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No policy intervention for domestic financial system

2022-12-12  Edgar Brandt

No policy intervention for domestic financial system

Edgar Brandt

There is no need at this stage for macroprudential policy intervention in Namibia’s financial system. This is because the system in terms of the banking and non-banking industries remains liquid, profitable and well-capitalised, while the critical payment infrastructure operated efficiently.

The central bank will continue to monitor unfolding developments and when warranted, take the necessary remedial macroprudential actions with the tools at its disposal.

This is the verdict following a comprehensive analysis provided by the Bank of Namibia’s (BoN’s) Macroprudential Oversight Committee, which held its second meeting of the year on 8 December 2022.

The committee met to assess vulnerabilities of the domestic financial system. As such, the committee determined the domestic financial system remains stable, robust and resilient to withstand elevated risks and vulnerabilities emanating from the global and domestic economic and financial environment.

However, the committee cautioned that going forward, inflationary pressures emanating from geopolitical tensions requires close monitoring, as this could undermine economic recovery and negatively impact the overall health of the financial system.

Legislation provides BoN with the responsibility of macroprudential oversight and the coordination of activities to safeguard financial stability.

The Macroprudential Oversight Committee (MOC), an internal committee at the bank, was established to support the central bank in implementing the macroprudential mandate and exercise macroprudential decision making powers.

As part of their analysis, the Macroprudential Oversight Committee reviewed the overall state of global and domestic financial stability, paying particular attention to the developments and risks to the Namibian financial system.

“The banking and non-banking industries continued to perform adequately and remained profitable for most of 2022 as observed in the third quarter data.

“Moreover, the banking industry remains liquid and well capitalised, while the non-banking industry is reporting funding and solvency positions above the prudential limits,” read a statement from BoN’s deputy governor Ebson Uanguta.


Banking sector

Growth in the total assets of the domestic banking sector rose by 10.7% to reach N$161.4 billion at the end of September 2022. Further, the banking sector maintained adequate capital levels to meet the regulatory requirements and absorb potential losses.

The non-performing loans (NPL) ratio has improved, declining further by 0.4 percentage points to 5.7% during the third quarter of 2022.

“Although the ratio is below the Crisis Supervisory Intervention Trigger Point (SITP) for the first time in more than two years, it is important to note that the NPL ratio is a lagging indicator. The improved NPL ratio was on the back of the slightly better economic conditions owing to the lifting of Covid-19 restrictions. The ratio could, however, potentially deteriorate going forward if inflationary pressures and the subsequent monetary policy tightening continues,” Uanguta stated.


Non-Bank Financial Institutions

Moreover, the Non-Bank Financial Institutions (NBFI) sector growth slowed during the review period but remained profitable and sufficiently capitalised.

Over the third quarter of 2022, NBFI assets grew marginally by 0.8% year-on-year to N$356.9 billion. This was the slowest annual growth since the first quarter of 2020.

“The slower annual growth in NBFI’s assets as at the third quarter of 2022 is as a result of the effects of high inflation, recessionary pressures and the geopolitical tension in Europe, which lead to unfavourable developments in the financial markets.

“Furthermore, a notable gap was observed between retirement funds’ benefits paid and contributions received, with benefits paid exceeding contributions received. It should, however, be noted that retirement funds hold sufficient reserves from which shortfalls in contributions are recoverable,” stated Uanguta.

The deputy governor added that investment returns enjoyed over time are sufficient to cover the gap between benefits paid and contributions received.

This means the retirement funds industry remained fully-funded and the central bank is of the view that although the situation requires monitoring going forward, there are no risks to financial stability in the short-term.

Furthermore, the long-term Insurance (LTI) industry and Collective Investment Schemes (CIS) remained solvent and stable during the period under review.

The LTI industry realised a positive performance in 2022, despite the bearish financial markets. Furthermore, the LTI industry remained profitable in 2022, continuing its recovery from the losses recorded in 2021, owing to a moderation in its claims experience.

Companies and households remain the dominant source of funds for CIS. Funds managed by CIS are primarily channelled into the domestic money market and listed debt markets.

LTIs and collective investment schemes were not found to pose risks to financial stability in the short term. Then, both Namibia’s payment system and its infrastructure continue to operate efficiently.

The central bank reports the payment system has been operating effectively during 2022, with financial market infrastructures such as the Namibia Inter-Bank Settlement System (NISS) and Namclear operating optimally with no major interruptions.

Nampay an electronic transfer system has successfully been implemented this year. Nampay allows individuals and business to transact safely and speedily .

It is worth noting that incidents of fraud remained within the safety index measures. Uanguta noted: “The Bank of Namibia, in collaboration with NAMFISA, the non-banking institutions regulator, will continue monitoring risks and making the necessary interventions.

“The committee maintains the view that the relief measures that were implemented at the onset of the Covid-19 pandemic by the Bank of Namibia and NAMFISA continue to cushion the financial system against a potentially severe impact, buttressed by domestic economic recovery. However, the Bank will continue to monitor the impact on households and SMEs and take appropriate corrective measures if warranted”.


Revised growth

Meanwhile, the central bank recently revised its domestic growth projections for 2022 upwards from 3.2% released in the August Economic Outlook to 3.9% in its latest November 2022 projections.

“The anticipated growth in 2022 is expected to be broad based, although some sectors, such as construction and public administration, are expected to remain weak in 2022. Risks to domestic growth remain concentrated around global developments, most notably inflationary pressures stemming from the geopolitical tensions in East Europe and global supply chain disruptions, notwithstanding internal pressures associated with climate change that could impact growth in the primary industries,” Uanguta stated.

2022-12-12  Edgar Brandt

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