period of 2020.

“The growth in PSCE moderated to an average of 2.5 percent for the first ten months of 2021 when compared to the 3.7 percent growth recorded for the same period in 2020. The slowdown is attributed to lower demand for credit by both households and businesses owing to slow domestic economic activity,” he said.

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Last modified on Tuesday, 14 December 2021 18:26
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