Financial institutions remain resilient

STAFF REPORTER – The local banking sector remains liquid, profitable and well capitalised, but asset quality is still concerning, the Bank of Namibia (BoN) says.

Overall, Namibia’s financial system is solvent, sound and has been resilient throughout the Covid-19 pandemic and associated economic challenges, the BoN’s Macroprudential Oversight Committee (MOC) conculded at their recent meeting.

“There is no need for further macroprudential policy intervention, at this stage,” BoN governor Johannes !Gawaxab said in a statement.

Both the banking and non-banking sectors remained liquid, profitable and well capitalised. 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.

BANKS

The banking sector’s 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 stress tests indicated that the banking sector will remain solvent over the next 12 months,” !Gawaxab said.

He added: “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.”

NON-BANKING INSTITUTIONS

The non-banking financial institutions (NBFIs) recorded 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 of the impact of the pandemic on the labour market, !Gawaxab said.

“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,” he added.

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.

VULNERABILITY

The growth in private sector credit extension (PSCE) moderated to an average of 2.5% for the first ten months of 2021 when compared to the 3.7% 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, !Gawaxab said.

According to the governor, potential financial vulnerability build-up would largely emanate from adverse developments related to the Covid-19 pandemic’s impending fourth wave coupled with vaccination hesitancy.

Another vulnerability build-up observed is the government debt level which has increased above the SADC target.

“These developments warrants close monitoring going forward. 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,” !Gawaxab said.