The Namibian financial system remained resilient, withstanding the shocks of the country’s worst economic performance since independence and the pre-existing weak economic activity that was worsened by the COVID-19.
Both the Bank of Namibia Governor Johannes !Gawaxab and the Namibian Financial Supervisory Authority (NAMFISA) which regulates the non-banking sector this week said despite and eight percent shrinkage in the domestic economy and a ravaging pandemic the Namibian banking and non-banking financial sector remains on a strong footing with sound capitalisation and stability.
“The financial system continued to function efficiently and effectively, while remaining generally sound and profitable,” he said, that “the banking sector remained adequately capitalised, profitable, and maintained liquidity levels well above the prudential requirements.”
The Namibian Central bank chief said Namibian Asset quality as measured by non-performing loans (NPLs) deteriorated further in 2020, partly ascribed to unfavourable economic conditions and their resultant impact on household disposable income and business performance.
“The NPS continued to effectively contribute towards safety and reliability in payments, thus enhancing financial stability in Namibia. Household debt growth slowed, and corporate debt declined significantly in 2020 with risks to financial stability having gone down, “he said.
The Namibian central bank emphasized that the financial system’s resilience was maintained into early 2021, with the start of the rollout of vaccines in many parts of the world bringing the prospect of imminent normalisation closer.
The Namibian banking and non-banking sector however remain cognisant of probability of downside risk to financial stability emanating from liquidity constraints in the banking sector which declined in 2020, while that from asset quality deterioration remained high.
“The potential impact on financial stability originating from both liquidity constraints and asset quality deterioration in the banking sector was assessed to be medium. To mitigate the impact of the deterioration in asset quality, the Bank of Namibia implemented additional regulatory reporting and will continue to monitor heightened credit risk going forward,” he said.
He also added that despite a moderation in the growth rate of Non-Bank Financial Institutions’ assets, the NBFI sector remained financially stable and sound.
“The NBFI sector assets grew by 4.8 percent to N$341.5 billion in 2020, much lower than the 12.3 percent growth realised in 2019. The slower growth in total NBFI assets was mainly driven by the continued recessionary conditions, worsened by the COVID-19 pandemic, during the review period.
“Nonetheless, the sector’s funding and solvency positions remained above prudential requirements indicating financial soundness. Risks from the NBFIs were broadly mixed; however, going forward the probability of these risks are generally low to medium with mostly high impact should they materialize in the next review period,” he said.