Local banks weather NPL clouds
Asset quality weakens
Local commercial banks are dealing with total arrears of more than N$1 billion in non-performing loans for overdrafts, instalment and leasing debt.
The non-performing loan (NPL) ratio of commercial banks in Namibia increased slightly to 5.9% during the third quarter of this year, but remains below the central bank’s trigger level of 6.0%.
The uptick was on the back of consumption-based credit, particularly overdrafts, instalment sales and leases, the Macroprudential Oversight Committee (MOC) of the Bank of Namibia (BoN) has said.
The NPL ratio is the ratio of non-performing loans to total credit extended by banks, expressed as a percentage. A loan is usually classified as an NPL when it has been in arrears for 90 days and longer.
According to the BoN’s latest monetary and financial statistics, total overdraft debt at the end of October this year amounted to about N$11.6 billion, of which households owed nearly N$2.7 billion.
Instalment and leasing credit totalled around N$13.8 billion, with approximately N$7.6 billion owed by households.
Based on these states, total NPLs for overdrafts, instalment and leasing currently amount to roughly N$1.5 billion.
Resilient
Despite the increase in NPLs, the banking sector remained resilient, the BoN said.
“The banks have sufficient provisions and adequate capital to absorb potential credit losses,” the central bank said following its latest MOC meeting.
The banking sector’s total assets grew by 3.7% to N$181 billion during the third quarter of 2024, driven by increased short-term negotiable securities and net loans and advances.
The liquidity ratio stood at 19.8% during the review period, compared to 18.2% observed in the previous period. The liquidity coverage ratio refers to the proportion of highly liquid assets that financial institutions must hold to ensure that they can meet their short-term obligations and ride out any disruptions in the market.
In terms of profitability, both the return on equity and return on assets declined on a quarterly basis to 18.9% and 2.3%, respectively. This was due to a slowdown in net interest income and higher provisioning expenses, according to the BoN.
Both the Tier 1 and total risk-weighted capital ratios remained above the prudential requirement.
Interventions
Commenting on the higher NPL ratio, the BoN said it has imposed the necessary supervisory interventions to contain credit risk and will continue to monitor developments to ensure stability.
Late last month, the BoN said supervisory actions will intensify as banks approach higher risk thresholds.
When an institution's NPL ratio moves into the upper 5% band, supervisors engage proactively with management to evaluate risks and ensure effective mitigation strategies, the central bank said in a statement.
Should a bank’s NPL ratio escalate toward the 6% trigger or beyond, supervisory measures will progress to formal actions, which may include:
* Imposing higher capital requirements;
* Restricting dividend payouts;
* Limiting business expansion activities;
* Requiring commitment letters from the board of directors; and
* Issuing cease-and-desist orders.
The uptick was on the back of consumption-based credit, particularly overdrafts, instalment sales and leases, the Macroprudential Oversight Committee (MOC) of the Bank of Namibia (BoN) has said.
The NPL ratio is the ratio of non-performing loans to total credit extended by banks, expressed as a percentage. A loan is usually classified as an NPL when it has been in arrears for 90 days and longer.
According to the BoN’s latest monetary and financial statistics, total overdraft debt at the end of October this year amounted to about N$11.6 billion, of which households owed nearly N$2.7 billion.
Instalment and leasing credit totalled around N$13.8 billion, with approximately N$7.6 billion owed by households.
Based on these states, total NPLs for overdrafts, instalment and leasing currently amount to roughly N$1.5 billion.
Resilient
Despite the increase in NPLs, the banking sector remained resilient, the BoN said.
“The banks have sufficient provisions and adequate capital to absorb potential credit losses,” the central bank said following its latest MOC meeting.
The banking sector’s total assets grew by 3.7% to N$181 billion during the third quarter of 2024, driven by increased short-term negotiable securities and net loans and advances.
The liquidity ratio stood at 19.8% during the review period, compared to 18.2% observed in the previous period. The liquidity coverage ratio refers to the proportion of highly liquid assets that financial institutions must hold to ensure that they can meet their short-term obligations and ride out any disruptions in the market.
In terms of profitability, both the return on equity and return on assets declined on a quarterly basis to 18.9% and 2.3%, respectively. This was due to a slowdown in net interest income and higher provisioning expenses, according to the BoN.
Both the Tier 1 and total risk-weighted capital ratios remained above the prudential requirement.
Interventions
Commenting on the higher NPL ratio, the BoN said it has imposed the necessary supervisory interventions to contain credit risk and will continue to monitor developments to ensure stability.
Late last month, the BoN said supervisory actions will intensify as banks approach higher risk thresholds.
When an institution's NPL ratio moves into the upper 5% band, supervisors engage proactively with management to evaluate risks and ensure effective mitigation strategies, the central bank said in a statement.
Should a bank’s NPL ratio escalate toward the 6% trigger or beyond, supervisory measures will progress to formal actions, which may include:
* Imposing higher capital requirements;
* Restricting dividend payouts;
* Limiting business expansion activities;
* Requiring commitment letters from the board of directors; and
* Issuing cease-and-desist orders.
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