As Trustco Bank fights to keep its doors open, the regulator, Bank of Namibia (BoN) is adamant that the suspension was necessary in safeguarding the country’s financial system.

BoN claims that banking institutions are interconnected and operate in a system where the failure of one can lead to cascading failures or systemic crises.

“If one banking institution is unable to meet its obligations, it could disrupt the ability of other banks to process transactions. If a banking institution such as Trustco Bank fails to comply with the licensing conditions, it could threaten the entire financial system and it definitely impairs the integrity of the bank’s statutory mandate,” said BoN’s lawyer Terry Motau.

Motau made the submissions last Thursday in the Windhoek High Court in an urgent application filed by Trustco Bank where it seeks an interim court interdict against BoN’s directive to suspend its operations starting on 18 August.

Also, it wants the court to order the central bank to withdraw and/or reverse all instructions emanating from the suspension given to the Payment Association of Namibia (PAN) and Namclear.

The interim interdict shall remain in force until the court pronounces itself on the review application.

The central bank temporarily suspended Trustco Bank, a subsidiary of Trustco Group Holdings (TGH), with immediate effect for six months on condition the local bank rectifies stipulated conditions.

Motau said Trustco Bank’s suspension is not final but the first step in a process to ensure that it meets its obligations within six months.

He said if the court grants the interim interdict, it would set a bad precedent that financial institutions do not need to comply with what the regulator tells them to do.

“The grant of the order sought by the Trustco respondents would create an environment where banking institutions are not deterred from failing to comply with their conditions of licensing or with the orders and directives issued by the Bank od Namibia,” said Motau.  He said Trustco Bank will not suffer prejudice if the orders are not granted as they can make submissions to the central bank within 14 days to persuade it to amend the suspension. 

Furthermore, during the suspension period, customers will have access to their deposits at Trustco Bank. The bank is also permitted during the period of suspension period to accept repayments from its creditors in compliance with such creditors’ loan repayment obligations existing as of the date of the notice of suspension. 

On the review application that Trustco Bank intends on bringing, Motau said the bank wants to review a decision that has not yet been taken.

However, Trustco Bank’s lawyer Dale Hinrichsen said if the court does not grant the interim interdict, BoN will be successful in its unconstitutional attempts to suspend its banking operations.

“The first respondent (BoN) will succeed under the guise of regulatory supervision to take the law into its own hands, despite the undecided pending litigation and court proceedings. The outcome of the pending review and liquidation application will become irrelevant,” said Hinrichsen. 

As such, Trustco Bank was left with no other option but to approach the court for redress.  In court documents, TGH CEO Quinton van Rooyen claims the company and members of the public will suffer if BoN’s directive remains in force.

He added the suspension would further preclude TGH from concluding a transaction pursuant to which it would gain access to a N$1.25 billion facility which would enable it to extend credit to the public once it is again authorised to do so.

According to the millionaire, more than 27 800 people will default on their life and legal insurance payments and over 1 300 people with active court cases will lose legal representation as a result.

Furthermore, TBN contents that 2 650 people will default on monthly micro-loan payments.  

Van Rooyen furthermore argues that BoN’s directive must be reviewed and set aside as the grounds on which the decision is based are subject to ongoing litigations. 

He also claims the TGH was not engaged before BoN took the drastic decision. 

The case is before Judge Boas Usiku. 

-  mamakali@nepc.com.na