It is wrong for Namibian banks to draw the levels of profit they do from a poverty-stricken, largely unemployed population having just emerged from a pandemic that decimated sections of an already depressed economy.
Standard Bank Namibia’s half-year results boast an increase in profit after tax of 24.1% for period on period to N$235.3 million. This is according to the bank’s interim results announcement for the first six months ended 30 June 2022, released this week.
Namibia’s biggest banks make around N$1 billion in profit every year. And it is going to increase even more. The Bank of Namibia continues to increase the repo rate and it seems like it only works in favour of commercial banks. As interest rates rise, profitability on loans also increases, as there is a greater spread between repo rate and the rate the bank charges its customers.
Meanwhile, many bank clients hardly get through a month on their increasingly meagre incomes and rely on all manner of loans, overdraft facilities, short-term loans and even loan sharks to get by. The many loans keep them in the cycle of poverty and hold them in the debt trap. It is heartbreaking and many people have still not recovered from the pandemic. Some people have still not returned to their full salaries while businesses have reverted to their full profit margins. Banks gave only some of their customers a three-month payment holiday to cope with the devastating fallout of the pandemic.
Financial institutions often depend on customers having little to no understanding of the banking system and their own financial capabilities and responsibilities.
It doesn’t help that banks make their operations, fees and fee structures super complicated with myriad administration fees and hidden costs along the way.
Most workers have no choice but to have their only income paid into a bank account, but these banks seem to do nothing useful for workers but claim their pound of flesh as soon as the salary drops and cash in with every withdrawal, stop order or any transaction. Many would have simply preferred not to have the bank become the middleman in their earnings. This predatory behaviour by powerful institutions must be strongly discouraged and even regulated as well as severely punished. The impression is that Namibia’s financial system is highly under regulated, and there’s an over reliance on sort of professional self-regulation from an industry that has proven it simply should not be left to its own devices.
The large-scale corruption the media, with its meagre resources, had uncovered in recent years must make you think about the competence of government bodies when it comes to local financial institutions.
Do they simply not have the technical know-how and skills to properly govern these institutions or are they complicit? Namibia can simply not allow such a crucial sector to operate with gay abandon as it has up to now.
The only way to reel in bank profits is for regulators to either put a cap on profits or to exert higher taxes on higher profits. Unfortunately, this will not be defined as a free-market system and therefore many banks will automatically exit a market that is too tightly controlled.
As such, there is an urgent need to make banks more competitive.
In March this year, the Namibian Competition Commission launched investigations against Namibian commercial banks and the Bankers Association of Namibia for fixing of interchange rates, possible discriminatory conduct in the provision of insurance for home loans, unfair pricing of certain ancillary services and discrimination in the provision of home loans to clients belonging to other banks.
Banks should simply be better regulated. In 2016, the World Bank suggested Namibia’s financial sector “should seek to enhance employment and reduce inequality. The country suffers from chronic high unemployment, HIV/Aids, and a distribution of income that is among the world’s most unequal - only a minority of the population lives in conditions expected in a middle-income country.” There are no points for guessing this crucial sector has made no attempt to achieve any of this.
Banks will, however, point to their well publicised social responsibility projects and their shiny new buildings as their way of “ploughing back into the communities” and the economies in which they operate. But the average bank client has no interest in that. All they want is for the banks and the system to take a little less from them. It is simply not sustainable to extract so much from clients for their houses, their cars, and for any other assets over such a long period for purchases financed by the banks.
Getting away with the profit margins that we are seeing now is not only unsustainable but is also dangerous in a society with a growing unease and frustration over inequality and dwindling opportunities.
Businesses may find this plea to extract less profits in a free-market system laughable but how ethical is it to impoverish and condemn to misery a clientele already on its knees?