Fitch Ratings Agency has downgraded the Development Bank of Namibia, saying the government cannot give the financial institution the necessary support in case of need.
"As a fully state-owned policy bank, DBN's long- and short-term IDRs and national ratings are equalised with those of the Namibian sovereign. This reflects Fitch's opinion of potential support for the DBN from the Namibian authorities in case of need," the agency said on its website last week.
The rating follows the downgrade of Namibia's long-term foreign-currency IDR from BB+ to BB on 1 October 2019.
The norm is that any government affiliate or dependant cannot be rated higher than the government, hence the bank's downgrade.
Fitch said its assessment also reflects Namibia's high support propensity for the DBN, given the bank's long-standing and clearly defined policy in funding economic growth and social development in the country.
It also based its assessment on the bank being 100% state-owned, and oversight by the Ministry of Finance, and the sovereign guarantees on a significant part of the bank's wholesale funding.
Fitch furthermore indicated that the DBN's national ratings reflect the rating agency's opinion of the bank's creditworthiness relative to other issuers and issues within Namibia and South Africa.
Namibian issuers are rated on the South African national rating scale.
In terms of the DBN's viability, Fitch said it does not assign a viability rating to the DBN, as is usual for development banks.
"This is because its business model depends on state support, and in our view would not be viable on a commercial basis," it reiterated.
Furthermore, the DBN's ratings are also sensitive to a reduced propensity of the authorities to support the bank.
This could be indicated by a change in DBN's policy role, a material reduction in government ownership, or in funding guarantees for the bank, Fitch stated.