WINDHOEK – Since the Bank of Namibia’s (BoN’s) March 2013 release of the Financial Stability Report, the risks to the global economic recovery remain unchanged and the weaknesses in the global economy are transmitted to the Namibia economy mainly through trade and foreign direct investment channels, and foreign exchange markets, with conceivable potential effects on the real economy and financial sector in Namibia.
According to the September 2013 Financial Stability Report (FSR), which was released last Friday, BoN says on the regional front the first half of 2013 witnessed a depreciation of the South African Rand. According to BoN’s Assistant Governor, Michael Mukete, this was mainly on account of the reaction of global financial markets to statements by the US Federal Reserve that the unwinding of financial support to the financial institutions may begin sooner than previously anticipated and this news impacted on capital flows to emerging and currency markets.
The latest FSR is essentially an update on the previous report issued in March. The report uses economic and financial data available to assess the stability and resilience of the Namibian financial sector to internal and external shocks. The report further highlights specific risks stemming from the external environment, domestic household and corporate debts, performance of the banking sector, performance of the non-banking financial sector and payment and settlement systems. It concludes with policy recommendations to enhance financial stability. On the regional front, Mukete says that the output and inflation mix in Namibia remained broadly favourable for 2013, adding that the domestic economy is expected to moderate to a growth of 4.7 percent in 2013 compared to 5.0 percent in 2012. The slowdown is mainly due the prevailing severe drought affecting the primary sector. For the first half of 2013, inflation at 6.3 percent is lower compared to the Consumer Price Index (CPI) rate of 6.6 percent for the last half of 2012.
Said Mukete: “Since the review in March 2013, domestic commercial banking institutions remain sound, profitable and adequately capitalized. However, some structural patterns of the balance sheets require monitoring. The banking institutions assets are highly concentrated in long-term mortgage loans, and as such the situation needs continuous monitoring in light of the high level of household indebtedness.” Since the last issuance of the FSR, household indebtedness stabilised although the level remains high by regional and international standards. This stabilisation is mainly due to improved household disposable income levels. The main risk in this sector emanates from the debt-servicing ratio, which remains high, despite the historically low interest rates environment.
“Going forward, household debt levels warrant monitoring,” cautioned Mukete. The corporate debt to GDP ratio has increased from 41 percent at the end of 2012, to an estimated 45 percent at the end of the second quarter of 2013. This increase was on account of strong growth in foreign debt, partly attributed to new borrowing and ongoing Namibia dollar weakness against major currencies. The increase in overall levels of debt, particularly foreign debt warrant monitoring. Foreign debt is used by export-oriented corporates that earn foreign exchange, which is crucial for the external debt servicing. GiveN that, its current levels may not pose a major problem to the financial stability of the country in the medium-term.
“Non-banking financial institutions (NBFIs) balance sheets appear to be robust and growing. However, since these financial intermediaries are net creditorS in relation to the rest of the world, NBFIs are exposed to the headwinds of international finance. The existing prudential regulations reduce their exposure to offshore markets with a large share of the funds invested locally and within the Common Monetary Area,” added Mukete.
By Staff Reporter