Namibia’s Financial Sector Faces Heightened Risks Amid Slowing Economy

Windhoek, Namibia - The financial sector in Namibia is facing a perfect storm of risks as the economy slows down and household debt levels remain elevated.

Economic Growth Slows Down

According to a new report by the International Monetary Fund (IMF), Namibia’s economic growth has slowed sharply since 2016, driven by a decline in commodity prices and revenues from the Southern African Customs Union (SACU). The government has responded with a multi-year spending consolidation plan, but this has only added to concerns about its debt burden.

Household Debt Levels Remain Elevated

Households are also highly leveraged, with an estimated debt-to-disposable income ratio of 85 percent at end-2016. This makes them vulnerable to shocks, but assessing their exposure is difficult due to limited availability of household balance sheet data.

Financial Cycle Turns Down Sharpely

The financial cycle has also turned down sharply recently, with credit growth decelerating to just 5 percent by the end of 2017 - the lowest rate since the global financial crisis. The credit-to-GDP ratio, which had rapidly accelerated since 2013, is now plateauing at around 55 percent.

Banks Exposed to Mortgages

Banks are particularly exposed to mortgages, which account for more than half of their loans. Real estate loans experienced double-digit year-over-year growth rates over the past decade, but growth has sharply slowed in recent years due to tighter lending standards and a shortage of liquidity.

Risks to the Outlook

Despite expectations that growth will recover from 2018, risks to the outlook are tilted to the downside. Domestic risks include possible fiscal slippages, slower growth in mining and construction, and a sudden correction in overvalued housing prices. External risks arise from further declines in SACU revenue, lower demand for key exports, and subdued commodity prices.

IMF Warns of Tighter Global Financial Conditions

The IMF has warned that tighter global financial conditions prompted by rising US policy rates could also add to the risks facing Namibia’s financial sector.

Key Statistics

• Namibia’s economic growth slowed sharply since 2016
• Government domestic debt held by the financial system stands at 12 percent of bank assets
• Sovereign debt, including guarantees, has nearly doubled since 2014 to 53 percent of GDP
• Households are highly leveraged, with an estimated debt-to-disposable income ratio of 85 percent at end-2016
• Credit growth decelerated to just 5 percent by the end of 2017 - the lowest rate since the global financial crisis
• Banks are exposed to mortgages, which account for more than half of their loans.