Commercial banks are owed roughly N$73.5 billion in loans as per the latest 2015 Bank of Namibia (BoN) statistics, The Villager has learnt.
This was an increase of N$6.1 billion from the N$67.4 billion during the 2014 financial year. During the 2015 financial period, a total of N$80.5 billion worth of deposits were made, compared to the total deposits in 2014 which stood at N$73.5 billion. This translated into a healthy loan-to-deposit ratio (LTD ratio) in 2014 and 2015 which stood at 91.7% and 92%, respectively.
Thre LTD ratio is used to calculate a lending institution's, or in this case, a commercial bank’s ability to cover withdrawals made by its customers. The Director of Strategic Communication and Financial Sector Development at the BON, Ndangi Katoma said the LTD ratios are commonly used as statistical tools to assess a bank's liquidity by dividing the bank’s total loan book by total deposit book, which is generally expressed as a percentage. Katoma added that the deposits did not exceed the amount of loans either in 2014 or 2015, based on available data.
“The Loan-to-Deposit ratio stood at 91.7 percent In September 2014, and 92 percent in September 2015. The ratio, which is below the international benchmark of 100 percent, indicates that core deposits remained sufficient to finance lending activities of banks,” he reiterated.
Katoma further stated that banks still had enough scope last year to cover their funding needs because they were still below the international benchmark of 100%. “This, however, does not mean that banks cannot borrow through other means such as issuing bonds or other debt instruments, instead of raising only deposits to finance their lending activities,” he noted.
In cases where LTD ratios are low, it would actually be very much welcomed by the regulator since this would mean that the banks are raising cheaper funding to finance their loans or lending activities, which could also make loans much cheaper for borrowers. “A healthy ratio in the Namibian context would be a ratio that is well below the international benchmark of 100%.
However, despite the statutory compliance of the industry, the trend which is coming closer to the 100% level suggests to the Bank of Namibia that the loan-to-deposit ratio warrants close monitoring,” explained Katoma. Last year November’s BON statistics showed that the Namibian banking sector’s liquidity levels decreased by N$200 million from N$3.2 billion to N$3 billion. BON said at the time that the effects of increasing the supply of credit to finance household and government borrowings had benefitted from domestic financing, and had thus reduced excess liquidity in the local financial markets over time.
There is to some extent less liquid assets available to support increased borrowing activity. Meanwhile, in the same period under review in 2013, the sector recorded liquidity levels of N$2.8b. At the time, BoN Governor Iipumbu Shiimi said this showed that the liquidity levels of the bank have therefore been within the normal ranges. BoN has not observed any liquidity crisis in the country. Since 1990, which translates to over 20 years, the Namibian financial sector achieved a N$90b growth.
In addition, the cumulative balance-sheet of the commercial banking sector in Namibia grew from N$51.5 billion in 2010 to a phenomenal N$87.2 billion in 2014, while combined assets of pension funds grew from N$10b in 1990 to over N$105b at present, the latest findings show. In 2010, the total balance-sheet of the commercial banking sector stood at N$51, 5 billion, increasing to N$67 billion by 2012, N$77 billion in 2013 and eventually N$87, 2 billion by 2014.
Not only has the balance-sheet of the banking and non-banking sector shown exceptional growth for an economy which is heavily-reliant on the importation of basic commodities with very little local production, but the commercial banking sector also kept its capitalisation stand at 4% above the minimum requirement.