New law to restrict foreign ownership of banks

A new law proposed by the Bank of Namibia will revolutionise the local banking sector by setting a limit for bank ownership by foreign nationals.
According to proposals by the central bank contained in the new Banking Institutions Bill 2013 that will repeal the amended Banking Institutions Act of 1998, foreign nationals will only be allowed to own a maximum 55% shareholding in banking institutions in the country.
Currently, three of the four commercial banks operating in the country are majority-owned by South African parent companies with only Bank Windhoek majority-owned by locals. But the central banks said there is a need to have a mix of locally-owned and foreign-owned institutions to ensure that the developmental needs of the country are addressed.
The bank said the proposed amendment were partly to satisfy key objectives of the Namibian Financial Sector Strategy which seeks to increase local participation in the financial services sector by the year 2020. According to the Financial Sector Strategy, there is low participation by Namibians in ownership, control and management of local financial institutions, a situation that needs to be addressed.
However, the Assistant Governor of the Bank of Namibia, Michael Mukete emphasized that the new law, if enacted, will not be applied retrogressively. He said the new proposals will only apply to banks that would be applying for a banking licence for the first time.
Mukete said it was the central bank’s wish to have the bill taken to Parliament before the end of the year. He said: “You have a situation where you have two big banks that are almost 100% owned by foreigners in the financial services sector. A combined 60% of local banks are foreign-owned and this is not a healthy figure, so there is room for improvement there.”
The bank said the new law will also introduce mechanisms and regulatory changes to diligently safeguard the soundness of the country’s banking system. Some of the measures include streamlining definitions of what constitute banking business as well as creating a regulatory framework for microfinance banking institutions which will place such institutions under the regulatory ambit of the bank.
The bank said this framework specifies the appropriate prudential standards and supervisory requirements the microfinance banking institutions will be subjected to, taking into account their unique characteristics and the risks inherent in their business models compared to the mainstream banks.
The new act will also introduce recovery plans for banking institutions. “Recovery plans… are plans that banking institutions should develop and have in place that identify possible options that they can execute to restore financial strength and viability when they come under severe stress,” the bank said.
The new law will also better refine provisions relating to illegal financial schemes, known as pyramid schemes, in order to enhance the understanding of the public to detect illegal schemes.