Fitch Ratings on Friday affirmed Development Bank of Namibia Limited’s (DBN) Long-Term Issuer Default Ratings (IDR) at ‘BB-‘ and its National Long-Term Rating at ‘AA+(zaf)’.
The outlooks are stable.
“DBNs ‘BB-‘ Long-Term IDRs are driven by potential support from the Namibian authorities, as expressed by its Government Support Rating (GSR) of ‘bb-‘. DBN’s Long-Term IDRs and GSR are equalised with Namibia’s ‘BB-‘ Long-Term IDRs. The Stable Outlook on DBN’s Long-Term IDRs mirrors that on Namibia’s Long-Term IDRs. DBN’s National Long-Term Rating of ‘AA+(zaf)’ is equalised with that of Namibia and reflects the bank’s creditworthiness relative to that of issuers in South Africa and Namibia. The Stable Outlook reflects that on Namibia’s National Long-Term Rating,” the ratings agency said in a report.
As is usual for development banks, Fitch does not assign a Viability Rating to DBN. This is because its business model depends on government support and, in our view, its unique policy role cannot be carried out on a commercial basis.
“The Namibian government has a high propensity to support DBN, in our view, given the bank’s important policy role, 100% state ownership and significant share of government-guaranteed funding. However, the sovereign’s ability to provide support is constrained by its own creditworthiness, as indicated by its Long-Term IDR,” further explained further explained Fitch.
DBN is Namibia’s flagship and largest policy bank and contributes to the country’s economic growth and social development. Its strategy is aligned with national development objectives and is highly influenced by Namibian government policy, with close oversight from its shareholder, the Ministry of Finance and Public Enterprises (MFPE). DBN focuses on financing infrastructure, developmental and large industrial projects in strategically important sectors, and, to a lesser degree, small and medium-sized enterprises (SMEs).
MFPE’s has 100% stake in DBN is strategic and long-term.
“While the sale of a minority share is permitted under DBN’s act of incorporation, we believe this option will not be exercised in the medium term given DBN’s policy role and non-commercial focus,” noted Fitch.
DBN’s impaired loans ratio increased to 33% at end-March 2023 (end-March 2020: 13%) but eased slightly by end-December 2023 due to write-offs and some recoveries.
“The sharp deterioration reflects DBN’s weak risk profile due to its development lending focus and weak economic conditions, due partly to the pandemic, weighing on borrowers’ repayment capacity,” commended Fitch.
The agency also highlighted that profitability continued to weaken in FY23 (financial year ending March-2023) due to high loan impairment charges (LICs) that accompanied loan-quality deterioration, resulting in a net loss of N$270 million (FY22: loss of N$185 million). Fitch expects LICs will decrease sharply following the completion of its lending book clean-up and the bank should post a small net profit in FY24.
DBN remains well-capitalised despite large net losses. Its high Fitch Core Capital (FCC) ratio of 77% at FYE23 was supported by a low-risk-weight density (49%), mainly reflecting high government-related lending. DBN’s tangible leverage ratio (FYE23: 38%) provides a large buffer to absorb potential further losses.
Government-guaranteed funding represented 96% of DBN’s total liabilities at FYE23. A 17-year government-guaranteed credit line from African Development Bank (AfDB) maturing in 2033 represented 86% of liabilities at FYE23.
“DBN’s Long-Term IDRs would be downgraded if Namibia’s sovereign ratings are downgraded. DBN’s Long-Term IDRs are also sensitive to a reduced propensity of the authorities to support the bank. This could be indicated by an adverse change in DBN’s policy role, a material reduction in the proportion of state-guaranteed funding, or a sharp reduction in government ownership,” explained the ratings agency.
DBN’s National Long-Term Rating is sensitive to an unfavourable change in Fitch’s opinion of the bank’s creditworthiness relative to other South African and Namibian issuers.
“DBN’s Long-Term IDRs would be upgraded if Namibia’s sovereign ratings are upgraded. DBN’s National Long-Term Rating is sensitive to a favourable change in Fitch’s opinion of the bank’s creditworthiness relative to other South African and Namibian issuers.”
DBN has an ESG Relevance Score of ‘4[+]’ for human rights, community relations, access & affordability due to its policy role, which promotes financing to under-banked and under-served communities, including SMEs. This has a positive impact on the government’s propensity to provide support and is therefore relevant to DBN’s ratings in conjunction with other factors.
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