The government is set to introduce restrictions on foreign shareholding in Namibian banks in its Banking Institutions Bill tabled in Parliament this week.
This comes as the current Banking Institutions Act lacks any provisions regarding foreign ownership, resulting in the majority of the country’s banks being controlled by foreign shareholders, with only two exceptions.
This is according to Minister of Finance and Public Enterprises, Ipumbu Shiimi who said with a national aspiration for a balanced blend of local and foreign-owned banks, the proposed amendment aims to promote the country’s socioeconomic growth and stability.
“The current Act does not have any restrictions on foreign shareholding in respect of banking institutions,” he said on Monday tabling the Banking Institutions Bill which is intended to repeal the Banking Institutions Act, 1998 (Act No. 2 of 1998) as amended.
“It is a stark reality that all, but two of the eight banking institutions, have majority shareholders of foreign origin. In line with our national aspiration of local empowerment, a desirable blend of local and foreign-owned banking institutions is required to ensure socio-economic development of Namibia.”
Shiimi highlighted that the proposed bill takes into account international standards set by bodies such as the Basel Core Principles for Banking Supervision, the Financial Sector Assessment Program of the International Monetary Fund (IMF), and the Financial Action Task Force (FATF).
He said the need for comprehensive reform became evident following the Financial System Stability Assessment conducted by the World Bank in 2018, which revealed significant weaknesses in the current Banking Institutions Act.
The Minister said the Bill establishes a regulatory framework for microfinance banking institutions to enhance access to financial services, contributing to financial inclusion in the country.
Secondly, it enhances the Bank of Namibia’s powers to resolve failing banking institutions effectively. These measures aim to strengthen the stability and resilience of the financial sector.
“Insufficient stabilisation powers for the Bank of Namibia to handle failing banking institutions and the lack of a clear definition of beneficial owner were among the identified deficiencies. Addressing these shortcomings is crucial to prevent Namibia from being placed on the FATF grey list and to ensure effective regulation of banking institutions,” he said.
Another important aspect addressed by the Banking Institutions Bill is the requirement for banking institutions to develop recovery plans.
Shiimi said drawing lessons from the global financial crisis, the bill mandates the creation of these “living wills” to ensure that institutions can be resolved in a rapid and orderly manner in case of financial distress or failure.
“One of such regulatory standards is the requirement for banking institutions to have recovery plans (i.e. “living wills”) demonstrating how the institution would be resolved in a rapid and orderly manner in the event such institution experiences material financial distress or failure. In line with the international best standards, the Bill introduces a requirement for banking institutions to maintain recovery plans,” he said.
The bill also focuses on strengthening the independence of directors in banking institutions. Currently, many banks in Namibia are owned by foreign parent companies, leading to concerns about undue interference in local governance.
“By empowering the board of directors, the bill aims to ensure their independence and enhance their ability to execute fiduciary functions in the best interest of the institution and the national economy,” the Finance Minister asserted.
Furthermore, the Banking Institutions Bill grants additional powers to the Bank of Namibia to address non-compliance by banking institutions.
“These powers include the authority to suspend or remove directors or executive officers suspected of engaging in illegal activities detrimental to the institution. The bill emphasises that such measures are taken as a last resort, and the individuals involved will have an opportunity to present their case and be heard.”
According to Shiimi to safeguard administrative justice, the bill establishes an Appeal Board where individuals aggrieved by the Bank’s decisions can seek redress in a cost-effective manner.
This board will be mandated to ensure transparency and fairness in the resolution of disputes.
Lastly, the bill grants the Bank of Namibia authority to regulate fees and charges imposed by banking institutions on their customers.
“The aim is to protect consumers from exorbitant fees while ensuring the stability of the financial system,” he said.
The effective date for the commencement of the bill will be upon its publication in the Government Gazette.
The bill will now undergo a thorough review and consideration by the Parliament.
