A review of financial intermediation in Namibia, 1995 to 2008
Thesis (MDF)--Stellenbosch University, 2012.
This study assessed the developments in financial intermediation services provided by Namibia’s commercial banking sector during 1995 to 2008. The study used two measurements of financial deepening in order to ascertain whether the role of the banking sector has become more important in the economy or not. These methods are the credit extension to non-finance private sector and the financial intermediation to GDP ratio. Unlike previous studies, which found that financial intermediation has not deepened before or after independence (Shiimi & Kadhikwa, 1999; Kavari, 2003), this study found some evidence of financial deepening in Namibia as indicated by the increasing credit extension and financial intermediation as shares of GDP. However, the banking sector did not perform well in terms of improving efficiency as banks continued to operate with high interest margins and became more dependent on fee income as opposed to deriving more of their income from intermediation activities. The largest chunk of bank credit was in the form of mortgage funding, allowing individuals, real estate and the business sector to be the major recipients of bank credit during the review period. The study took cognisance of recent measures aimed at enhancing the sector’s relevance and contribution to the economy. These include amendments to the statutes to allow entry of unincorporated bank branches in order to increase competition as well as requiring banks to reduce interest margins, amongst other measures. The study therefore recommends a vigorous implementation of these measures and that the regulator should extend its monitoring oversight to cover actual lending and deposit rates of interest in addition to base rates such as the prime rate and the mortgage base rate that it currently monitors. This is necessary due to weak linkages between the base rates and actual interest rates. The study further recommends a concerted national effort that seeks to ensure availability and affordability of credit on one hand, and to prepare bank clients, particularly the SME sector to be ready to take up finance on business terms on the other hand. This requires incentivising SMEs to become formal businesses and providing them with necessary training and mentoring services in order to improve their risk profiles.