By: Lina Amutenya
The country’s financial system is stable, resilient and sound, the Bank of Namibia has revealed in a recent report.
According to the central bank, this is despite prevailing risks and vulnerabilities.
The bank’s deputy governor, Ebson Uanguta, said the Macroprudential Oversight Committee observed that banking and non-bank financial industries continued to perform adequately and remained profitable during the first half of 2022.
“The banking industry expanded its balance sheet and remains liquid, profitable, and well capitalised, while the non-bank financial industry is reporting funding and solvency positions above the prudential limits,” Uanguta said.
Meanwhile, the domestic economy is expected to improve in 2022 and 2023, albeit slower than previously anticipated. The resilience of the domestic financial system has enabled it to withstand the impact of geopolitical tensions, inflationary pressures, tightening monetary policies and Covid-19.
According to Uanguta, the latest International Monetary Fund (IMF) Global Financial Stability Report indicates that financial conditions have tightened substantially as central banks have adopted more hawkish stances to combat inflation.
In July 2022, the IMF projected that the global economy would grow by 6.1 per cent, which is 0.4 percentage points lower than the projection made in April 2022.
This has been attributed to the tensions between Russia and Ukraine, which have driven up key commodity prices such as those of oil and grain, coupled with prolonged supply chain issues and lockdown-related losses in output.
“Despite the lower liquidity position of the banking industry, the liquidity ratio remained well above the statutory minimum, and the industry maintained adequate capital levels sufficient to meet the regulatory requirements and to absorb potential losses.
“With regard to the profitability of the sector, although both Return on Equity (ROE) and Return on Assets (ROA) trended downwards during the first half of 2022 compared to December 2021, the ratios remain above the record levels experienced in the second quarter of 2020 due to the impact of the pandemic. Overall, the Committee is of the view that slightly lower profitability is to be expected given the recent headwinds faced by the global and domestic economy,” said the deputy governor.
He added that developments are not concerning at this stage; however, the Committee will continue to monitor them going forward. Namibia’s payment system and infrastructure also remained stable and efficient.
“The payment system has been operating effectively and efficiently during the first half of 2022, with financial market infrastructures such as the Namibia Inter-Bank Settlement System (NISS) and Nam clear operating optimally.”
In addition, he said Nampay has successfully been implemented this year, which will further strengthen the efficiency and security of the system. Moreover, fraud remains within the safety index measure of 0.05 per cent.
The Non-Bank Financial Institutions (NBFI’s) also remained stable, profitable and sufficiently capitalised. NBFI assets expanded year-on-year, attributable to a combination of new business and positive returns on investment, despite a marginal decline on a quarterly basis.
Concerning the retirement funds, Uanguta noted that “the gap between benefits paid and contributions received narrowed. Nonetheless, the retirement funds’ funding position remains sound and above the regulatory requirements. The life insurance subsector remained solvent with sound reserves. Similarly, the collective investment schemes sector remained stable with no notable withdrawals. Inflation has accelerated substantially since the second half of 2021.
The year-on-year inflation rate rose to 6.0 per cent during the first half of 2022, higher than the per cent recorded at the end of December 2021.
In addition, Uanguta said that “the acceleration emanated primarily from rising housing, food and fuel prices. The inflation developments are supply-side driven, with a significant portion being imported. Notable relief measures to date include the recently announced reduction in petrol and diesel prices by the ministry of mines and energy. A continued rise in inflation could impact the performance of the financial system, Bank of Namibia will continue to monitor these developments and adopt appropriate measures.”
Growth in the private sector credit extended (PSCE) remained subdued during the period under review. Year-on-year PSCE growth stood at 3.4 per cent at the end of June 2022, higher by 2.2 percentage points when compared to December 2021. Before the pandemic, the average growth in PSCE stood at around 6.8 per cent during 2019, 3.5 per cent in 2020 and 2.4 per cent on average during 2021. Therefore, despite the growth in PSCE during the period under review, demand is still relatively low compared to pre-pandemic times.
