Banks’ assets at 73% of GDP

At the end of June this year, the assets of Namibia’s four major commercial banks – FNB Namibia, Bank Windhoek, Nedbank Namibia and Standard Bank Namibia – reached N$166.3 billion, constituting 73.3% of the country's gross domestic product (GDP).

The total banking assets experienced a year-on-year (y/y) growth rate of 5.6% - or nearly N$9 billion – marking a slowdown from the previous year's 11.2% expansion, PSG Wealth Namibia says in its Banking Review Report 2023.

“Rising interest rates and elevated inflation are weighing on consumers as banks see their loan books grow at a much slower pace than previously.

“On average Namibian banks total loan book grew with 2.9%, with the highest growth rate seen in instalment sales and leases the past year. Over the past decade banking deposit growth rates have decline,” PSG says.

According to the PSG report, FNB Namibia and Bank Windhoek maintained their positions as the two leading banks in Namibia, boasting total assets of N$58 billion and N$48 billion, respectively. Standard Bank Namibia followed closely with N$38 billion in total assets, while Nedbank Namibia held N$21 billion.

The report measured assets as at 30 June to compare all the banks at the exact same point in time. Interim results were used for Nedbank Namibia and Standard Bank Namibia.



Pivotal role

Banks play a vital role in economic development by gathering small savings and channelling them into productive ventures, fostering increased production, employment, sales and prices, thus propelling economic growth, PSG says.

“They strategically invest these savings across sectors, ensuring optimal resource utilisation and facilitating regional development. Through targeted loans, banks support the growth of industries, contributing to industrialisation and overall economic progress.”

Moreover, economists argue that alterations in bank rates can have a substantial impact on a nation's money supply.

In June 2023, Namibia's domestic banks demonstrated a reduced proportion of total assets concerning nominal GDP, declining from 80.4% to 73.3%, “underlining the significance of the country's banking sector and its potential impact on the local economy”, PSG notes.

FNB Namibia continued to hold its position as the market leader, commanding a 35.1% market share of total assets, while Bank Windhoek followed closely with 29.1%.

Standard Bank Namibia, the third-largest bank in terms of assets, maintained a steady market share at 23.1%. Nedbank Namibia, the smallest in terms of assets, experienced a 1% reduction in market share in 2023 with a market share of 12.8%, PSG states.

The Compounded Annualised Growth Rate (CAGR) of total assets over five years shows FNB Namibia in the top spot with 8.2%, followed by Bank Windhoek (5.3%), Standard Bank Namibia (5.0%) and Nedbank Namibia (2.8%).



Loan growth

Namibia's private sector credit extension (PSCE) exhibited an average growth rate of 3.4% during the reviewed period.

Preceding January 2020, these growth rates were notably more elevated. Since the onset of the pandemic, the growth in bank advances has been subdued, aligning with Namibia's PSCE growth, PSG says.

The total gross loans and advances of the four commercial banks experienced a y/y growth of 2.9% up to June 2023. Prior to 2020, the gross advances for local banks were expanding at rates exceeding 5%.

However, over the past 5 years, the average growth in gross advances has dwindled to 2.8% year-on-year, attributed to the pandemic, economic constraints, and escalating interest rates that have tempered credit demand, according to PSG.

FNB Namibia displayed a total gross advances CAGR of 10.3% for the year under review, followed by Nedbank Namibia with 4.7% and Bank Windhoek with 2.1%. The figure for Standard Bank Namibia was -7.3%.



Asset mix

The composition of assets plays a crucial role in determining interest income, particularly during periods of a steepening yield curve where substantial differences exist between the returns on longer-term loans and investments in securities with shorter durations. Additionally, it serves as a potent indicator of a bank's ability to extend loans to customers or the presence of low demand, says PSG.

Since 2013, all local banks, except Standard Bank Namibia, have reduced their proportion allocated to loans and advances.

According to PSG, Bank Windhoek, previously allocating nearly 85% of assets to advances, now designates 77.3% to this category. In contrast, Nedbank Namibia, with the smallest allocation to advances, stands at only 49.4%.

This shift in asset allocation signifies a noteworthy trend among local banks, PSG says.

On the flip side, the allocation of funds to cash and investments (liquid assets) is another crucial aspect to consider.

Despite Bank Windhoek having the highest allocation to advances, it holds the lowest allocation to liquid assets, PSG says. Conversely, Nedbank Namibia is consistently increasing its asset allocation to cash and short-term investments. FNB Namibia’s asset allocation has remained relatively stable over the past year.

Across all other local banks, there has been an increase in the allocation to cash and investments, accompanied by a decrease in the allocation to advances, PSG says.

This shift is likely influenced by the upward trend in interest rates throughout 2022. It is evident that macroeconomic trends are impacting the asset mix of banks, with rising interest rates potentially dampening consumer lending while encouraging investment, according to PSG.



Mortgage loans

Mortgage loans remain a key revenue stream for local commercial banks, constituting the predominant share of gross advances across the banking sector.

The collective mortgage loans, encompassing both commercial and residential loans from the four commercial banks, reached approximately N$53 billion, compared to N$52.4 billion in 2022.

These loans, on average, make up around 50% of the total gross advances in the most recent year-end reports, PSG says.

Nedbank Namibia holds the largest segment of gross advances dedicated to mortgage loans at 63.1%, experiencing the most significant increase in mortgage loan allocation.

In contrast, all other local banks either maintain stable allocations or have witnessed decreases compared to the previous year, PSG notes. Standard Bank Namibia follows with the second-largest allocation at 51.4% for the fiscal year 2022, reflecting a y/y decline.

In the last ten years, FNB Namibia has consistently diminished its involvement in mortgage loans, decreasing from 49.3% to 44.6%, according to PSG. Conversely, Bank Windhoek's exposure to mortgage loans has reverted to its levels in the 2013 financial year.

Over the same period since 2013, Nedbank Namibia has observed a surge in its exposure to mortgage advances, escalating from 43.7% to 63.1% in the 2022 financial year. Likewise, Standard Bank Namibia has witnessed an augmentation in its exposure to mortgage advances, progressing from 46.2% in the 2013 book-year to 51.4% in the 2022 financial year.



Impairment charge

Effectively managing bad debts is imperative for banks, particularly during periods marked by rising interest rates and the expansion of net interest margins. The metric employed for assessment involves impairments in the income statement as a percentage of average gross advances. Under IFRS 9, this figure encompasses not only actual write-offs but also anticipated credit losses, introducing an element of managerial discretion. This departure from previous practices underscores its pivotal role in influencing a bank's earnings.



Expected credit loss

In the most recently reported financial year, many local banks have demonstrated enhancements in their expected credit loss (ECL) ratios.

This improvement is primarily attributed to a reduction in expected credit risk as the financials of the banks and economic conditions undergo recovery, PSG says.

The repercussions of the pandemic are evident in the figures for Nedbank Namibia and FNB Namibia, which surged in the 2020 financial year, but significantly subsided by the 2022 book-year. Bank Windhoek and Standard Bank Namibia seem to have experienced the effects of the pandemic later, reaching their peaks in the 2021 financial year, according to PSG.

In the historical context, Bank Windhoek consistently maintained a lower ECL ratio compared to its counterparts, but was overtaken by FNB Namibia in 2021 and further in 2022, converging in 2023, the report states.

Standard Bank Namibia typically held a higher ECL ratio than its local peers, except for the 2020 financial year when Nedbank Namibia had the highest ratio.

A deviation from the prevailing trend in the Namibian banking sector is evident in FNB Namibia, being the sole local bank recording a deteriorating ECL ratio in the past year, PSG says.

This decline is attributed to a 124% y/y increase in credit impairments, primarily driven by lower base effects. The preceding year witnessed a 60% decrease due to releases in portfolio impairments, according to PSG.