Financial Institutions set up safety nets
To make financial system breakdowns less likely and to limit their costs if they occur, countries have financial safety nets in place. These nets are combinations of policies including early warning signs, explicit or implicit deposit insurance, the central bank’s lending of last resort function, bank insolvency resolution procedures and bank regulation and supervision.
In Namibia, financial institutions such as Bank Windhoek, the Bank of Namibia and the Namibia Financial Institutions Supervisory Authority (NAMFISA) all have different safety nets set up at their respective institutions. As stipulated in the Namibia Financial Sector Strategy, the challenge however facing the Namibian financial system with regards to financial stability is to develop a comprehensive and modern safety net regime that includes all elements and that allows for early detection and limiting the impact of failing institutions. The outcome would be that appropriate safety nets shall be put in place to protect depositors and to ensure and maintain financial stability.
According to Bank Windhoek Executive Officer of Marketing and Corporate Communication Services, Marlize Horn, the bank’s liquidity and capital adequacy levels is monitored on a daily basis. These figures are then reported to the Bank of Namibia on a monthly basis.
“There are various regulatory requirements that the banks have to comply with. The most important are the minimum leverage ratio of 6%, the minimum risk-weighted capital ratio which may not be lower than 10%, and the absolute minimum liquid assets [a bank] must hold at any given time which may not be lower than 75% of specific prescribed liquid asset requirement (for a specific liquidity cycle). Horn explained that the average liquid asset they hold “over a liquidity cycle (15th of each month until the 14th of the next month), must be higher than the prescribed liquid asset requirement for that liquidity cycle.”
She added that the above requirements were extracted from BID 5 which deals with Capital Adequacy and BID 6 dealing with Minimum Liquid Assets. “These are determinations issued under the Banking Institutions Act by the Bank of Namibia and also a means to regulate the financial safety net by prescribing minimum requirements for banks to comply with to maintain its capital adequacy and liquidity levels and requirements.”
The Namibia Financial Institutions Supervisory Authority (NAMFISA) has made provision for a compensation scheme in the FIM Bill to cater for cases where regulated entities are unable to meet their obligations. “The Financial Institutions and Markets (FIM) Bill is intended to be a flexible yet robust legal framework for financial services. The FIM Bill will be supported by a comprehensive set of subordinate legislation consisting of Regulation and Standards. Primarily, the intention with the FIM Bill is to ensure that the laws address the needs of today,” said Isack Hamata, Corporate Communications Manager at Namfisa.
Hamata noted that for the benefit of the public, many financial issues are addressed in the FIM Bill.
Factors such as current laws that are out-dated with some dating back to the 1950s and 1960s; fragmented and inconsistent current laws; limited mandate (no consumer protection, financial stability); enforcement difficulty due to low penalties and enforcement procedures and limited powers to act against non-compliance and intrusion, are the main reasons for the legislative reform in the financial industry.
“These laws are irrelevant to socio-economic imperatives of Namibia today. In addition, the reform is further necessitated by the need to improve capacity, enhance skills, and improve technology to effectively supervise the industry and the need to shift from Compliance -based to Risk-based supervisory approach,” Hamata emphasised.
The Namibia Financial Sector Strategy :2011-2020, highlights that over the next ten years, the expectation is that responsible institutions such as the Bank of Namibia and NAMFISA will develop an appropriate safety net regime that protects depositors and maintain financial stability.