Financial stability risks slant to downside amid climate, FMD threats

CHAMWE KAIRA

Risks to Namibia’s financial stability remain tilted to the downside, with climate change, foot-and-mouth disease (FMD), cyber threats and government debt exposure identified as key risks, according to the October 2026 Financial Stability Report released jointly by the Bank of Namibia (BoN) and the Namibia Financial Institutions Supervisory Authority (NAMFISA).

The report said external and domestic pressures continued to weigh on the economic outlook, with weaker global demand, particularly for natural diamonds, posing a risk to export earnings and economic activity.

Ongoing geopolitical tensions in the Middle East and evolving United States policies could also contribute to commodity price volatility, increasing the cost of key imported inputs, particularly fuel and sulphur.

Domestically, climate-related risks remain elevated amid a strong El Niño episode, which is expected to exacerbate extreme weather conditions.

The confirmation of FMD in parts of the country and the nationwide suspension of cloven-hoofed animal movements have added to the risks facing the economy.

The Namibian economy is projected to grow by 2.1% in 2026 and 2.8% in 2027.

The expected recovery in 2026 will be supported by improved agricultural output following better early-season rainfall, sustained growth in uranium production and continued expansion in wholesale and retail trade, electricity and water, and construction.

However, diamond mining and metal ores continued to contract notably during the period under review.

The report also highlighted divergent trends in household and corporate borrowing. Household debt growth slowed to 1.8% at the end of June 2026, compared with 2.1% at the end of December 2025.

In contrast, the corporate debt stock increased by 10.3% to N$219.3 billion at the end of June 2026, from N$198.9 billion at the end of 2025.

The increase was largely driven by higher intercompany borrowing for direct investment, particularly among mining companies.

Increased use of trade credits by corporates and higher non-resident deposits with domestic banks also contributed to the rise in foreign debt.

The banking sector remained well capitalised, profitable and liquid, while asset quality improved during the first half of 2026.

Total banking sector assets grew by 7.8% from the end of December 2025 to N$202.8 billion at the end of June 2026.

The growth was mainly driven by increases in short-term negotiable securities, net loans and advances, and cash and balances with other banks.

Non-performing loans (NPLs) also improved, with the ratio of NPLs to total gross loans declining to 4% at the end of June 2026.

The non-banking financial institutions (NBFI) sector remained resilient during the first half of the year, despite a less supportive macro-financial environment than in 2025, when stronger financial market performance supported asset valuations.

Aggregate NBFI assets increased by 4% to N$575 billion by the end of June 2026.

The report said the sector’s financial stability position remained broadly sound, supported by strong liquidity and prudent financial positions that reduced the likelihood of near-term institutional distress.

Namibia’s residential property market also remained resilient, with house prices increasing by 6.8% year-on-year in June 2026. The 12-month national weighted average house price rose to N$1.46 million.

The report said climate-related risks have increased since the April 2026 assessment, with a high probability of materialising during the fourth quarter of 2026.

The report linked the heightened risk to the current strong El Niño episode, which is expected to intensify towards the latter part of 2026 and into 2027.

Foot and Mouth Disease (FMD) was also identified as a potential threat to financial stability, although its implications remained contained at this stage.