Financial Crime World

Risks to Namibia’s Financial Stability Rise Amidst Economic Uncertainty

Introduction

The Financial System Stability Committee (FSSC) has identified significant risks to Namibia’s financial stability, citing the economic contraction experienced in 2019 and the expected impact of COVID-19.

Macroeconomic Environment

According to the latest analysis, the probability and impact of most risks have increased, particularly in the macroeconomic environment. The International Monetary Fund’s Global Financial Stability Report (GFSR) notes that global financial conditions have tightened abruptly since the outbreak of COVID-19.

Key Risks

  • Potential downgrade of Namibia’s credit rating by major rating agencies
  • Impact of a decline in international reserves on the country’s economy
  • Increase in household and corporate debt, which could pose significant risks to financial stability

Banking Sector Risks

Banking sector risks have also increased, with the COVID-19 pandemic posing a threat to bank liquidity and income. However, relief measures put in place by the Ministry of Finance and the Bank of Namibia are expected to help mitigate this impact.

Payments System Risks

Payments system risks have also risen, driven by an increase in total fraud values across all systems.

Market Risks to Non-Bank Financial Institutions (NBFIs)

Market risks to NBFIs have increased substantially due to COVID-19, although these institutions are expected to absorb this risk given their high capital buffers.

Conclusion

The report concludes that the overall risk associated with the COVID-19 pandemic to financial stability in Namibia may be more severe than projected, given growing uncertainty. The FSSC will continue to monitor the situation and provide regular updates on the risks to Namibia’s financial stability.

Figure 1a: Risks to Financial Stability in Namibia

Direction of risk:

  • Global economic slowdown
  • Domestic economic slowdown
  • Sovereign credit rating downgrade: Namibia
  • Decline in international reserves
  • Sovereign credit rating downgrade: South Africa
  • NAD/ZAR depreciation
  • Increase in household debt
  • Increase in corporate debt
  • Liquidity constraints (unchanged)
  • Asset quality deterioration (NPLs) up
  • Security of retail payments up
  • Settlement in last window unchanged

Recommendations

The FSSC urges financial institutions and stakeholders to remain vigilant and take necessary measures to mitigate the risks associated with COVID-19. The report is available on the Bank of Namibia’s website.

Note: The original article text includes a figure (Figure 1a) which is not included in this markdown conversion as it is not possible to directly convert figures into markdown format.