The annual growth in household disposable income rose notably in 2022 compared to 2021 as a result of an increase in the compensation of employees, a joint report – the annual Namibia Financial Stability Report (FSR) – by the Bank of Namibia (BoN) and the Namibia Financial Institutions Supervisory Authority (NAMFISA) has revealed.
Essentially, annual growth in household disposable income has risen notably, by 4.4 percentage points to 6.7 percent in 2022.
“The main driver that caused the upsurge in household disposable income was the compensation of employees, which increased by 7.2 percent following the approval of a salary increment for government employees in 2022. However, the disposable income of households in South Africa reported a lower growth rate of 8.9 percent in 2022 when compared to a 9.9 percent growth rate experienced in 2021,” the report said.
The 2023 report assesses the stability of the Namibian financial system and its resilience both to internal and external shocks. The report further highlights specific risks emanating from the macroeconomic environment, domestic household and corporate debt, the banking sector, the Non-Banking Financial Institutions sector (NBFIs), as well as the payment and settlement system.
“The ratio of household debt to disposable income declined over the course of 2022 due to relatively higher growth in nominal disposable income. Household debt constituted 86.0 percent of disposable income in 2022, compared to 88.8 percent in the previous year . The lower ratio is driven by the fact that disposable income outpaced the increase in household debt during the period under review.
“In this regard, disposable income grew annually by 6.7 percent in 2022, compared to growth of 2.4 percent reported in 2021. This was mainly on account of an increase of N$5.8 billion observed during 2022 under the compensation of employees category, of which the Government sector is the largest component. This is in line with the approved salary increments in the Government sector during the period under review,” the report further noted.
Financial sector
The report also noted that Overall, the Namibian financial system remained sound and resilient in 2022; however, projected vulnerabilities in the global financial system could potentially impact the domestic financial system.
Risks are centred around global and domestic output developments, coupled with anticipated tighter financial conditions globally, as both the global and the Namibian economies are projected to slow down in 2023. In 2022, however, domestic output improved, notwithstanding the decline in global output, while the domestic financial system continued to function effectively and efficiently. Both corporate and household debt increased during the reporting period.
“The banking sector remained adequately capitalised and profitable while maintaining liquidity levels well above the prudential requirement and managing credit risk accordingly. Similarly, the non-bank financial institutions maintained stable, sound, and profitable operations during the period under review. The payment system infrastructure continued to reliably contribute toward the efficiency of the financial system. Overall, risks to the financial system mostly increased; however, the probability of this persisting is medium with medium impact.”
The banking sector remained liquid, profitable, and well capitalised during the period under review, with improved asset quality. Banking sector assets grew at a rate higher than the prevailing inflation.
“Despite this positive development, it is not sustainable to maintain asset growth at this level given slowed economic activity. In addition, the banking sector reported higher profits, improved asset quality, a healthy liquidity position, and capital adequacy well above prudential requirements, which is indicative of a stable banking sector,” acknowledges the report.
The NBFI sector remained resilient in 2022. However, NBFI assets contracted by 1.2 percent to N$366.1 billion, coinciding with negative financial market performances over the first three quarters of 2022. The sector is expected to remain solvent in the short- to mediumterm, with its net assets expected to robustly absorb adverse asset side shocks.
The National Payment System (NPS) and infrastructure remained stable, efficient, and effective during 2022. The Bank of Namibia continued to fulfil its regulatory mandate as the overseer of the NPS in line with the Payment System Management Act 18 of 2003, as amended.
Going forward, risks to the Namibian financial system require continuous monitoring.
“Overall, risks to domestic financial stability remained stable; however, some risks are anticipated to increase on the back of uncertainty in the global macroeconomic environment and its potential spillover effects. Risks to financial stability in Namibia will be monitored accordingly under the advisory guidance of the Financial System Stability Committee and the direction of the Macroprudential Oversight Committee. No policy recommendations are warranted at present, but to steer the course,” explained the report.