High bank charges ‘hamper productivity of companies’

HIGH bank charges came under the spotlight once again yesterday when public hearings at Parliament resumed to determine what can be done to make banking more affordable for the majority of Namibians.

The Parliamentary Standing Committee on Economics, Natural Resources and Public Administration this time invited some banks and businesses to air their views after the issue was debated in the National Assembly earlier this year, following a motion by Kalla Gertze of the Congress of Democrats (CoD). Business tycoon Harold Pupkewitz said high bank charges hampered the economy in Namibia and the productivity of companies.The problem was exacerbated because three of the commercial banks operating in Namibia were subsidiaries of South African banks, Pupkewitz said.”South African bank rates are among the highest in the world and are 142 per cent higher than those in Canada, which is the country with the second highest bank charges worldwide,” Pupkewitz quoted from a report titled ‘Competition in South African Banking’.The high bank rates also apply to their subsidiaries in Namibia.Pupkewitz said the repo rate, the lending rate of the central bank to commercial banks, gave the latter a profit margin of nearly five per cent.”The Bank of Namibia’s repo rate is eight per cent presently and the prime lending rate of commercial banks is 12,75 per cent, a difference of 4,75 per cent,” Pupkewitz noted.Paul Hartmann, Deputy Governor of the Bank of Namibia (BoN), said the reserve bank could not prescribe the commercial banks’ charges, although he agreed that the high charges were “biased, confusing and multiple and that they are arbitrarily determined”.The Chairperson of the Parliamentary Committee, Dr Hage Geingob, observed that the National Assembly was mulling amendments to relevant laws in order to achieve lower bank charges.”We must reach the unbanked majority, those of the poor who cannot afford a bank account presently,” Geingob said.Pupkewitz also noted that the high bank charges discouraged individuals from opening savings accounts.This was echoed by CoD Member of Parliament Kalla Gertze, who showed the committee his daughter’s savings book.Her savings of N$250 had eroded to N$198,99 because of bank charges.”I myself opened a savings account of N$500 at one of the investment companies here three months ago and they charge N$25 each month, regardless of whether I withdraw [money] or not, so my balance was reduced by N$75 in just 90 days,” Gertze said.BoN’s Hartmann noted that the issue of high bank charges could possibly be monitored once the Competition Commission was active.The much-touted Competition Commission (CC) is still dormant although Government appointed its five members August 2004.They are Dinnah Usiku as Chairperson, Saima Kasuto, Dr Omu Kakujaha-Matundu, Festus Francisco Hangula and Douglas Frank Reissner.The relevant law was passed in 2003 already but cannot be enforced yet, because the Ministry of Trade and Industry is still working out regulations for the Commission, which must be approved by Cabinet and then advertised in the Government Gazette.COMMISSION LIMITED? In terms of the law, the CC will be autonomous and independent.”This independence may be limited, however,” says Rehabeam Shilimela, a researcher at the Namibia Economic Policy Research Unit (Nepru).”Political approval is required for most of the decisions the CC would make,” Shilimela noted in a policy paper he published last month.”The usual preference is that the CC should remain responsible to Parliament and to the Constitution.”He further observed that the Commission does not feature in the three-year rolling national budget, which runs until 2009.”It is expected that the Commission will be funded from other sources (than Government) when it commences with operations,” Shilimela stated.The International Monetary Fund (IMF) and the World Bank carried out a Financial Sector Assessment Programme (FSAP) in Namibia earlier this year.The report noted that “the high fees applied by Namibian banks reflect the apparently high service levels as well as low competition.Services seem expensive to the majority of the population but this reflects the unequal distribution of income in Namibia”.The assessment found that it was also true that banks “are very profitable and face low competition in some segments of the market.This could explain the high charges.”At the same time, the cost of doing business was high in Namibia because of the lack of economies of scale.”To assess the concern that fees are excessively high, a thorough analysis of banks’ fees structure (in Namibia) would be particularly useful,” the IMF and World Bank recommended.The Bank of Namibia seeks to allow other foreign banks to open subsidiaries in the country in order to allow more competition, which might lead to lower bank charges.Business tycoon Harold Pupkewitz said high bank charges hampered the economy in Namibia and the productivity of companies.The problem was exacerbated because three of the commercial banks operating in Namibia were subsidiaries of South African banks, Pupkewitz said.”South African bank rates are among the highest in the world and are 142 per cent higher than those in Canada, which is the country with the second highest bank charges worldwide,” Pupkewitz quoted from a report titled ‘Competition in South African Banking’.The high bank rates also apply to their subsidiaries in Namibia. Pupkewitz said the repo rate, the lending rate of the central bank to commercial banks, gave the latter a profit margin of nearly five per cent.”The Bank of Namibia’s repo rate is eight per cent presently and the prime lending rate of commercial banks is 12,75 per cent, a difference of 4,75 per cent,” Pupkewitz noted.Paul Hartmann, Deputy Governor of the Bank of Namibia (BoN), said the reserve bank could not prescribe the commercial banks’ charges, although he agreed that the high charges were “biased, confusing and multiple and that they are arbitrarily determined”.The Chairperson of the Parliamentary Committee, Dr Hage Geingob, observed that the National Assembly was mulling amendments to relevant laws in order to achieve lower bank charges.”We must reach the unbanked majority, those of the poor who cannot afford a bank account presently,” Geingob said.Pupkewitz also noted that the high bank charges discouraged individuals from opening savings accounts.This was echoed by CoD Member of Parliament Kalla Gertze, who showed the committee his daughter’s savings book.Her savings of N$250 had eroded to N$198,99 because of bank charges.”I myself opened a savings account of N$500 at one of the investment companies here three months ago and they charge N$25 each month, regardless of whether I withdraw [money] or not, so my balance was reduced by N$75 in just 90 days,” Gertze said.BoN’s Hartmann noted that the issue of high bank charges could possibly be monitored once the Competition Commission was active.The much-touted Competition Commission (CC) is still dormant although Government appointed its five members August 2004.They are Dinnah Usiku as Chairperson, Saima Kasuto, Dr Omu Kakujaha-Matundu, Festus Francisco Hangula and Douglas Frank Reissner.The relevant law was passed in 2003 already but cannot be enforced yet, because the Ministry of Trade and Industry is still working out regulations for the Commission, which must be approved by Cabinet and then advertised in the Government Gazette.COMMISSION LIMITED? In terms of the law, the CC will be autonomous and independent.”This independence may be limited, however,” says Rehabeam Shilimela, a researcher at the Namibia Economic Policy Research Unit (Nepru).”Political approval is required for most of the decisions the CC would make,” Shilimela noted in a policy paper he published last month.”The usual preference is that the CC should remain responsible to Parliament and to the Constitution.”He further observed that the Commission does not feature in the three-year rolling national budget, which runs until 2009.”It is expected that the Commission will be funded from other sources (than Government) when it commences with operations,” Shilimela stated.The International Monetary Fund (IMF) and the World Bank carried out a Financial Sector Assessment Programme (FSAP) in Namibia earlier this year.The report noted that “the high fees applied by Namibian banks reflect the apparently high service levels as well as low competition.Services seem expensive to the majority of the population but this reflects the unequal distribution of income in Namibia”.The assessment found that it was also true that banks “are very profitable and face low competition in some segments of the market.This could explain the high charges.”At the same time, the cost of doing business was high in Namibia because of the lack of economies of scale.”To assess the concern that fees are excessively high, a thorough analysis of banks’ fees structure (in Namibia) would be particularly useful,” the IMF and World Bank recommended.The Bank of Namibia seeks to allow other foreign banks to open subsidiaries in the country in order to allow more competition, which might lead to lower bank charges.

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