Fitch Flags Development Bank of Namibia's Bad Loans at 38%

The Development Bank of Namibia (DBN) faces significant challenges in asset quality, with credit-impaired loans accounting for 38% of its lending portfolio at the end of March 2025, according to Fitch Ratings. This deterioration reflects DBN's development-lending focus, weak economic conditions, and a contracting loan book. Fitch affirmed the bank's Long-Term Issuer Default Ratings at BB- with a Stable Outlook, citing persistent risks to the state-owned lender's financial sustainability.

DBN's credit-impaired loans, classified as Stage 3 under International Financial Reporting Standard 9, increased from 13% at the end of March 2020. The bank's annual report defines credit-impaired loans as those where a borrower is more than 120 days behind on a material credit obligation. Such loans attract lifetime expected credit loss provisions, reflecting the risk of losses over the remaining life of the exposure. DBN's gross loans and advances declined by 11% to N$7.46 billion in the year ended March 2025.

The bank's impairment ratio declined during the reporting period, but DBN attributed the improvement partly to stronger collateral positions and the write-off of fully provided loans. The expected credit loss allowance fell to N$1.68 billion from N$2.22 billion. However, the bank attributed the reduction primarily to the utilisation of provisions against written-off accounts. DBN disclosed that N$579.9 million in loans had been written off but remained subject to enforcement and recovery activities.

Fitch identified low profitability as a weakness for DBN, although the bank returned to profitability after recording losses in the financial years ended March 2022 and March 2023. The bank's 2024/25 financial statements show that profit for the year increased by 42.5% to N$88.3 million. However, net interest income declined by 25.1% to N$337.4 million from N$450.6 million, while operating income fell to N$356.1 million from N$480.5 million.

DBN's lending mandate prioritises infrastructure, developmental, and large industrial projects in strategically important sectors, with a smaller allocation towards small and medium-sized enterprises. The bank's exposure to these sectors, combined with difficult economic conditions, has contributed to its weak credit risk profile. DBN has previously linked pressure on its loan portfolio to the economic effects of the Covid-19 pandemic.

Despite the asset-quality and profitability challenges, Fitch said DBN's ratings were underpinned by the potential for support from the Namibian government, which owns the bank in its entirety. The agency assigned DBN a Government Support Rating of bb-, reflecting its assessment that the authorities have a high propensity to support the institution. Government-guaranteed funding accounted for 96% of DBN's total liabilities at the end of March 2025.

Fitch also highlighted DBN's strong capitalisation, with a total capital adequacy ratio of 79% and a tangible leverage ratio of 42.7% at the end of March 2025. However, the agency cautioned that the government's ability to provide support was constrained by its own creditworthiness. DBN's Long-Term ratings are equalised with Namibia's sovereign ratings, meaning a downgrade of the country would also result in a downgrade of the bank.

Key points

• DBN's credit-impaired loans reached 38% of its lending portfolio at the end of March 2025.
• The bank's asset quality challenges are attributed to its development-lending focus, weak economic conditions, and a contracting loan book.
• Fitch affirmed DBN's Long-Term Issuer Default Ratings at BB- with a Stable Outlook, citing persistent risks to the bank's financial sustainability.