The Bank of Namibia has urged commercial banks to reduce their prime lending margins to levels consistent with other Common Monetary Area (CMA) countries, a move expected to lower borrowing costs for consumers.
Currently, Namibia maintains a 3.75% spread between the repo rate and the prime lending rate, while other CMA members, such as South Africa and Lesotho, observe a 3.5% margin. The Bank wants local institutions to close this gap.
“It has been discussed and observed that within the countries of the Common Monetary Area, the long standing practice has been that the prime rate does not exceed 3.5% above the repo rate, only with the exception of Namibia that has maintained margins of 3.75%,” said BoN Governor Johannes !Gawaxab.
“In this regard, the MPC is urging the commercial banks to heed the call of the Bank to start allowing the margins above the repo to the levels of other CMA countries. This move will address this anomaly and in time provide relief to consumers,” he added.
The Bank’s Monetary Policy Committee kept the repo rate unchanged at 6.75%, marking a 1.00% decline from the same time last year. This means the prime lending rate remains at 10.5%, in line with the current interest rate structure.
“Against this background, the MPC decided unanimously to keep the repo rate unchanged at 6.75%, a full percent point decrease compared to a year ago. Commercial banks are accordingly expected to maintain the prime lending rates at 10.5%,” !Gawaxab said.
He said this policy stand will continue safeguarding the one to one link between the Namibia dollar and the South African rand while supporting domestic economic activity.
!Gawaxab also explained that the interest rate spread directly affects what consumers pay on loans and called for alignment, noting that Namibians stand to gain from the adjustment.
“So what we are talking about here is on the interest income side. The difference between the repo rate and the prime rate is the interest margin. That difference in the CMA countries is 350 basis points or 3.5%. In our case it is 375 basis points or 3.75%,” he said.
!Gawaxab stated that if that reduction is made to 3.5%, Namibian consumers can save another 25 basis points, “If they reduce that, a lot of Namibians that have got loans with Namibian banks could benefit,”
Banks will be granted a time frame to realign their margins. The central bank noted that this step would also help reduce the interest rate differential with South Africa and support orderly capital flows.
“In considering the appropriate policy stance, the MPC was worried of the prevailing uncertainty from fundamental global economy and trade policy shifts. Furthermore, the escalating Middle East conflict and its potential ramifications for global inflation and growth could not be overlooked,” !Gawaxab said.
