The governor of the Bank of Namibia, Ipumbu Shiimi, talks to Jason Mitchell about pushing up financial inclusion rates and surviving recession.

Ipumbu Shiimi

Ipumbu Shiimi

Namibia’s banks are well placed to withstand growing levels of non-performing loans (NPLs), even if the country’s economic growth will remain tentative at best in 2019, according to Bank of Namibia governor Ipumbu Shiimi.

The asset quality of Namibia’s banking sector, as measured by the NPL ratio, deteriorated during 2018, increasing to 3.6% last year from 2.5% in 2017, according to the Bank of Namibia, with all loan product categories represented in the increase.

“However, 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,” says Mr Shiimi. “The write-off rate relative to loans and profits declined last year compared with 2017, coming in at 0.06% and 7.51%, 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.”

Downward pressure

Namibia’s economy went into recession in late 2016, due to factors including falling commodities prices and increasingly severe droughts. The prospects for 2019 remain bleak, according to Mr Shiimi, with the weaker performance of the country’s mining sector likely to curtail growth. 

“More information about economic activities for 2019 is now available and growth estimates for diamonds, uranium and metal ores are lower than anticipated in the December 2018 update,” he says. “The prevailing drought situation is another factor for the projected lower growth.”

According to the central bank’s latest forecasts, Namibia’s economy is expected to grow by only 0.3% in 2019, a significant downward revision from its December 2018 prediction of 1.5%. 

The situation is not helped by the travails of its neighbour South Africa, the engine of economic growth in southern Africa, which experienced a short technical recession in 2018. Ratings agency Moody’s said in June that the chances of South Africa entering another technical recession in 2019 were high. 

Nevertheless the one-to-one peg between the Namibian dollar and the South African rand remains the cornerstone of Namibia’s monetary policy, according to Mr Shiimi. 

Financial inclusion rises

The introduction of basic bank accounts and the removal of cash deposit fees has helped to bring financial inclusion in Namibia up to almost three-quarters of the adult population, says Mr Shiimi.

The 2017 Namibia Financial Inclusion Survey revealed that 72.6% of the adult Namibian population is formally served. In other words, they have or use financial products or services either from banks or non-bank financial institutions. Bank of Namibia notes that these people could also be using informal financial products and services as well as at least one formal one. 

Furthermore, the survey indicated that 67.9% of Namibia’s adult population are banked; that is, using at least one product or service offered by a commercial bank.

“These developments were made possible by a number of interventions such as the introduction of basic bank accounts and the removal of cash deposit fees,” says Mr Shiimi. “With regard to basic bank accounts, Bank of Namibia has issued a determination on the standards for a basic bank account [BBA] and cash deposit fees within the national payment system. This was developed with the aim of driving financial inclusion by ensuring that more Namibians become part of the formal banking sector and have access to basic financial services.”

A basic offering

Since 2015, all of Namibia’s commercial banks have had to offer BBAs with minimal charges. By the end of 2017, an additional 188,089 BBAs had been opened with these banks, according to Bank of Namibia. 

Furthermore, since March 2015, all banks have had to provide zero-rated cash deposit fees for all cash deposits on individual accounts. They must also provide zero-rated cash deposit fees on all business accounts for companies with an annual turnover of N$1m ($70,000) or less. 

“The bank continues to undertake costing exercises with the system participants – such as banks – as it works towards developing a comprehensive determination of standards for fees and charges,” says Mr Shiimi. “The information on the costs involved in the provision of payment services is critical to ascertain that charges payable by users are in the public interest, promote competition, efficiency and are cost-effective, as high banking costs also contribute to financial exclusion.”

Mr Shiimi adds that the Namibian banking sector continues to face a number of obstacles, not least Namibia's sheer physical size and its sparse population. “Namibia is a vast country, geographically, and this makes it challenging for banking institutions to reach certain areas of the country when it comes to provision of their products and services,” he says.

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