By: Nghiinomenwa-vali Erastus
On average, a complete house in Namibia is around N$1,2 million, a price range which is beyond many, if not all salaried people. As a result, people take out mortgage loans to buy homes.
In his opinion piece last week, the Bankers Association of Namibia, Chief Executive Officer Brian Katjaerua emphasised the role of commercial banks in creating a competitive economy.
Banks have facilitated home ownership in the country, with their balance sheets dominated by mortgage loans to households.
By the end of July 2022, households owe the commercial banks N$43,3 billion for financing their houses, either for finished houses, to build, or to extend, the bank of Namibia shows.
Beyond housing financing, the banks also facilitate mobility (vehicles), studies for individuals and farming, etc.
The banks also facilitate individuals to consume beyond their current income by acquiring certain items and paying them off in the future.
By the end of July 2022, the banks advanced around N$10,3 billion to households to consume what they want or perhaps buy assets, while those households that needed urgent cash were given access to overdrafts of N$2,2 billion by the end of July.
As a result, commercial banks have advanced N$62,6 billion to households to buy their houses to consume goods they couldn’t afford with their salary alone, and acquire vehicles and other income-generating assets (investing).
“Banks, therefore, play a pivotal role in the facilitation of many individual investment decisions, which then help grow the country’s economic sectors,” wrote Katjaerua.
Banks do not only facilitate access to capital for the household but also for the business community- they also tap into the deposits held by banks.
Katjaerua said businesses borrow from banks to expand their operations or invest in new ventures, which create new jobs and assist the country’s industrialization efforts and international competitiveness.
Business expansion translates into more output, which at the aggregate level is economic growth, so the prosperity of the citizens of that country depends on income distribution.
By the end of July 2022, the business community has borrowed N$46,2 billion from commercial banks to fund their operation, expansions, and other investments.
Katjaerua indicated that through holding reserves as mandated by the law the banks lend out the rest of the funds immediately not needed.
In the process, banks create money through such lending, which is then used to purchase additional goods and services.
The additional funds generated are then deposited back into the banking system and a portion thereof again on-lent, which then creates new money, thus having a multiplier effect, he explained.
Banks have also a critical task in the facilitation of monetary policy, as set by the Bank of Namibia mostly to achieve inflation targets and stimulate economic activities, especially for low rates.
While monetary policy is set by the central bank, banks facilitate the flow (distribution) of money in the markets, said Katjaerua
He said the fundamental importance of banks to the growth of a country’s economy is that economic growth is always underpinned by financial intermediation.
The taking of deposits from depositors and lending these deposits to borrowers who can utilise it for more economic activities in which the bank plays the intermediate role.
It is estimated that over 6,000 Namibians are formally employed by banks in various roles.
Thus, many families, directly and indirectly, depend on those that are formally employed by banks.
Banks also contract various service providers to provide various services, such as cleaning, IT, security services, catering, legal and medical services etc.
The banks are also facilitating financial technology and innovation as payment systems go digitally. Email: firstname.lastname@example.org