Inter-company borrowing in the mining sector has pushed up corporate debt. The debt increased by 12,2% in 2018, standing at N$126,4 billion.
This was the view of the deputy governor at the Bank of Namibia (BoN), Ebson Uanguta, at the launch of the Financial Stability Report (FSR), in collaboration with the Namibia Financial Institutions Supervisory Authority (Namfisa) yesterday.
“The increased level of the corporate debt stock, however, does not pose a risk to financial stability since it is directed towards increasing production, which in turn enhances financial stability,” he noted.
The level of household debt also increased during the review period, recorded at 7%, up from 6,7%. Despite this increase, the level of household indebtedness to disposable income moderated slightly in 2018. The hike was because of an increased demand for short-term credit, Uanguta explained.
“On the contrary, the household debt to disposable income ratio moderated due to the disposable income increasing at a faster pace than household debt. As a result, the risk to financial stability remained unchanged,” he said.
Disposable income also increased by 8,5% in 2018, from 4,2% in 2017
He added that the banking sector remained profitable, liquid and well-capitalised, despite asset quality deteriorating further since the last FSR.
Moreover, the non-performing loan (NPL) ratio increased from 2,5% in 2017 to 3,6% in 2018, signifying that the banking sector’s asset quality worsened.
Although this remains within the 4% benchmark of the central bank, the deputy governor stated that it is worrisome, and the central bank is working on ways to prevent it from increasing further.
Despite a moderation in the growth rate of non-bank financial institutions’ (NBFI) assets, Uanguta added that the NBFI sector remained financially stable and sound.
“The NBFI sector’s assets grew by only 0,9% in 2018, significantly slower, compared to the previous year. This slow growth in total NBFI assets was mainly driven by slow growth in pension fund assets, owing to volatile and poor-performing financial markets during the period under review.
“Nonetheless, the sector’s key financial ratios readily comply with prudential requirements, indicating financial soundness,” he continued.