Recovering from pandemic

The non-performing loans (NPL) ratio of the banking industry in Namibia improved in the third quarter of this year, declining by 0.4 percentage points to 5.7% and falling below the crisis supervisory intervention trigger point (SITP) of 6% for the first time in more than two years.

Although the NPL ratio was below the SITP at the end of September, it is important to note that the figure is a lagging indicator, the macroprudential oversight committee (MOC) of the Bank of Namibia (BoN) said following its latest assessment of vulnerabilities in the country’s financial system.

“The improved NPL ratio was on the back of the slightly better economic conditions owing to the lifting of Covid-19 restrictions. The ratio could, however, potentially deteriorate going forward if inflationary pressures and the subsequent monetary policy tightening continues,” the MOC said last week.

The committee stressed that the local banking sector remains liquid, profitable and adequately capitalised, although not performing at pre-Covid levels.

Growth in the total assets of the banking sector rose by 10.7% to reach N$161.4 billion at the end of September 2022. Further, the banking sector maintained adequate capital levels to meet the regulatory requirements and to absorb potential losses, it said.

NBFI INDUSTRY

Namibia’s non-bank financial institutions (NBFI) sector growth slowed during the review period but remained profitable and sufficiently capitalised, the MOC concluded.

Over the third quarter of 2022, NBFI assets grew marginally by 0.8% year-on-year to N$356.9 billion.

“This was the slowest annual growth since the first quarter of 2020,” the committee said.

The slower annual growth in NBFI’s assets as at the third quarter of 2022 was as a result of the effects of high inflation, recessionary pressures, and the geopolitical tension in Europe which lead to unfavourable developments in the financial markets, it explained.

The MOC said a notable gap was observed between retirement funds’ benefits paid and contributions received, with benefits paid exceeding contributions received. “It should, however, be noted that retirement funds hold sufficient reserves from which shortfalls in contributions are recoverable,” they added.

The MOC continued: “In addition, investment returns enjoyed over time are sufficient to cover the gap between benefits paid and contributions received. Thus, the retirement funds industry remained fully funded. Although, the situation requires monitoring going forward, there are no risks to financial stability in the short term.”

LTI, CIS INDUSTRIES

The long-term insurance (LTI) industry and collective investment schemes (CIS) remained solvent and stable during the period under review, the MOC said.

“The LTI industry realised a positive performance in 2022, despite the bearish financial markets. Furthermore, the LTI industry remained profitable in 2022, continuing its recovery from the losses recorded in 2021, owing to a moderation in its claims experience,” the committee elaborated.

Companies and households remain the dominant source of funds for CIS. Funds managed by CIS are primarily channelled into the domestic money market and listed debt markets.

According to the MOC, LTIs and collective investment schemes were not found to pose risks to financial stability in the short term.

Namibia’s payment system and infrastructure continue to operate efficiently, the committee said.

“The payment system has been operating effectively during 2022, with financial market infrastructures such as the Namibia Inter-Bank Settlement System (NISS) and Namclear operating optimally with no major interruptions.”

Nampay an electronic transfer system, has successfully been implemented this year, the MOC said.

“Nampay allows individuals and business to transact in a safe and speedy manner. It is worth noting that incidents of fraud remained within the safety index measures,” it added.

SOUND

The BoN in collaboration with the Namibia Financial Institutions Supervisory Authority (Namfisa), the non-banking institutions regulator, will continue to monitor risks and make the necessary interventions, the MOC said.

“The committee maintains the view that the relief measures that were implemented at the onset of the Covid-19 pandemic by the Bank of Namibia and Namfisa continue to cushion the financial system against a potentially severe impact, buttressed by domestic economic recovery,” it said.

However, the BoN will continue to monitor the impact on households and SMEs and take appropriate corrective measures if warranted.

The MOC is of the view that despite the prevailing risks and vulnerabilities, Namibia’s financial system remains sound, thus requiring no macroprudential policy interventions at this stage.

“The Bank will continue to monitor unfolding developments and when warranted, take the necessary remedial macroprudential actions with the tools at its disposal,” the MOC said.