Financial system remains stable and sound

The Namibian financial system remains stable, sound and resilient amidst a challenging global and domestic economic environment, the Bank of Namibia (BoN) said.

The banking sector's balance sheet growth remained strong, reflecting an improved liquidity position and adequate capital levels. On a quarterly basis, total assets for the sector grew by 5.3% to N$173.2 billion in the first quarter of 2023, driven by cash and balances at banks, as well as net loans and advances. The liquidity ratio of the banking sector stood at 19.1% during the first quarter of 2023, from 17.8% in the last quarter of 2022, due to diamond sales, government spending, capital inflows and subdued private sector credit extension. Furthermore, the banking sector maintained adequate capital levels to meet the regulatory requirements and absorb potential losses. There was, however, a marginal decline in the Return on Equity and Return on Asset ratios, indicating reduced profitability due to decreases in both interest and non-interest income earned by the banking sector. Asset quality, as measured by the non-performing loans ratio, deteriorated slightly, but remained below the supervisory intervention trigger point of 6%. Going forward, the burden of debt servicing for households and businesses, along with slower growth expectations and tight monetary policy, may apply additional pressure on asset quality, the central bank said.

The Non-Bank Financial Institutions (NBFIs) remained financially sound, with the investment assets returning a growth rate that coincides with financial market recovery. The assets held by the NBFIs increased by 4.3% on a quarterly basis to N$381.8 billion during the first quarter of 2023. The increase was mainly due to growth observed in the long-term insurance and retirement funds subsectors.

Retirement

Retirement Funds (RFs) remained solvent with a funding position at 101.2%, thus remaining above the prudential limit. The return on investments of the retirement funds increased to 4.6% in the first quarter of 2023 from 3.9% recorded in the last quarter of 2022, recovering from the bearish first three quarters of 2022. This contributed significantly to the increase in assets held by the NBFIs, BoN added.

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. Similarly, the long-term insurance (LTIs) sub-sector remained solvent with adequate capital reserves. The claims in the LTI sector continued to recover from the elevated levels observed in 2021, which were as a result of relatively higher mortality rates attributable to the Delta Variant of Covid19. There were no significant developments in the lapses and termination of LTI policies, despite the higher costs of living exacerbated by relatively higher inflation levels and a tight monetary policy environment. Collective investment schemes also remained stable during the first quarter of 2023, with no significant spikes in redemptions despite the expected effects of higher costs of living on households’ disposable income, BoN said.