The introduction of new legislation to regulate the banking system in Namibia isn’t new. The first legislation regarding the banking industry was created in 1998: The Banking Institutions Bill Act of 1998, which is a piece of legislation that governs the banking industry in Namibia.
The bill sets out the requirements for establishing and operating a bank in Namibia, as well as the regulatory framework for the banking industry, and also provides for the protection of depositors and the stability of the financial system. The Banking Institutions Bill was designed to ensure the stability and soundness of the Namibian banking system. It provides for the protection of depositors and safeguards the interests of the public.
On June 26, Namibia’s Minister of Finance and Public Enterprises and former Governor of Namibia’s central bank, Iipumbu W. Shiimi, introduced the Banking Institutions Bill in Parliament to revoke the Banking Institutions Act of 1998.
According to Namibia Economist, the new version of the act will address various shortcomings to ensure that banking institutions are effectively regulated. Shiimi stressed that the banking regulatory framework must be responsive to people’s needs and pointed out that due to this, they drafted the Banking Institutions Bill as required by international standard-setting bodies like Basel Core Principles for Banking Supervision, the Financial Sector Assessment Program of the International Monetary Fund and the Financial Action Task Force (FATF).
The Finance Minister argued that the current Act does not have any restrictions on foreign shareholding concerning banking institutions. He mentioned that it was a problem that two of the eight Namibian banking institutions have majority shareholders of foreign origin.
Furthermore, the Finance Minister added that it is noted with concern that these foreign parent companies interfere in the governance and management of local banking institutions, which negatively affects institutional independence and national economic development because commercial decisions are made in favor of foreign interests rather than national interests. In other words, what Mr. Shiimi wants is to promote local empowerment of the banking industry. He wants Namibian banking institutions to be mostly owned by Namibians rather than foreign nationals.
It is important to assess some of the implications of the new piece of legislation proposed by Mr. Shiimi on the banking system, regardless of how good and noble the intention of protecting the Namibian national interest may be. Mr. Shiimi emphasized the positive aspects that his legislation could bring to the Namibian banking industry but left out the inconveniences of that legislation on the national banking system.
First, adding more regulation to the already over-regulated banking industry will increase transaction costs. Regulations can add to the cost of doing business for banks, which can be passed on to consumers in the form of higher fees and interest rates.
Second, regulations can stifle innovation in the banking industry, as banks may be hesitant to offer new products or services if they are not sure if they will comply with the regulations. Foreign nationals do bring some innovative ideas to improve products that locals lack. Adding regulations could disincentivize foreign nationals from bringing innovative ideas, which could lead to a reduction in efficiency. Regulations can reduce the efficiency of the banking system, as banks may have to spend more time and resources on compliance. This can lead to higher costs for consumers and businesses.
Third, the new legislation may increase the complexity of the Namibian banking system. Adding more regulations can make it more difficult for banks to operate, as they must comply with a wide range of rules and regulations. This can lead to increased compliance costs and make it more difficult for banks to compete.
Fourth and lastly, the new dose of regulations proposed by Mr. Shiimi could lead to less revenue. Indeed, Unnecessary control and stringent regulation may make it difficult for banks to operate freely. Thus, banks may be unable to make profits as much as they expect.