## _cr0783 ## Source details **Canonical URL:** [_cr0783](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0783.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0783.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0783.pdf.json) --- ### Banks’ performance and systemic risks (2004) - Namibia’s financial system described as "one of the most sophisticated, diverse, and highly developed financial systems in Africa." - Financial system size and structure: - Total financial system assets: "about 170 percent of GDP." - System composition: Four private commercial banks; about 30 insurance companies; 500 pension funds; a stock exchange; asset management and unit trust management companies; specialized lending institutions; many microlending institutions. - Ownership: "Most of these institutions are private with strong ownership links to South African institutions." - Banks required to maintain "not less than 100 percent of the amount of the liabilities in Namibian dollars (excluding capital funds) in local assets situated in Namibia." - Key banking soundness indicators (selected, end-2004/2005 where specified): - Sector-wide CAR: "15 percent" at end 2005 (Table: CAR "15.4 percent" for 2004). - NPLs: "2 percent" (end-2005); Table: NPL "2.4 percent" (2004). - ROE/ROA: ROE "28 percent" (general); Table (2004): ROAE "21.6 percent"; ROAA "2.0 percent". - Table 1 (Banks’ Performance in Selected Countries, 2004) — Namibia: - Total Assets "1,045 Mil USD"; ROAE "21.6 percent"; ROAA "2.0 percent"; Net Interest Margin "4.36 percent"; Cost to Income Ratio "61.8 percent"; NPL "2.4 percent"; CAR "15.4 percent". - Asset composition (percent of total): - Individuals' mortgages "37.7"; Individuals' other loans "14.7"; Business mortgages "5.3"; Net loans and advances "74.5"; Government Securities "8.1"; Cash and deposits "5.8"; Others "11.5". - Concentration and liquidity: - Share of 10 largest depositors "33.7". - Deposits comprise "more than 90 percent" of total liabilities and are highly concentrated. - Main banking sector vulnerabilities: - Credit risk concentrated in household mortgages (about "40 percent" of banks’ loans). - Concentration risk from large institutional depositors. - Correlation risk due to narrow economic base and small population. - Stress tests confirm resilience to many shocks but show vulnerability to severe mortgage and large-exposure shocks. ### Stress testing and macro scenarios — key quantitative results - Baseline system indicators: - Baseline CAR (Total) "14.7". - Baseline Liquidity Ratio (Total) "11.1". - Selected sensitivity analysis (Change in CAR, Total): - Overall increase of NPLs by 100 percent: "-1.4". - 10 percent of mortgages become NPLs: "-2.0". - 20 percent of mortgages become NPLs: "-4.2". - 30 percent of mortgages become NPLs: "-6.4". - 30 percent of loans in agriculture and fish sector become NPLs: "-1.4". - Default of largest exposure (Total): "-1.3". - Defaults of five largest exposures: individual bank entries include "-4.0", "-5.9", "-5.3"; some "n.a." - Liquidity risk (Change in Liquidity Ratio, Total): - Withdrawal of 5 largest depositors: "-27.8". - Withdrawal of 10 largest depositors: "-45.2". - Interest rate risk (Change in CAR, Total): - Reduction in rate by 500 bps: "-3.3". - 50 percent drop in government securities yield: "-0.2". - Exchange rate risk (Change in CAR, Total): - Depreciation of 30 percent: "0.1"; Depreciation of 90 percent: "0.4"; Appreciation of 30 percent: "-0.1"; Appreciation of 90 percent: "-0.4". - Macroeconomic scenarios: - Scenario 1 (rand crisis–like): Namibian dollar depreciates 30 percent; domestic interest rates +5 percent; 30 percent increase in mortgage NPLs → one bank’s CAR falls below 10 percent; all banks remain solvent. - Scenario 2 (sharp rand appreciation): Namibian dollar appreciates 25 percent; domestic interest rates −5 percent; 30 percent of agriculture and fishing loans become NPLs → CAR of three banks fall below 10 percent; all banks remain solvent. - Footnote: "The minimum required CAR is 10 percent." Stress tests assume provisioning rules (additional provisioning of 50 percent for new NPLs, 100 percent for old NPLs). ### Nonbank financial institutions (NBFIs): pensions, insurance, and supervision gaps - Pension funds and insurance scale and allocation: - Pension funds AUM: reported as about "100 percent of GDP" (March 2004: AUM N$21 billion, equivalent to 57 percent of 2003 GDP; footnote: likely exceeded N$25 billion in March 2005). - GIPF net assets: "N$15.1 billion" in March 2004; rose to "N$19 billion" in March 2005 (footnote). - GIPF Asset Allocation (2005): Equities "57.8"; Unit Trusts "13.6"; Government Securities "15.6"; Cash & Deposits "10.7"; Loans "1.5"; Derivatives "0.7"; Insurance Policies "0.7"; Debentures "0.1". - "About 60-70 percent" of pension assets invested in equities and unit trusts. - Under regulation 28, pension funds must invest a minimum of "35 percent" in local assets. - GIPF Development Capital Portfolio: suffered large losses—"over 50 percent". - Long-term insurers: total assets "equivalent to about 40 percent of GDP as of March 2004"; annual premiums nearly "6 percent of GDP" (12 months ending March 2004). - Short-term insurers: annual premiums "2.6 percent of GDP"; loss ratios "55 percent". - Supervision and data weaknesses: - NAMFISA "has not been able to develop the capacity to analyze and respond to developments in the sector." - NAMFISA "fails to compile, verify, analyze and disseminate accurate and reliable data" on NBFIs. - Lack of on-site examinations and implementation of solvency regimes for insurance companies and defined benefit pension funds. - Recommendation to appoint "appointed actuaries" and, as interim, engage actuarial consultants. ### Regulatory and supervisory frameworks — Basel Core Principles and Basel II - BON and BCP assessment (high-level): - Compliance summary: Compliant with 3 BCPs; Largely Compliant with 10 (including CP.1 overall); Materially Non-Compliant with 9; Non-Compliant with 3. - CP.15 (anti-money laundering) is Materially Non-Compliant. - Main supervisory shortcomings: - Lack of consolidated supervision for bank holding companies and financial groups. - Absence of regulatory requirements on market and country risks. - Supervision emphasizes compliance rather than risk-based analysis. - Insufficient skills and capacity among supervisors. - BON governance and powers: - BON de facto independent in operational matters; legal ambiguity suggested to be clarified. - BON regulates and supervises the four commercial banks; four specialized financial institutions are exempt under separate legislation. - Recommendation: "All deposit-taking institutions should be supervised by the BON, regardless of their ownership." - Basel II implementation stance: - BON decided in principle in October 2005 to implement Basel II. - Priority: "Ensure full compliance with the BCPs and carry out an assessment of the impact of Basel II on both the system and the BON, before setting any timeframe for implementing Basel II." - Recommended phased approach: start with pillars 2 and 3; initially adopt standardized approaches for pillar 1; delay internal ratings approaches until capacity adequate. - Recommended supervisory actions (selected): - CP.16: broaden on-site and off-site supervision to cover full risk range. - CP.20: introduce consolidated supervision regime for banking groups and conglomerates. - CP.12/CP.13: introduce market risk and other risk regimes; issue detailed risk management requirements. - CP.14: require stronger internal control, audit coverage, and two principal officers in banks. - CP.11: introduce a country risk regime. ### AML/CFT, legal frameworks, and accounting oversight - AML/CFT: - Namibia does not have a full AML/CFT framework in place. - Prevention of Organized Crime Act passed December 2004 but not yet put into effect by the Ministry of Justice. - Financial Intelligence Bill tabled; Anti-Terrorism Activities Bill in draft with no timeframe. - BON has issued determinations and circulars under the BIA but these "fall short of compliance with international standards." - Legal and accounting: - Creditor rights "reasonably well established." - IFRS applicable from "1 January, 2006." - Public Accountants and Auditors Board (PAAB) "has not been able to operate since March 2005." - Around "100 chartered accountants" active in Namibia; shortage of accounting professionals noted. ### Access to financial services, microfinance, consumer credit, and housing finance - Usage and access indicators: - Less than "15 percent" of the population use transaction, credit or insurance services. - Use of savings products: "45 percent" of the population. - Selected access metrics for Namibia: - Loan per 1,000 people: "80.7". - Loan-income ratio: "5.2". - Deposit accounts per 1,000 people: "423.0". - Deposit-income ratio: "1.3". - GDP per capita: "2,312". - Structural constraints: - Pervasive rural poverty; urban shack dwellers with high unemployment; low population density; concentrated affluent segment. - High banking fees and lack of transparency in fee disclosure; banks disclose only maximum fees. - Policy and institutional recommendations: - Immediate: Improve transparency of banks’ fees and charges; encourage banks to introduce products targeted at low income and rural customers. - Immediate: Foster competition by remaining open to reputable entrants; leverage PostBank reach; support credit unions. - Medium to longer-term: Abolish the usury act or raise the usury ceiling and introduce a consumer credit act with truth-in-lending provisions; consider establishing an ombudsman office for consumer disputes. - Microfinance and SME finance: - Microlending outstanding small: "0.9 percent of GDP"; annual disbursed loans about "1.1 percent of GDP." - Main challenges: expand supply of microcredits; stimulate SACCOs/SCAs; encourage commercial lenders to engage in microcredit. - SME finance constraints: preference for collateral, underdevelopment of leasing and factoring, nascent private equity, ineffective specialized institutions and SBCGT guarantees. ### Capital flows, domestic investment opportunities, and BON market operations - Capital outflows and reserves: - Persistent capital outflows averaged "around N$1.8 billion per year from 1990 to 1994"; accelerated to "about N$2.4 billion per year since 1995." - Net claims on South Africa have grown, "putting pressure on Namibia’s reserve levels." - Authorities’ measures and assessment: - Authorities attempted to require institutional investors to invest a portion domestically; staff view such mandates as unlikely to be effective and potentially harmful. - Positive interest rate differential with South Africa and more attractive domestic investment opportunities judged more effective to attract capital. - Market-development recommendations for BON and MOF: - Develop active systemic liquidity management: open market operations using repos and reverse repos; improve liquidity forecasting; establish transparent operational frameworks and counterpart criteria. - Build a stock of government securities for monetary operations; BON could purchase government securities in the secondary market. - Foster FX market development and price discovery; welcome participation by NBFIs. - Consider raising the call deposit rate to offset liquidity injections; agree MOF–BON arrangements to compensate BON for monetary-operation losses where necessary. - Review banks’ automatic access to overnight liquidity facilities and apply penalty rates where appropriate. - Government securities market facts: - Outstanding Namibian government securities: "N$10.5 billion in September 2005 (28 percent of GDP)," split equally between Treasury-Bills and Internal Registered Stock (IRS). - Treasury-Bill maturities: "91, 182, and 365 days"; average monthly turnover ~ "40 percent". - IRS maturities: "1 year to 20 years"; average monthly turnover ~ "8 percent". - Fitch Ratings assigned Namibia a sovereign long-term foreign currency rating of "BBB" in early December 2005. ### Payment systems and crisis management - Payment systems: - Real time gross settlement system (NISS) operational since June 2002; retail transactions included from mid-2004. - BON requires domestic transactions to settle through the NISS: high-value ~ "70 percent" by value; retail clearing "8 percent"; check clearing "22 percent". - Credit and debit card clearing routed through South Africa but set to be taken over by Namclear in March, 2006. - BON powers and crisis arrangements: - BON has lender of last resort (LOLR) facility and remedial powers under the Banking Institutions Act (BIA) including restricting credit extension, removing directors, assuming control, and applying to courts to wind up a bank (planned BIA amendments to address liquidator approval). - Crisis management requires coordination with South African regulators; regular meetings with SARB recommended under existing MOU. - Safety net includes a guarantee fund to cover stock brokers’ liabilities. ### Macroeconomic context and selected indicators (2000–2004, and 2005 series) - Real GDP growth (annual change): 2000: "3.5"; 2001: "2.4"; 2002: "6.7"; 2003: "3.5"; 2004: "6.0". - GDP at current market prices (N$ million): 2004: "36,905". - GDP per capita (US$): 2004: "2,764". - Consumer price inflation (period average): 2004: "4.1"; end-of-period 2004: "4.3". - Current account: surplus averaging "6.75 percent of GDP" over last five years (trade deficit offset by customs union revenues). - Public finance (percent of GDP, 2004): Gross investment "25.5"; Gross domestic savings "22.9"; Revenue and grants "31.3"; Expenditure and net lending "33.3"; Overall government deficit including grants "−2.0"; Public debt outstanding/GDP "33.4". ### Priority recommendations (immediate and medium-to-longer term — selected) - Strengthen regulatory and supervisory framework: - Immediate: Strengthen NAMFISA (appoint experienced CEO); collect, compile, and analyze NBFI data; carry out effective on- and off-site supervision; fully implement solvency frameworks. - Immediate: Address banking supervision weaknesses to comply with Basel Core Principles. - Immediate: Supervise deposit-taking specialized financial institutions on same basis as commercial banks. - Immediate: Update laws to regularize money market unit trusts and unit-linked insurance products; regulate asset managers; introduce an "appointed actuary" concept. - Immediate: Give NAMFISA a clear mandate to regulate market conduct. - Medium/longer-term: Build capacity to monitor systemic financial stability and sector developments; move to risk-based supervision and risk-based solvency regimes. - Improve reach and effectiveness of the financial system: - Immediate: Improve transparency of banks’ fees and charges; encourage banks to offer products for low income and rural customers. - Immediate: Foster competition by remaining open to reputable entrants; leverage PostBank; support credit unions. - Medium/longer-term: Abolish or substantially raise the usury act ceiling and introduce a consumer credit act with truth-in-lending provisions; re-examine specialized institutions’ role. - Create domestic investment opportunities: - Immediate: Revisit proposals to tighten domestic investment requirements; "do not implement the proposal to require 5 percent investment in unlisted Namibian securities." - Immediate: Promote asset securitization by enacting appropriate legal framework; move ahead with systemic liquidity management. - Medium/longer-term: Remove impediments to development of asset managers specializing in private equity; promote leasing and factoring through legal and regulatory frameworks. - AML/CFT: - Immediate: Put in place an AML/CFT framework consistent with international best practice. *Source: _cr0783 - IMF staff report text as provided in the supplied content unit.* ### 1. Banks’ Performance in Selected Countries, 2004................................................................14 ### 1. Banks’ Performance in Selected Countries, 2004 ### Overall assessment and key recommendations - Namibia has one of the most sophisticated, diverse, and highly developed financial systems in Africa. Most financial institutions are private, with strong ownership links to South African institutions. - Structural characteristics: very high economic inequality; huge disparity between formal and informal sectors; financial system serves the formal sector well but limited access for urban poor and rural population. - Institutional investor behavior: limited domestic investment opportunities have led institutional investors to invest heavily overseas. - Skills gap: an acute deficit of skilled financial professionals. - Policy implication: solutions extend beyond the financial sector and include education, land reform, and rural development. ### Major risks to systemic stability - Primary exposure: commercial banking sector is mostly exposed to credit risk, mainly from banks’ exposure to the real estate sector, mostly in the form of mortgages. - Concentration risk: banks are vulnerable to simultaneous withdrawal by large institutional depositors. - Correlation risk: Namibia’s size and narrow economic base imply high correlation of borrower performance across sectors. - Resilience indicators: - Banking sector is mature, very profitable, and well-capitalized. - Key financial soundness indicators suggest resilience has strengthened in recent years. - Stress tests confirm system can withstand extreme but plausible macroeconomic shocks (credit, interest rate, exchange rate, liquidity). - Stress test scenarios examined included higher interest rates, increasing nonperforming mortgage loans, and further appreciation of the rand and therefore the Namibian dollar. - Pension funds and insurance companies face interest rate, equity, and country risks. Equity allocation is high compared with other emerging markets but in line with developed country practice. Pension funds and insurance companies invest heavily abroad. - Data and supervision weaknesses prevent definitive conclusions on solvency and performance of pension funds and insurance companies. - Note: Stress testing did not explore implication of de-pegging with the rand because (i) required data does not exist; and (ii) such an event would invalidate economic relationships and assumptions embodied in stress tests. ### Cross-border and regional issues - Close ties with South Africa provide benefits: - Access to regional and global financial markets for diversification. - More efficient capital allocation within the Common Monetary Area (CMA). - Strong ownership links and common good practices with South African institutions mitigate domestic supervision and skill weaknesses. - The peg provides predictability in the exchange rate. - Risks from ties to South Africa: - Limited avenue for independent monetary and financial policies given the CMA. - More limited options for global diversification due to need to conform to South African exchange control practices for countries outside the CMA. - Possibility that shocks in South Africa can be quickly propagated to Namibia. - Mitigants and observations: - Requirement for foreign-owned financial institutions to be set up as subsidiaries. - Banks have little direct cross-border exposures as they fund and invest mostly domestically. - Pension funds and insurance companies invest a significant proportion of assets in South Africa. - Namibia’s economy is closely integrated with South Africa. ### Regulatory and supervisory frameworks - Overall: broadly satisfactory frameworks but significant shortfall in implementation, especially for the Nonbank Financial Institutions (NBFI) sector. - NAMFISA shortcomings: - Failure to compile, verify, analyze, and disseminate accurate and reliable data on NBFIs. - Failure to carry out effective off- and on-site supervision and to implement solvency requirements for insurance companies and pension funds. - Banking supervision gaps: - Lack of supervision of bank holding companies and financial groups. - Absence of regulatory requirements on market and country risks. - Excessive emphasis on compliance and insufficient focus on banks’ risk profiles. - Shortcomings primarily caused by lack of knowledge and skills among supervisors. ### Access to financial services - Access to finance is better than in other Sub-Saharan African countries but still very limited. - Contributing factors: pervasive rural poverty; growing population of urban shack dwellers with widespread unemployment; relatively high fees for banking services, especially checking accounts. - Microfinance: a range of microfinance institutions has evolved. - Specialized financial institutions (aside from PostBank) have had very limited success in broadening access. ### Domestic investment and financial markets - Limited domestic investment opportunities and limited avenues for diversification have resulted in capital outflows and increasingly large net claims on South Africa, putting pressure on Namibia’s reserve levels. - Recommendation for development: asset securitization, leasing and factoring, private equity development, domestic money and foreign exchange markets. - The Bank of Namibia (BON) should develop capacity to manage systemic liquidity. ### Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) - AML/CFT policies and practices are nascent and do not meet international standards. - Legislation providing an AML/CFT framework is in draft form and will take some time to be enacted. - The AML/CFT assessment is being prepared by the World Bank team; the ROSC would be issued in spring 2006. ### Recommendations (immediate and medium-to-longer term) - Strengthen regulatory and supervisory framework: - Immediate: Strengthen NAMFISA by appointing an experienced and respected CEO; NAMFISA should collect, compile, and analyze NBFI data; carry out effective on- and off-site supervision; fully implement current solvency frameworks. - Immediate: Address weaknesses in banking supervision to fully comply with Basel Core Principles (BCP). - Immediate: Supervise deposit-taking specialized financial institutions on the same basis as commercial banks. - Immediate: Update laws to regularize money market unit trusts and unit-linked insurance products, regulate asset managers, and introduce an “appointed actuary” concept. - Immediate: Give NAMFISA a clear mandate to regulate market conduct. - Medium to longer-term: Build capacity to monitor systemic financial stability and general sector developments. - Improve reach and effectiveness of financial system: - Immediate: Improve transparency of banks’ fees and charges. - Immediate: Encourage banks to introduce products targeted at low income and rural customers as has been done by parent banks in South Africa. - Immediate: Foster greater competition by remaining open to reputable entrants, leveraging PostBank’s reach, and supporting credit unions. - Medium to longer-term: Abolish the usury act or raise the usury ceiling substantially; instead introduce a consumer credit act with truth-in-lending provisions. - Medium to longer-term: Re-examine role and rationale of specialized financial institutions. - Create domestic investment: - Immediate: Revisit proposals to tighten requirements to invest in domestic assets; do not implement the proposal to require 5 percent investment in unlisted Namibian securities. - Immediate: Promote asset securitization by enacting the appropriate legal framework. - Immediate: Move ahead with plans for more active systemic liquidity management. - Medium to longer-term: Examine and remove impediments to development of asset managers specializing in private equity. - Medium to longer-term: Promote leasing and factoring by enacting an appropriate legal and regulatory framework. - AML/CFT: - Immediate: Put in place an AML/CFT framework consistent with international best practice. ### Strengthening monitoring and coordination - Medium-term priority: strengthen capacity to monitor and assess emerging threats to systemic financial stability, with particular attention to threats arising from outside Namibia. - Need for closer coordination with South African regulators to manage contagion or parent institution problems. - Recommendation: establish a dedicated group or department (usually in central bank or regulator) to monitor developments with parent institutions and cross-border exposures. ### Macroeconomic environment (background) - Since independence in 1990 Namibia has enjoyed macroeconomic stability. - Exchange rate and fiscal context: credibility underpinned by a peg with the South African rand and generally prudent fiscal policies. - Real GDP growth: averaged 4.5 percent in the last five years, driven by construction, diamond and other mining, and transport and communications. - Consumer price inflation: declined from 9 to 4 percent as the Namibian dollar appreciated with the rand. - Current account: registered a surplus averaging 6.75 percent of GDP in the last five years as the trade deficit was offset by customs union revenues. *Source: _cr0783 - 1. Banks’ Performance in Selected Countries, 2004* ### 14. Economic growth, however, has been insufficient to generate a reduction in ### _cr0783 - 14. Economic growth, however, has been insufficient to generate a reduction in ### Economic growth, labor market, and poverty - Namibia’s per capita GDP is described as "among the highest in Africa," yet per capita growth "lags behind that of other countries in the region." - Income distribution is "highly skewed," reflecting an uneven distribution of land and rigid segmentation between highly developed services and primary production industries and a large informal sector. - Key constraints on labor market outcomes: - Lack of labor-intensive industries. - Labor market rigidities. - Shortage of skilled labor. - Outcomes: - Unemployment rate "above 30 percent." - Problems compounded by "the high incidence of HIV/AIDS." ### Structural constraints on policy options - Namibia’s economic structure limits financial-sector policy options: - "Narrow economic base, small population, vast geographical expanse, and unequal distribution of wealth and capital." - Other real sector policies must be in place to effectively address financial sector concerns. - Key challenges to address: - Need for increased employment and income generation. - Lack of skills especially in finance. - Shortage of entrepreneurs. - Need to create the appropriate environment to facilitate doing business. ### Common Monetary Area (CMA): benefits and risks - Benefits of CMA membership: - Free capital flows allow for more efficient allocation of capital among CMA member countries. - Access to South Africa’s financial markets helps financial institutions diversify risks. - The peg to the rand has helped reduce inflation and provide predictability in exchange markets. - Risks and constraints: - Namibia’s monetary policy must follow South Africa’s. - Capital can "flow rapidly in response to macroeconomic or exchange rate shocks." - Open capital market limits how "independent" financial policies can be from South Africa. - CMA requires Namibia to conform to South African exchange control practices for countries outside the CMA, limiting options for global diversification and constraining investment options of pension funds and insurance companies. - Further South African account liberalization should "minimize distortions imposed by exchange controls." - Footnote summary (as in source): - CMA: Lesotho, Namibia, South Africa, and Swaziland under the Multilateral Monetary Agreement of 1992. - Namibian dollar pegged one-to-one to the South African rand; the rand is also legal tender. - CMA guarantees free capital flows among member countries and access for the Namibian government and financial institutions to South Africa’s financial markets. - South Africa compensates Namibia for lost seigniorage due to the rand circulating in Namibia. ### Financial system structure and size - Namibia has "one of the most sophisticated and highly developed financial systems in Africa." - Total financial system assets are "about 170 percent of GDP." - System composition (as described): - Four private commercial banks. - About 30 insurance companies. - 500 pension funds. - A stock exchange. - A number of asset management and unit trust management companies. - Several specialized lending institutions. - A large number and variety of microlending institutions. - Ownership links: "Most of these institutions are private with strong ownership links to South African institutions." - Government policy since independence: encouraged or required "Namibianization": - Foreign banks and insurance companies required to set up subsidiaries. - Banks are required to maintain at least "100 percent" of their liabilities in local assets (footnote: "Banks are required to maintain not less than 100 percent of the amount of the liabilities in Namibian dollars (excluding capital funds) in local assets situated in Namibia."). ### Commercial banks and specialized financial institutions: performance and vulnerabilities - Financial intermediation: - Private sector credit to GDP "slightly over 50 percent." - About "40 percent" of banks’ loans are individual mortgages. - Deposits comprise "more than 90 percent" of total liabilities and are highly concentrated. - Lending and access constraints: - Lack of collateral and distance between rural villages and urban centers limit access to credit for SMEs and rural borrowers. - Soundness indicators (reported, end 2005 or 2004 where specified): - Sector-wide capital adequacy ratio (CAR) "15 percent" at end 2005. - NPLs "2 percent." - Return on equity (ROE) "28 percent." - Comparative performance (2004 figures): - Namibia ROA "2.0 percent" and ROE "21.6 percent" (compared with SSA averages: ROA "1.9 percent", ROE "16.3 percent"). - Table 1 (Banks’ Performance in Selected Countries, 2004) — selected figures preserved exactly: - Namibia: Total Assets "1,045 Mil USD"; Return on Average Equity (ROAE) "21.6 percent"; Return on Average Assets (ROAA) "2.0 percent"; Net Interest Margin "4.36 percent"; Cost to Income Ratio "61.8 percent"; NPL "2.4 percent"; CAR "15.4 percent". - South Africa: Total Assets "52,979 Mil USD"; ROAE "30.6 percent"; ROAA "1.5 percent"; Net Interest Margin "3.85 percent"; Cost to Income Ratio "59.9 percent"; NPL "1.8 percent"; CAR "13.5 percent". - Botswana: Total Assets "510 Mil USD"; ROAE "56.6 percent"; ROAA "4.8 percent"; Net Interest Margin "7.24 percent"; Cost to Income Ratio "41.5 percent"; NPL "2.8 percent"; CAR "20.6 percent". - Lesotho: Total Assets "169 Mil USD"; ROAE "27.9 percent"; ROAA "2.9 percent"; Net Interest Margin "4.55 percent"; Cost to Income Ratio "58.1 percent"; NPL "......"; CAR "......". - Swaziland: Total Assets "154 Mil USD"; ROAE "40.7 percent"; ROAA "3.4 percent"; Net Interest Margin "6.56 percent"; Cost to Income Ratio "61.8 percent"; NPL "......"; CAR "......". - Sub-Saharan Africa: ROAE "..."; ROAA "1.9 percent"; Net Interest Margin "......"; Cost to Income Ratio "14.7 percent"; NPL "16.1 percent". - Sources: Bankscope, Bank of Namibia, and Staff estimates. (Table note: "1/ Simple average of largest banks in each region.") - Stress testing (system resilience and main vulnerabilities): - Main vulnerabilities: credit and liquidity risks; exchange and interest rate risks are negligible. - Credit risk mainly from household mortgages. - Even under the worst case credit-risk scenario, "only one bank’s CAR falls to 6 percent." (Footnote: "The minimum required CAR is 10 percent.") - Concentration of large institutional depositors means all banks would be adversely affected by withdrawal of large depositors; mitigated by deposits and credit lines with parent banks in South Africa. - Specialized financial institutions: - Government efforts to broaden access via specialized institutions have had "very limited success," except PostBank. - Problems: economies-of-scale, large operational costs relative to outputs, decreasing interest rates reducing margins, relatively large NPLs exacerbating the situation. - NPLs in Agribank and National Housing Enterprise (NHE) "are both about 12 percent." - Efficiency and effectiveness problems and emerging prudential concerns necessitate revisiting the role and effectiveness of these institutions. ### Banking sector balance sheet and market indicators (selected exact figures and descriptions) - Banking system asset composition (percent of total, as presented): - Individuals' mortgages "37.7" - Individuals' other loans "14.7" - Business mortgages "5.3" - Financial and insurance "5.2" - Trade, accommodation and utilities "5.3" - Agriculture, forestry and fishing "9.5" - Others "9.9" - Net loans and advances "74.5" - Government Securities "8.1" - Cash and deposits "5.8" - Others "11.5" - Share of 10 largest depositors "33.7" - Liquidity measures and intragroup funding described as adequate and showing "Liquid assets (core measure) to total deposits" and broad measures across 2001–Jun-05 time series (figures shown graphically in source). ### Stress testing results (Table 2) — selected preserved numeric results - Baseline CAR (Total) "14.7" - Baseline Liquidity Ratio (Total) "11.1" - Sensitivity analysis — selected scenarios (Change in CAR, Total): - 1. Overall increase of NPLs by 100 percent: "-1.4" - 3. 10 percent of mortgages become NPLs: "-2.0" - 4. 20 percent of mortgages become NPLs: "-4.2" - 5. 30 percent of mortgages become NPLs: "-6.4" - 6. 30 percent of loans in agriculture and fish sector become NPLs: "-1.4" - Default of largest exposure (Total): "-1.3" - Default of five largest exposures (Total, where available): values include "-4.0", "-5.9", "-5.3" for individual banks and aggregated where reported; some entries "n.a." - Liquidity risk (Change in Liquidity Ratio, Total): - Withdrawal of 5 largest depositors: "-27.8" - Withdrawal of 10 largest depositors: "-45.2" - Interest rate risk (Change in CAR, Total): - Reduction in rate by 500 bps: "-3.3" - 50 percent drop in government securities yield: "-0.2" - Exchange rate risk (Change in CAR, Total): - Depreciation of 30 percent: "0.1" - Depreciation of 90 percent: "0.4" - Appreciation of 30 percent: "-0.1" - Appreciation of 90 percent: "-0.4" - Macroeconomic scenarios (Change in CAR, Total): - Scenario I: "-2.8" - Scenario II: "-4.8" - Source: "Staff estimates." ### Nonbank financial institutions (NBFIs): supervision, pensions, and insurance - Supervision: - NBFI sector "by and large, under-supervised." - NAMFISA authorized to regulate and supervise NBFIs but "has not been able to develop the capacity to analyze and respond to developments in the sector." - Lack of comprehensive and reliable data impedes thorough analysis of pension funds, insurance companies, and unit trusts; analysis should be "interpreted with caution." - Pension funds: - Sector is "well developed in terms of total assets size" and "advanced stage of maturity." - Ratio of benefits, including net transfers, to contributions is "higher than 60 percent." - Asset allocation (GIPF Asset Allocation, 2005, as presented): - Equities "57.8" - Unit Trusts "13.6" - Government Securities "15.6" - Cash & Deposits "10.7" - Loans "1.5" - Derivatives "0.7" - Insurance Policies "0.7" - Debentures "0.1" - Data show "about 60-70 percent" of assets invested in equities and unit trusts. - Holdings of government bills and bonds have fluctuated between "10-20 percent." - Under regulation 28, pension funds are required to invest a minimum of "35 percent" in local assets; flexible implementation includes dual listed equities on the Namibia Stock Exchange (NSX) as local assets. - The GIPF has suffered large losses—"over 50 percent"—in its Development Capital Portfolio investments aimed at domestic unlisted companies. - Pension funds have returned nominal returns that "have exceeded the rate of inflation by a significant margin" (available data cover a very short period and mostly GIPF). - Operating expenses: besides GIPF, other pension funds' operating expenses "appear relatively high"; GIPF operating expenses are charted. - Insurance: - Long-term insurance: - Growth in long-term insurance assets and premiums "have been volatile," possibly due to statistical coverage errors. - Total assets of long-term insurers "equivalent to about 40 percent of GDP as of March 2004." - Annual premiums of long-term insurers "corresponded to nearly 6 percent of GDP for the 12 months ending in March 2004." - Data constraints prevent meaningful analysis of solvency and investment performance. - Close ties between pension and life insurance industries suggest investment performance follows that of major pension funds. - Short-term insurance: - Less well-developed; annual premiums amount to "2.6 percent of GDP." - Partly explained by absence of compulsory third-party motor liability (footnote: compensation for loss of life and bodily injury from car accidents provided by a fund financed from a tax on gasoline sales). - Large industrial and commercial risks often insured overseas, mainly South Africa. - Loss ratios are low at "55 percent." - Local product and personal liability lines "are not yet well-developed." ### Regulatory and supervisory frameworks: banking and specialized institutions - Banking supervision: - Frameworks "broadly satisfactory" with a good legal and regulatory environment. - The Bank of Namibia (BON) has adequate supervisory powers, although its current remit is "too narrow." - Weaknesses in implementation and conduct of supervision: - Major gaps identified in the BCP assessment: - Lack of supervision of bank holding companies and financial groups. - Absence of regulatory requirements on market and country risks. - Supervision overly focused on compliance with regulations rather than analysis of banks’ risk profiles, taking into account materiality. - Shortcomings primarily caused by lack of necessary knowledge and skills among supervisors and insufficient risk-based supervision methodologies. - Scope of supervision: - Recommendation/position: "All deposit-taking institutions should be supervised by the BON, regardless of their ownership." - Current situation: - BON regulates and supervises the four commercial banks. - Four specialized financial institutions are established under separate legislation, exempting them from BON supervision. - NHE and Agribank seeking more deposits due to reduced margins and liquidity problems; as these institutions take more deposits, prudential oversight urgency increases. - BON should supervise smaller deposit-takers (e.g., large Savings and Credit Cooperatives (SACCOs) or credit unions) "with a lighter touch." - Operational risk note: operational risks due to outdated systems are highlighted as important for specialized institutions. *Source: _cr0783 - 14. Economic growth, however, has been insufficient to generate a reduction in (PDF chapter/section).* ### 33. Following its October 2005 decision in principle to implement Basel II, the BON ### _cr0783 - 33. Following its October 2005 decision in principle to implement Basel II, the BON ### Banking supervision and Basel II implementation - Findings and considerations: - The BON decided in principle in October 2005 to implement Basel II. - Priority: fully comply with the BCP before implementing Basel II. - Implementing Basel II will take a number of years and will require significant enhancement of BON’s supervisory capabilities. - Recommended sequencing and approach: - Assess the impact of Basel II on the Namibian banking system and its supervision before setting any timeframe. - Consider phased implementation: - Start with pillars 2 and 3 (supervisory review and market discipline). - Possibly adopt the standardized approaches of pillar 1 (capital adequacy) initially. - Delay allowing any bank to use internal rating based approaches for supervisory purposes until capacity is adequate. - Ensure BON remains fully on top of the technical issues involved. - Systemic monitoring: - Strengthen capacity to monitor and assess emerging threats to systemic financial stability. - Monitor credit risks such as those arising from household mortgages. - Supervisors should be aware of developments outside Namibia given possible contagion to Namibian institutions. - Consider creating a dedicated group or department (as done in many central banks) to monitor systemic threats and to formulate sector-wide policy responses. ### Nonbank Financial Institutions (NAMFISA) - Urgent capacity-building priorities: - Strengthen NAMFISA to regulate and supervise NBFIs effectively. - Put in place a comprehensive plan to build capacity, including targeted training for staff and proactive management of public perception of credibility. - Immediate priority: appointment of a CEO with relevant experience. - NAMFISA’s Board should be independent, equipped with requisite financial sector expertise, and accountable to both industry and government. - Appoint a qualified and experienced actuary; as an interim measure, engage an actuarial consultant to assist with current solvency regimes and medium-term development of a risk-based solvency framework. - Data, verification, and analysis shortcomings: - NAMFISA fails to compile, verify, analyze and disseminate accurate and reliable data on the financial soundness and performance of NBFIs under its authority. - Lack of systems and skills to compile and analyze data. - Implementation of the Bank Supervision Application is a positive step but more is needed to collect relevant regulatory data and improve capacity to verify and analyze that data. - Supervision and solvency oversight: - Verify that pension funds and insurance companies are solvent, well run, and managing risks appropriately. - Off-site in-depth analysis of financial statements and quarterly returns is the first step to identify weak institutions for regulatory intervention. - NAMFISA needs to carry out on-site examinations and implement solvency regimes for insurance companies and defined benefit pension funds. - Introduce “appointed actuaries” under the insurance legislation as soon as practicable; insurers and pension funds meeting certain criteria (such as size) should be required to have an “appointed actuary”. - Legislative and regulatory reforms: - Regularize asset management services, money market unit trusts and unit-linked life policies under the law as soon as possible. - Strengthen NAMFISA’s powers in conjunction with modernizing Namibia’s financial services laws to align with international best practices. - Move to a risk-based supervision framework in the medium term to prioritize limited supervisory resources by risk profile and impact. - Supplement risk-based supervision with risk-based solvency or capital regimes. - Consider entrenching broad corporate governance principles in legislation, supplemented by a code of corporate governance. - Address market conduct regulation gap by working with industry associations to develop market conduct rules covering: - Separation of client and firm accounts, - Know-your-client rules, - Fact-finding on clients’ protection and investment needs, - Disclosure of risks, fees, and commissions. - Grant NAMFISA an explicit mandate for market conduct regulation. ### Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) - Current status: - Namibia does not have an AML/CFT framework in place. - The Prevention of Organized Crime Act (criminalizing money laundering) was passed in December 2004 but has not been put into effect by the Ministry of Justice. - The Financial Intelligence Bill was recently tabled in parliament. - The Anti-Terrorism Activities Bill is still in draft form with no time frame for tabling. - Interim measures and shortcomings: - BON has used powers under the Banking Institutions Act (BIA) to issue general anti-money laundering related determinations and circulars, but with limited success; they fall short of compliance with international standards and are not sufficient to ensure industry compliance. - All South African owned banks and larger insurance companies have adopted home office AML/CFT policies to some degree. ### Legal, judicial, and accounting frameworks - Creditor rights and accounting: - Creditor rights are reasonably well established. - The accounting framework is set to comply with International Financial Reporting Standards (IFRS). - Oversight weaknesses: - Current arrangements for oversight of the accounting profession are not effective. - The Public Accountants and Auditors Board (PAAB) is responsible for authorizing chartered accountants, supervising activities, receiving reports on irregularities, and taking disciplinary actions or alerting Namibian authorities. - PAAB has not been able to operate since March 2005 because some members have not been replaced. - PAAB has transmitted three to five reports concerning irregularities on financial statements each year since 1990 to the Prosecutor General, but it seems no action has been taken by the Prosecutor General. ### Access to financial services — Overview and affordability - Structural constraints: - Access to finance in Namibia is better than in other SSA countries but still very limited due to: - Pervasive rural poverty, - A growing population of urban shack dwellers with widespread unemployment, - Low population density, - Existence of an affluent population segment and a corporate sector concentrating existing financial services. - Usage statistics and indicators: - Less than 15 percent of the population use transaction, credit or insurance services. - The use of savings products is relatively high at 45 percent of the population. - Selected country loan and deposit access indicators (as presented): - Namibia: - Loan per 1,000 people: 80.7 - Loan-income ratio: 5.2 - Deposit accounts per 1,000 people: 423.0 - Deposit-income ratio: 1.3 - GDP per capita: 2,312 - Brazil: - Loan per 1,000 people: 49.6 - Loan-income ratio: 6.2 - Deposit accounts per 1,000 people: 630.9 - Deposit-income ratio: 0.4 - GDP per capita: 2,788 - Kenya: - Loan per 1,000 people: ... - Loan-income ratio: ... - Deposit accounts per 1,000 people: 70.0 - Deposit-income ratio: 6.3 - GDP per capita: 434 - Mauritius: - Loan per 1,000 people: 207.1 - Loan-income ratio: 2.8 - Deposit accounts per 1,000 people: 1,586.0 - Deposit-income ratio: 0.5 - GDP per capita: 4,265 - Turkey: - Loan per 1,000 people: 264.5 - Loan-income ratio: 0.7 - Deposit accounts per 1,000 people: 1,114.2 - Deposit-income ratio: 0.7 - GDP per capita: 3,365 - Uganda: - Loan per 1,000 people: 5.8 - Loan-income ratio: 10.7 - Deposit accounts per 1,000 people: 46.6 - Deposit-income ratio: 3.9 - GDP per capita: 245 - Zimbabwe: - Loan per 1,000 people: ... - Loan-income ratio: ... - Deposit accounts per 1,000 people: 173.6 - Deposit-income ratio: 8.0 - GDP per capita: 634 - Medians and group medians shown: - Median: Loan per 1,000 people: 80.6; Loan-income ratio: 3.8; Deposit accounts per 1,000 people: 528.9; Deposit-income ratio: 0.7 - LIC Median: 75.5; 4.2; 423.0; 0.8 - HIC Median: 482.1; 2.2; 1,986.0; 0.4 - Banking services and competition: - High fees reflect high service levels and limited competition. - Banks disclose only maximum fees; actual fees are unknown and fee structures are complicated and hard to compare. - Encourage banks (including South African parents) to introduce products targeting low-income groups. - Longer-term measures to foster competition: - BON should remain open to new reputable entrants. - A strong and efficient PostBank could provide affordable services and compete with banks; postal savings bank fees are already significantly lower than banks for similar services. - Encourage credit unions, especially among civil servants or employees of large companies, as they can operate with low spreads and focus initially on savings mobilization and short-term loans. ### Microfinance, consumer credit, and housing finance - Microfinance: - Main challenge: expand supply of microcredits in urban and rural areas. - Stimulate spread of Savings and Credit Associations (SCAs) and increase commercial lenders engaging in microcredit (e.g., by changing the usury act). - Emergence of credit unions could fill gaps. - Usury act and consumer protection: - The usury act should be replaced; it is not protecting the poor: - Microlenders charge rates higher than the usury ceiling due to lending risks. - Some term lenders require purchase of expensive credit life insurance that raises total cost to 3 or 4 times the prime rate. - The cap on charges is not binding and inhibits competition by discouraging reputable entrants. - Recommend a consumer credit act with truth-in-lending provisions to increase transparency and disclosure, grant regulator power to take prompt action against serious misconduct, and consider establishing an ombudsman office for complaints and disputes across consumer financial services. - Housing finance: - Mortgage lending for high- and medium-income households is well-developed. - Insufficient supply of low-cost housing to meet urbanization; foreclosure proceedings efficient. - Level of arrears generally in the range of 1–3 percent, except NHE’s case at 12 percent. - Legal uncertainties in some land tenure forms impede housing finance; significant land remains under customary or informal possession, excluding many occupants from mortgage finance. - Clarify legal status of long term leases so they can be collateralized; new legal provisions are being considered. ### SME finance, specialized institutions, and informational infrastructure - SME finance: - SME access to finance is limited due to: - Banks’ preference for collateral, - Underdevelopment of leasing and factoring, - Nascent private equity and venture capital, - Ineffectiveness of specialized financial institutions and the Small Business Credit Guarantee Trust (SBCGT). - SBCGT guarantees suffer from poor credit appraisals and monitoring, and weak loan recovery by participating banks. - Two commercial banks have recently established specialized SME divisions. - Specialized financial institutions: - Widespread efficiency and effectiveness problems and emerging prudential concerns require revisiting their role and effectiveness. - Their products and business models overlap with other financial institutions that may perform functions more efficiently. - Reviews should assess efficiency and question current business models and alternative policy instruments to meet original goals. - Informational infrastructure: - Credit reference bureaus should collect positive information in addition to negative information to promote competition, reduce credit risk and lower collateral requirements. - The two credit reference bureaus are not overseen by any official agency; their operations should be covered by future consumer protection legislation. ### Capital flows and domestic investment opportunities - Domestic market limitations: - Limited investment opportunities in domestic financial markets have led to sizable outflows of Namibian savings to South Africa. - Namibia has increasingly large net claims on South Africa, putting pressure on reserve levels. - Components of outflows: - Main contributors to capital outflows are net outflows in both portfolio investment and other investment, which offset net inflows in direct investment. *Source: _cr0783* ### 58. The authorities have tried to stem these outflows by requiring institutional ### _cr0783 - 58. The authorities have tried to stem these outflows by requiring institutional ### Capital outflows, reserve stance, and competitiveness - Authorities attempted to restrict outflows by requiring institutional investors to invest a portion of pension or life insurance funds in domestic instruments. - Such regulations are unlikely to be effective because individuals remain free to invest directly in other CMA countries, and restrictions could make Namibian pension funds or life insurance companies less competitive within the CMA. - As a small country, Namibian investors benefit significantly from access to broader markets for diversification. - Persistent and continuous capital outflows: - averaged around N$1.8 billion per year from 1990 to 1994; - accelerated to about N$2.4 billion per year since 1995. - A positive interest rate differential with South Africa and more attractive domestic investment opportunities are judged more effective for increasing reserves or attracting capital flows. - If reserves are too low, the authorities should be prepared to incur the costs of obtaining those reserves; such costs will eventually be reflected in the BON’s financial position. ### Enhancing domestic investment opportunities (policy direction) - Strengthen the financial sector’s role in allocating, assessing, and managing risks; and in market development, instead of imposing investment mandates on institutional investors. - Required capabilities and reforms: - establish a critical mass of asset managers skilled in entrepreneurial development (private equity, venture capital); - expand information sharing and monitoring to improve awareness of risks and returns; - strengthen corporate governance and risk management in insurance companies and pension funds. - Suggested market-development initiatives: - (i) establish a vibrant private equity industry with specialized asset managers to create more domestic investment opportunities; - (ii) promote leasing and factoring companies to help develop private securities markets; - (iii) develop asset securitization. ### Critique of tightening domestic investment requirements - The case for tightening domestic investment requirements is not convincing; changes must weigh macroeconomic impacts, potential costs to beneficiaries in terms of returns and solvency, and the availability of domestic investment opportunities. - Available information indicates the performance of domestic instruments has been less than satisfactory, casting doubt on proposals to compel large allocations to domestic securities. - Mandatory allocations risk: - lowering investment returns; - channeling funds to unworthy projects; - asset price inflation and risky behavior where investment opportunities are rare; - efforts to circumvent regulation. - Specific concern: the proposed requirement to invest 5 percent of assets in unlisted Namibian securities is described as "highly risky": - depending on calculation and imposition, it could lead to continuous losses for institutional investors; - prudential rules currently limit such investments to a maximum of 5 percent; mandating them increases concentration and risk. ### Developing domestic money, FX, and government securities markets; BON liquidity operations - BON actions to develop markets and liquidity management: - more actively manage domestic liquidity conditions; - foster FX market development by facilitating price discovery, welcoming participation by other large institutions such as NBFIs, and participating more actively in the market by buying and selling foreign exchange where consistent with broader monetary policy; - continue efforts to develop a liquid secondary market for government securities; - ensure lending facilities do not discourage interdealer trading. - Operational recommendations for BON monetary management: - continue developing capacity to manage short-term liquidity through open market operations using repos and reverse repos; - improve liquidity forecasting and establish transparent and efficient operational frameworks (criteria for counterparts, master repurchase agreement); - build up a stock of government securities for use in monetary operations (BON could purchase government securities in the secondary market); - consider raising the call deposit rate to offset liquidity injections; - agree MOF–BON arrangements to compensate BON for monetary-operation losses from the budget where necessary; - review banks’ automatic access to overnight liquidity facilities and apply a penalty rate for use where appropriate. - Trade-offs and constraints: - more active liquidity management could entail additional costs for the BON and potential losses; - BON does not currently hold enough government securities for monetary operations. ### Systemic liquidity, payment systems, and crisis management - Money and FX markets are essentially extensions of South African markets due to close institutional ties with South Africa and the CMA; regional markets are more liquid and lower cost, limiting local market activity and BON’s scope for monetary operations. - Payment system developments: - Real time gross settlement system (NISS) fully operational for large and retail transactions since mid-2004; - Credit and debit card clearing routed through South Africa but to be taken over by Namclear in March, 2006; - no formal 'failure to settle' rules in place; banks pledge adequate collateral for repos to cover shortfalls. - BON’s legal and remedial powers: - under the Banking Institutions Act (BIA), BON can require corrective actions (restrict credit extension, restrict dividend payments), remove directors and officers, assume control of banking activities, appoint persons to conduct business, and apply to courts to wind up a bank (but currently cannot ensure liquidator approval—planned BIA amendments will remedy this). - Crisis management considerations: - major financial institutions are South African-owned; crisis management requires good communication with South African regulators; - BON should hold regular meetings with the South African Reserve Bank (SARB) as agreed under an existing Memorandum of Understanding (MOU); - Namibian regulators need vigilance and monitoring of parent institutions to react quickly to problems. - Safety net and existing facilities: - BON has a lender of last resort (LOLR) facility; - there is a guarantee fund to cover stock brokers’ liabilities. ### Basel Core Principles assessment — main findings and recommended actions - Assessment context: - BCP assessment conducted in accordance with "The Basel Core Principles for Effective Banking Supervision" (1997) and the "Core Principles Methodology" (1999). - Assessment drew on self-assessment by Namibian authorities and discussions with supervisors, the four Namibian banks, lawyers, accountants, and MOF. - High-level findings: - Namibia has enjoyed macroeconomic stability since independence; real GDP growth averaged 4.5 percent in the last five years. - Namibia’s financial system is sophisticated and highly developed in Africa: four commercial banks, around 30 insurance companies, many pension funds, asset management companies, unit trust management companies, specialized lending institutions, and microfinance organizations. - All banks have strong links to South Africa; three have majority South African ownership; banks appear well-capitalized, profitable, and well-managed. - IFRS will be directly applicable in Namibia with effect from 1 January, 2006. - There is no deposit insurance system in place and none is currently contemplated. - Compliance summary: - Namibia is Compliant with three of the BCPs, Largely Compliant with ten (including overall assessment of CP.1), Materially Non-Compliant with nine, and Non-Compliant with three. - CP.15 (anti-money laundering) is Materially Non-Compliant; a full assessment is being done by the AML/CFT team. - Key operational shortcomings: - supervisory staff need enhanced skills and knowledge; supervisory methods place excessive emphasis on compliance rather than banks’ risk profiles; - inadequate coverage of liquidity, interest rate, operational, and market risks in supervision and regulation; - off-site analysis is superficial and returns do not cover operational, market, and country risk adequately; - on-site work lacks comprehensive analysis of control environment and management; limited contacts with Boards and external auditors; meetings not coherently planned or minuted; - absence of consolidated supervision for banking groups, holding companies, and financial conglomerates. - Specific legal/institutional observations: - BON is de facto independent in operational matters but a potential legal ambiguity should be clarified; - BON’s powers are broadly satisfactory but specialized institutions and small micro-deposit-takers are not covered and should be remedied; - BON must approve appointment of banks’ external auditors; no direct links exist between BON and external auditors. - Recommended action plan (selected items from Table 4): - CP.16 (On-site and off-site Supervision): Ensure the full range of risks in banks is examined and prepare guidelines to help examiners. - CP.1.2 (Staffing and remuneration): Review training arrangements and need for expert staff; review arrangements to ensure financial and non-financial incentives reduce turnover and promote motivation. - CP.20 (Consolidated Supervision): Introduce a regime for banking groups, including Namibian holding companies, and financial conglomerates. - CP.12 (Market Risk): Introduce a market risk regime. - CP.13 (Other Risks): Issue detailed risk management requirements for operational, interest rate and liquidity risks, and set disclosure requirements for these. - CP.14 (Internal Control and Audit): Issue detailed internal control requirements and ensure examiners cover these; require banks to have two principal officers. - CP.11 (Country Risk): Introduce a country risk regime. *Source: IMF staff report text as provided in the supplied content unit.* ### Introduction and Methodology: Basel II Ensure full compliance with the BCPs and carry out an ### _cr0783 - Introduction and Methodology: Basel II Ensure full compliance with the BCPs and carry out an assessment of the impact of Basel II on both the system and the BON, before setting any timeframe for implementing Basel II. ### Authorities’ response - The authorities concurred with the assessment and are taking steps to implement the recommendations. ### The Common Monetary Area (CMA) and regional links - CMA membership: Lesotho, Namibia, South Africa, and Swaziland. - Historical evolution: - South African Reserve Bank (SARB) established in 1921; South African pound became common currency for territories now Botswana, Lesotho, Namibia, South Africa, and Swaziland. - 1974: Rand Monetary Agreement signed by Lesotho, South Africa, and Swaziland; Botswana pursued independent monetary policy with a flexible exchange rate. - 1986: Rand Monetary Agreement replaced by the CMA Agreement. - 1992: Multilateral Monetary Agreement (MMA) enacted when Namibia joined the CMA as an independent state. - Key provisions of the MMA: - Each country has its own central bank and currency but may allow the rand to circulate as legal tender. - CMA countries agree not to restrict capital flows within the CMA except for domestic investment requirements. - Governments and financial institutions of CMA countries have a right to access the South African capital and money markets; CMA countries agreed to harmonize their exchange controls with South Africa’s. - South Africa compensates other CMA countries for lost seignorage due to rand circulating within their borders. - CMA members may conclude bilateral agreements with South Africa on monetary policy and exchange rate policy. - Other regional arrangements: - SACU (Southern Africa Customs Union): established in 1910; includes CMA countries plus Botswana; revised in 2002 to give Botswana, Lesotho, Namibia, and Swaziland more say in policy; calls for free trade within SACU and a common external tariff; customs revenue allocated in proportion to intra-SACU imports; excise revenue allocation: 85 percent according to each member’s weight in SACU GDP and 15 percent according to deviations of per-capita GDP versus the average. - SADC (Southern Africa Development Community): established in 1992; includes Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe; aims to promote development, growth, and poverty alleviation via economic and political cooperation; 2000 SADC Protocol on Trade aims to establish Free Trade Area by 2008. - CISNA (Committee of Insurance, Securities and Nonbanking Authorities): Namibia is a member; aims to promote (i) sound regulatory frameworks, (ii) harmonized regulation of capital markets, investment services, insurance and retirement funds; and (iii) eventually, free flows of capital across the SADC region. ### Financial system structure — Introduction and context - Legacy and structural features: - Preindependence ties: commercial banks either controlled by South African parents or had strong ties with South Africa. - Pension funds and insurance companies developed under mining-sector and civil service emphasis on funded pensions. - Pension funds and insurance companies have sizeable assets under management (AUM), about 100 percent of GDP — one of the highest ratios among emerging market economies and almost three times as large as Namibia’s domestic debt and local equity markets. - "Namibianization" policies: - Foreign banks and insurance companies required to set up subsidiaries to operate in Namibia. - Banks must maintain at least 100 percent of their liabilities in local assets. - Pension funds and insurance companies required to invest at least 35 percent of their total AUM in Namibian assets. - Objective: ensure important decisions and operations are carried out in Namibia. ### Commercial banks and specialized financial institutions - Banking market structure: - Four commercial banks in Namibia. - Two banks control more than 60 percent of total assets, loans, and deposits. - Three of four commercial banks are subsidiaries of South African banks; Bank Windhoek’s largest shareholder is ABSA (36 percent). - Bank Windhoek positions itself as the only truly ‘Namibian’ bank; ABSA’s new owner (Barclays) may be interested in increasing its stake. - Banking groups often operate as financial conglomerates; two management companies controlled by banks have a 60 percent market share of assets under management in Namibia. - Business model and portfolio composition: - Banks offer commercial banking services, retail services, and mortgages (sometimes for periods as long as twenty years). - Mortgages constitute 43 percent of banks’ loan portfolios. - Little or no investment banking activity; some project loans in primary and industrial sectors. - Banks hold government securities and treasury bills; some trading in treasury bills. - Risk management often handled in South Africa or according to South African parent policies; rand peg reduces foreign exchange exposure. - Specialized state-owned institutions (total assets about N$2.5 billion, 7 percent of GDP): - PostBank: - Provides basic saving and remittance services via 120 outlets nationwide. - Largest geographical outreach among financial institutions. - Over 40 percent of households have savings accounts with PostBank. - Charges substantially lower than commercial banks. - Interest income on postal accounts is exempt from tax. - Does not engage in lending activities. - Deposits about N$600 million (1.6 percent of GDP). - Agribank: - Supports agricultural activity with short-term loans for crop production and medium- and long-term loans for investment. - Assets about N$1.2 billion (4 percent of GDP). - Provides special loans (affirmative action programs, national agricultural credit programs, government tractor scheme). - Not currently taking deposits from the general public but does take deposits from other parastatals and staff without explicit authorization. - DBN (Development Bank of Namibia): - Recently started operations. - Provides funding to new investment activities directly or via lines of credit to other financial institutions. - Does not take deposits. - NHE (National Housing Enterprise): - Set up to address housing needs; makes loans for home purchases and builds houses for sale. - Authorized to take deposits; currently has over N$5 million in deposits and N$500 million in total assets. - Supervision: - Bank of Namibia (BON) regulates and supervises the four commercial banks. - The four specialized financial institutions are established under separate legislation exempting them from BON supervision; audited by external auditors hired by them or by the Auditor General. ### Nonbank financial institutions (NBFIs) - Contractual savings sector: - Well-developed pension funds and life insurance companies with total assets around 100 percent of GDP. - Close links to South African institutions but considerable local expertise exists. - Pension funds: - AUM of N$21 billion in March of 2004, equivalent to 57 percent of 2003 GDP. - Over 500 pension funds, generally small and administered by external fund administrators. - Alexander Forbes largest pension fund administrator with about a 60 percent market share. - Small number of pension funds administered and insured by life insurance companies; these funds have total assets of N$2.4 billion (included with insurance company assets in statistics). - Largest pension fund: GIPF (civil servants and other government agencies), a defined benefit plan with net assets N$15.1 billion in March 2004, representing 73 percent of total pension fund assets. - Remaining N$5.6 billion held by various smaller funds, mostly defined contribution plans. - Average size of private pension funds is less than N$12 million. - Umbrella funds used to lower operating costs and enhance investment performance. - Notes: footnotes indicate total pension fund assets likely exceeded N$25 billion in March 2005 (68 percent of 2004 GDP) and total GIPF net assets rose to N$19 billion in March 2005. - Insurance industry: - Well developed but highly concentrated. - 16 long-term insurers and 12 short-term insurers (including one reinsurer). - Top 3 companies in each segment accounted in 2004 for 85 percent (long-term) and 86 percent (short-term) of total gross premiums written. - Total assets of long-term insurers N$13.3 billion in March 2004, corresponding to 39.2 percent of 2003 GDP. - Adding short-term insurers raises total insurance assets to 42.3 percent of GDP. - International investment and limits: - Pension funds and insurance companies invest extensively in overseas assets, mostly in South Africa due to close economic links and CMA eliminating currency risk. - Investments in non-CMA countries subject to exchange control limits applied by the South African Reserve Bank, currently set at 15 percent of assets. - Local investment requirement: - Pension funds and insurance companies subject to a minimum local investment requirement of 35 percent. - Domestic investments include domestic government bonds, bank deposits, securities of domestic companies, and shares of foreign companies that are dual-listed on the NSX (dual-listed companies qualify as domestic investment). - Reinsurance: - Namibian National Reinsurance Corporation (Namib Re) is the only registered reinsurer and is wholly government owned. - Namib Re has a market agreement with short-term insurers under which it has the option to underwrite up to 20 percent of their treaty and facultative reinsurance; this market agreement is due for review in 2006. - Asset management and unit trusts: - 29 registered asset managers, providing services mainly to pension funds and insurance companies; mix of South African affiliates and local groups. - Asset managers undertake balanced mandates; none specialize in particular market segments. - Eight registered unit trust management companies with AUM of N$8 billion: N$7 billion in money market portfolios and the balance in equity and balanced portfolios. - Management companies controlled by two domestic commercial banks have a 60 percent market share of AUM. - Unit trust industry growth driven by money market portfolios and tax-free status; management companies generally observe the 35 percent domestic asset requirement to attract institutional investors. - Leasing, factoring, and consumer credit: - Limited leasing and factoring activities; mostly carried out by retailers or auto companies. - Few specialized or independent factoring and leasing companies. - No specific consumer credit legislation governing these activities. - Regulation of NBFIs: - NAMFISA created in 2001 to regulate the NBFI sector (pension funds, insurance companies, asset managers, capital markets, microlenders). - Prior to 2001, responsibility rested with the Ministry of Finance (MOF). - Laws regulating short- and long-term insurance updated in 1998; legislation governing pensions, unit trusts, and securities markets have not been updated for many years but are considered appropriate in the short term. - Gaps identified: no laws covering asset managers, money market unit trusts, unit-linked insurance policies and products. - Microlending and informal finance: - Institutions active in microlending include term and cash lenders, SACCOs, SCAs, and stokvels. - Total outstanding microlending loans small: 0.9 percent of GDP. - Annual volume of disbursed loans about 1.1 percent of GDP due to many loans repayable monthly. - Term and cash lenders must register with NAMFISA and may apply financial charges up to a usury ceiling of twice the prime rate (currently 11.75 percent). - Usury ceiling for institutions not registered with NAMFISA is equal to 1.6 times the prime rate. - SACCOs and SCAs registered with Department of Cooperative Development of the Ministry of Agriculture; allowed to take deposits from and lend to their members. - Stokvels informal and not required to register if fewer than 20 members and less than N$500 thousand in deposits; no data on stokvels or those exceeding legal requirements but not identified. - NGO and donor-supported housing initiatives: - Namibia Housing Action Group (NHAG) active in low-cost housing; cooperates with SDFN and the Twahangana Fund. - SDFN: established in 1998; network of 312 housing savings groups, mainly urban; groups manage projects and can apply for loans from a revolving fund for micro enterprise, housing, and service loans. - Twahangana Fund associated with SDFN; allocates funds from international donors and government sources; operates like stokvels and has mobilized member savings to allocate housing loans. - Credit information: - Two credit reference bureaus: ITC (used mainly by banks; data on individuals and companies) and Compuscan (caters to microlending industry). - Both bureaus headquartered in South Africa with a combined database for Namibia, South Africa, Botswana, Zimbabwe, and Lesotho. - Bureaus computerized; compile only negative information and claim to correct mistakes with little delay. ### Financial markets and payment systems - Money and foreign exchange markets: - Essentially extensions of South African markets. - Most banks manage liquidity with banks in South Africa, resulting in little interbank trading in Namibia. - Banks usually have access to liquidity through parent banks; stringent position limits imposed by parent banks impede active local interbank transactions. - Transactions are increasing as domestic payment and clearing systems develop. - Limited local foreign exchange trading due to limited demand; volume growing steadily since 2000 reflecting declining dependence on parent banks. *Source: _cr0783 - Introduction and Methodology: Basel II Ensure full compliance with the BCPs and carry out an assessment of the impact of Basel II on both the system and the BON, before setting any timeframe for implementing Basel II.* ### 110. There is a relatively well-developed government securities market with a ### _cr0783 - 110. There is a relatively well-developed government securities market with a ### Government securities market - There is a relatively well-developed government securities market with reasonably active secondary trading in Treasury-Bills. - Government and the BON have taken steps to create liquid and deep government securities market, including: - issuance of longer term bonds, and - consolidating small issues and introducing switch auctions. - Outstanding amount of Namibian government securities reached N$10.5 billion in September 2005 (28 percent of GDP), shared equally between treasury bills and bonds (Internal Registered Stock (IRS)). - Treasury-Bills: - Issued on a discount basis, with maturities of 91, 182, and 365 days. - All Treasury-Bills are held in the book entry system administered by the BON. - Average monthly turnover is around 40 percent for the treasury bills. - Internal Registered Stock (IRS): - Maturities from 1 year to 20 years. - Issuance is done on delivery versus payment. - IRS are generally held to maturity. - Average monthly turnover is around 8 percent for IRS. - Primary market participation: banks, NBFIs, and a few individuals (most individuals bid through financial institutions). - Pricing and benchmarking: - Government has benchmarked its IRS against the most liquid South African government benchmark bonds. - Credit rating: - In early December 2005, Fitch Ratings assigned Namibia a sovereign long-term foreign currency rating of BBB. ### Equity market (NSX) - The NSX plays a relatively small role in the country's economy. - Listings and market size: - It lists nine local companies with a market capitalization of only 5.9 percent of GDP in 2004 and a turnover ratio of 1.9 percent (based on NAMFISA). - Data from NSX show local market capitalization of 3.5 percent of GDP in 2004 and a turnover ratio of 9 percent. - Trading: - Value of traded local equities was 0.3 percent of GDP. - The exchange lists several dual listed, mostly South African, companies; trading of these dual listed issues is much greater and corresponded to 7.4 percent of GDP in 2004. - Corporate bonds: a small number of listed corporate bonds exist. - Market infrastructure and costs: - The exchange has reasonably modern rules on listing and an efficient infrastructure for trading and settlement. - It operates with minimum nonnegotiable commissions, which are higher than commissions charged by brokers of the Johannesburg Securities Exchange, although the difference is small. - Economic contribution remains small due to lack of interest by most local companies to list on the exchange. ### Payment systems and oversight - RTGS and retail coverage: - Namibia introduced its RTGS, the NISS, in June 2002. - Initially covered high value transactions; retail transactions were handled from mid-2004. - The BON requires that all types of domestic transactions be settled in Namibia through the NISS: - high value single transactions (interbank) — roughly 70 percent of all transactions by value; - retail transactions through the electronic clearing house (Namclear) — retail clearing (8 percent) and check clearing (22 percent). - Credit and debit card clearing is still settled in South Africa via correspondent arrangements; Namclear will take over in March 2006. - Oversight framework: - The Payment System Management Act, 2003, provides the legal basis for BON oversight of payment systems to ensure financial and technical integrity, robustness, capacity to deal with shocks, efficiency, and cost effectiveness. - BON will establish standards and rules (including disclosure), and carry out monitoring, analysis and enforcement. - The Payments Association of Namibia, a statutory payment system management body, is responsible for technical management and regulation of national payment systems. ### Monetary policy, liquidity, and crisis management - Monetary policy objective: maintain the fixed peg with the rand as required by the CMA arrangement. - Operational target: BON targets an adequate amount of foreign reserves to cover currency in circulation. - Policy rates and instruments: - BON’s two main policy rates: the bank rate (applies to overdraft facilities available to commercial banks) and the call rate (on banks’ call (deposit) accounts with the BON). - Reserve requirement is set at one percent of a bank’s total liabilities and is not remunerated. - Banks are required to hold 10 percent of their liability base in liquid assets. - No open market operations currently; BON does repo transactions with commercial banks to provide intraday and overnight liquidity for settlement purposes: - intraday liquidity facility available without any charge; - bank rate applied for overnight borrowing. - BON supervisory and remedial powers under the Banking Institutions Act (BIA): - Can require corrective actions (restrict extension of credit or payment of dividends), remove directors and officers, assume control of banking activities, or appoint a person to conduct the business of the BI. - BON can apply to the courts to wind up a bank; currently no power to ensure the liquidator is someone of its approval, but planned amendments to the BIA will remedy this. - BON’s procedure manual for supervisory actions defines how it intends to exercise both formal and informal powers and deal with banks’ weaknesses. ### Legal, judicial, and accounting frameworks - Creditor rights and legal system: - Creditor rights are reasonably well established. - General consensus that the legal system is noncorrupt, fair and impartial, and reasonably rapid in processing straightforward cases. - Approximately 350 lawyers and about five law firms carry out significant commercial business. - Banks cannot realize collateral without going to court, but in uncontested cases (the vast majority) banks can obtain and auction off property within a matter of months; contested cases can take a number of years. - Accounting standards and professionals: - Current Namibian GAAPs are closely linked to South African GAAPs, which have been progressively modified during the last five years to comply with IFRS. - The Institute of Chartered Accountants (ICA) is responsible for setting accounting standards in Namibia. - IFRS will be applicable to Namibian companies from January 1, 2006. - According to the Companies Act, all registered companies have to appoint external auditors. - There are currently about 100 chartered accountants active in Namibia; major international accounting firms are represented. - Accounting firms face a shortage of accounting professionals, addressed through in-house training. ### Stress testing — Sensitivity analysis (key results) - Credit risk: - The system as a whole is resilient to a 100 percent increase in overall NPLs (test assumes additional provisioning of 50 percent for all new NPLs, and 100 percent for old NPLs). - Mortgages comprise about 40 percent of total loans; vulnerability to household mortgage servicing shocks: - One bank’s CAR falls below the regulatory CAR of 10 percent if 10 percent of mortgages become nonperforming. - Three of the four banks are vulnerable if 30 percent of mortgages become nonperforming. - Sector moderately exposed to large borrowers: for most banks, simultaneous defaults of their top five large exposures would bring CAR below 10 percent. - Both mortgage and large-exposure shocks are characterized as extreme and without historical precedent. - Liquidity risk: - High concentration of large institutional depositors tested: withdrawal of the largest five depositors would bring the liquidity ratio of the sector down from 11.1 percent to–16.7 percent, well below the required level of 10 percent. - All banks are sensitive to such a shock. - Interest rate risk: - Using a repricing model (one year horizon with four maturity buckets), the sector is robust to a downward parallel shift in the yield curve of 5 percentage points. - The sector as a whole would see a reduction in the CAR of almost 3 percent, with one bank experiencing a fall in its CAR of 4.7 percent. - A 50 percent cut in interest income from government securities has limited impact due to small government securities holdings. - Exchange rate risk: - Under the CMA, South Africa’s exchange controls limit Namibian investment in non-CMA countries; direct exposure to nonrand foreign exchange risk is negligible. - A simulation of de-pegging between the rand and Namibian dollar is not possible due to lack of required data and because such an event would invalidate stress test assumptions. *Source: _cr0783 - 110.* ### 122. Macroeconomic scenarios. Two extreme scenarios were tested. ### _cr0783 - 122. Macroeconomic scenarios. Two extreme scenarios were tested. ### Macroeconomic stress scenarios and banking-sector impact - Scenario 1 (rand crisis–like): - Namibian dollar depreciates 30 percent against the U.S. dollar. - Domestic interest rates increase by 5 percent. - High interest rates assumed to lead to a 30 percent increase in mortgage NPLs. - Stress test result: one bank is vulnerable, with its CAR falling below the minimum required CAR of 10 percent. - All banks remain solvent under this scenario. - Note: The scenarios were designed in consultation with the BON. - Scenario 2 (sharp rand appreciation): - Namibian dollar appreciates 25 percent against the U.S. dollar. - Domestic interest rates fall by 5 percent. - Appreciation causes 30 percent of loans in the agriculture and fishing industries to become nonperforming. - Stress test result: the banking system is vulnerable, with the CAR of three banks falling below 10 percent. - All banks remain solvent under this scenario. - Footnote: An interest rate decline of 5 percentage points is considered an extreme case given that between 1992–2005, the largest fall in interest rates in one year was about 3.3 percent. ### Key macroeconomic and price indicators (selected annual figures) - GDP at constant 1995 prices (annual change): 2000: 3.5; 2001: 2.4; 2002: 6.7; 2003: 3.5; 2004: 6.0. - GDP at current market prices (N$ million): 2000: 23,690; 2001: 27,686; 2002: 32,907; 2003: 33,841; 2004: 36,905. - GDP per capita (U.S. dollars): 2000: 1,857; 2001: 1,698; 2002: 1,603; 2003: 2,225; 2004: 2,764. - Consumer price index (period average): 2000: 9.3; 2001: 9.3; 2002: 11.3; 2003: 7.2; 2004: 4.1. - Consumer price index (end-of-period): 2000: 10.8; 2001: 8.3; 2002: 12.5; 2003: 2.6; 2004: 4.3. ### External sector highlights - Exports (U.S. dollars, annual percent change): 2000: 10.7; 2001: -13.7; 2002: -6.1; 2003: 16.3; 2004: 53.8. - Imports (U.S. dollars, annual percent change): 2000: -5.9; 2001: 1.8; 2002: -4.6; 2003: 33.7; 2004: 30.9. - Export volume (annual percent change): 2000: -0.9; 2001: -4.5; 2002: -8.0; 2003: 18.3; 2004: 22.2. - Import volume (annual percent change): 2000: -5.2; 2001: 4.0; 2002: 20.4; 2003: 5.2; 2004: 6.0. - Terms of trade (annual percent change): 2000: 12.5; 2001: -7.8; 2002: 28.8; 2003: -22.6; 2004: -7.7. - Exchange rate (Namibia dollar/U.S. dollar, end-of-period): 2000: 7.6; 2001: 12.1; 2002: 8.6; 2003: 6.6; 2004: 5.6. - Exchange rate (period average): 2000: 6.9; 2001: 8.6; 2002: 10.5; 2003: 7.6; 2004: 6.4. ### Public finance and savings/investment (selected ratios, percent of GDP) - Gross investment: 2000: 19.5; 2001: 23.4; 2002: 19.7; 2003: 29.8; 2004: 25.5. - Public investment: 2000: 6.1; 2001: 8.7; 2002: 6.2; 2003: 7.0; 2004: 7.2. - Private investment: 2000: 13.4; 2001: 14.7; 2002: 13.5; 2003: 22.8; 2004: 18.3. - Gross domestic savings: 2000: 15.5; 2001: 17.8; 2002: 14.9; 2003: 23.3; 2004: 22.9. - Revenue and grants (central government, percent of GDP): 2000: 33.3; 2001: 30.9; 2002: 31.6; 2003: 28.2; 2004: 31.3. - Expenditure and net lending (percent of GDP): 2000: 34.7; 2001: 35.4; 2002: 34.9; 2003: 35.6; 2004: 33.3. - Overall government deficit including grants (percent of GDP): 2000: -1.4; 2001: -4.5; 2002: -3.3; 2003: -7.5; 2004: -2.0. - Public debt outstanding/GDP (percent): 2000: 23.1; 2001: 25.9; 2002: 23.9; 2003: 29.5; 2004: 33.4. ### Financial system structure (2000–Jun-05, selected) - Number of commercial banks: 2000: 5; 2001: 5; 2002: 4; 2003: 4; 2004: 4. - Commercial banks' assets (billions of Namibian dollars): 2000: 13.7; 2001: 17.8; 2002: 20.0; 2003: 23.4; 2004: 25.7. - Assets of foreign-owned subsidiaries (billions N$): 2000: 10.0; 2001: 12.1; 2002: 15.7; 2003: 18.2; 2004: 19.6. - Commercial banks' assets (percent of GDP): 2000: 49.5; 2001: 54.1; 2002: 59.1; 2003: 63.4; 2004: 64.9. - Commercial Banks' Deposits (memorandum, billions N$): 2000: 9.9; 2001: 12.7; 2002: 14.3; 2003: 19.1; 2004: 21.5. ### Cross-country comparative indicators (selected, 2004 unless noted) - Domestic credit to private sector (% of GDP): Namibia: 52.8; South Africa: 83.4; Botswana: 19.7. - M2/GDP: Namibia: 36.5; South Africa: 60.4; Botswana: 29.2. - Banking assets (% of GDP): Namibia: 63.4; South Africa: 108.8; Botswana: 30.6. - Capital Adequacy Ratio: Namibia: 15.4; South Africa: 13.3; Botswana: 20.6. - NPLs to total loans: Namibia: 2.4; South Africa: 1.8; Botswana: 2.8. - Return on Assets: Namibia: 2.0; South Africa: 1.2; Botswana: 4.0. - GNI per capita (US$): Namibia: 2,370; South Africa: 3,630; Botswana: 4,340. ### Financial soundness indicators for banks (2001–2005, selected) - Regulatory capital to risk-weighted assets: 2001: 15.5; 2002: 14.1; 2003: 14.8; 2004: 15.4; 2005: 14.6. - Nonperforming loans to total gross loans: 2001: 3.4; 2002: 3.5; 2003: 3.9; 2004: 2.4; 2005: 2.0. - Capital to assets: 2001: 8.7; 2002: 7.5; 2003: 8.3; 2004: 8.8; 2005: 7.8. - Return on assets (average 2001–2005): 2001: 2.9; 2002: 3.3; 2003: 2.8; 2004: 2.0; 2005: 2.8. - Liquid assets to total assets: 2001: 9.6; 2002: 9.2; 2003: 11.0; 2004: 10.4; 2005: 9.5. - Customer deposits to total (non-interbank) loans: 2001: 88.0; 2002: 84.0; 2003: 87.0; 2004: 87.1; 2005: 94.6. ### Banking sector balance sheet and income structure (2001–June 2005, selected) - Gross loans and advances (percent of total assets): Dec-01: 85.5; Dec-02: 87.3; Dec-03: 84.5; Dec-04: 82.8; Jun-05: 76.9. - Net loans and advances (percent of total assets): Dec-01: 82.6; Dec-02: 84.4; Dec-03: 81.7; Dec-04: 80.2; Jun-05: 74.5. - Debt securities (percent of total assets): Dec-01: 8.3; Dec-02: 9.4; Dec-03: 8.7; Dec-04: 9.3; Jun-05: 13.2. - Deposits (percent of total liabilities and capital): Dec-01: 82.9; Dec-02: 84.3; Dec-03: 83.9; Dec-04: 83.0; Jun-05: 84.0. - Capital and Reserves (percent of total liabilities and capital): Dec-01: 9.6; Dec-02: 8.4; Dec-03: 11.5; Dec-04: 11.0; Jun-05: 10.0. - Net interest income (percent of total income, annual): Dec-01: 53.9; Dec-02: 51.8; Dec-03: 53.1; Dec-04: 51.0; Jun-05: 48.2. - Charges, Fees, and Commissions (percent of total income): Dec-01: 25.9; Dec-02: 27.5; Dec-03: 28.6; Dec-04: 32.7; Jun-05: 32.4. - Overhead costs (percent of total income): Dec-01: 49.7; Dec-02: 48.8; Dec-03: 53.0; Dec-04: 61.8; Jun-05: 52.6. ### Pension and insurance sector (selected aggregates) - Pension funds: Total funds and reserves (millions of N$): 2002: 16,048.8; 2003: 15,434.9; 2004: 20,661.5. - Pension funds - total assets (millions of N$): 2002: 16,318.1; 2003: 15,795.0; 2004: 21,111.6. - Pension funds contributions received (millions of N$): 2002: 1,039.0; 2003: 1,132.6; 2004: 1,325.5. - Pension funds investment income (millions of N$): 2002: 1,087.0; 2003: 1,180.1; 2004: 1,509.5. - Long term insurers: Total assets (millions of N$): 2001: 6,188.2; 2002: 9,255.6; 2003: 10,307.0; 2004: 13,274.7. - Insurance and pension sector indicators (percent, selected): Pension Funds total investment income to average net assets (2003): 15.4; (2004): -5.3; (2004 life insurance investment income to average total assets): 3.0. *Source: IMF staff report as provided in the source content.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0783.pdf_