Development bank’s credit rating thanks to supporting SMEs

The Development Bank of Namibia’s recent Fitch rating has been attributed to its initiatives, such as supporting small and medium enterprises (SMEs), encouraging innovation, and making capital more easily accessible.

Economist Josef Sheehama says a strong credit ecosystem is the result of such initiatives.

He says for the Development Bank of Namibia (DBN) to receive high credit ratings from agencies, the bank has to continue reviewing and ratifying its manuals on an annual basis or when necessary.

“In the macro-economy, credit-rating agencies play a critical role by evaluating the creditworthiness of governments and corporations, assessing investor risk, promoting market efficiency and transparency and helping businesses raise capital from domestic investors,” Sheehama says.

He says the bank’s ratings may be lowered if the country’s financial status deteriorates or if public support declines.

“However, the bank’s ratings may rise if the country’s financial status improves. Consequently, growth-friendly structural reforms and well-considered fiscal consolidation could help lower debt ratios,” he says.

Fitch Ratings recently conducted an assessment of the DBN and affirmed its credit ratings, signalling stability in the bank’s ability to fulfil its financial obligations.

In a statement released last week, the DBN’s ratings stood at BB- for its long-term issuer default ratings, and AA+(zaf) for its national long-term rating with a stable outlook.

BB+ represents a lower credit quality with higher risk, while AA+ represents a higher credit quality with lower risk.

“Fitch’s affirmation of the DBN’s credit ratings highlights the confidence in the bank’s financial standing and its potential to weather challenges,” the report states.

The assessment took into account the likelihood of support from the government, with the DBN’s ratings being influenced by government support.

“We believe the Namibian government has a high propensity to support the DBN due to its significant role in the nation’s economic development,” the statement says.

The DBN is Namibia’s primary policy bank and plays a crucial role in driving economic growth and supporting small businesses.

“Our strategies are aligned with national development goals, focusing on financing infrastructure and other vital projects,” it reads.

According to the statement, the government’s full ownership of the DBN signifies its commitment to the bank’s long-term stability.

However, challenges persist, particularly in asset quality, as evidenced by an increase in impaired loans.
This is partially attributed to the economic impacts of the pandemic.

Despite financial setbacks, the DBN maintains robust capitalisation, supported by government-related lending and funding guarantees.

“We are confident in the DBN’s ability to navigate challenges and emerge stronger,” the statement says.

Looking ahead, the ratings are sensitive to changes in Namibia’s sovereign ratings and the DBN’s financial performance relative to other institutions.

“Our ratings reflect the DBN’s integral role in Namibia’s development landscape and its reliance on government support,” the statement reads.
Fitch Ratings is one of the leading credit-rating agencies in the world.

It assesses the creditworthiness of governments, corporations, financial institutions and securities.