Nam financial sector stable amid economic crisis, coronavirus

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Timo Shihepo

Windhoek - Namibia’s financial sector has remained stable despite the country going through an economic crisis that has severely affected other sectors, leaving dozens of people without jobs.

The sector is also currently managing to withstand the early effects brought upon by the coronavirus (Covid-19) pandemic.

A report jointly released on Tuesday by Bank of Namibia (BoN), and Namibia Financial Institutions Supervisory Authority (NAMFISA) concluded that the Namibian financial system remained sound and resilient in 2019, despite subdued economic activity.

The report, however, acknowledges that the Covid-19 pandemic in early 2020 has increased the vulnerability of both the banking and non-banking financial sector with potential adverse implications on performance going forward.

The report assessed the stability of the Namibia financial system and its resilience to internal and external shocks, focusing on 2019, while cognizant of developments associated with the Covid-19 pandemic.

The report states that the financial system was robust in 2019 and continued to function efficiently and effectively. Both household and corporate debt increased but posed minimal threat to financial stability at the end of 2019.

“Although asset quality deteriorated further in 2019, the banking sector remained liquid, profitable and well capitalised with sufficient provisions for overdue loans. Similarly, the non-banking financial institutions sector continued to be stable and finally sound, despite subdued economic conditions. The National Payment System (NPS) remained efficient and effective. However, sentiments have become gloomy due to the spread of Covid-19 to the rest of the world,” the report states.

Further information shows that the banking sector remained robust, profitable and well capitalized despite sluggish economic conditions in 2019. The report indicates that the total assets of the banking sector continued to grow, albeit at a slower pace, with liquidity and capital in excess of the statutory minimum required.

The report states that although asset quality deteriorated from a non-performing loans ratio of 3.6% in 2018 to 4.8% in 2019, write-offs in relation to both total loans and profits slowed; coupled with growing profits as well as adequate provisions for loan losses.

The overall impact of risks to the banking sector did not appear significant during the period under review, therefore having posed no noteworthy negative impact on financial stability in Namibia. In light of the current developments, however, the probability of further downside the risks to the banking sector are high.

The impact is nevertheless estimated to be medium as relief measures are implemented and developments monitored.

The non-banking financial institutions sector assets grew by 9% in 2019, despite the domestic recessionary conditions during the period under review. The positive performance of the insurance and pension fund industries in 2019 was supported by robust financial market performances, but it is expected to change in 2020 owing to the Covid-19 pandemic.

In this regard, downside risks are projected for both the insurance and pension funds industries in 2020. Increased pressure will be particularly on pension funds, given that the industry funding levels were only slightly above the prudential limits. Effects on the insurance sector will be mitigated by the robust capital buffers in the interim, while the long-term impact for the non-banking financial institutions sector remains uncertain due to the changing dynamics of the pandemic.

The report further states that risks to Namibia’s financial stability increased in 2019, compared to 2018.

The surge in risks stemming from macroeconomic environment was mainly related to both the global slowdown and domestic economic recession, the depreciation of the Namibia Dollar against major currencies as well as the Namibia sovereign credit rating downgrade.

The probability of these risks to deteriorate further going forward is medium to high, with medium to high impact. The probability of a further increase in both household and corporate debt is high, however, the impact is projected to be medium.

The risk emanating from the banking sector asset quality and liquidity constraints are projected to increase further in 2020, however, with medium impact, should they materialize.

“Risks to the non-banking financial institutions sector as well as the payments and settlement system, are projected to remain mostly medium with medium impact. Going forward, the authorities will continue to monitor risks and adopt further policy measures to preserve the stability of the financial system, if warranted,” the report states.  

 

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