Popular Democratic Movement (PDM) parliamentarian Nico Smit last week tabled a motion to establish a committee to investigate if the Bank of Namibia (BoN) is able to relax capital requirements for local financial institutions. In the same motion, Smit suggested the committee must investigate bridging finance for financial institution clients already in distress.
According to Smit, these interventions are desperately needed to support the recovery of the Namibian economy with a much-needed kick start. “Also, the National Assembly should deal with this motion in the appropriate manner to ensure that this committee is established at the earliest date possible as a matter of urgency,” he stated.
He said the Namibian economy is still in severe distress. Among many indicators, he noted, it is best reflected in the inability or unwillingness of the private sector to borrow as shown by the dismal private sector credit extension statistics provided by commercial banks.
“This is due to a toxic combination of a lack of business confidence and strict banking regulations on capital adequacy and distressed loans,” Smit explained.
Furthermore, the PDM lawmaker noted that after 18 months of operating at a loss, a very large number of businesses have reached the end of their available reserves, or their access to bridging credit.
At the start of the pandemic last year, the central bank announced measures to improve liquidity in an attempt to boost the domestic economy. These measures included a moratorium on loan repayments, liquidity relief measures, a capital conservation buffer rate reduced to zero from 24 months and the postponement of the implementation date of the 25% Single Borrower Limit.
However, the PDM parliamentarian said he is confident more can be done by the central bank. “The Bank of Namibia has the statutory power to allow commercial banks access to liquidity that would not be available under normal conditions. This is on top of the relief measures announced in March 2020,” Smit stated.
Commenting on the PDM motion, local economist, Mally Likukela, pointed out that the Bank of Namibia is mandated by government to instil prudential banking practices and that relaxing capital requirements will be going against this mandate.
“I believe that the capital requirements are at their most relaxed point at this time following the Monetary Policy authority's Covid-19 support measures undertaken to mitigate the impact of the pandemic in 2020. The economy is in distress because of factors related to the Covid-19 induced recession and not the financial system. It will be the biggest regulatory mistake to relax further. You cannot correct a problem by creating another problem. The rescue measure put in place must be given sufficient time to permeate through to the real economy before introducing further measures. Politicians should respect the independence of the central bank and its ability to manage the economy,” said Likukela.