The recently released Financial Stability Report (FSR) concluded that the Namibian financial system remained resilient in 2018, despite subdued economic activity.
The Report assesses the stability of the Namibian financial sector and its resilience to internal and external shocks, during 2018. The report stated risks emanating from the banking sector increased marginally since the last FSR due to asset quality deterioration, although the banking sector remained liquid, profitable, and adequately capitalised.
According the FSR the banking sector remained profitable during 2018, owing largely to growth in total income. Total income increased from N$8.9 billion in 2017 to N$9.6 billion in 2018.
The report, however, stated that the asset quality of the banking sector deteriorated further during 2018, owing to weak domestic economic activity. The non-performing loans (NPL) ratio of total loans increased significantly, from 2.5 percent as at December 2017 to 3.6 percent in 2018 despite the low interest rate environment.
Although the NPL ratio remained below the 4 percent benchmark as well as below the historical highest of 5.6 percent, it has been the highest recorded over the past 5 years. Moreover, prevailing recessionary conditions contributed to the growth in credit risk stemming from the non-performance of the loan book. Non-performing loans increased by 52.8 percent during 2018, from N$2.3 billion in 2017, with all the loan product categories represented in the increase in the NPLs.
Irrespective of the growth in NPLs, the banking sector remained well capitalised, liquid and profitable with sufficient provisions in place to cushion against any potential losses. The write-off rate relative to loans and profits declined during 2018, compared to 2017, coming in at 0.06 percent and 7.51 percent, respectively. These low write-off rates confirm that a rise in NPLs does not automatically translate into an increase in loans written off and losses to banks.
Moreover, banks continued to register positive profit growth, despite a challenging economic environment over the period under review. Both capital and liquidity remained well above the minimum statutory requirements during 2018, meaning that the banking sector had adequate capital as well as a favourable liquidity position.