Namibia's commercial banks have seen a substantial increase in liquidity, with their cash balances surging by more than 50% in just three months. According to the Bank of Namibia's quarterly bulletin, the banking industry's liquidity reached N$9.8 billion in the second quarter of 2026. This significant increase was attributed to various factors, including diamond sales proceeds, government expenditure, and investment flows. The central bank noted that the Namibian banking industry's cash balances surged both on a quarterly and yearly basis.
Despite the substantial increase in liquidity, lending to the private sector remains weak. The annual growth in private-sector credit only increased to 4.5%, up from 4.3% in the first quarter. This indicates that banks have more money available, but that liquidity is not translating into an increase in lending to the private sector. The distribution of commercial bank credit also reveals interesting trends, with households and other borrowers accounting for 55.1% of commercial bank credit, while commercial and services businesses accounted for 31.6%.
The allocation of credit across various sectors also highlights disparities. Agriculture received just 3.0% of commercial bank credit, manufacturing 4.1%, building and construction 2.6%, and mining 2.2%. In contrast, mortgage lending remained the largest credit category, accounting for 47.7% of private-sector credit. The weak lending comes despite signs that the financial health of borrowers has improved, with the ratio of non-performing loans to total loans falling to 4.0% in June, from 4.2% in March and 4.9% a year earlier.
The financial health of borrowers appears to be improving, with household credit growth increasing to 4.5%, while business credit also grew by 4.5%. The stronger balance sheets of banks mean they have a bigger cushion against financial shocks, and fewer loans are showing signs of distress. Total assets held by other depository corporations, including commercial banks, rose from N$266 billion in March to N$273 billion in June.
The banking system's liquidity and relatively limited credit flowing into sectors that could expand production and investment raise concerns. The central bank raised its policy rate by 25 basis points to 6.75% in June, taking the prime lending rate to 10.25%. However, the average lending rate fell to 9.58%, from 9.65% in March and 9.97% a year earlier. This shows that the banking system has liquidity, but the demand for productive credit appears much weaker than the amount of money available to lend.
The current trends in Namibia's banking sector have implications for the country's economic growth and development. With banks holding large sums of cash, there is a need to stimulate lending to the private sector, particularly to sectors that can drive economic growth and job creation. The central bank and policymakers may need to consider measures to encourage lending and support economic development.
In conclusion, Namibia's commercial banks are sitting on billions of dollars in cash, but lending to the private sector remains weak. The banking system's liquidity has increased significantly, but this has not translated into an increase in lending to sectors that can drive economic growth. The weak lending trends and disparities in credit allocation across sectors highlight the need for policymakers to support economic development and stimulate lending to the private sector.
Key points
- Commercial banks in Namibia have seen a significant increase in liquidity, reaching N$9.8 billion in the second quarter of 2026.
- Lending to the private sector remains weak, with annual growth in private-sector credit only increasing to 4.5%.
- The financial health of borrowers appears to be improving, with the ratio of non-performing loans to total loans falling to 4.0% in June.
