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.