Determinants of non-performing loans in Namibia’s banking sector

Abstract

This thesis comprises of six chapters and investigates issues related to non-performing loans (NPL), a proxy for credit risk, with a particular focus on the banking sector of Namibia. The issues covered include a) assessing the evolution of Namibia’s financial system post-independence in 1990; b) determining the factors influencing the quality of Namibia’s loan portfolio; c) examining the causality between NPL and the identified factors; d) a stress-testing analysis examining the credit risk vulnerability of Namibia’s banking sector; and e) a forecast of the quality of Namibia’s banking sector loan portfolio. These five issues are interwoven and are subdivided into three main sets of objectives which are extensively explored in Chapters II, IV and V. Chapters II analysis the first objective that evaluates the evolution of the Namibian financial system post-independence in 1990. The structure and composition of the financial system is discussed along with its contributions to employment creation and economic growth. The ownership structure of the banking sector and its overall performance is also outlined. The finding reveals that the influence of non-bank financial intermediaries has grown significantly overtime, whilst the dominance of the financial sector has shrunk in the face of credit risk pressure. The financial sector’s contribution to employment is minimum and it is likely to worsen as developments in the artificial intelligence world continue.