Banking cabal risk to sector
Banking licenses recently offered to new entrants such as Botswana’s Letshego and Angola’s Bank BIC are operating on conditions that would result in 45% local ownership within four years.
Trade law and policy research organisation, Tralac said this week that new localisation laws for the financial sector are risky. However, the current law favors banks who are not subject to the same conditions as the new entrants.
When passed the Banking Institutions Bill will provide essential updates to the current banking regulation, such as setting up rules around the microfinancing of institutions, resolution of banks and new rules around illegal financial schemes and credit bureaus.
Tralac’s broad view on the lagging law is that it generates uncertainty and discourages both current and new businesses from investing, as well as providing an unfair advantage for the operational businesses. “The draft bill has been idle for four years, an indication that the ownership provisions are proving troublesome to implement.” Tralac researcher, Ashly Hope stated.
Some of the established banks are micro-finance operators that are likely to continue to operate under the current outdated laws without international standards such as the tallying up of bank transactions and daily business volumes.
“That is, the same or similar restrictions under consideration in the new legislation.” Hope said. “It therefore remains unclear whether an additional, strict 55% foreign ownership restriction is the best approach to achieve Namibia’s goals for the financial sector” she added.
Tralac is concerned whether it will do more harm than good to a small economy and the implications for the majority ownership. Hope’s view of the new localisation goals for the financial sector as proposed in the Financial Sector Development Plan for 2011-2021, and other policy reforms, is that it is risky for both sectoral development, broader economic development and regional integration.
“While economic transformation is a worthy and desirable goal, it is a very real question as to whether imposing foreign ownership restrictions in the banking sector is an effective way to do this” Hope said pointing to the reduction of potential competition in a market that is dominated by high-earners.
The Financial Sector Charter sees local banks committing to at least 25% ownership by BBEE beneficiaries by 2019. While voluntary, those institutions that are part of the Charter have already committed to at least 25% Namibian ownership – and have done so without the force of legislation.
This, Hope said, is a move that is likely to be at odds with Namibia’s commitments to regional integration as the ownership restriction is not necessarily consistent with other recent actions – particularly in the context of trade agreements where Namibia has, as recently as August, signed the SADC Protocol on Trade in Services.
Once in force the new localisation requirement will be part of a broader economic transformation agenda such as the new Investment Promotion Bill that is currently before Parliament.