MSc International Banking: Basel III Impact on Namibian Banks

This report, prepared for the University of Salford's MSc International Banking and Finance program, assesses the impact of Basel III implementation on the profitability of the top 4 banks in Namibia. The research employs a positivism philosophy, utilizing annual and integrated reports from the banks to collect quantitative data. A fixed assets model is used, analyzing variables such as Return on Assets (ROA), lagged ROA, bank size, and bank capital. The study addresses research questions regarding the impact of Basel III, the influence of returns on equity, the consistency of profits, and the role of bank size. Data collection involved panel longitudinal surveys and secondary sources, focusing on profitability ratios like Return on Equity, Cost to Income Ratio, and Net Interest Margin. The report emphasizes ethical considerations, reliability, and validity. Findings reveal the trends in Return on Equity, providing insights into how the banks have adapted to the new regulations and maintained their profitability. The report concludes with recommendations for the banks to improve their profitability after Basel III implementation.

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Research Methodology
Introduction
This section of the research paper explains methods that the researcher used during the study.
Research philosophy, research design, research questions, data collection methods, analysis of
ethical issues, reliability and validity as well as the conclusion are the components that make up
this chapter. Most significantly, all descriptions that were made basing on the aforementioned
elements prioritized achievement of the research objectives. The study was focused on meeting
the general research objective of analyzing the impact of implementation of Basel III of
profitability of the top 4 banks of Namibia.
Research philosophy
The researcher adopted a positivism philosophy in describing the manner in which data about the
research problem was gathered, analyzed and used to deliver meaningful interpretations.
Positivism philosophy was selected by the researcher because it made it possible to make
description about reality in an objective point of view without distorting the phenomenon under
study (John 2012 p.11). In addition, data for the study was gathered through making use of the
annual reports and integrated reports of the selected top 4 banks of Namibia. The above sources
offered significantly huge volume of data and descriptions that eased the processes of collecting
appropriate and reliable data for the study (Macro Assessment Group 2010). Data was
quantitatively analyzed by making use of descriptive statistics and variables that included; the
mean, maximum values, minimum values, variance and standard deviation. Most importantly,
quantitative approach of analyzing the collected data was preferred because it eased the process
of making inferences, interpretation and deductions. As a result, the researcher based the analysis

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on the figures that were identical to all profitability ratios to deliver meaningful inferences,
interpretations and deductions (Oura et al., 2013). After the above processes of data gathering
and analysis, data was used to make a number of recommendations on the ways that each of the
top 4 banks should utilize to realize profitability after Basel III implementation. Most
significantly, all the top 4 banks of Namibia had the potential to realize improvements in their
profitability levels after Basel III implementation. The above claim is attributed to the fact that
they have been able to maintain significantly high levels of capital adequacy after Basel III
implementation. (Said &Tumin 2011 p.159).
Research design
The researcher utilized a fixed assets model plus dependent and independent variables to ensure
that the research objectives were met during the study. The above model was utilized to
determine relationships that exist between market share prices and profitability ratios of financial
institutions in Ghana (Issah 2015 p.35). Below is the fixed assets model that the researcher used
for this study.
ROAit = α+ λROAit, t-1 + βXit + ρMacFinit + εit
Where,
ROAit is the returns earned by the bank on its assets for at a given time period, t
α is the constant coefficient
λROA it, t-1 is the return on equity that is lagged
λ, β, ρ are factors that are to be calculated to exhibit the degree of variation in the independent
variable arising from the influence of a dependent variable

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Xit is the vector of particular traits of the banks like bank size
MacFinit is the vector of macro financial forces like bank capital
εit is the idiosyncratic error term
Description of variables
ROA as a dependent variable represented in the model above
Return on Equity (ROE) and Return on Assets (ROA) are the two main ratios that are
utilized to determine the profitability of the firm (Issah 2015 p.35). The researcher considered the
return on assets from the model will aim at fulfilling the objective of finding out how returns on
assets are able to enhance the profitability of banks. In order to meet the above objective, below
is the corresponding hypothesis that was utilized by the researcher
Ha: Returns on assets are able to enhance the profitability of banks
Independent Variables plus their corresponding hypotheses
i) ROA it, t-1 (Lagged dependent variable)
Under this variable, profits of banks are assumed to be persistent over periods of time arising
from imperfections in the market structure (Vong& Chan 2009 p.33). The above element of the
model aimed to fulfill the objective of finding out whether banks consistently earn high profits
over time in spite of the regulations in form of Basel III. The researcher utilized the following
hypothesis to achieve the objective above
Hb: Profits of Bank are consistently high over a period of time in spite of the regulations
like Basel III

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ii) Size of the bank
Modern theory of financial intermediation indicates that efficiency merits are directly related to
the size of an entity due to economies of scale (Vong& Chan 2009 p.33). The above variable
aimed at fulfilling the objective of finding out whether the size of a bank determines its
profitability over a long time period. Below is the corresponding hypothesis that was utilized by
the researcher to achieve the objective above
Hc: Profitability of banks has a direct proportion with the size of the bank
iii) Bank Capital
In a perfect capital market, earning power of a firm is the element that determines its value rather
than its capital structure (Vong& Chan 2009 p.33). The above variable aimed at fulfilling the
study objecting of finding out how bank capital boosts profitability of a banking entity over a
period of time. The researcher utilized the following hypothesis to achieve the above objective
Hd: Improvements in equity capital offers a positive contribution to profitability of banks
Research questions
i. What is the impact of implementation of Basel III on the profitability of top 4 banks in
Namibia?
ii. How do returns on equity enhance the profitability of banks?
iii. Do banks consistently earn high profits over time in spite of the regulations such as Basel
III?
iv. Does size of a bank determine its profitability over a long time period?
Data collection methods

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The study used panel longitudinal survey and secondary sources to collect data for the study.
Internet, reports and journals were utilized by the research to collect reliable data for the study.
More so, data collection was on the five profitability ratios that were utilized to determine the
impact of implementation of Basel III. Return on equity, cost to income ratio, operating profit to
total assets ratio, net interest margin and net profit ratio were the profitability ratios that data
collection process was based on. These ratios were selected because their magnitudes act as a
indicators on profitability of a banking institution. Ned bank, Standard Bank Namibia, First
National Bank Namibia and Bank Windhoek Limited are the top 4 banks of Namibia that formed
the sample size of the study. The above banks were selected because they had introduced an
element of Basel III capital in their undertaking since 1 September 2018 and have the plan of
phasing it over a period of 5 years. Financial stability and efficiency has been boosted in the
banking sector through Namibia's Reserve Bank that has made use of Basel III implementation to
boost the profitability potentials of the above big four banks (Ongena& Jimenez 2010).
Furthermore, data concerning individual banks was obtained from the Bankscope of Namibia
whereby data concerning the income statements and balance sheets of selected banks was
collected for this study. The above approach was preferred because it offered detailed and
standardized formats of financial data which eased data interpretation. Most significantly, the
researcher obtained financial information concerning individual selected banks from their
websites to eliminate incidences of missing data (Oura et al., 2013)
Analysis of ethical issues
The researcher prioritized objectivity, carefulness, legality and respect for intellectual property as
a way of depicting prioritization of ethical issues during the study. Objectivity was exhibited in
form avoiding bias during data interpretation, analysis and making the research design. The

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above practice ensured that all data processing and management procedures were effectively
handled without affecting interests of any third parties. Additionally, carefulness was executed
through critical reviewing of the collected data given that the study was mainly quantitative in
nature. In addition, the researcher prioritized conformity to all legal procedures and regulations
whilst collecting data that ensured that the study did not violate the interests of the general
public. Furthermore, researcher did not engage in plagiarism and copying other people’s research
as a way of respecting intellectual property as an ethical issue. Elements such as copy rights and
patent rights were prioritized given that data collection mainly involved use of secondary sources
(Oura et al., 2013).
Analysis of reliability
In order to ensure that findings of the study were reliable, the researcher prioritize data
management that involving filling in missing values on the various profitability ratios. The above
approach made it possible to derive reliable interpretations and deductions about the study with
high level of confidence (Oura et al., 2013).
Analysis of Validity
The researcher selected data for a period between 2011 and 2017 as a way of ensuring that the
findings from the research were valid. The above period was chosen because it provided
historical data on various profitable ratios of the top 4 banks of Namibia as a way of determining
the impact that Basel III implementation in 2018 has impacted their profitability. The decision to
select the above period was based on the concept of events study that is mainly focused on
analyzing likely reactions of share prices of banks to the yet to be announced liquidity
requirements under Basel III (Schwaiger 2009)

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Conclusion
All parts of the methodology section were executed with prior knowledge and interest of meeting
the research objectives. The research philosophy helped to ensure that data was appropriately
gathered, analyzed and used by the researcher to deliver meaningful interpretations and
deductions. In addition, the research design helped to ensure that the variable for the study were
appropriately identified and described through the empirical model to achieve objectives and
hypotheses of the research. In addition, research questions were essential in guiding the
researcher to meet the research objectives. Also, data collection was effectively done by utilizing
a variety of secondary sources that offered reliable and accurate data. Secondary sources ensured
that less time was used to collect data for the study. Most significantly, the researcher also
prioritized ethical issues, reliability and validity as a way of ensuring that interests of the third
parties and society were not violated by the study

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Findings and Analysis
Return on equity, net interest margin, net profit ratio, operating profit to total assets ratio and
cost to income ratio are the profitability ratios that were studied. Below is the analysis of each of
the above profitability ratios.
How returns on equity enhance the profitability of banks
Table 1: Return on Equity (%)
Bank 2011 2012 2013 2014 2015 2016 2017 Average
of 7
years
Ned Bank 15.6 15.3 15.8 16.1 16.5 16.8 17.3 16.2
Standard
Bank
Namibia
16.9 17.6 17.2 18.0 18.8 23.4 24.0 19.4
FNB
Namibia
29.3 29.9 30.3 30.9 32.2 32.7 33.1 31.2
Bank
Windhoek
Limited
20.8 21.1 21.4 21.9 22.4 22.9 23.2 22.0
Source: PSG, Annual Reports
The table above shows the average returns on equity of the top 4 banks of Namibia after Basel III
had been implementation. From the table, return on equity for Ned Bank decreased from 15.6%
in FY 2010/11 to 15.3% in FY 2011/12. The drop in equity was attributed to inappropriate

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decisions on reinvestment of the profits that were earned by the entity on its assets
(Nedbank.co.za 2018). However, the entity was able to revive its undertakings whereby a
consistent increase in its returns on equity continued to increase over the preceding years.
Evidentially, the highest return on equity is 17.3% that was realized in 2017. More so, the
tremendous increases on the return on equity after 2012 are attributed to the fact that Ned Bank
opted to utilize more of financial leverages. In such a case, the entity has been financing itself
with equity capital and debts as a way of boosting its return on equity (Afi-global.org 2018). In
regards to Standard Bank Namibia, return on equity increased from 16.9% in the FY of 2010/11
to 17.6% in the FY 2011/12. The above increase is attributed to the significant increases in
profits that the entity was able to realize over the two FYs. However, a decline in return on
equity decreased after FY of 2011/12 from 17.6% to 17.2%. The decline was due to failure to
generate sufficient income from its undertakings due to high overhead costs. Most significantly,
the entity was able to revise its undertakings in the preceding years by overhead costs have been
significantly reduced. As such, the return on equity was able to be rejuvenated from 17.2%
realized in FY 2012/13 to 24.0% in the FY 2016/17. The persistent increases in returns on equity
have been due to the fact that Standard Bank Namibia has been earning consistently high profits
arising from lowered overhead costs (Bis.org 2013).
Additionally, FNB Namibia has been able to record consistent increase in the returns on
equity over the past 7 year. 29.3% was the lowest return on equity that was realized in FY of
2010/11 and the highest returns on equity were realized in the FY of 2016/17. FNB Namibia has
been consistently enhancing asset turnover which is an efficiency indicator (Sherman 2018).
FNB Namibia has been producing more sales as compared to its assets which has not only
increased its profit margin but also return on equity. As a result, it can be implied that the entity

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has effectively utilized its investment ventures to realize consistent growth in its earnings (Huw
2011). On the other hand, Bank Windhoek Limited has been able to realize consistent increases
in its return on equity. More so, it is in the FY of 2010/11 that the entity earned 20.8% as its
lowest returns on equity and 23.2% are the highest returns on equity earned in the FY of
2016/17. The consistent increases in its returns on investment are attributed to the fact that the
entity has always been distributing its idle cash which has widened its profitability margins
(David 2013). This is because the entity has been focusing on increasing its profitability by
reducing on idle cash that is excess of quantity needs to conduct its day to day operations. Most
significantly, the entity has been distributing its idle cash to a multiple of shareholders as an
approach for leveraging and boosting its returns on equity (Popper 2015).
In order to determine the performance the level of mean return on equity that was
realized by these banks after Basel III implementation in 2018 was utilized by the researcher. As
such, the impact on profitability of these banks after implementation of Basel III was based on
their historical performance. From the above analysis, Ned Bank realized a mean return on
equity of 16.2%, Standard Bank Namibia had a mean return on equity of 19.4%. Also, FNB
Namibia had a mean return on equity of 31.2% and Bank Windhoek Limited had a mean return
on equity of 22.0%. From the above statistics, it can be implied that FNB Namibia was the best
performing entity after Basel III implementation given that it had the highest average returns on
equity (Tabart 2012). It can also be implied that Ned Bank was the worst performing entity after
Basel III implementation due to the fact that it recorded lowest average returns on equity. In
addition, Standard Bank Namibia and Bank Windhoek Limited recorded a fair performance after
Basel III implementation (Lall 2012 p.612). As a result, shareholders in FNB Namibia earned

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significantly higher profits as compared to other top 4 banking institutions after the
implementation of Basel III in the banking sector of Namibia.
Do banks consistently earn high profits over time in spite of the regulations such as Basel
III?
Table 2: Operating profit to total assets ratio
Bank 2011 2012 2013 2014 2015 2016 2017 Average
of 7
years
Ned Bank 0.73 0.93 1.23 1.3 1.45 1.58 1.98 1.3
Standard
Bank
Namibia
1.22 1.5 1.52 1.56 1.58 1.60 1.63 1.5
FNB
Namibia
2.75 2.59 2.54 2.43 2.66 2.78 2.98 2.7
Bank
Windhoek
Limited
2.82 2.93 3.02 2.46 2.17 2.22 2.42 2.6
Source: PSG, Annual Reports
The table above shows the average of operating profit to total assets ratio for top 4 banks
of Namibia over the period of 7 FYs. In the FY of 2010/11, Bank Windhoek Limited recorded
the highest operating profit to total assets ratio of 2.82, followed by FNB Namibia with an

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operating profit to total assets ratio of 2.75. In same FY, Standard Bank Namibia had an
operating profit to total assets ratio of 1.22 and Ned Bank had an operating profit to total assets
ratio of 0.73. These statistics indicate that the entities were earning significant profits from their
daily operations that involved use of their assets. In the FY of 2011/12, Standard Bank Namibia,
Bank Windhoek Limited, and Ned Bank realized significant increases in their operating profit to
total assets ratios with exception of FNB Namibia. Among all the four banks, Bank Windhoek
Limited had the highest operating profit to total assets ratio of 2.93 and Ned Bank had the lowest
operating profit to total assets ratio of 0.93 in the FY of 2011/12. The above statistics indicate
that Bank Windhoek Limited had the best performance in FY of 2011/12 as far as generation of
profits from the available total assets is concerned. In the FY 2012/13, Ned Bank, Standard Bank
Namibia and Bank Windhoek Limited realized significant increases in their operating profit to
total assets ratio. The increases in the operating profit to total assets is due to significant
decreases in the operation costs which greatly widened the sales and profits of the above banking
entities (Jones & Zeitz 2017 p.90). Only, FNB Namibia had a decline in its operating profit to
total assets ratio from 2.59 in FY 2011/12 to 2.54 in FY 2012/13.The above decline is attributed
to the increases in the costs of operations that greatly impact the profit margin of FNB Namibia
during the FY 2012/13. In addition, Bank Windhoek Limited had the best performance in
generating profits from the total assets during the FY 2012/13 because it had the highest
operating profits to total assets ratio. Also, Ned bank had the worst performance in generating
profits from the available assets during the FY 2012/13 because of its low operating profits to
total assets ratio (Philip 2011)
In the FY 2013/14, Ned Bank and Standard Bank Namibia realized significant increases
in their operating profit to total assets ratio as compared to previous FY 2012/2013. These two

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entities attained increases in the operating profit to total assets because they experienced
significant decreases in their operation costs. As such, the overall sales and profits from the
operations increased for these two banking entities of Namibia. On the contrary, FNB Namibia
and Bank Windhoek Limited experienced declines in their operating profit to total assets ratio
from 2.54 and 3.02 in FY 2012/13 to 2.43 and 2.46 in FY 2013/14 respectively. The above
decline is attributed to the increases in the costs of operations that greatly impact the profit
margin of FNB Namibia and Bank Windhoek Limited during the FY 2013/14. In spite of the
decline, Bank Windhoek Limited was the best performer of the four banking entities in regards
to generation of profits from the total assets during the FY 2013/14 as it attained the highest
operating profits to total assets ratio. Also, Ned bank had the worst performance in generating
profits from the available assets during the FY 2013/14 because of its low operating profits to
total assets ratio (Pagliari& Young 2014 p.575).
In the FY 2014/15, Ned Bank, Standard Bank Namibia and FNB Namibia realized
significant increases in their operating profit to total assets ratio as compared to previous FY
2013/2014. These two entities attained increases in the operating profit to total assets because
they experienced significant decreases in their costs of operation. As such, the overall sales and
profits from the operations increased for these above three banking entities of Namibia. On the
contrary, Bank Windhoek Limited experienced a decline in its operating profit to total assets
ratio from 2.46 in FY 2013/14 to 2.17 in FY 2014/15. The above decline is attributed to the
increases in the costs of operations that greatly impact the profit margin of Bank Windhoek
Limited during the FY 2014/15. Among all the top 4 banks, FNB Namibia was the best
performer in the FY 2014/15 as far as generation of profits from the total assets is concerned
because it had the highest operating profits to total assets ratio (Abdel-Baki 2012). Also, Ned

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bank had the worst performance in generating profits from the available assets during the FY
2014/15 because of its low operating profits to total assets ratio.
In the FY 2015/16, all the banking entities realized significant increases in their operating
profit to total assets ratio as compared to previous FY 2014/2015. It can be implied that sales and
profits derived from the operations of all the top 4 banks in Namibia increased in FY 2015/16 as
compared to previous fiscal year (Kasekende&Brownbridge 2011).
In the FY 2016/17, all the banking entities realized significant increases in their operating
profit to total assets ratio as compared to previous FY 2015/2016. The above findings show that
all the top 4 banks of Namibia were able to earn higher profits from their operations. As a result,
the overall annual sales and profits that were derived from their operations increased in FY
2016/17. Among all these top 4 banks, FNB Namibia was the best performer in the FY 2016/17
as far as generation of profits from the total assets is concerned because it had the highest
operating profits to total assets ratio of 2.98. In spite of the increase in its operating profits to
total assets ratio, Standard Bank Namibia had the worst performance in generating profits from
the available assets during the FY2016/17 because of its low operating profits to total assets ratio
of 1.63 (Frait& Vladimir 2014 p.493).
From the above findings, it can be seen that Ned Bank attained the highest operating
profit to total assets ratio of 1.98 in FY 2016/2017 and the lowest operating profit to total assets
ratio of 0.73 in FY 2010/2011. Also, Standard Bank Namibia attained the highest operating
profit to total assets ratio of 1.63 in FY 2016/17 and the least operating profit to total assets ratio
of 1.22 in FY 2010/11. Additionally, FNB Namibia attained highest operating profit to total
assets ratio of 2.98 in FY 2016/17 and the lowest operating profit to total assets ratio of 2.43 in

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FY 2013/14. Furthermore, Bank Windhoek Limited attained highest operating profit to total
assets ratio of 3.02 in FY 2012/2013 and the lowest operating profit to total assets ratio of 2.17 in
FY 2014/15 (Psg.co.za 2016).
Performance of these banks after Basel III implementation was based on returns on assets
that were depicted through the operating profit to total assets ratio. As such, Ned Bank realized a
mean operating profit to total assets ratio of 1.3 and Standard Bank Namibia had a mean
operating profit to total assets ratio of 1.5. Also FNB Namibia had a mean operating profit to
total assets ratio of 2.7 and Bank Windhoek Limited had a mean operating profit to total assets
ratio of 2.6. From the above statistics, it can be implied that FNB Namibia was the best
performer in generating profits from its operations using the total available assets after Basel III
implementation. On the contrary, Ned Bank had the worst performance in regards to generation
of profits from operations using total available assets after Basel III had been implemented
(Gottschalk 2010). Therefore, returns on assets enhance profitability of banks through widening
returns from the use of available assets to execute operations of entities in spite of regulations
under Basel III.
Furthermore, the following table also adds more findings on whether banks consistently
earn high profits over time in spite of the regulations such as Basel III
Table 3: Net profit ratio (%)
Bank 2011 2012 2013 2014 2015 2016 2017 Average
of 7
years
Ned Bank 9.48 7.15 5.24 3.02 5.62 7.01 8.98 6.64

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Standard
Bank
Namibia
8.62 7.8 9.21 7.40 9.62 8.33 8.35 8.48
FNB
Namibia
17.79 17.88 13.31 28.13 13.54 8.77 8.64 15.44
Bank
Windhoek
Limited
6.50 13.92 10.55 6.75 10.50 10.68 12.24 10.16
Source: PSG, Annual Reports
Table 3 indicates yearly changes in the net profit ratio of the top 4 banks of Namibia plus a mean
net profit after Basel III implementation. From the above table, it can be seen that Ned Bank,
Standard Bank Namibia and FNB Namibia realized significant decreases in their net profit ratios
after the implementation of Basel III. Evidentially, Net profit ratio of Ned Bank reduced from
9.48 in the FY 2011 to 8.98 in FY 2017 after Basel III implementation. Also, Standard Bank
Namibia's net profit ratio reduced from 8.62 in FY 2011 to 8.35 in FY 2017. In addition, FNB
Namibia's net profit ratio greatly decreased from 17.79 in FY 2011 to 8.64 in FY 2017. The
above decreases in the net profit ratio of the above three banks is attributed to failure to increase
sales prices for various banking services like merchant and treasury services (Buckley 2015 p.5).
On the contrary, Bank Windhoek Limited attained an increment in its net profit ratio from 6.50
in FY 2011 to 12.24 in FY 2017 after Basel III had been implemented. Such a significant
increase is attributed to the fact that the entity was able to widen sales prices for treasury and
merchant services. After Basel III implementation, the entity has been effective in controlling its

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overhead costs like accounting fees, legal fees and taxes among others. As a result, Bank
Windhoek Limited has been able to earn significantly high levels of profits that have helped to
widen its net profit ratio after the implementation of Basel III (Wheelock 2010 p.520).
Performance of these banks was based on answering the question of consistency in attaining high
profits in spite of Basel III implementation in the Banking industry of Namibia. From the
findings, it can be seen that Ned Bank had a mean net profit ratio of 6.64 and Standard Bank
Namibia had a mean net profit ratio 8.48.Also FNB Namibia had a mean net profit ratio of 15.44
and Bank Windhoek Limited had a mean net profit ratio of 10.16 after Basel III implementation.
From the above statistics, it can be implied that FNB Namibia was the best performing entity in
that it remained with highest profits financing and administration costs have been deducted from
the sales. On the other hand, Ned Bank had the worst performance after Basel III implementation
in that it had the lowest profits after financing and administration costs have been deducted from
the sales (Bailey 2014).In spite of the differences, it can be implied that the banks were
consistently recording high profits even after Basel III had been implemented.
Does size of a bank determine its profitability over a long time period?
Table 4: Cost to Income Ratio
Bank 2011 2012 2013 2014 2015 2016 2017 Average
of 7
years
Ned Bank 57.5 55.4 58.8 59.9 56.6 59.6 60.2 58.29
Standard 72.4 70.6 69.3 68.1 66.5 60.9 59.1 66.70

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Bank
Namibia
FNB
Namibia
49.2 48.7 48.1 47.3 43.9 43.6 42.8 46.23
Bank
Windhoek
Limited
56.4 55.4 54.8 53.6 51.6 50.2 49.8 53.11
Source: PSG, Annual Reports
Table 4 indicates the cost to income ratio of Namibia's top 4 banks after Basel III
implementation. From the table, it can be seen that Bank Windhoek Limited, FNB Namibia and
Standard Bank Namibia had significant decreases in their cost to income ratios. Evidentially,
Standard Bank Namibia realized the greatest cost to income ratio of 72.4 in FY 2011 and the
lowest cost to income ratio of 59.1 in FY 2017. Also, FNB Namibia had the highest cost to
income ratio of 49.2 in FY 2011 and the lowest cost to income ratio of 42.8 in FY 2017. In
addition, Bank Windhoek Limited realized the greatest cost to income ratio of 56.4 in FY 2011
and lowest cost to income ratio of 49.8 in FY 2017. All the above decreases in the cost to income
ratio are attributed to the fact that these banking entities charges significantly higher interest rates
on their merchant and treasury services after Basel III implementation (Bokhari& Khurram 2012
p.20). From the financial statements of these banks, it was revealed that higher interest rates
greatly and consistently increased the operating incomes of these entities. On the other hand, Ned
Bank recorded a cost to income ratio of 57.5 in FY 2011 which abruptly rose to 58.8 and 59.9 in
the preceding FYs 2013 and 2014 due to increase in operating costs in form of factor fees.
However, a decline in cost to income ratio from 59.9 in FY 2014 to 56.6 in FY 2015 was

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recorded due to reduction in factor fees. In the FYs of 2016 and 2017, Ned Bank recorded further
increases in its cost to income ratio from 56.6 in FY 2015 to59.6 and 60.2 in FYs 2016 and 2017
respectively (Amjad & Tufail 2013 p.20).
Bank size was basically based on the cost to income ratios. As such, an entity which had
a cost to income ratio above 50 was deemed to be bigger in size and those below 50 were
considered to be of smaller size. As such, Ned Bank had a mean cost to income ratio of 58.29
and Standard Bank Namibia had a mean cost to income ratio of 66.70. Also FNB Namibia had a
mean cost to income ratio of 46.23 and Bank Windhoek Limited had a mean cost to income ratio
of 53.11 after Basel III implementation. It can be seen that FNB Namibia was the smallest
banking entity and the rest of the banks were the largest basing on the mean cost to income ratio
indicator. In regards to the research question, significantly high cost to income ratios of these
banks indicated that size of a bank determines its profitability over a long time period
(Chaudhary 2012 p.130).
Do banks consistently earn high profits over time in spite of the regulations such as Basel
III
Table 5: Net Interest Margin
Bank 2011 2012 2013 2014 2015 2016 2017 Average
of 7
years
Ned Bank 4.1 4.3 4.5 4.7 4.6 4.8 4.9 4.56
Standard
Bank
4.0 4.2 4.3 4.4 5.1 5.9 6.2 4.87

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Namibia
FNB
Namibia
4.2 4.4 4.7 4.8 5.4 5.4 5.8 4.96
Bank
Windhoek
Limited
4.3 4.5 4.6 4.8 4.8 4.9 5.1 4.71
Source: PSG, Annual Reports
Table 5 shows net interest margin of the top 4 banks of Namibia from the FY 2011 to FY 2017
after Basel III implementation. Findings indicate that net interest margin of all the banks
increased after the implementation of Basel III. In regards to Ned Bank, FNB Namibia and Bank
Windhoek Limited, their net interest margin was relatively stable and increasing from FY 2011
to FY 2017. The above meant that income earned by these banks from interest rate charged on
their loans was overweighing the interest expenses that they were paying to their lenders. On the
other hand, Standard Bank Namibia recorded a relatively stable net interest margin from FY
2011 to FY 2014. Thereafter, an abrupt rise in its net interest margin was recorded from FY 2015
up to FY 2017. These findings show that Standard Bank Namibia was able to attain significantly
higher incomes from its operations after deducting the interest expenses to lenders from interest
incomes earned from loans to clients. Higher incomes derived from day to day operations are
indicators that profitability of these entities had been enhanced after Basel III implementation
(David 2015 p.95).
In addition, profitability performance of these top 4 banks after the implementation of
Basel III was depicted through magnitudes of net interest margins. As such, Ned Bank had a
mean net interest margin of 4.56 and Standard Bank Namibia had a mean net interest margin of

Research 22
4.87. Also FNB Namibia had a mean net interest margin of 4.96 and Bank Windhoek Limited
had a mean net interest margin of 4.71 after Basel III implementation. From the above statistics,
it can be implied that FNB Namibia was able to earn significantly higher profits after Basel III
implementation given that it had the highest average net interest margin. On the other hand, Ned
Bank earned the lowest profits after Basel III implementation in that it had least net interest
margin (Dumicic & Ridzak 2012). Therefore, in spite of Basel III implementation, the top 4
banks of Namibia consistently earned higher profits from their operations.
Table 6: Descriptive statistics of the profitability ratios
Banks Descriptive
Variable
Return on
Equity
Operating
profit to
total assets
ratio
Net profit
ratio
Cost to
income
ratio
Net interest
margin
Ned Bank Mean 16.2 1.3 6.64 58.29 4.56
Maximum 17.3 1.98 9.48 60.2 4.9
Minimum 15.3 0.73 3.02 55.4 4.1
Variance 0.50 0.17 5.01 3.34 0.08
Standard
Deviation
0.71 0.41 2.24 1.83 0.28
Standard
Bank
Namibia
Mean 19.4 1.5 8.48 66.7 4.87
Maximum 24 1.63 9.62 72.4 6.2
Minimum 16.9 1.22 7.4 59.1 4.0
Variance 8.97 0.02 0.59 24.64 0.77
Standard 2.99 0.14 0.77 4.96 0.88

Research 23
Deviation
FNB
Namibia
Mean 31.2 2.7 15.44 46.23 4.96
Maximum 33.1 2.98 28.13 49.2 5.8
Minimum 29.3 2.43 8.64 42.8 4.2
Variance 2.18 0.03 45.23 7.28 0.35
Standard
Deviation
1.48 0.18 6.73 2.70 0.59
Bank
Windhoek
Limited
Mean 22 2.6 10.16 53.11 4.71
Maximum 23.2 3.02 13.92 56.4 5.1
Minimum 20.8 2.17 6.5 49.8 4.3
Variance 0.84 0.12 7.34 6.81 0.07
Standard
Deviation
0.91 0.34 2.71 2.61 0.27
The table above depicts the descriptive statistics of return on equity, net interest margin, net
profit ratio, operating profit to total assets ratio and cost to income ratio as the profitability ratios
for this study. Mean, maximum values, minimum values, variance as well as the standard
deviations are the descriptive variable for the various profitability ratios across the 7 FYs
(Oluitan 2014 p.10). Basing on the maximum and minimum values, FNB Namibia had the
highest return on equity (33.1%) and Ned Bank had the lowest return on equity (15.5%) after
Basel III implementation. In regards, Bank Windhoek Limited had the highest operating profit to
total asset ratio (3.02) and Ned Bank had the lowest operating profit to total asset ratio (0.73)
after Basel III implementation. Also, FNB Namibia had the highest Net Profit ratio (28.13%) and
Ned Bank had the lowest net profit ratio (0.73%) after Basel III implementation. Furthermore,
Standard Bank Namibia had the highest cost to income ratio (72.4%) and FNB Namibia had the

Research 24
lowest cost to income ratio (42.8%) after Basel III implementation. Additionally, Bank
Windhoek Limited had greatest net interest margin (5.1%) and Standard Bank Namibia had least
net interest margin (4.0%) after Basel III had been implemented in the banking sector of Namibia
(Philip 2011)
Basing on the values of variance for all the profitability ratios, variability in the returns
on equity is observed to be greatest in Standard Bank Namibia (8.97) and lowest in Ned Bank
(0.5). The above statistics show that Standard Bank Namibia experienced greater changes whilst
utilizing shareholder injections to generate profit after the implementation of Basel III as
compared to the other top 4 banks (Philip 2011). Additionally, variability in operating profit to
total assets ratio is greatest in Ned Bank (0.17) and lowest in FNB Namibia (0.03). These
statistics show that implementation of Basel III lead to increase in profits of Ned Bank from the
total available resources as the overall costs of operation were reduced as compared to the rest of
the banks (Koch & Macdonald 2010). Furthermore, variability net profit ratio was greatest in
FNB Namibia (45.23) and lowest in Standard Bank Namibia (0.59). These statistics indicate that
implementation of Basel III caused greater increments in the profitability of FNB Namibia as
compared to the other top 4 banks. Also, variability in the cost to income ratio was greatest in
Standard Bank Namibia (24.64) and lowest in Ned Bank (3.34). The above statistics implied that
Basel III implementation caused variability in these top 4 banks of Namibia which caused
significant shifts in their cost to income ratios (Kuwai& Morgan 2012). Therefore, Ned Bank,
FNB Namibia or Bank Windhoek Limited realized positive increases in their profitability
margins after Basel III implementation as depicted by their low cost to income ratios.
Additionally, variability in net interest margin was greatest in Standard Bank Namibia (0.77) and
lowest in Bank Windhoek Limited (0.07). These statistics show that Standard Bank Namibia

Research 25
earned higher profits after Basel III implementation given that the interest incomes were
overweighing interest expenses as compared to other banks (Georgios 2015 p.382).
Furthermore, the ranking of profitability performance of the banks after Basel III
implementation was based on the average of their profitability ratios as indicated in the table
below.
Ratio Rank Best Performing Bank Poor Performing Bank
Return on Equity 1 FNB Namibia Ned Bank
2 Bank Windhoek Limited Standard Bank
Namibia
Operating profit to
total assets ratio
1 FNB Namibia Ned Bank
2 Bank Windhoek Limited Standard Bank
Namibia
Net profit ratio 1 FNB Namibia Ned Bank
2 Bank Windhoek Limited Standard Bank
Namibia
Cost to Income ratio 1 Bank Windhoek Limited Standard Bank
Namibia
2 Ned Bank FNB Namibia
Net interest margin 1 FNB Namibia Ned Bank
2 Standard Bank Namibia Bank Windhoek
Limited
Limitations of the study

Research 26
The study was limited to use of only secondary sources for data collection. Such a factor implied
that there was full guarantee of reliability of the data collected given that banks keep undertake
periodic updates of their financial statements. As a result, the data at some point may be
misleading due to lack of clarity. In addition, the study design was basically quantitative in
nature which meant that interpreting figures was the main focus in analyzing the findings.
However, I recommend that researchers make use of both primary and secondary sources to
enhance reliability of the data collected during future studies. Also, I recommend use of both
quantitative and qualitative research designs to ensure that reliable and accurate interpretations
and deductions are made about future studies.
Recommendations
In regards to return on equity, Ned Bank should utilize more financial leverages as a way
of uplifting its average return on equity to boost its profitability from Basel III. For example,
Ned Bank should acquire more capital equity and debts as a way of boosting its financial
resources for investment. Also, Standard Bank Namibia should widen its profit margins through
utilizing opportunities that lower the overall costs of operations so as to improve on its returns on
equity (Wathen 2015). For example, Standard Bank Namibia could opt to lower its interest rates
so as to maximize its merchant sales as a way of boosting its profit margin and return on equity.
On the contrary, FNB Namibia should continue to increase on its assets turnover through selling
the assets and improving on its overall efficiency in handling the assets. The above approach will
widen the clients’ base, sales, and returns on equity in the short run and long run which are an
indicator of enhancements in profitability. In addition, Bank Windhoek Limited should continue
to inject more idle cash into its operations so as to widen both its profitability and returns on

Research 27
equity (Sherman 2018). For example, it should but back some of shares as a way of utilizing the
idle cash to maximize profits and returns on equity in the long run.
Given that Ned Bank and Standard Bank Namibia recorded significantly low average
operating profits to total assets ratio, they should control their operating expenses by reviewing
the budget as a way of eliminating less pressing needs like salary increments that could be
leading to overall increases in operation costs (Slovik & Cournède, 2011). In the due course, the
two entities will be able to save significant financial resources for injecting in profitable ventures
like merchant services to enhance the operating profits to total assets ratio. Also, FNB Namibia
and Bank Windhoek Limited should continue to inject more financial resources in their already
flourishing operation under Basel III so as to maintain their higher operating profits to total
assets ratio (Nicolas & Firzli 2012). Therefore, maintaining higher operating profits to total
assets ratio will help to improve on their profitability after Basel III implementation.
Additionally, Ned Bank and Standard Bank Namibia should reduce on the costs of labor
as a way of improving their net profit ratios. More so, labor costs directly contribute to increases
in operation costs and so reducing them will help to improve on the profits from the operations.
Moreover, working overtime increases on the cost on labor in form of addition remunerations in
form of allowances (Romano 2014). Therefore, reducing on the labor costs is likely to improve
on the profitability of Ned Bank and Standard Bank Namibia especially after Basel III has been
implemented. On the other hand, FNB Namibia and Bank Windhoek Limited should continue to
control and minimize their overhead costs like accounting fees as a way of maintaining or
increasing their profitability levels (Basel Committee on Banking Supervision 2011). The above
approach could be executed through undertaking quarterly auditing practices as a way of
minimizing the costs involved in monthly auditing practices. As a result, more financial

Research 28
resources are likely to be saved for injection in profit maximizing ventures like treasury services
that may boost the net profit ratios in the short and long run (Fsb.org 2019). Therefore,
implementation of the above approaches will help these entities to maximize on their
profitability as exhibited through increases in net profit ratios over a long time period after Basel
III implementation.
Given that all the four banking entities had significantly high cost to income ratios, they
should reduce on property expenses as a way of widening their profitability in the short and long
run. Property repairs, servicing and maintenance charges are some of the property expenses that
were incurred by these banking institutions (Pwc.com 2016). As such, all these banks should
appropriately handle their property like furniture and other equipment as a way of reducing on
the aforementioned costs so that the overall cost to income ratios can be reduced. Therefore, the
above approach is likely to increase the incomes from all the operations due to reduced costs of
operation and thus enhanced profitability from Basel III implementation (Slovik 2012).
Furthermore, Given that all the four banks have relatively stable net interest margins, there is still
need to improve on them as a way of flourishing from implementation of Basel III. As such, all
these institutions should increase demand for loans by clients as a way of improving their net
interest margins in the short and long runs (Wyatt 2011). The above approach can be undertaken
by decreasing on the rate of interests charged on loans given to clients as a way of encouraging
more individuals to borrow more loans (Heritage.org 2014). Therefore, increasing the demand
for more loans is a feasible technique that can help to improve on their profitability especially in
these periods when Basel III has been implemented.
Conclusion

Research 29
Basel III implementation in the banking sector of Namibia has so far had a significant impact on
daily operations of its top four banks as indicated by variations in their profitability margins.
Basing on the findings and analysis, it can be concluded that so far implementation of Basel III
has hit the top 4 banks of Namibia. The above has been evidenced in form of increased, salaries
and other overhead costs that have reduced on profits of these entities as depicted by variations
in their profitability ratios. The above increase in costs of operation is attributed to the fact that
banks are required under Basel III to maintain a proportion of 7% as the minimum capital which
in the end reduces profits of banks. Given that these top 4 banks are of big sizes, they have been
able to spread their operation costs across various departments which have helped to boost
returns on assets and cost to income ratio. As a result, boosting returns on assets has helped to
enhance consistency in profitability of these banks after Basel III implementation. Most
significantly, there are prospects that phasing of Basel III principles over the next five years will
make these top 4 banks of Namibia sound, stable and stronger. Moreover, these banks have been
using simpler techniques for evaluating capital charges which has not been effective in reducing
the costs of operation. As such, there is need for these entities to utilize advanced techniques as
per guidelines offered by Namibia's Reserve Bank so as to effectively manage their capital to
enhance profitability over longer periods of time. In general, it can be concluded that these top 4
banks of Namibia are prospective in that they have been able to maintain greater capital
adequacy ratios. Therefore, the quality of common equity capital will be enhanced with Basel III
implementation.

Research 30
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