Windhoek – Namibia’s financial system, which is comprised of banks, non-bank financial institutions and the payment system, continued to be financially sound, safe and resilient, with no disorderly functioning of financial markets or infrastructure.
This is according to the annual Financial Stability Report (FSR) that was jointly released on Friday by the Bank of Namibia and the Namibia Financial Institutions Supervisory Authority (Namfisa). The overall assessment concluded that the financial system remained resilient despite recessionary economic conditions, which increased vulnerabilities in some sectors. In this regard, continuous monitoring and surveillance is essential.
The report assessed the stability and resilience of the Namibian financial sector to internal and external shocks and further highlights specific risks stemming from the external environment, domestic household and corporate debt, house price developments, the banking sector, the non-banking financial sector, and payment and settlement systems.
From a risk profile point of view, according to the FSR, the key risk to Namibia’s financial system resulted mainly from the country’s economic slowdown.
“Most risks to the financial system have either remained low or unchanged with minimal potential impact to the financial system. Of concern, however, is the sustained slowdown in the economy over the past two years, which has the potential to reverse the current profiles of risks and increase vulnerability across the board. In the medium to long run, the fiscal consolidation efforts underway may restore and strengthen macroeconomic fundamentals, which could aid the continued stability of the financial system,” reads the report.
Going forward, the projected improvement in economic growth in 2018 is expected to continue to sustain financial stability in Namibia.
The FSR noted that the performance of the Namibian banking sector has been sound, although the asset quality deteriorated, consistent with the weakness of the economy. Non-banking financial institutions also remained financially stable and sound, and continued to grow their assets, despite domestic economic conditions.
In addition, the payment system and infrastructure continued to perform efficiently and effectively, and with robust risk-mitigating measures in place to facilitate safe payments.
Both regulators for the banking and non-banking financial sector, Bank of Namibia and Namfisa, respectively, continued to regulate and enhance macro-prudential surveillance to ensure that the financial system as a whole remains financially sound and stable.
The report detailed how the domestic economy contracted in 2017, with real gross domestic product in Namibia is estimated to have contracted by 0.8 percent in 2017, from a positive growth rate of 0.7 percent in 2016, due to declines in the construction, wholesale and retail trade and public sectors. Growth is projected to improve steadily to 1.4 percent in 2018. However, risks to the domestic outlook remain pronounced, primarily due to persistently low uranium prices.
The slowdown in the economy in 2017 has contributed to the shedding of jobs in various sectors of the economy, thereby resulting in the increase in non-performing loan ratios as household income became constrained. Going forward, however, the projected improvement in economic growth is expected to contribute positively to financial stability in the country.