Namibia Banking Sector Dynamics 2019
From late 2015 to mid-2017, Namibia’s banking sector came under pressure, fuelled largely by slowing deposit growth, increasingly expensive marginal funding costs and low liquidity. However, by mid-2017 it appeared that the situation was easing, that the industry had once again become cash-flush and less of a market price-taker when it came to accessing funding. This was true until late 2018, when at first glance it appeared that liquidity had once again come under severe pressure and indeed we entered 2019 with the banks reporting their highest ever use of the repurchase (repo) window at the central bank and the lowest levels of commercial bank liquidity in at least a decade, back to when our records began. However, despite the alarming sounding nature of the above, substantial changes have taken place both in the broader Namibian economy, as well as in the banking sector specifically, which mean that this recent period of low-liquidity is not the worry that the previous such episode may have been.
Historically, the Namibian banking system has generally had surplus liquidity, meaning that the banks have had liquid assets in excess of their regulatory minimum requirements. However, over recent years, excess liquidity levels have fallen to the point where commercial banks have been converting less (but still reasonably) liquid assets on their balance sheets into short-term liquidity through the repurchase window at the central bank. While the details and method for these repurchases vary across the world, their use is fairly standard.
Contrary to popular perception, the repo window at the central bank is not a crisis window, but a legitimate short-term funding window from which commercial banks can borrow at the “repo rate” as administered by the Monetary Policy Committee of the Central Bank. This enables commercial banks to access short-term liquidity to meet their minimum liquidity requirements, by borrowing against certain high-quality collateral. This collateral is basically Government issued (risk-free) debt, as well as the Bank of Namibia Bills, Government guaranteed debt and investment grade debt securities of State-Owned Enterprises. In other countries the repurchase window may allow commercial banks to repo more than just high-quality, low-risk assets, however the more risky the assets, the larger the haircut imposed on the asset value from a collateral perspective.