Finance and public enterprises minister Iipumbu Shiimi on Monday introduced the Banking Institutions Bill in the National Assembly, which is set to repeal the Banking Institutions Act, 1998 (Act No. 2 of 1998) as amended.
During the first reading of the new legislation, Shiimi said once promulgated the Bill would enhance regulatory and supervisory framework for banking institutions and contribute to the maintenance of financial stability. The new legislation becomes effective upon publication in the government gazette.
“The banking regulatory framework should be effective and responsive to the needs of the people. In this regard, the banking institutions Bill was drafted having regard to our national aspirations and international supervisory standards in banking regulation as provided by international standard setting bodies,” said Shiimi.
He further stated Bank of Namibia (BoN) has been receiving numerous complaints from the public about exorbitant fees charged by banking institutions. As the regulator of banking institutions, he said the central bank has an obligation to ensure the fees payable by customers for services rendered by banking institutions are determined in the public interest and are commensurate with the cost incurred in providing those services to customers.
Therefore, it is proposed in the Bill that the minister be empowered to make regulations relating to fees and charges imposed by banking institutions on their customers. Shiimi assured the House that the regulation of fees and charges will be conducted in a responsible manner without compromising financial sector stability.
Last month, parliament member Veikko Nekundi called on the National Assembly to urgently amend the BoN Act to enable the central bank to protect the most vulnerable in Namibia’s society.
Motivating his motion, Nekundi said bank charges are but “another scheme by commercial banks to swindle people out of their hard-earned money”.
“These bank charges are not only high; they are unjustifiable and unreasonable. These schemes are designed to rob our people and derail them economically. When BoN directed that cash deposit fees be done away with, the capitalist institutions quickly came up with account management fees, another daylight robbery scheme,” the parliamentarian charged.
The Banking Institutions Bill is one of 13 laws in the August House that needs scrutiny for Namibia to meet the necessary requirements for international watchdog, the Financial Action Task Force, to avoid being grey listed. Grey listing means a country is under increased monitoring due to a lack of policies and procedures to deal with anti-money laundering (AML), combatting the financing of terrorism (CFT), and the proliferation financing framework.
According to the Financial System Stability Assessment for Namibia conducted by the World Bank in 2018, significant weaknesses in the Banking Institutions Act (1998) as amended were exposed, such as lack of adequate stabilisation powers for BoN to
deal with failing banking institutions.
The assessment further revealed that fit and proper assessment undertaken by the central bank on directors and shareholders of banking institutions needs to be enhanced. Another significant deficiency in the Act relates to a lack of definition of beneficial owner in relation to
banking institutions.
In collaboration with the central bank, the finance ministry drafted the new legislation to address the above-mentioned deficiencies and achieve, amongst others, introduction of the regulatory framework for microfinance banking institutions to enhance access to financial services, enhance BoN’s powers to resolve failing banking institutions, introduce an optimal level of local and foreign shareholding in banking institutions, introduce the requirements relating to recovery plans of banking institutions and to clarify provisions relating to illegal financial schemes.
“The current Act does not have any restrictions on foreign shareholding in respect of banking institutions. It is a stark reality that all, but two of the eight banking institutions, have majority shareholders of foreign origin. In line with our national aspiration of local empowerment, a desirable blend of local and foreign-owned banking institutions is required to ensure socio-economic development of Namibia,” he stressed.
Diving into the provisions of the Bill, Shiimi added most banking institutions in Namibia are owned by foreign parent companies accusing them of interfering with governance and management of local banking institutions.
“This interference has a negative impact on institutional independence as well as on national economic development because commercial decisions are made in favour of
foreign interests instead of national interests.
It is proposed that the powers of the board of directors of banking institutions be strengthened to ensure their independence in executing their fiduciary functions,” Shiimi explained.
Meanwhile, Landless People’s Movement leader Bernadus Swartbooi was quick to point out that State involvement in the local banking institutions is likely to create problems in the domestic financial sector.
Furthermore, according to Namibia’s financial stability report for 2022, the banking sector’s balance sheet growth remained positive during the period under review. Despite challenging economic conditions, total assets in the banking sector showed significantly more growth in 2022 than they did in 2021. The total assets of the banking sector grew 11% year-on-year, significantly higher than the 2.8% annual growth rate reported in the previous year.
Also, profitability in the banking sector improved to beyond pre-pandemic levels. Banking sector profitability, as measured by returns on assets and on equity ratios improved, from 1.8% to 2.4% and from 14.3% to 19.8%, respectively, during the period under review. The pre-pandemic averages were 2% for return on assets and 17.6% for return on equity.
All efforts for comment by the Bankers Association of Namibia (BAN), CEO Brian Katjaerua, proved futile at the time of going to print.