Windhoek — Even though Namibian commercial banks have received positive ratings for their overall stability, the central bank has cautioned about their informal dependence on parent companies based in South Africa.
This is along with over-reliance on wholesale deposits which the Bank of Namibia described as a 'possible risk' for the banking sector.
However, analysts from commercial banks, dismiss some of the concerns referring to them as 'academic' and 'political in nature'. The Bank of Namibia expressed concern with the absence of formalised lines of funding between Namibian banks and their parent companies in South Africa - a situation the central bank says will present serious risks should a liquidity crisis arise.
Without formal funding lines, Namibian subsidiaries of South African banks would find it difficult to access the much needed cash in emergencies, the central bank says about the risks in the inter-bank market.
"Risk in the inter-bank market might arise from the fact that not all funding lines between the South African parent banks and their Namibian banking subsidiaries are formalised. So, in a liquidity crisis, banking institutions might not have access to adequate liquidity from their parent banks," Bank of Namibia said in its Financial Stability Report released in March.
Financial analysts, many of who talked on condition of anonymity, however dismissed the concerns saying South African parent banks have always proved ready to assist Namibian subsidiary banks in cases of crisis.
Some view the concern as a result of the Bank of Namibia's over ambitious plans that go beyond localisation of systems.
"In reality, the parent companies have full brand exposure and therefore I am convinced that they will always stand behind their subsidiary brands in the event of liquidity pressure," said one analyst.
The analyst added that the liquidity environment in Namibia with loan to deposit ratios of just over 80 percent suggest a good balance and therefore implies that banks will have sufficient support in the event of pressures.
The Bank of Namibia also cautions against the possible risk to the banking sector for its over-reliance on volatile wholesale deposits, from the ten largest depositors. Wholesale deposits make up 36.6 percent of the sector's total funding liabilities and 14.2 percent of the fraction is in the one to seven days maturity time band.