Banks bow to BoN Governor’s demand

BANK of Namibia (BoN) Governor Tom Alweendo has won the first round of the interest rate battle, with all four commercial banks adhering to his demand for a prime lending rate of 11,25 per cent by tomorrow.

Nedbank Namibia on Wednesday announced a cut of 25 basis points in its prime lending rate, followed by an FNB Namibia statement of a quarter percentage point decrease in its prime lending rate yesterday.Whereas Nedbank Namibia’s drop became effective yesterday, FNB Namibia’s lower rate will only apply from Monday.Bank Windhoek and Standard Bank Namibia have already decreased their prime lending rates to 11,25 per cent last month.The rate stand-off peaked in May when Alweendo said that the gap of 475 basis points which existed then between the BoN’s repo rate and the banks’ prime lending rates, known as the interest rate spread, could not be justified when compared to similar economies.Shortly afterwards the Governor gave the banks a written ultimatum that he wanted the rate spread to be reduced to 375 basis points by year-end.After negotiations, he agreed to cut the banks some slack, giving them until October next year to achieve a rate spread of 375 basis points. In return, Alweendo demanded a reduced rate spread of 425 basis points by October 31 this year.In a telephonic interview with The Namibian in the middle of September, the Governor stressed that he wanted the reduced rate spread to apply not just to prime lending rates, but also to home loan rates.None of the commercial banks currently offer a mortgage rate of 11,25 per cent.Nedbank Namibia’s home loan rate stands at 11,5 per cent, while the other three banks all have mortgage rates of 11,75 per cent.Mortgage loans account for the biggest chunk of loans and advances to individuals.According to the BoN’s latest financial stability report, non-performing loans (NPLs), or loans that have been in arrears for three or more months, have skyrocketed to more than N$989 million from December to June due to the financial crisis. Nearly 54 per cent of these NPLs are people who can’t pay back their home loans.This eroded banking profits in the first half of 2009, the BoN said.Meanwhile, a study on interest rate margins in Namibia by IJG Securities has warned of dire consequences for the banking sector and the Namibian economy as a whole if the BoN continues its drive for lower rates.Continued pressure will hurt the banks’ profitability, which may result in banks cutting back on staff, closing down branches and limiting low-income products, the report cautions. It may also scare away investors and result in even higher banking fees to consumers, it maintains.jo-mare@namibian.com.na