Banks engaged on securitisation

The Bank of Namibia has engaged the banking sector to provide submissions on a securitisation process following a similar process that was conducted in January in which public scrutiny of the process was sought.

Bank of Namibia spokesperson Kazembire Zemburuka recently updated Namibian Sun on the process.

“The Bank of Namibia is at present engaging commercial banks on the draft general notice and thereafter submits the notice to the ministry [of finance] for consideration and gazetting,” he said this week.

“By way of providing context, securitisation is a process by which relatively standard loans are pooled together and sold off to a special-purpose entity or vehicle that will in turn issue marketable or tradable debt securities or debt instruments against the pooled assets to raise funding,” Zemburuka explained.

The central bank also sought public opinion on the matter when it asked for written submissions to be presented on the matter towards the end of last year. The deadline for public commentary has since passed.

In order to provide guidance to the industry, the Bank of Namibia drafted a general notice to be issued by the minister of finance that will enable securitisation transactions to be facilitated by banks and non-banks in Namibia.

“In light of this, public consultations were launched and concluded on 31 January 2017,” he said.

“By making immobilised long-term loans more liquid, securitisation could be a better way to spread the market, credit and liquidity risk to which banking institutions are exposed,” said Zemburuka.

The central bank studied the concept of securitisation in an occasional paper which was published in March 2008.

According to the occasional paper, securitisation could increase the number of investment instruments and thus contribute to the development of the financial sector.

“Moreover, securitisation could enable local authorities to raise the funds necessary for urban infrastructure development and thus increase the provision of housing,” the Bank of Namibia wrote in an occasional paper released in March 2008.

“Securitisation has its own merits and demerits. On the positive note, securitisation can serve as an alternative source of liquidity for a bank, a means for diversifying risks, a tool for managing interest rate risks. On the negative side, securitisation might aggravate the problems of asymmetric information regarding the true quality of loans. Securitisation is complicated, time consuming and expensive,” the occasional paper noted.

OGONE TLHAGE