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Namibia escapes the wrath of financial crisis

by Romanus Konjore

The country’s banking sector enjoyed a relatively good financial year as we approach the end of an eventful 2011.
The Head of Corporate Communications in the Bank of Namibia (BoN), Ndangi Katoma says the local banking sector has not felt any significant effects from the on-going fiscal and financial crisis in Europe and elsewhere.
“This is because our banks are not exposed to the financial assets that have been affected by the crisis. The banking sector remained adequately capitalised, with the return of assets (ROA) and return on equity ratios of 2.5% and 23.5% respectively, at the end of December last year. Namibia’s economy expanded by 6.6% last year and growth prospects for this year have remained robust, albeit below last year’s growth rate,” Katoma said.
However, Namibia’s economy is likely to be affected should such crisis persist for longer.
Katoma said such effects are likely to be transmitted through trade linkages, especially on international commodity prices, including Namibia’s key export commodities.
He also expressed concern about the ever increasing net capital outflows from the country that continues unabated at high levels.
The net capital outflows from the country have continued to grow over the years with an outflow of N$7.1b for the first 11 months of this year alone.
The figure is slightly lower than the N$10.1b that was recorded last year  up from N$3.9 in 2008 but might overtake this amount as the festive season approaches fast.
Katoma noted that the central bank will commence with the implementation of Namibia`s financial sector strategy, which outlines measures that need to be taken to develop and deepen the local market to curb capital outflow.
Katoma conceded that the capital outflows have a potential impact of restraining the development of local markets.
He hinted that proposed amendments to Regulation 15 of the pension funds and Regulation 28 of long-term insurers, which are due for gazetting soon, will ensure that more funds are invested locally, while companies will also be required in future to invest 5% of their assets in unlisted ventures locally.
However, Katoma was cautious saying: “At the same time, Namibia has adopted a free market economy and cannot rely fully on restricting capital flows, hence, we are cognisant that the long-term solutions require that the root causes of the problem is addressed. It is understood that capital leaves our borders in search for better returns, that is, higher risk-adjusted returns that are usually associated with larger and developed investment markets.”
Quizzed why it has been difficult for members from previously marginalised communities to enter the lucrative banking and financial sectors, the BoN official said that the industry is highly specialised, complex and highly competitive.
He further said, as such, new players in the industry have to meet stringent requirements, such as a sound financial status and history, having adequate capital structure, integrity, competence to conduct and experience in conducting banking business. They should also have the ability to apply or maintain adequate, effective and proper internal control systems when conducting banking business.
A start-up capital investment of at least N$10m or an amount, which represents a percentage of the risk-weighted assets and other exposures of a banking institution as the Bank may be determined as a requirement to start a new bank.
The BoN has had 14 new applications for authority to establish a banking institution since 2000.
“To a large extent, previous applicants have been unable to meet the requirements in terms of the Banking Institutions Act,” Katoma said, adding that,
“The banking sector can be considered as the cornerstone of the financial sector due to the important roles banks play in the financial system. In addition, in most cases, failure of a banking institution is highly likely to cause disruption to the functioning of the financial system, hence economic activities.”
As such, it is important to ensure that only strong and credible applicants are licensed and that they are properly and effectively regulated and maintained. Accordingly, the Banking Institutions Act, 1998 (No. 2 of 1998, as amended) sets tough licensing requirements (minimum capital requirements, ownership, fit and proper management, financial soundness, etc).