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Nam financial stability intact despite SA banks downgrade

Fri, 23 June 2017 08:11
by Kelvin Chiringa

The downgrading of Nedbank and Standard Bank’s mother banks in South Africa will likely not have any negative consequences on Namibia’s financial stability, analysts have said.

South Africa’s top five major banks (Standard Bank, FirstRand, Absa Bank, Nedbank and Investec Bank) were recently downgraded to Baa3, one notch above sub-investment citing weakening credit. This allayed fears on the impact this will have in Namibia as Nedbank and Standard Bank have operations here.

 “Local subsidiaries of the two mentioned banks are compelled, like any other bank in Namibia, to operate within the confines of Namibia’s banking regulations and controls. The country’s central bank has structures in place to ensure compliance. So the downgrade in South Africa is unlikely to have any impact here,” says SME’s Compete Director and economic analyst Danny Meyer. Namibia’s financial stability focuses on risks and exposure in the financial system by assessing the soundness of major individual bank institutions.

According to the Bank of Namibia financial stability reflects a sound financial system, which in turn is important as it reinforces trust in the system and prevents phenomena such as a run on banks, which can destabilize an economy. However, Meyer agrees that, “The domino effect of what happens in neighbouring South Africa is a reality. So there is always a likelihood that what happens or does not happen in that country, acts or omissions on the part of that country’s government will have an impact on Namibia’s economy.”

“The same applies to all the neighbours of South Africa and even countries further afield. After all South Africa is the continent’s economic powerhouse. Fortunately this is well recognized and over the years strategies have been developed to negate or reduce an impact,” he says. According to IJG Securities Research Analyst Dylan van Wyk, despite this link to which the fate of Namibia is tied, the knock-on effects in the local financial systems would be minimal.

 “The downgrade will have limited effects on the Namibian banking system in and of itself, as the larger issue remains the challenging economic environment in South Africa. The recession in South Africa may have the effect of slower economic activity over the Southern African region, which may impact credit extension negatively,” he says. Analyst and Equity Strategist at PSG Namibia Eloise du Plessis says while the downgrade implies that these two banks’ mother banks would be forced to borrow money at higher interest rates, pension funds will bail them out.

 “It will impact the rate at which those banks borrow money but the home loan rates will not be affected. We have to understand that banks also put money everywhere. So the downgrade will not have any significant impact,” she says. At present, Bank of Namibia affirms in its latest report that generally, the financial system and markets in Namibia remained sound, profitable, and with no disruptions or disorderly functioning of key financial services, despite unfavourable domestic and global economic conditions.

“Specifically, the banking sector and the non-bank financial institutions (NBFIs) continued to be sound and well capitalised, with a consistently low level of non-performing loans (NPLs) and sufficient buffers to cushion any potential volatility in liquidity and profitability,” says the report.