Namibia Equity Brokers (NEB) investment analyst Elwis Katuwo has revealed in his latest report for 2017 that the local banking sector remained resilient from the third quarter of 2016 to the ﬁrst quarter of 2017 despite a negative growth in the economy for three consecutive quarters.
Although there has been a noted drop in private sector credit extension otherwise known as PSCE, Katuwo notes that growth in aggregate asset was 14% year on year. He says that the sector’s fundamental earnings drivers are still positive while liquidity positions have improved.
“Transactional volumes and Non-Interest Revenue (NIR) growth have remained sturdy. Banc-assurance and Wealth management gained relevance over the last ﬁve years as banks continue to diversify revenue streams, but remains relatively small as there’s hardly any shift in earnings structures,” he says. Capricorn Group laid the blame squarely at the drop in GDP numbers as having played a signiﬁcant role in stiﬂing the sector although it managed to deliver a solid performance with operating proﬁt before tax for the year ended 30 June 2017 increasing by 2.0 percent compared to the prior year.
Katuwo notes the rapid growth in Namibia’s middle class as boding well “for the further penetration of ﬁnancial services” while “the potential for wealth and personal insurance products is largely untapped.” “Growth in Namibia’s banking sector resulted in changes that affected the concentration and degree of competition in the industry. The consequence of a highly-overbanked environment in Namibia is visible and is already leading to heightened M&A activities, FNB acquiring E-Bank and TrustCo entering the banking arena after buying Fides Bank,” he says.
According to the NEB report “The total assets of the four largest commercial banks amounted to N$109.8 billion measured at 31 December 2016, up from N$96 billion the previous year.” The report further afﬁrms that FNB and CGP remain the two largest banks in Namibia with total assets amounting to N$34.1bn and N$32.3bn, respectively, followed by SBN with N$27.2bn and NBN at N$16bn.
“CGP has grown its assets fastest over three years at a CAGR 16%, FNB is the frontrunner for last year and over ﬁve years with a CAGR of 14.8% and 15% respectively. SBN and NBN have lagged in assets growth over all periods,” says Katuwo. He holds that FNB remains the market leader with 32.0% of total assets, followed closely by CGP at 30.8%. “NBN, the smallest regarding assets, increased its market share from 11.9% to 13.6% over the 5-year period.
SBN has lost signiﬁcant market share from ten years ago, from 36% to 23.6% in FY15, and is now the third biggest bank regarding assets as at December 2016,” he says. While conﬁrming that the sector massively contributes to economic growth, the NEB report indicates that the total bank assets of the four commercial banks as a percentage of GDP increased from 61.4% in 2012 to 65.3% in 2015 indicating the importance of the banking sector in the Namibian economy. “Total bank assets have been growing faster than the GDP with a 3-year CAGR of 13.6% as GDP has a 3-year CAGR of 11.3%,” he says.
Advances from the four commercial banks are the primary drivers of asset growth, says Katuwo, and they amounted to about N$83 billion while accounting for “about 75 percent of the total assets at the latest year-ends.”
“As a result, there is a high correlation between advances growth and overall asset growth than any other asset class. The typical size asset breakdown reveals the extent to which banks prioritise different asset classes in respect to strategy and size,” he says.
As far as PSCE is concerned, according to NEB, the four banks reported the following: The Bank of Namibia’s Money and Banking Report reﬂects that at N$85.8bn, December 2016 total PSCE growth slowed to 8.8% from 9.5% in November and 10.3% in October (resident PSCE fell to 8.9% from 9.3%). CGP had the largest percentage allocation of advances over ﬁve years allocating between 82% and 85%, with 82% at the end of the 2016 ﬁnancial year (FY).
FNB holding the largest by asset size had the second largest advances allocation over ﬁve years, but reduced increases contribution to 75% in FY2016 down from 77% the previous year. Before FY2016 FNB increased advances contribution for four years straight from 71% in FY2012 to 77% in FY2015. SBN and NBN had the same percentage allocated to advances in FY2014 and FY2015 at 70% and 71% respectively.
“A regression analysis revealed that there is a high correlation between aggregate asset growth and growth in four Advances’ categories, namely: Home loans, Term loans, Overdrafts and Instalments ﬁnance from FY2012 to FY2016. We found that there is particularly a high statistical signiﬁcance regarding the aggregated Asset growth related to Residential Mortgage and Instalments ﬁnance from 2012 to 2016,” says Katuwo.
He further notes that total loans and advances continued to grow in 2016, at an average rate of 15%, slower than the 16.9% rate in 2014. Advances increased from N$73.6bn to N$83bn.