CHART OF THE WEEK: Namibia's commercial bank liquidity, primary bond auction demand

Liquidity in Namibia remains at record levels, with commercial bank liquidity averaging N$8.8 billion over the last month, of which N$1.6 billion is held in the country. The strong liquidity position has been a positive driver for demand in government primary auctions as investors look for a home for the excess cash.

Demand in primary auctions, as measured by the bid-offer ratio (the total value of tender bids received divided by the total amount offered by government) has averaged 3.2x since the start of the year.

Interestingly, there has been a material uptick in auction bids relative to the amount on offer for the current calendar year. For perspective, in 2022 primary IRS bond bids totalled N$18.2 billion, while only N$8.8 billion was on offer.

In 2023, the momentum continued with total bids increasing to N$19.8 billion, while government only looked for N$7.7 billion in bonds. For the current period (the first five months - January to May 2024), total bids amounted to N$11.9 billion - an additional N$3.3 billion when compared to the same period in 2023.

This trend is expected to continue for the remainder of the year as the positive sentiment continues to drive interest in the local market. The only challenge remains that, with strong liquidity but limited available assets, pressure on price will continue to build - which will slowly make capital assets more expensive than what we have observed over the last few years.