Photo: Contributed
By: Nghiinomenwa-vali Hangala
African banks are parking too much of their spare cash in government bonds, according to an assessment from Absa.
Charles Russon, who oversees Absa’s operations across the continent, revealed this to The Africa Report onstage at the Africa Financial Summit in Luanda on Wednesday 4 November.
“Too much spare liquidity is flowing into government bonds rather than the real economy,” says Russon.
Adding that sovereign debt is far from risk-free as the literature states.
According to Russon, their assessment found that in many markets, loan-to-deposit ratios sit well below 100%, he says, so “your excess cash has to go back into sovereign debt.”
He explained The Africa Report that pumping more capital into government debt is a problem for two reasons.
“The first is risk. “You often hear the statement that sovereign is zero risk,” Russon said.
Sovereign/government debt is far from zero risk,” Russon stated.
The second reason is development.
He said the banks can lend to governments to build roads, railways and dams, or they can simply buy bonds, which he calls “lazy sovereign.”
Russon rejects the idea that profit and productive lending pull against each other. As custodians of depositors’ money, he argues, banks must stick to what is “bankable and sustainable.”
Adding the commercial banks rather position their excess capital into productive assets, because growth can only be achieved when the economies the banks operate in grow.”
NAMIBIA CASE
As of the end of June this year, commercial banks’ short-term negotiable securities rose by N$6.6 billion to N$35.9 billion, largely reflecting increased investment in treasury bills, which grew by 30% to N$29.8 billion.
The 2026 Financial Stability Report has also highlighted the risks associated with government debt securities that have increased during the period under review, reflecting banks’ higher exposure to government securities, the report stated.
The report echoes the Absa findings.
Namibian Banks’ holdings of treasury bills and stocks, securities, bills and bonds issued by the Government increased from 14.6% of total banking sector assets at the end of December 2025 to 16.1% at the end of June 2026.
The increase points to a strengthening of the direct financial link between the banking sector and the sovereign, thereby increasing the sector’s exposure to potential sovereign-related shocks.
Namibia commercial banks’ loan-to-deposit ratio remains below 100%
The loan-to-deposit ratio indicates how banks are lending or extending capital through loans.
The loan-to-deposit ratio declined from 87.1% at the end of 2025 to 82.% in the second quarter of 2026, as deposit growth of 10% outpaced the 4.1% increase in loans and advances over the same period.
According to the Financial Stability Report, the stronger growth in deposits provided banks with additional capacity to fund lending activities without increasing their reliance on other sources of funding.
This development coincided with an increase in banks’ holdings of liquid assets and the improvement observed in the sector’s overall liquidity position.
Absa Bank leader has noted African banks can improve their ability to fund productive investment by 2030 by focusing more on the outputs and not input.
erastus@thevillager.com.na
