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Nedbank Namibia records N$118m profit
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Nedbank Namibia records N$118m profit

August 30, 2022
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Nedbank Namibia’s after-tax profit in the six months ended 30 June 2022, increased by 18.5% to N$118.1 million up from N$99 705 registered in the same period last year.

Letshego records N$168m after tax profit
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Letshego records N$168m after tax profit

August 30, 2022
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Letshego Holdings (Namibia) has recorded a profit after tax of N$168 million for the half year ended 30 June 2022 (1H22), a 5.2% y/y increase from N$159.6 million posted in 1H21.

The Great Wealth Transfer imminent– What it means for Namibia
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The Great Wealth Transfer imminent– What it means for Namibia

August 23, 2022
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While the exact amount is unknown, there is no doubt that millennials around the world will benefit by inheriting from their parents. The same can be said about Namibia.

A great wealth transfer is on the horizon, with millennials (people born between 1981 and 1996) are set to inherit sizable sums from their Baby Boomer parents who are currently aged 57 to 75. In this Great Wealth Transfer it is estimated that millennials will inherit up to US$68 trillion from their Baby Boomer parents over the next three decades.

The US$68 trillion is not a fixed figure, as there is some uncertainty surrounding it, since a large portion of that wealth is tied to investments or homes. Future stock market performance, tax and estate regulations are thus expected to have a bearing on the wealth that millennials will inherit.

The Namibian wealth management industry is already undergoing a paradigm shift as a result of changing demographics and rapid digitalization, with more millennials jumping on the investing bandwagon, making investments that could soon be boosted using the inheritance from their Baby Boomer parents. For example, 52,5% of the Government Institutions Pension Fund's (GIPF) active members are set to retire in the next decade. 

GIPF is Namibia’s biggest pension fund and one of the few fully funded pension funds in Africa that has built up enough funds to cover its liabilities.

A report released in June by GIPF’s actuaries, Humanity Employee Benefits Co. (Pty) Ltd, states that its biggest member group are Baby Boomers well into their late 50s. GIPF owes N$33 billion to these members and N$32 billion to members in their 60s. 

This means that millennials whose parents are public servants in Namibia could inherit sizeable cash portions as parents opt to invest their respective lump sum payouts, settle home-loans or start new family businesses. In this way, creating future revenue earning streams and increasing inheritance pools appears more attainable.

This kind of inheritance will increase the wealth of millennials, some of whom already have high-paying jobs. Younger Namibians are graduates in fields such as medicine, law, chartered accounting, and financial services.  And with the rise of the ‘side-hustle’ they are also starting businesses.

The Generational Power Index

The Generational Power Index (GPI) 2021 [1], which aims to accurately depict the current environment of generational power, notes that each generation has its own historical context and cultural experiences, forming a shared worldview distinct from their elders.

Throughout their reign, the Baby Boomer generation played a significant role in shaping the governmental and financial systems that govern the rest of society. It is worth noting that 40% of Baby Boomers have already retired, and millions more are leaving the workforce every year.

The stakes are high and the passing of the torch is inevitable, but many uncertainties remain about how and when exactly the power vacuum left by Boomers will be filled. The GPI report highlights that this power vacuum is surrounded by many questions: Will Generation X (born 1965-1980 and now in its prime earning years) take the reins of power to reshape society in a way that suits the "MTV Generation?  Or will the tech-savvy millennials (born 1981-1996—and the children of Boomers) leapfrog over them due to their superiority in numbers?

But just when we are thinking that is the only issue, along comes the newest generation to enter the fray. The oldest among Gen Alpha will be 9 years old in 2022. Within the next decade, they’ll begin voting and entering the workforce, and are set to be the most digitally savvy yet. Technology—the great disruptor, fuelled by smartphones—allows nearly anyone to speak directly to billions of people, and decentralised finance is now reshaping traditional systems of wealth. But, like everyone else, the younger generations face an uphill climb.

Baby Boomers, born in the post-WWII era, worked in a relatively prosperous economy. By contrast, many millennials started their careers following the 2008 financial crisis. And today, millennials and Gen Z face a slew of financial challenges, with rising debt chief among them. Over the course of the COVID-19 pandemic, Gen Z unemployment rates have been twice those of older generations and estimated as over 40% in Namibia.

Age is not the only factor in determining debt, but others such as issues of policy, economics and culture. These micro and macro changes will continue to shape the important trends in wealth management, namely, the increasing need for advice, for easy-to-use advisory platforms and for goal-based financial planning. We will be moving away from traditional asset classes, to a customer-centric approach, and there is already a strong appetite for environmental, social, and corporate governance and sustainability.

Outlier comparison

The age spectrum of ‘The Standard and Poor's 500’ CEOs is bookended by two well-known leaders: Mark Zuckerberg and Warren Buffet. Although he was just 23 years old in 2007 when he became the youngest self-made billionaire in history, now 14 years later Zuckerberg is still the S&P 500's youngest CEO.

In contrast, American business tycoon and philanthropist Warren Buffett's career spans more than seven decades. In 1986, at the age of 56, Buffett made his first billion dollars, and because of the breadth and depth of his financial market knowledge is regarded as one of the most powerful and influential investors in the world.

In Africa, the concept of millennials inheriting money from Baby Boomers is based on the fact that 14 of Africa's wealthiest people are members of the Baby Boomer and Silent Generation. There is only one Gen Xer in the top 18 wealthiest Africans according to Forbes—Mohammed Dewji (47) with a net worth of US$1,5. All others belong to the Baby Boomer or Silent Generation categories. The wealthiest African, Aliko Dangote, is 65 years old and worth US$13.9 billion. Johann Rupert, (71) is the next wealthiest, with an estimated net worth of US$11 billion, whilst 76-year-old Nicky Oppenheimer has a net worth of US$8.7 billion.

A modern solution to wealth management

Although the industry is at the cusp of a transformation and most of the future trends are related to accessibility, technology, and customer-centricity, time-tested investing fundamentals remain unchanged and should be kept in mind when building and managing investment portfolios.

Nedbank long ago bade farewell to the one-product-fits-all strategy, moving towards a customised advisory based on the risk appetite, goals, and time horizon of the investors. The bank's private wealth offering provides a solution to a historic problem of viewing banking as separate from investments, insurance, estate planning, or philanthropic ambitions. This helps investors build better portfolios.

Gone are the days of rudimentary spreadsheets. We can now build sophisticated portfolios automatically with the help of algorithms and machine learning. The automation of time-consuming processes modernises infrastructure: old legacy systems are updated with more streamlined, automated ones.  As a result, paper-based processes are replaced with mobile transactions that can be done with the click of a button.

Local challenges are similar to experiences abroad

The solution to successfully transferring wealth remains complex. Concerns about whether inheriting generations and recipients will be competent and properly educated to handle riches are typical when discussing generational wealth transfer. And perhaps that’s where we need to start in Namibia, as Millennials seek to participate in the wealth-building game at an earlier age compared to previous generations.  It's imperative that these funds (from salaries, businesses, and inheritance) are applied soundly and effectively,

The effects could be far-reaching and could benefit everyone if we collectively think through how this seismic shift of capital could create new career opportunities, investment approaches, or entrepreneurial ventures for our country.

*Cornell Meeks, who heads the Private Wealth Division of Nedbank Namibia since its inception in 2018. She is a seasoned professional in financial services and an expert banker.

A very basic explanation of balloon payments
Finance

A very basic explanation of balloon payments

August 19, 2022
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A balloon payment is a lump sum payment that is due to the bank/loan provider at the end of the loan term.

 According to the National Credit Act, a balloon payment can be offered to any consumer on an instalment sale agreement.

What most people forget is that even though the balloon payment is set aside, it remains part of your finance agreement and is payable by you. 

Does the balloon payment set aside accrue any interest? 

Usually, the interest is calculated on the full loan amount inclusive of the balloon payment. 

How does the balloon payment reduce my monthly instalments? 

Monthly instalments are calculated based on the total loan amount less the balloon payment which tends to reduces the monthly instalments. Loan amount is N$300 000 and your balloon payment is N$90 000, your instalment is based onN$210 000. 

What happens when the balloon payment is due? 

Most banks will notify before the balloon amount is due to give you time to consider your options. You generally have 3 options:

1) Pay the full balloon amount

2) Refinance the balloon amount

3) Sell or trade in the vehicle

Pay the full balloon amount 

If your balloon payment was say N$90 000 (30% of N$300 000), you will need to pay this up front. 

You need to plan around this. Where will you get the N$90 000?  Will you save for this monthly before it’s due? Will you use your bonuses?

 Refinance the balloon amount 

With this, you enter into a new loan agreement. Back to the N$90 000, you will need to finance this like it’s a new car at a different interest rate depending on your creditworthiness over maybe 12, 24, 36 or 48 et al months. 

Sell or trade in the car 

You can sell the car and use the proceeds to settle the outstanding amount, including the balloon payment. Well, this is if you get a good deal. Most car depreciate at the speed of light and you might sell for less than what you still owe plus the balloon. 

The total cost of credit after all is said and done is usually higher for a financing option that has a balloon payment vs that without a ballon payment. Your joy is only experienced with a reduced instalment. 

Make sure you read the instalment sale agreement with a fine-tooth comb so that you know whose who in the zoo. 

Wesbank has previously reported that on average 1 in every 5 funding agreements now includes a balloon payment that comprises on average 17% of the finance amount. 

*By BankerX, a technology company solving urgent economic problems through a connective platform disrupting traditional methods of career development, financial education, and access to capital.

 

 

Letshego low-cost housing scheme to benefit Namibians
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Letshego low-cost housing scheme to benefit Namibians

August 18, 2022
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Pan-African Finance Group Letshego has launched a low-cost housing scheme for Namibia and Botswana with plans to roll it out to other African countries.

BoN makes senior appointment
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BoN makes senior appointment

August 18, 2022
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The Bank of Namibia has appointed Lloyd Londt  to the position of Finance and Administration Director and member of the central bank's senior management team.

Martin Inkumbi to exit DBN
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Martin Inkumbi to exit DBN

August 18, 2022
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Development Bank of Namibia (DBN) Chief Executive Officer, Martin Inkumbi is set to step down from his role in August 2023, at the end of his current second five-year tenure.

Another 100bps hike expected by year-end
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Another 100bps hike expected by year-end

August 17, 2022
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The Bank of Namibia (BoN) is expected to increase interest rates by another 100 basis points before the end of the year, analysts have said.

This is after the apex bank’s Monetary Policy Committee (MPC) resolved to increase the Repo rate by 75 basis points to 5.50% from 4.75 at its bi-monthly meeting on the 15th and 16th of August 2022.

"The decision was taken with due consideration of the persistent inflationary pressures and is deemed appropriate to safeguard the one-to-one link between the Namibia Dollar and the South African Rand, while meeting the country’s international financial obligations. Moreover, the adopted monetary policy stance is necessary to narrow the current negative real policy interest rate," BoN Deputy Governor Ebson Uanguta said on Wednesday.

He said policy stance was consistent with that taken by central banks around the globe, and in the region, with policymakers acting with resolve to slow and eventually reverse the current acceleration in inflation.

"The MPC will continue to monitor these developments and their potential effects on the domestic economy and will act appropriately and in line with its mandate to ensure price stability in the interest of sustainable economic growth and the development of the country," said Uanguta.

Simonis Storm Economist Theo Klein said the hike was in line with expectations and follows a similar move by the South African Reserve Bank which also hiked its Repo rate by 75 basis points in July 2022.

"The forward rate agreement curve in South Africa which summarizes market participants expectations of short-term interest rates, so we expect another 100 basis points hike before the end of the year if it materializes in South Africa,” he said.

With Namibia's current rate at 5.50 %, he said “this depicts that interest rates are getting closer to the pre-pandemic levels when the repo rate was at 6.2 % in February 2020.”

Klein said once a 100-basis point hike is announced, the rate will surpass the pre-pandemic levels.

"Interest are still being hiked in South Africa and Namibia although inflation is driven by supply side factors which interest rates have no control over and this is primarily for two main reasons, which is central banks trying to limit the currency weakness and itself is inflation thus through this insect way they are attempting to contain inflation, and secondly they want to keep inflation expectations anchored around their target.

“In South Africa, this is between 3% and 6%, so to keep inflation expectations anchored the central bank will hike the interest rates to try and signal to the market that the high levels of inflation are unlikely to persist in the medium to long term.”

The Economist added that inflation expectations need to be managed and anchored around the central bank’s target.

“This is because when expectations move higher and employees demand higher salaries this will lead to higher prices and inflation rates, as business need to pay these higher salaries, thus through this channel central banks use hiking rates to signal to the market that long term inflation is likely to gravitate towards its target range so that inflation expectations are managed and anchored around the central banks targets range," said Klein

Through these indirect effects he said the central bank in SA is trying to contain inflation and with the NAD and Rand peg, BoN has to follow suit.

Danie van Wyk, the Head of Research at IJG Securities concurred another rate hike was expected from BoN.

“The exact number- and size of any further rate hikes will depend on the inflation data released over the next couple of months, and particularly the magnitude of the second-round effects from rising fuel prices. We currently expect a 50 bp rate hike at the SARB’s September MPC meeting followed by a 25 bp hike at the November meeting, although there is always the possibility that they could be combined into another 75 bp rate hike in September instead,” he said.

Van Wyk added that while inflation continues to be driven more by supply-side factors than increased consumer spending, the SARB is front-loading rate increases, opting to stay ahead of central banks in developed nations, and reinforcing its commitment to anchoring inflation expectations.

“By not following developed market central banks in raising rates, South Africa is likely to see an outflow of capital which will weaken the rand, which is in turn inflationary and will just exacerbate the increase in inflation. The BoN’s mandate is to protect the currency peg with the South African rand, thereby anchoring domestic inflation expectations,” he said.

Rodney Hoaeb, an Economic Researcher with Harvest Investment, said the increase in the repo rate to 5.5% in the current economic times presents a scenario where governments are doing their utmost best to avoid the fears of recession asserted by high inflation rate and poor production levels.

"The cost of production is very high; interest rates are high, and this discourages people from spending on too much disposable goods considering the high level of food inflation.  The counter-reactionary move gives banks the comfort to retain expected returns on economic recovery," he explained.

Hoaeb said the external impact was also caused by China and US tensions where the US is fearing recession, EU member states are avoiding recession because of drought and reduced gas supply from Russia.

Reportedly China has reduced their commitment to US bonds as a retaliation against its support for Taiwan.

Thus, Hoaeb noted that one of the core things to tackle in Namibia will be to find ways to reduce government expenditure on imports.

"Government should find strategies to spend locally and ensure the money remains in the economy and stimulate growth. Secondly, the Government should reduce debt both international and domestic to stabilize the fiscal position and for confidence," he said.

The researcher further urged the Government Institutions Pension Fund to expedite the funding for infrastructure projects and various sectors in order to retain jobs and stimulate more growth.

"The GIPF has been withdrawn because of its selection process for unlisted investment; this was an economic setback in various sectors," Hoaeb said.

The next meeting of the central bank’s MPC will be held on the 24th and 25th of October 2022.

DBN demands N$70m from student residence owners
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DBN demands N$70m from student residence owners

August 16, 2022
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The Development Bank of Namibia (DBN) is demanding over N$70 million from Rez Student Living Academia, after the luxurious student accommodation defaulted on payments.

Namfisa flags 5 entities for possible risk to financial sector
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Namfisa flags 5 entities for possible risk to financial sector

August 15, 2022
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The Namibia Financial Institutions Supervisory Authority (Namfisa) has flagged 5 entities operating in the country’s capital markets which could pose a possible risk to the country’s financial sector.

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