By:Justicia Shipena
Assets held by non-bank financial institutions (NBFIs) increased by 4.3% to N$381.8 billion during the first quarter of 2023.
An NBFI is a financial institution, such as an insurer, that does not have a full banking licence and cannot accept deposits from the public.
According to the Bank of Namibia’s governor Johannes !Gawaxab, non-bank financial institutions (NBFIs) maintained strong financial standing, with investment assets showing growth rates that matched the recovery of the financial markets.
Namfisa’s latest annual report shows that, as of 31 December 2021, the number of NBFIs registered stood at 360 microlenders, 14 long-term insurers, 14 short-term insurers, 1 reinsurer for both long- and short-term insurance, 83 active pension funds, 1 stock exchange (Namibia Stock Exchange [NSX]), 31 investment managers, 29 unlisted investment managers.
The expansion seen in the long-term insurance and retirement funds sub-sectors, he said, was primarily responsible for this increase.
This comes after the sector saw its assets stagnating at around N$357 billion at the end of the third quarter in 2022. This was due to weaker performance in the financial markets.
According to !Gawaxab, the recovery within the NBFI sector was mainly due to growth observed in the long-term insurance and retirement funds sub-sectors.
Retirement funds continued to be solvent, according to the committee, with a funding position of 101.2%, staying over the prudential limit.
After experiencing a negative first three quarters of 2022, the return on investments of retirement funds climbed to 4.6 percent in the first quarter of 2023 from 3.9 percent in the previous quarter.
“Total benefits paid continued to exceed the total contributions received. However, it is not expected that retirement funds’ viability will be affected in the short to medium-term, given the sufficiency of reserve levels.”
In addition, despite the anticipated consequences of rising living expenses on households’ disposable income, collective investment schemes also maintained stability during the first quarter of 2023, according to !Gawaxab.
Furthermore, The central bank Macroprudential Oversight Committee further indicated that even in the face of increased risks and vulnerabilities coming from both the domestic and international arenas, the Namibian financial system continues to demonstrate stability and resilience.
The committee held its first meeting of the year this week to evaluate the risks and weaknesses the Namibian Financial System faces.
“The domestic financial system continues to demonstrate stability, robustness and resilience, amidst heightened risks and vulnerabilities originating from both the domestic and global sphere,” the committee affirmed.
The committee did note, however, that risks to the stability of the global financial system rose, which put pressure on its robustness.
The committee contends that these risks are caused by several variables, such as inflationary pressures, stringent monetary policy conditions, geopolitical concerns, and slow economic growth.
“The recent occurrence of bank failures further added to the challenges faced by the banking sector in more advanced economies,” said BoN Governor Johannes !Gawaxab in a media statement this week.
Inflation has fallen in some areas as a result of central bank interest rate increases, but it is still high and beyond target in other economies, according to !Gawaxab.
In 2023 and 2024, Namibia’s real Gross Domestic Product (GDP) growth is anticipated to slow down, primarily as a result of lower global demand.
The domestic real GDP growth is forecast to drop to 3.0 percent in 2023 and to further slow down to 2.9 percent in 2024, in contrast to the robust increase of 4.6 percent witnessed in 2022.
“The recovery witnessed in the domestic economy, as well as the sound and stable financial sector, activity in the housing and construction sectors remains dampened,” he added.
The governor indicated that during the first four months of 2023, economic activity increased in industries such mining, manufacturing, wholesale and retail commerce, communication, and tourism.
The construction industry, on the other hand, has gone through extended periods of slow development and has performed below average.
This underwhelming performance, according to Gawaxab, has been made worse by the reduced credit extension, notably for the real estate industry, which has contributed to the sector’s continuous slow growth.
As a result, the committee felt it was necessary to review the current LTV restriction, which was put in place as a macroprudential instrument to control speculative conduct in the housing market.
He stated that the balance sheet growth of the banking industry remained strong and was a result of better liquidity and sufficient capital levels.
Total sector assets increased by 5.3% quarterly to N$173.2 billion in the first quarter of 2023, led by cash and bank balances as well as net loans and advances.
“The liquidity ratio of the banking sector stood at 19.1 percent during the first quarter of 2023, from 17.8 percent in the last quarter of 2022, due to diamond sales, government spending, capital inflows and subdued private sector credit extension,” he emphasised.
He added that the banking industry kept its capital levels at a level that was sufficient to meet regulatory requirements and absorb potential losses.
However, he asserted that there had been a little reduction in the Return on Equity and Return on Asset ratios, indicating lower profitability as a result of declines in the banking industry’s interest and non-interest revenue.
A modest decline in asset quality, he continued, but it was still below the supervisory intervention trigger point of 6%.
!Gawaxab added that future prospects for weaker growth and a tighter monetary policy, together with the cost of debt servicing on individuals and enterprises, could put more pressure on asset quality.
The committee considered and decided that it was crucial to recommend a policy intervention on the current LTV regulation given the macroeconomic circumstances at the time.
The bank will seek ministerial issuance of rules to operationalize the macroprudential policy adopted in this regard to support economic activity, per the applicable laws.
