Banks sound, households struggle

NAMIBIANS owed banks N$1,7 billion in overdue loan repayments by the end of December as the effects of the global financial crisis started spilling over into the country and consumers struggled to make ends meet, the Bank of Namibia (BoN) revealed yesterday.

Despite this, the country’s banking sector remains sound and robust, BoN Deputy Assistant Governor Ipumbu Shiimi said when he once again gave the industry a thumbs-up at the launch of Namibia’s latest Financial Stability Report.The impact of the financial crisis on the local banking sector is considered to be ‘moderate’ at the moment, the report states. But it adds that the sector faces ‘notable challenges’, which ‘warrant close monitoring, going forward’.Overdue loan repayments increased by 51,3 per cent during the second half of 2008. About half of this, or N$854,7 million, amounted to bad loans. The biggest chunk of these non-performing loans was home loans (57,1 per cent), followed by overdrafts (24,6 per cent), instalment sales (8,7 per cent), personal loans (7,2 per cent) and other loans and advances (1,7 per cent).Household incomes could come under pressure if unemployment increases or economic conditions worsen, the BoN says. It estimates that about 1 500 people will lose their jobs in the mining sector and provisionally expects economic growth to drop to 0,4 per cent.’This, in turn, could result in an increase in banking losses and strain financial stability,’ the BoN warns.Local banks’ exposure to the crisis-affected mining and related sectors is about N$1,1 billion, or a quarter of banking industry capital.’The likely impact of this exposure on banking stability is, therefore, moderate,’ according to the central bank. However, should the financial crisis intensify, corporate profits of especially the mining and tourism sectors will fall even further and this could put pressure on the banking sector and its financial stability, the BoN adds.During the third and fourth quarter of 2008, the risk propensity of banks rose marginally by two and 0,5 per cent respectively. ‘A rise in risk-taking could be assumed to lessen financial strength in that, for example, it might mean that the banking institutions have built up assets by lending capital for projects that are more risky,’ the BoN explains.Although the overall capital adequacy of the sector weakened in the second half, all the banks complied with the BoN’s requirements. Commercial banks in Namibia still have enough capital and are well positioned to cushion against unexpected losses and to expand their business operations, the report stresses.According to the BoN, the current level of profitability, liquidity and capitalisation of banks will allow the sector to withstand shocks. However, banks need to keep an eye on declining capital ratios and pressures on liquidity, as well as on non-performing loans.’The financial crisis has adversely affected economic growth and employment in Namibia in the second half of 2008, with possible pressure on the future performance of the banking sector. However, the impact on banking stability is considered moderate at the moment,’ the BoN concludes.jo-mare@namibian.com.na