Non-performing loans breach trigger point
BoN to implement buffer
The Bank of Namibia is at an advanced stage of implementing the countercyclical capital buffer (CCyB) as an additional macroprudential tool to further enhance the banking sector's resilience.
Non-performing loans (NPLs) increased to 6.1% of total credit extended by commercial banks in Namibia in the first quarter of this year, up from 5.9% in the last quarter of 2023.The Macroprudential Oversight Committee (MOC) of the Bank of Namibia held its first meeting of the year last week and concluded that, despite the increase in the NPL ratio, banks have sufficient provisions and adequate capital to absorb potential credit losses.
The BoN’s supervisory intervention trigger point for NPLs is 6.0%.
The central has “ imposed the necessary supervisory interventions to contain the credit risk and will continue to monitor the developments in furtherance of stability,” BoN deputy governor Leonie Dunn said in a statement.
Buffer
The MOC is at an advanced stage of implementing the countercyclical capital buffer (CCyB) as an additional macroprudential tool to further enhance the banking sector’s resilience, Dunn said.
The CCyB is a macroprudential policy instrument that serves as a measure of protection to the banking sector against the build-up of systemic risks associated with periods of excessive aggregate credit growth. This buffer instrument is generally built up during good economic times and used during economic downturns.
During the meeting, the MOC approved the CCyB framework that aims to provide a comprehensive understanding of the bank’s CCyB operations, thereby promoting transparency of the policy tool.
The preparations and consultations to introduce the CCyB as a macroprudential policy tool are underway, Dunn said.
Economy
The Namibian economy recorded positive growth during the first quarter of 2024, although it is expected to moderate in 2024 before picking up in 2025, according to the BoN.
The economy grew by 4.7% during the first quarter of 2024, compared to a growth rate of 5.3% observed in the corresponding quarter of 2023.
“This is mainly due to positive growth recorded during the first quarter of 2024 for the electricity and water, wholesale and retail, transport and storage, as well as the mining and quarrying sectors.
Going forward, real growth in the Namibian economy is estimated to moderate to 3.7% in 2024 before improving to 4.1% in 2025. The projected slowdown in 2024 is ascribed to weaker global demand and slower growth in the domestic primary industry,” the BoN said.
Resilient
Despite moderate economic conditions, the banking sector remained sound and resilient, the MOC found.
The banking sector's total assets grew by 2.8% to N$177.9 billion during the first quarter of 2024, on the back of growing cash and balances with banks.
The liquidity ratio stood at 18.1% during the period under review, compared to 17.3% observed during the preceding quarter.
This was mainly ascribed to diamond sales and increased government expenditure at the end of the 2023/24 fiscal year.
Profitability
In terms of profitability, both the return on equity and return on asset ratios declined slightly by 2.0% and 17.0% respectively, mainly due to a slowdown in other operating income.
Similarly, both the Tier 1 and Total risk-weighted capital ratios declined by 14.8% and 16.7% respectively during the review period.
“Notwithstanding the slight declines in profitability and capital ratios of the banking industry, the levels remained prudent for banks to meet the bank’s prudential regulatory requirements,” Dunn said.
Property market
The weak macroeconomic environment also impacts developments in the property market, according to Dunn.
“The property sales volumes remained low in the residential real estate market, reflecting tight financing conditions,” she said.
“Other key indicators, such as growth in the rental price and the price-to-rent ratio, showed positive growth, while growth in the house price index and the deposit-to-rent ratio remained stable,” Dunn added.
In terms of mortgage credit, both household and corporate mortgage credit extension remained muted during the review period, on the back of elevated interest rates.
Despite the current pressures, the MOC took note of positive developments such as housing subsidies and tax benefits, as well as a low inflation outlook for 2024 that may improve the property market conditions.
In addition, the relaxation of the Loan-to-Value limits may continue to stimulate borrowing in the property market, Dunn said.