WINDHOEK, AUG 12.-The commercial banks monthly liquidity position for June averaged at N$3,17 billion, indicating a substantial advancement from the N$1,83 billion seen two months prior.
IJG Research said this position was to a large extent enhanced by funding secured through the African Development Bank (AfDB), with the Ministry of Finance affirming that these funds were received in June.
IJG however noted that how the proceeds of this loan will be utilised remains to be seen.
“The liquidity position of the commercial banks has been ticking up following a sustained period of pressure, suggesting that commercial banks now have more loanable funds at their disposal for extension to consumers,” IJG noted.
However, banks behavior towards extending credit may take a new turn with impending IFRS 9 regulations, with preliminary analysis indicating that banks will be required to change their provisioning models from a loss-incurred basis to future potential loss basis.
“This means that banks will be required to provide for loans extended as potentially irrecoverable, and this may have a significant bearing on bank profits and credit extension as a result,” IJG said.
IJG expects private sector credit extension to remain under pressure as it increased by N$180,6 million or 0,2% month-on-month in June.
As the South African Reserve Bank cut rates for the first time in five years, all eyes are on the Bank of Namibia (BoN), poised to make its decision on policy rates next week.
“All signs point to BoN starting a cycle of monetary easing given that economic growth has been sluggish and inflation moderating. Banks applying symmetric cuts to lending rates will follow easing monetary rates; this will provide some relief to an already ailing consumer,” IJG noted.
Moreover, a projected rate cut of only 25 basis points will do little to alleviate the current slowdown, especially in the short-term. Further rate cuts are projected towards the end of the year.
However, changes to banks reporting regulation pose immediate risks as to how banks will react towards these new developments.
“One reaction may be that banks become more reluctant towards extending more credit into an economy currently in a recession, or it may react by making credit more expensive,” IJG said. –Sharma Mundingi