The Bank of Namibia (BoN) says Namibia’s banking system remains resilient and sound.
This assurance comes after a second US regional bank Signature Bank shut down. A third First Republic Bank has been propped up, while the first major threat since 2008 to a bank of global financial significance Credit Suisse has been averted after it was taken over by rival UBS.
BoN said with Namibia has solid capital and liquidity buffers in place to withstand risks emanating from internal and external shocks as the world reels from the closure of a number of regional banking institutions in the United States and Europe.
The central bank said it is confident that both the robust regulations and sound oversight of banking institutions in Namibia can shield local institutions from shocks that have shaken confidence in the banking system in these countries.
BoN’s governor Johannes !Gawaxab said every bank has its own story and should be treated on its merits.
!Gawaxab said what is happening with those foreign banks, which sparked the current debate, largely has to do with the exposure of those institutions to government bonds via the interest rates environment.
He said it is not a credit problem or that customers cannot repay their loans.
“Our circumstances and context are, therefore, different. We have robust rules and regulations to thank for our set of circumstances. We are duty-bound to monitor these current global developments and any spill-over effects,”he said.
However, Namibian institutions are insulated from these events, and public members can be assured of the stability and soundness of institutions.
Meanwhile, the BoN’s Director for Strategic Communications and International Relations Kazembire Zemburuka said the aim of banking sector regulation is to protect depositors’ funds, promote the banking system’s safety, ensure the fidelity of authorised financial institutions, and foster financial inclusivity.
He added that effective banking supervision systems boast suitable legal frameworks that provide regulatory institutions with the legal powers to authorise banks, conduct ongoing supervision, enforce compliance with laws, and undertake timely corrective actions to ensure banking sector stability.
“To augment the world-class regulatory and supervisory regime, the Bank recently launched the Automated Regulatory Reporting System. This regulatory toolkit is intended to support the Bank in safeguarding financial stability through proactive risk identification and mitigation,” said Zemburuka.
Zemburuka said unlike the mortgage loan crisis precipitating the 2008 global financial crisis, the current banking crisis, which originated in a regional lender in the US, is not the result of risky lending or nonperforming loans.
He added that this emanates from numerous vulnerabilities, including inadequate risk management practices.
“Which exposed the banking institutions to risks like the rapid repricing of financial instruments on account of aggressive interest rate hikes to curb stubborn inflation,” he said.
Furthermore, he said this repricing triggered a downward adjustment of their investment portfolios, with a concomitant negative impact on profits as well as liquidity in those institutions.
Zemburuka expressed that the situation in Namibia is unique, adding that banking institutions in Namibia, as of 31 December 2022, allocated only 34% of the banking sectors’ exposure to government bonds.
“Unlike one of the failed US institutions, which is estimated to have held as much as 55% of its assets in long-duration fixed income securities.”
Additionally, he noted that the local banking sector holds shorter term government instruments that enable them to ensure that their assets and liabilities tenures are aligned.
Thus, saying it makes it easier to cover any possible liquidity mismatches.
Moreover, Zemburuka added that the Namibian banking sector held a liquidity buffer of N$11.1 billion during December 2022, which he says is indicating that liquidity needs can be met.
“Despite the ongoing global developments, the Namibian banking system remains liquid and well-capitalised,” said Zemburuka.
In this vein, the central bank said the total risk-weighted assets stood at 17.0% at the end of December 2022, higher than the statutory minimum risk-weighted capital requirement of 10.0%.
Similarly, it revealed that the liquidity position of the banking sector stood at 17.8%, N$ 10.4 billion above the statutory minimum requirement.
“Maintaining adequate liquidity is a bank’s lifeline, ensuring it can honour its obligations as they become due,” Zemburuka concluded.