Govt to regulate banking fees, charges

After the recent amendments to the banking law, the government has gained the authority to oversee and control the fees and charges imposed by banks.

The changes introduced in the Banking Institutions Act of 2023 (Act 13 of 2023) grant the minister of finance and public enterprises the ability to make these regulations.

Bank of Namibia governor Johannes !Gawaxab yesterday said this provision is aimed at serving the best interests of the Namibian people.

The implementation of this provision commenced on 8 August, coinciding with the enactment of the amendments to the Banking Institutions Act of 2023 (Act 13 of 2023).

“High banking fees and charges have become a major concern,” !Gawaxab said.

However, !Gawaxab said as a standard practice, these regulations will be issued in consultation with the banking industry to ensure that financial stability is not compromised.

Banks were also informed that the central bank will not entertain profit shifting and transfer pricing practices through Service Level Agreements with the parent institutions.

!Gawaxab said credit decisions and approvals should be done by those authorised by the Bank of Namibia.

“No credit decisions should be taken outside Namibia by persons neither authorised nor found as fit-and-proper by the bank to run the affairs of a Namibian banking institution,” !Gawaxab said.

He cautioned that the sector needs to be responsive and transformed to avoid collision with Namibian society.

Bankers Association of Namibia chairperson Brian Katjaerua said they cannot comment on the new provision yet.

“It is premature for us to comment on that since we do not have regulations to inform us of the method or form that this will take,” Katjaerua said.

‘NOT IMPLEMENTABLE’

However, economist Omu Kakujaha-Matundu said the stipulation that these regulations will be issued in consultation with the banking industry means the banks will always have the last say and not the government.

“This is just empty talk/legislation aimed at pulling wool over the eyes of the complaining and exploited public. Should it have been implementable, it could have been a potent income redistributive tool,” Kakujaha-Matundu said.

He described the provision as mere wishful thinking.

“Neither the ministry of finance and public enterprises, nor the Bank of Namibia has the capacity to understand the intricate manner in which bank charges and fees are set by commercial banks,” he said.

Meanwhile, Simonis Storm Securities economic researcher Angelique Bock said the economic implications of imposing fee caps on bank’s are multifaceted.

While this benefits consumers by protecting them from potential exploitation by financial institutions, it’s important to note that banks rely on the repo rate and the prime rate set by the Bank of Namibia as key benchmarks.

“This consideration is warranted in light of the persistently low levels of private sector credit extension and the real repo rate being in negative territory. However, it is essential to recognise that regulation is not necessarily the optimal path forward,” Bock said.

In contrast, Bock said the conventional wisdom in economics advises against an excessive proliferation of regulations within a country, as this can deter new investments.

“Instead, the primary focus should be on strategies for banks to reduce their operational costs. This can potentially alleviate the pressure on their profit margins, subsequently leading to reduced interest rates for consumers,” Bock said.

Commercial banks in Namibia currently enjoy relatively robust profitability. Bock said if compromised this could exert downward pressure on share prices.

“Thus, striking a balance between consumer protection and fostering a conducive investment environment is a challenge that requires thoughtful consideration,” she said.

Economic Association of Namibia chairperson Jason Kasuto said on a positive note, this can assist with affordability for consumers, preventing banks from increasing fees arbitrarily and increasing transparency as banks would disclose charges and fees.

“On the negative side this can reduce profitability of the banking sector and undermine competition which could discourage new players from entering the market, said Kasuto.”